The Hindu Business Line : Tales that books tell

SECTION 271(1)(c) of the Income-Tax Act, 1961 is probably the most penal of all the penal sections of the Act. Much has happened since the original enactment. This section, and in particular Explanation 5 to the section, was discussed by the H Bench of the Income Tax Appellate Tribunal in the Dr T. P. Kulkarni (Dr TPK vs Dy CIT 2003 86 ITD 696 Mumbai Tribunal) case. The discussion veered around the definition of `books of account' maintained by an assessee.

Dr TPK, a cardiovascular surgeon, was subject to a search by the I-T Department as provided for in Section 132 of the Act.

As normally occurs in searches, certain diaries were seized wherein various transactions were recorded. Dr TPK, on the basis of the entries in the diaries made an effort to calculate his professional income and offered the same for taxation under Section 132(4). The assessing officer (AO) contended that the `books of account' as prescribed by Section 44A were not maintained.

So concluding, the AO concluded the assessment and extracted his pound of flesh by levying a penalty under Section 271(1)(c). Appealing before the Commissioner (Appeals), Dr TPK pleaded that Explanation 5 to Section 271(1)(c), which grants immunity to searched assessees who disclose income after the search but before the end of the previous year from the clutches of the Section.

The doctor implored that the diaries were the `books of account' and he had no other books of account.

The Commissioner was of the view that diaries could not be considered the books of account as mandated by Section 44AA. The diaries showed that certain figures were written and then scored off. On certain pages, some figures were overwritten. Under these circumstances, these types of written pages of the diary could not be considered to be `books of account' for the purpose of Explanation 5.

The expression `books of account' mentioned in the Explanation means the books maintained for computing the taxable income of the assessee. The diaries maintained by the assessee were not meant for computation of taxable income.

They cannot be considered to be bound books. It was also held that the contention of the assessee that `books of account' would mean `commercial books of account' would not hold water.

Citing the ratio of the decisions in CBI vs V. C. Shukla (1998 3 SCC 410) and Sheraton Apparels vs Asst CIT (2002 29 DTC 659), the Tribunal reiterated the views of the Commissioner (Appeals) and confirmed the penalty levied under Section 271(1)(c).

Since this would have been subject to tax audit, one wonders what the tax auditor would have mentioned in the mandatory form that accompanied the return and how the Department viewed the books of account mentioned therein.

Either way, this case would induce many professionals to disclose all their income in their returns.

Even if they do not, they would not record them in diaries and leave them all over the place.