‘Books of Accounts’,’Documents’ And ‘Evidence’ Occurring In Amended Section 149 of Income Tax Act, 1961
1. The provision:
Section 149. Time limit for notice. — (1) No notice under section 148 shall be issued for the relevant assessment year,—
(a) if three years have elapsed from the end of the relevant assessment year, unless the case falls under clause (b) ;
(b) if three years, but not more than ten years, have elapsed from the end of the relevant assessment year unless the Assessing Officer has in his possession books of account or other documents or evidence which reveal that the income chargeable to tax, represented in the form of asset, which has escaped assessment amounts to or is likely to amount to fifty lakh rupees or more for that year:
2. These three terms are bound to cause considerable interpretational issues in application of s 149. This is a legal perspective thereon.
First of all it is to be noted that these three phrases/words appear contiguously in the statute,merely separated by the word ‘or’. To me they offer sufficient ambiguity so as to invoke the principle of construction known as noscitur a sociis (‘’a word is known by the company it keeps’’) To me,EVIDENCE is the underlying theme-books are evidence,other documents are evidence and evidence (arguably other than books and documents) is of course evidence. Or is it? The debate starts here.
2. ’BOOKS OF ACCOUNTS’
1,A book of account is arguably a deemed evidence now, a validating entity which can lead to issuance of a 148 notice. So understanding what it means is important.
2. IT ACT 1961 (TILL FA 2020]
2 (12A) “books or books of account” includes ledgers, day-books, cash books, account-books and other books, whether kept in the written form or as print-outs of data stored in a floppy, disc, tape or any other form of electro-magnetic data storage device.
2. 1 If a book of account reveals the existence of income escaping assessment, represented in the form of asset, amounting to or is likely to amount to fifty lakh rupees or more action beyond 3 years by way of reopening an assessment would be justified. This is the proposition.
2. 2 In Dwaraka Prasad Malpani, Calicut vs Department Of Income Tax (2012) 71 DTR 1/ [2012] 146 TTJ 498 (Cochin) it was held that
‘’4. 8’’…………….. Though the assessee was not specifically called upon to do so by him, the onus to establish the genuineness of the gifts, particularly where being called upon to do so, and repeatedly, by the assessing authority, is only on the assessee. No evidence in support of their financial capacity also stands submitted. It is well accepted that the receipt of credit through the banking channel, or of it being confirmed by the creditor/donor, is itself not sufficient to prove the gifts in terms of s. 68. The word ‘genuine’, in fact, itself signifies that what is apparent is real, so that it represents the truth. If the foregoing attributes were to be itself sufficient, mere entries in the books of accounts, which constitute evidence u/s. 34 of the Evidence Act, would by themselves be sufficient to prove the credits. ’’
:This is vital. Because it goes on to say that mere entries would not be sufficient to prove the credits. If that is so, mere entries,per se should not be classifiable as Evidence either way unless there is a legal mandate in a particular provision of law to treat them so,or they pass the test laid down in-
EVIDENCE ACT S 34. Entries in books of account when relevant. –– Entries in books of account, including those maintained in an electronic from], regularly kept in the course of business, are relevant whenever they refer to a matter into which the Court has to inquire, but such statements shall not alone be sufficient evidence to charge any person with liability.
Illustration: A sues B for Rs. 1,000, and shows entries in his account books showing B to be indebted to him to this amount. The entries are relevant, but are not sufficient, without other evidence, to prove the debt.
2. 2. 1 So even if the entries in books,liberally interpreted,by some stretch of imagination, are taken to validate a 148 notice they would not constitute material evidence or evidence with probative value. Unless collateral facts of probative value which prove a tax implicating imputation,are brought on record by investigation,the mere entries in books would not be enough. It is clear that the method of accounting cannot invent fact or create new ranges of taxable incomes or enlarge or restrict the ambit of taxation.
And pray how will an entry in a book be enough to classify as the information (?) or evidence (?) of income escaping assessment?And what would be the occasion to examine a book unless it is discovered in a 132, 132A or 133A action?
2. 3 Proposition gets validation by a slew of decisions regarding probative value of entries in books:
a. In KEDARNATH JUTE MFG. CO. LTD. vs. CIT (1971) 82 ITR 0363 (SC) it has been held clearly that ‘’6. ……………. Whether the assessee is entitled to a particular deduction or not will depend on the provision of law relating thereto and not on the view which the assessee might take of his rights nor can the existence or absence of entries in the books of account be decisive or conclusive in the matter. ……’’
b. Thereafter in GOODYEAR INDIA LTD. & ORS. vs. STATE OF HARYANA & ANR. & STATE OF MAHARASHTRA & ANR. (1991) 188 ITR 0402 (SC) went on to reiterate that ‘’75. …………… In our opinion, he rightly submitted that the accounts had to be maintained in a particular manner is no criterion or evidence for determining when the liability arises. The law is that the liability to tax would be determined with reference to the interpretation of the statute which creates it.’’
c. Finally TAPARIA TOOLS LIMITED vs. JCIT (2015) 372 ITR 0605 (SC) held that ‘’19) ……………… It has been held repeatedly by this Court that entries in the books of accounts are not determinative or conclusive and the matter is to be examined on the touchstone of provisions contained in the Act’’
2. 3. 1 In fact revenue has repeatedly utilized these decisions to discredit the claims of the assessee over the years. Clearly it has been of the view that mere books of accounts can’t be the evidence,creating a reverse clinching position now for the assessee. How can then it label the books in same breath as ‘’evidence’’ and create a self defeating anomaly?The paradox created is that if books are not evidence and documents certainly are not,then they too are merely ‘’INFORMATION’’. OR maybe FACTS?
