Income Tax Appellate Tribunal - Mumbai
Dr. T.P. Kulkarni vs Deputy Commissioner Of Income Tax on 19 September, 2002
Equivalent citations: [2003]86ITD696(MUM), (2003)81TTJ(MUM)579
ORDER
Behari Lal, A.M.
1. These appeals of the assessee have been directed against the consolidated order of the CIT(A)-IV, Bombay, dt. 17th Aug., 1993, for the asst. yrs. 1982-83, 1985-86 & 1988-89. The only common ground of appeal taken up by the assessee in these appeals is regarding the levying of penalty under the provisions of Section 271(1)(c) of the Act. One consolidated order is being passed for the sake of convenience and brevity as the issue involved in these appeals is identical.
2. The assessee is a Cardio Vascular Surgeon, specializing in the treatment of patients suffering from diseases of "Heart and blood vessels" by operating on them. He has also specialized in Vascular Surgery. The assessee's residential premises were searched under Section 132 of the Act on 8th July, 1989. By that time, the assessment upto and including assessment for the asst. yr. 1988-89 had already been computed. The returns for the asst. yrs. 1989-90 and 1990-91 were not due and as such were not filed. As a result of search under Section 132, the assessment for the asst. yrs. 1981-82 to 1988-89 were reopened. In due course, the returns for all the eight years were filed in response to notice under Section 148 of the Act. During the course of search, certain diaries were seized wherein various transactions were recorded. The assessee on the basis of said diaries had calculated his unaccounted and professional income and offered the same for taxation under Section 132(4) of the Act. The books of account were not maintained by the assessee as per provisions contained in Section 44AA r/w Rule 6F.
3. For the asst. yr. 1982-83, the assessee had filed his return of income declaring total income of Rs. 3,28,140, The assessment was completed under Section 143(1) on total income of Rs. 3,28,140. The assessee made the disclosure of additional income of Rs. 1,84,000 under Section 132(4) of the Act which he admitted to be his unaccounted professional receipts or unaccounted investments. The original assessment had been completed at a total income of Rs. 3,28,140 but as a result of assessee's admission pursuant to search action under Section 132, the following additions had been made :
Rs.
(i) Income from unaccounted investments 1,02,625
(ii) Income disclosed by the assessee over and above unaccounted investments 81,375 1,84,000 The assessment was completed under Section 143(3) r/w Section 147 determining the income of the assessee at Rs. 5,12,140.
4. Similarly for the asst. yr. 1985-86, the assessee had filed its return of income declaring total income of Rs. 3,05,520. The assessment was completed under Section 143(1) on the total income of Rs. 3,20,523. The assessee made a disclosure of additional income of Rs. 2,00,000 under Section 132 of the Act during the course of search which he admitted to be his income from undisclosed professional receipts. The assessment was reopened under Section 147 and the assessment was completed under Section 143(3) r/w Section 147 determining the income at Rs. 5,20,525.
5. For the asst. yr. 1988-89, the assessee had filed his return of income declaring total income of Rs. 2,82,380. The assessment was completed under Section 143(1) on total income of Rs. 2,82,380. The assessee by way of statement under Section 132(4) disclosed additional income for taxation of Rs. 2,56,000 which he admitted to be his unaccounted professional receipts or unaccounted investments. The assessment was reopened and was completed under Section 143(3) r/w Section 147 determining the income of the assessee at Rs. 5,38,380, Thus, the assessee admitted the nature of the additional income.
6. The AO in his order passed under Section 271(1)(c) of the Act has observed that the assessee filed the revised returns after the detection of unaccounted income, therefore, proceedings under Section 271(1)(c) were initiated by issuing show-cause notices to the assessee. In response to the show-cause notices, the assessee explained that the revised returns were filed voluntarily disclosing the additional income as per the declaration made under Section 132(4) of the Act and the income as returned was the same as assessed under Section 143(3) of the Act. It was submitted before the AO that as the disclosure made was voluntary and as there was no difference between the returned income and assessed income, there was no concealment and no penalty under Section 271(1)(c) was attracted. The AO has further stated that the additional income offered for taxation under Section 132(4) and returned through the revised returns, was admitted by the assessee and therefore, the same constitute the concealed income of the assessee. According to the AO, the additionally returned income constitute concealed income, the particulars of which had not been disclosed in the original return of income filed under Section 139(1) of the Act, The contention of the assessee that the returned income and the assessed income remained the same and the disclosure was made voluntarily by the assessee did not find favour with the AO because, according to him, additional income was disclosed only after the action under Section 132 when some incriminating materials were found and seized. The AO has further stated that even in a case where disclosure is made voluntarily, concealment penalty under Section 271(1)(c) is attracted. The AO came to the conclusion that the assessee in the returns of income filed under Section 139(1) wilfully concealed the particulars of his income and furnished inaccurate particulars within the meaning of Section 271(1)(c). He, therefore, levied the penalties of Rs. 1,21,440, Rs. 1,23,748 and Rs. 1,34,400 respectively for the asst. yrs. 1982-83, 1985-86 and 1988-89.
