2002 (5) TMI 39 - HC - Income Tax

Summary

Issues Involved:
1. Whether the diaries seized during the search operation could be regarded as "books of account" u/s 271(1)(c) of the Income-tax Act, 1961.
2. Applicability of Explanation 5 to section 271(1)(c) regarding immunity from penalty.

Summary:

Issue 1: Whether the diaries seized during the search operation could be regarded as "books of account" u/s 271(1)(c) of the Income-tax Act, 1961.
The appellants contended that the diaries seized during the search operation should be considered as "books of account" for the purposes of clause (1) of Explanation 5 to section 271(1)(c) of the Act. They argued that these diaries were regularly maintained and contained all transactions, thus qualifying as books of account. The court, however, held that the term "books of account" refers to those maintained for determining any source of income under the Income-tax Act. The court emphasized that such books must provide credible data for filing tax returns and cannot be mere private records of clandestine transactions. Therefore, the diaries in question did not qualify as "books of account" for the purposes of the Act.

Issue 2: Applicability of Explanation 5 to section 271(1)(c) regarding immunity from penalty.
The court examined the legislative intent behind Explanation 5, which aims to plug loopholes allowing assessees to escape penalty by declaring income post-search. The court noted that Explanation 5 provides exceptions where no penalty is leviable if the income or transactions are recorded in the books of account before the date of the search or disclosed to the Commissioner. The court found that the diaries were not maintained for the purposes of the Income-tax Act and thus did not meet the criteria for immunity under Explanation 5. Consequently, the Tribunal's decision to uphold the levy of penalty under section 271(1)(c) was justified.

Conclusion:
The court concluded that the diaries seized during the search operation could not be regarded as "books of account" u/s 271(1)(c) of the Income-tax Act, 1961. The appeals were dismissed, and the Tribunal's decision to uphold the penalty was affirmed.