2. 4 In Sheraton Apparels vs. Asstt. CIT (2002) 175 CTR (Bom) 651 : (2002) 256 ITR 20 (Bom) ,it was held that “The term ‘books of account’ referred to in cl. (1) of Expln. 5 to s. 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 IT Act is to identify or classify income so as to determine under which head, out of the various heads of income referred to in s. 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 Expln. 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 upto date information of assets and liabilities with a view to derive information so as to prepare a P&L a/c and draw a balance sheet to determine income and source thereof. Thus, the term ‘books of account’ referred to in Expln. 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 IT 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 IT 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 the source of income.’’
The context may be Eplanation 5 but it gels well with s 34 of the Evidence Act (supra) . And the generality of the interpretation cannot escape the discerning eye.
Note: [Explanation 5 (ref. above) . —Where in the course of a [search initiated under section 132 before the 1st day of June, 2007], the assessee is found to be the owner of any money, bullion, jewellery or other valuable article or thing (hereafter in this Explanation referred to as assets) and the assessee claims that such assets have been acquired by him by utilising (wholly or in part) his income,—
(a) for any previous year which has ended before the date of the search, but the return of income for such year has not been furnished before the said date or, where such return has been furnished before the said date, such income has not been declared therein ; or
(b) for any previous year which is to end on or after the date of the search, then, notwithstanding that such income is declared by him in any return of income furnished on or after the date of the search, he shall, for the purposes of imposition of a penalty under clause (c) of sub-section (1) of this section, 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 a case falling under clause (a) , before the date of the 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 [ [Principal Chief Commissioner or] Chief Commissioner or [Principal Commissioner or] Commissioner] before the said date ; or
(2) he, in the course of the 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 [* * *] sub-section (1) of section 139, and also specifies in the statement the manner in which such income has been derived and pays the tax, together with interest, if any, in respect of such income. ]
2. 5 Argument may go as to what is the relevance of the above discussion since evidence (books) needs to be only in regard to reopening validation. Correct. But not fully. It need not be merely book. It has to be book WHICH REVEALS. And that is where relevance of above discussion comes in. For the book will have to reveal as well. See the SHERATON JUDGMENT (SUPRA) :’’ It cannot be understood to mean compilation or collections of sheets in one volume’’.
Rather,
‘’………. would mean those books of account whose main object is to provide credible data and information’’
And,
Revenue will have to demonstrate from these books that they have content WHICH REVEALS THAT income has escaped assessment. So what is this ‘’REVEALS’’?More on it later.
3. DOCUMENT:
3. 1 CONCEPT AS PER I. E. A:
[Indian Evidence Act, 1872 ;PART I : RELEVANCY OF FACTS; CHAPTER I : PRELIMINARY ]
‘’3. Interpretation clause
In this Act the following words and expressions are use in the following sense. Unless a contrary intention appears from the context-
…………….
“Documents” – “Documents” means any matter expressed of described upon any substance by means of letters, figures or marks, or by more than one of those means, intended to be used, or which may be used, for the purpose of recording that matter.
Illustrations
A writing is a document;
Words printed, Lithographed or photographed are documents;
A map or plan is a document;
an inscription on a metal plate or stone is a document;
A caricature is a document.’’
3. 2 Concept as per GENERAL CLAUSES ACT, 1897:
‘’3. In this Act, and in all Central Acts and regulations made after the commencement of this Act, unless there is anything repugnant in the subject or context—
(18) “document” shall include any matter written, expressed or described upon any substance by means of letters, figures or marks, or by more than one of those means which is intended to be used, or which may be used, for the purpose of recording that matter;’’
This definition was taken from section 3 of the Indian Evidence Act, 1872; but “shall include” was substituted for the word “means”. The words ‘’which is” were inserted and the word “written” was added at the Select Committee stage to incorporate the definition of writing (clause 65) and thereby include printing, lithography and photography.
3. 3 As per s. 29 of the Indian Penal Code. :
“Document”. —The word “document” denotes any matter expressed or described upon any substance by means of letters, figures, or marks, or by more than one of those means, intended to be used, or which may be used, as evidence of that matter.
3. 4 Definition in BLACK’S LAW DICTIONARY 9TH ED P 555
document, n. (15c) 1. Something tangible on which words, symbols, or marks are recorded. See Fed. R. Civ. P. 34 (a) . 2. (pl. ) The deeds, agreements, title papers, letters, receipts, and other written instruments used to prove a fact.
document, vb. (18c) 1. To support with records, instruments,
or other evidentiary authorities <document the chain of custody>. 2. To record; to create a written record of <document a file>.’’