7. Before the learned CIT(A), it was contended that no penalty for concealment is attracted as the assessee's case is covered by the immunity granted by Expln. 5(a) of Section 271(1)(c) of the IT Act, 1961. It was contended that the provisions of this Explanation are applicable to the facts of the present case. It was argued before the learned CIT(A) that the undisclosed income was not shown in the original return filed before the search operation, but this income was recorded before the date of search in the books of account maintained by the assessee. It was contended that the diaries and other documents found during the course of search were the books of account maintained by the assessee. The learned CIT(A), however, was not impressed by the arguments advanced before him. According to him, Expln. 5 is attracted only where during the course of search operation under Section 132, the assessee is found to be the owner of any money, bullion, jewellery or other valuable articles or things and the assessee claims that such assets have been acquired by him by utilizing his undisclosed income. Thus, the Explanation would be attracted only in a case where assets are found. In the case of the assessee, only diaries and other incriminating material were found. Such diaries contained evidence regarding the undisclosed professional income of the assessee. Thus, according to the learned CIT(A), the provisions of Explanation-5 are not attracted. The learned CIT(A) has further stated that in order to get immunity, one of the conditions is that undisclosed income should have been recorded in the books of account maintained by the assessee. The assessee is a professional. For professionals, the Board have prescribed, the books of account to be maintained in the prescribed manner in accordance with Section 44AA r/w Rule 6F. According to the CIT(A), diaries cannot be considered to be the books of account maintained in the prescribed manner. Thus, on this account also, the learned CIT(A) held that immunity provided under Expln. 5 is not available to the assessee. The learned CIT(A), therefore, confirmed the penalties levied by the AO.
8. At the time of hearing, the learned counsel for the assessee brought to our notice that the assessee has not contested the additions made by the Department. The learned counsel referred to the cash flow statement (compilation p. 1) and contended that the Department accepted the income as per cash flow statement filed for the relevant assessment years (compilation pp. 4 & 5). He explained that the disclosure made was mainly the unexplained expenditure. The learned counsel also invited our attention to the compilation pp. 14 & 15 which pertain to the preliminary statement of the assessee recorded under Section 132(4) of the Act. He explained that the total cash found during the course of search was Rs. 5,02,000. The learned counsel argued that the assessee in his statement has explained the investment made in the house property and also the capitation fees paid for the admission of his son. According to the learned counsel, the assessee in his statement has referred to the seized diary in which all his unaccounted transactions were mentioned. The assessee explained that diary marked A-2 was containing the details of unaccounted expenses. Thus according to the learned counsel, the disclosure was made out of the unexplained transactions which were appearing in the seized diaries. He, therefore, contended that the assessee is entitled for immunity under the provisions of Expln. 5(a) of Section 271(1)(c) of the Act because the undisclosed income was recorded in the diaries seized by the Department which were in fact books of account maintained by the assessee regularly. He also contended that all transactions were recorded in such books of account maintained by the assessee before the date of search. In this connection, the learned counsel took us through the various compilation pages pertaining to the seized diaries. On p. 118, there is a reference of file No. 5 which has been written by the secretary and some entries have also been made by the assessee. These are tabulised statements giving yearwise information regarding operation fees quoted and charged and graft cost supplied to the patient (compilation p. 123). File No. 7 on compilation p. 119 is an appointment diary containing consulting room appointments for the period from 1st Jan., 1988 to 31st Dec., 1988, written in the handwriting of the assessee (compilation p. 124). The learned counsel also invited our attention to compilation p. 122 which is a page of the diary marked as file No. 3. The learned counsel, therefore, contended that the diaries maintained by the assessee were his regular books of account. According to him, these diaries have been accepted by the AO in toto. The learned counsel further argued that the books of account means commercial books. According to him, there was only one book of account i.e., the diary seized. The figures mentioned in the diary were datewise and even the monthly totals were mentioned therein. Therefore, the learned counsel contended that the diary was capable for deriving income of the assessee, This diary was prepared for eight years and the same was maintained for that period. He referred to the decision of the Allahabad Bench of the Tribunal in the case of Shyam Biri Works (P) Ltd. v. Assn. CIT` (2001) 70 TTJ (All) 880 wherein the Tribunal held that "Assessee having disclosed large amount of undisclosed income in the statement under Section 132(4) and later filed revised returns for two years declaring additional income which formed part of said undisclosed income was entitled to immunity under Clause (2) of Expln. 5 to Section 271(1)(c) of the Act. The learned Departmental Representative contended that diaries were never used to prepare the books of account, therefore, these diaries were not meant for drawing the P&L a/c. He, therefore, fully justified the findings of the tax authorities for levying the penalties.
