Private diaries are not books of Account for the purpose of Income tax

[bpagrawal]

Private diaries are not books of Account for the purpose of Income tax
The term "books of account" referred to in Sub-clause (1) of Explanation 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 Income-tax 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 of the Act, it would fall for the purposes of computation of the total income for charging income-tax thereon. Thus, the term "books of account" referred to in this relevant sub-clause of Explanation 5 would mean those books of account whose main object is to provide credible data and information to file the tax returns. A credible accounting record provides the best foundation for filing returns 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 a 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 the liquidity position ; to provide up to date information of assets and liabilities with a view to derive information so as to prepare a profit and loss account and draw a balance-sheet to determine income and source thereof. Thus, the term "books of account" referred to in Explanation 5 must answer the above qualifications. It cannot be understood to mean compilation or collections of sheets in one volume. The books of account referred to are those books of account which are maintained for the purposes of the Income-tax Act and not diaries which are maintained merely as a 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 Income-tax 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.
Now, turning to the facts of the cases in hand, private diaries may have been most regularly maintained, it may have been exhibiting record of the factual facts, contemporaneously made but they were never maintained for the purposes of the Income-tax Act to draw the 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 Explanation 5 of Section 271(1)(c) of the Act, so as to afford immunity from penalty.


Bombay High Court
Sheraton Apparels, Max ... vs Assistant Commissioner Of ... on 3 May, 2002
Equivalent citations: 2002 (5) BomCR 19, (2003) 1 BOMLR 888

Bench: V Daga, J Devadhar
http://www.lawweb.in/2013/08/private-diaries-are-not-books-of.html