9. We have carefully considered the submissions made by the rival parties. We have also perused the documents produced before us. The main point for consideration in this case is whether the diaries found and seized during the course of search can be considered as books of account maintained by the assessee for the purpose of immunity to be granted to the assessee under the provisions of Expln. 5(a) to Section 271(1)(c) of the Act. Expln. 5 to Section 271(1)(c) has been inserted by the Taxation Laws (Amendment) Act, 1984 w.e.f. 1st Oct., 1984. The newly inserted Explanation enacts deeming provision and hence applies to a situation where in the course of search under Section 132, the assessee is found to be the owner of any money, bullion, jewellery or other valuable article or thing (hereinafter referred to as assets) and the assessee claims that such assets have been acquired by him by utilizing (wholly or in part) his income.
(a) for any previous year which has ended before the date of search, but the return of income for such year has not been furnished before the said date or where such return of income has been furnished before the said date has not been declared therein or
(b) for any previous year which is to end on or after the date of search, then, notwithstanding that such income is declared by him in any returns of income furnished on or after the date of search, he shall, for the purpose of imposition of penalty under Clause (c) of Sub-section (1) be deemed to have concealed the particulars of his income or furnished inaccurate particulars of such income, unless-
(1) such income is, or the transactions resulting in such income are recorded-
(i) in case falling under Clause (a), before the date of search; and
(ii) in a case falling under Clause (b), on or before such date, in the books of account, if any, maintained by him for any source of income or such income is otherwise disclosed to the Chief CIT before the said date; or (2) he, in the course of search, makes a statement under Sub-section (4) of Section 132 that any money, bullion, jewellery or other valuable article or thing found in his possession or under his control, has been acquired out of his income which has not been disclosed so far in his return of income to be furnished before the expiry of time specified in Section 139(5), and also specified in the statement, the manner in which such income has been derived and pays the taxes together with interest, if any, in respect of such income.
Thus, with the deeming provisions of Expln. 5, the assessee is fastened with the liability to penalty under Section 271(1)(c) in cases where he explains that the acquisition of assets recovered in course of search is out of income of previous years which had already ended before the date of search or which is to end on or after the search but with the exception mentioned in Sub-clauses (1) and (2) of Explanation. In the present case, the search action was carried out in the premises of the assessee on 8th July, 1989. During the course of search, certain documents and diaries were seized. The appellant in his statement under Section 132(4) disclosed additional income for taxation of Rs. 1,84,000, Rs. 2,00,000 and Rs. 2,56,000 in the asst. yrs. 1982-83, 1985-86 and 1988-89 respectively. Such income was admitted to be his unaccounted professional receipts or unaccounted investments. The assessments were reopened under Section 147 of the IT Act, 1961 and the total incomes redetermined at Rs. 5,12,140, Rs. 5,20,525 and Rs. 5,38,380 respectively. Penalty proceedings were also initiated The case of the assessee is, therefore, covered under Clause (a) of Expln. 5 to Section 271(1)(c) of the Act because, the previous years under consideration ended before the date of search and the returns of income were filed before the date of search, but the income declared during the search was not declared therein. But the learned counsel contended that the penalty under Section 271(1)(c) is not leviable because immunity provided under Sub-clause (1) of the Explanation. According to the learned counsel, the income disclosed by the assessee was out of the transactions recorded in the books of account, maintained by the assessee for his source of income. As has been contended by the learned counsel (supra), the diaries seized by the Department during the course of search were the books of the assessee maintained by him for recording his transactions.
10. Now, the main point for consideration is whether the diaries seized by the Department can be considered as books of account maintained by the assessee for the purpose of immunity to be granted under Sub-clause (1) of Expln. 5 to Section 271(1)(c) of the Act. Section 44AA requires compulsory maintenance of accounts by certain persons. Sub-section (2) requires "Every person carrying on business or profession" to maintain books. The books of account to be maintained by the professional as per the provisions of Rule 6F of the IT Rules are as follows :
(i)Cash book;
(ii) a journal, if the accounts are maintained according to the mercantile system of accounting;
(iii) a ledger;
(iv) carbon copies of bills, whether machine number or otherwise serially numbered, wherever, such bills are issued by the person, and carbon copies or counterfoils of machine numbered or otherwise serially numbered receipts issued by him ;
(v) Original bills wherever issued to the person and receipts in respect of expenditure incurred by the persons or, where such bills and receipts are not issued and the expenditure incurred does not exceed fifty rupees, payment vouchers prepared and signed by the person.
A person carrying on medical profession shall, in addition to the books of account and other documents, specified in Section 44AA r/w Rule 6F, keep and maintain the following namely :
(i) A daily case register in Form No. 3C; and
(ii) An inventory under broad heads, as on the first and the last day of the previous year, of the stock of drugs, medicines and other consumable accessories for the purpose of his profession.
11. The assessee has not maintained the books of account as per the provisions of Section 44AA r/w Rule 6F of the IT Rules. We have gone through the copies of certain pages of the diary filed by the assessee in his compilations. In some pages, certain figures have been written and thereafter they have been scored off. On certain pages, there are overwritings of certain figures. Under these circumstances, we do not think that these types of written pages of the diary should be considered as books of account for the purpose of Expln. 5 to Section 271(1)(c) of the Act. The expression "Books maintained" mentioned in Expln. 5 to Section 271(1)(c) means the books of account maintained for the purpose of computing the taxable income of the assessee. The diaries maintained by the assessee were not meant for computation of taxable income of the assessee. These diaries were only personal records of the assessee for fixing the dates for the patients, for recording certain expenditure incurred by the assessee himself and his family members and also certain amounts received from the patients. Therefore, these diaries were meant for the personal memorandum of the assessee and they can never be considered as books of account for the purpose of determining the income of the assessee for income-tax purposes. In the earlier years, the assessee filed the returns and the assessments were completed under Section 143(1)(a) of the Act. The income returned in the earlier years was not based on these diaries. The very fact that the assessee disclosed income to the extent of Rs. 5 lakhs under the provisions of Section 132(4) of the Act on the basis of these diaries makes it abundantly clear that the income returned in the earlier years was not based on the transactions entered into in these diaries. Under the circumstances, the diaries seized by the Department cannot be considered as books of account maintained by the assessee for the income-tax purposes. In the case of CBI v. V.C. Sukhla and Ors. (1998) 3 SCC 410, the Hon'ble Supreme Court made it absolutely clear as to what are books and what are not books at para 18 of the judgment as follows :
"'Book' ordinarily means a collection of sheets of paper or other material, blank, written or printed, fastened or bound together so as to form a material whole, Loose sheets or script of paper cannot be termed as 'book' for they can be easily detached and replaced. In dealing with the word 'book' appearing in Section 34 in Mukundram v. Dayaram AIR 1914 Nag. 44 : 10 Nag. (44) a decision on which both sides have placed reliance, the Court observed :
In its ordinary sense it signifies a collection of sheets of paper bound together in a manner which cannot be disturbed or altered except by tearing apart. The binding is a kind which is not intended to be movable in the sense of being undone and put together again. A collection of papers in a portfolio, or clip, or strung together on a piece of twine which is intended to be untied at will, would not, in ordinary English, be called a book ..... I think the term 'book' in Section 34 aforesaid may properly be taken to signify, ordinarily, a collection of sheets of paper bound together with the intention that such binding shall be permanent and the papers used collectively in one volume. It is easier however to say what is not a book for the purposes of Section 34, and I have no hesitation in holding that unbound sheets of paper, in whatever quantity, though filled up with one continuous account, are not a book of account within the purview of Section 34.
We must observe that the aforesaid approach is in accord with good reasoning and we are in full agreement with it. Applying the above tests it must be held that the two spiral notebooks (MR 68/91 and MR 71/91) and the two spiral pads (MR 69/91 and MR 70/91) are 'books' within the meaning of Section 34, but not the loose sheets of papers contained in the two files (MRs 71/91 and 73/91)."
The diaries seized from the premises of the assesses cannot be considered as bound books. Some of the pages of the diaries are roughly written. Some of the figures have been deleted. Therefore, such types of records maintained by the assessee cannot be considered as books of account as has been laid down by the Hon'ble Supreme Court in the judgment.
12. The decision of the Bombay High Court in the case of Sheraton Apparels v. Asstt. CIT (2002) 123 Taxman 238 (Bom) is exactly on this issue and it has been decided in favour of the Department. In this case-
"The appellant-firms, including the assessee belonged to one family. Search was conducted in all the premises of the appellants after the returns were filed. One of the search was conducted at the residence of partners of the group concern and certain documents, papers and records including certain diaries were seized. The group-concern, including the assessee-appellant, filed revised returns in respect of unaccounted income which was worked out and admitted by the assessee-group and disclosed on the basis of entries recorded in diaries during the search. The penalty was thereafter levied under Section 271(1)(c). On appeal, the CIT(A) and the Tribunal upheld the penalty.
The appellant contended that the diaries on the basis of which the income was estimated and offered ought to have been regarded as 'books of account' for the purpose of Clause (1) of Expln. 5 to Section 271(1)(c) and that the appellant was clearly entitled to the benefit of Clause (1) of Expln. 5 to Section 271(1)(c) and since the transaction resulting in such additional income were found to have been recorded in the books of account, no penalty was leviable.
The terms 'books of account' referred to in Clause (1) of Expln. 5 to Section 271(1)(c) means 'books of account' which have been maintained for determining any source of income. The term 'source of income' as understood in the Act, is to identify or classify income so as to determine under which head, out of the various heads of income referred to in Section 14, it would fall for the purposes of computation of total income for charging income-tax thereon. Thus, the term 'books of account' referred to in the relevant sub-clause of Expln. 5 would mean those books of account whose main object is to provide credible data and information to file the tax returns.
The credible accounting record provides best foundation for filing return of both direct and indirect taxes. Accounting is called a language of business. Its aim is to communicate financial information about the financial results. This is not possible unless the main objectives of the books of account are to maintain record of business to calculate profit earned or loss suffered during the period of time, to depict the financial position of the business to portray liquidity position, to provide up-to-date information of assets and liabilities with a view to derive information so as to prepare P&L a/c and draw balance sheet, to determine income and source thereof. Thus, the term 'books of account' referred to in Expln. 5 must answer the above qualification. It cannot be understood to mean compilation or collection of sheets in one volume. The books of account referred to are those books of account which are maintained for the purposes of the Act and not the diaries which are maintained merely as man's private record, prepared by him as may be in accordance with his pleasure or convenience to secretly record secret, unaccounted, clandestine transactions not meant for the purposes of the Act, but with specific intention or desire on the part of the assessee to hide or conceal income so as to avoid imposition of tax thereon.
The words in Expln. 5 'books of account, if any, maintained by him for any source of income' are important words signifying the legislative intent embodied in the Explanation warranting grant of immunity from penalty. The legislative intent is to admit only those books of account maintained by the assessee on his own behalf as by their very nature and circumstances are maintained for the purposes of drawing source of income. Therefore, when the books of account are tendered for claiming benefit of Expln. 5 of Section 271(1)(c), it must be shown to be a book, that book must be a books of account and on the top of it that must be one maintained for the purposes of drawing source of income under the Act. These essential requirements must be carefully observed while implementing tax legislation in the country where secret and parallel accounts based on frauds and forgery are extremely common and responsibility of keeping and maintaining accounts for the purposes of the tax legislation is honoured in the breach rather than the observance.
In the instant case private diaries have been most regularly maintained. These may have been exhibiting record of the factual facts, contemporaneously made but they were never maintained for the purposes of the Act to draw source of income or for the computation of total income to offer income calculated therefrom for the purposes of taxation; such books or diaries can hardly be designed or accepted as books of account for the purposes of Expln. 5 of Section 271(1)(c) so as to afford immunity from penalty.
Thus, the Tribunal was perfectly justified in upholding the levy of penalty under Section 271(1)(c)."
The contention of the learned counsel that the books maintained means the commercial books of account has no basis whatsoever. For the income-tax purposes, books maintained means the books on the basis of which the taxable income of the assessee can be determined. Therefore, the commercial books has nothing to do with the books maintained by the assessee for the purpose of computation of taxable income. Under the circumstances, we do not find any force in the contention of the learned counsel. In view of the discussion above, the contention of the assessee that his case is squarely covered under Clause (a) of Expln. 5 to Section 271(1)(c) is, therefore, rejected. The assessee is, therefore, not entitled for any immunity under the provisions of Expln. 5 to Section 271(1)(c). The penalties levied by the Department under Section 271(1)(c) are, therefore, confirmed.
13. In the result, the appeals are dismissed.