3. 5 Relatively less controversial,but still a document will have to REVEAL.
There is a survey,for example:a document is found on which it is written ‘’to sale…… 5 lacs’’. There is no date,no name of party,no description of what is sold. Does this reveal?Is it a dumb document?There are no contours of ‘reveal’ with us. What do we do?
I proceed to the third and the most interesting limb:evidence.
4. EVIDENCE
4. 1 Concept as per IEA:
Indian Evidence Act, 1872 ;PART I : RELEVANCY OF FACTS ;
CHAPTER I : PRELIMINARY
‘’3. Interpretation clause
In this Act the following words and expressions are use in the following sense. Unless a contrary intention appears from the context-
…………….
“Evidence” – “Evidence” means and includes
(1) all statements which the Court permits or requires to be made before it by witnesses, in relation to matters of fact under inquiry;
such statements are called oral evidence;
(2) all documents produced for the inspection of the Court;
such statements are called oral evidence;
[this definition followed in CIT v. Southern Sea Foods Ltd. [1995] 215 ITR 176 (MAD. ) ]
4. 2 AS per BLACK’S LAW DICTIONARY 9TH ED P 635
evidence, n. (14c) 1. Something (including testimony,documents and tangible objects) that tends to prove or disprove the existence of an alleged fact.
ON THE SAME PAGE
admissible evidence. (18c) Evidence that is relevant and is of such a character (e. g., not unfairly prejudicial, based on hearsay, or privileged) that the court should receive it. – Also termed competent evidence; proper evidence; legal evidence.
4. 2. 1 If so,then why evidence is also labelled as incomplete,insufficient,irrelevant etc. ; is evidence is preceded by these words actually evidence or are these phrases mere OXYMORONS? I leave it to readers to reflect on this.
4. 3 The basic prerequisites of admissibility of evidence are are relevance, materiality, and competence. This is universally accepted. You can google and corroborate the same. In general, if evidence is shown to be relevant, material, and competent, and is not barred by an exclusionary rule, it is admissible. This, concept of admissibility. alongwith authenticity, completeness, reliability, and believability form what is popularly known as 5 Rules of Evidence.
4. 4 Some scholarly renditions:
a. “Evidence is any matter of fact which is furnished to a legal tribunal, otherwise than by reasoning or a reference to what is noticed without proof, as the basis of inference in ascertaining some other matter of fact. “ James B. Thayer,Presumptions and the Law of Evidence. 3 Harv. L. Rev. 141,
142 (1889) .
b. “Evidence, broadly defined, is the means from which an inference may logically be drawn as to the existence of a fact; that which makes evident or plain. Evidence is the demonstration of a fact; it signifies that which demonstrates,makes clear, or ascertains the truth of the very fact or point in issue, either on the one side or on the other. In legal acceptation, the term ‘evidence’ includes all the means by which any alleged matter of fact, the truth of which is submitted to investigation, is established or disproved. ‘Evidence’ has also been defined to mean any species of proof legally presented at the trial of an issue, by the act of the parties and through the medium of witnesses, records, documents, concrete objects, and the like. “
31A c. J. S. Evidence § 3, at 67-68 (1996) .
4. 4. 1 The best definition,relevant for our purpose,comes to us from Dwaraka Prasad Malpani, Calicut vs Department Of Income Tax (2012) 71 DTR 1/ [2012] 146 TTJ 498 (Cochin)
4. 2……….. The term ‘evidence‘ is of wide import, and is judiciously well settled to be a matter of fact, the effect, tendency or design of which is to produce in the mind a persuasion, affirmative or disaffirmative, of the existence of some other matter of fact….’’
4. 5. This actually is what is called PROBATIVE value of evidence. Ho, Hock Lai, in”The Legal Concept of Evidence”, The Stanford Encyclopedia of Philosophy (Winter 2015 Edition) ,SAYS ‘’ “Adducing evidence” is the legal term for presenting or producing evidence in court for the purpose of establishing proof. This meaning of evidence is reflected in the definitional section of the Indian Evidence Act (Stephen 1872: 149)’’
5. THE TRICK REVENUE MISSED:
5. 1 In drafting of law one must never forget to look at the purpose of the law :our object is to bring every legally taxable rupee to tax. All the supporting provisions should be geared towards this fact. Not only has that not been done but all the law that could have gone a long way in checking tax evasion,and which just needed tweaks and modifications,has been subject to such scissoring that the resultant dress is a joker’s delight. The term FACT and the term PROVED should have been defined and found pride of place in tax assessment and al this brouhaha of information which suggests,evidence which reveals,risk management and such like disjointed fancy management terms should have been given a sane,legally acceptable form.
6. In a fiscal law fixing liability, WE PROVE A FACT THROUGH EVIDENCE. That is all there is to it.
And whatever tax implications follow are consequences of this exercise. All ancillary concepts must be geared towards achieving this end. And its no rocket science. In Naresh K. Pahuja*v. DCIT[2007] 17 SOT 636 (MUM. ) PARA 27 it is said that ‘’A fact is said to be proved when, after considering the matters before it, the Court either believes it to exist, or considers its existence so probable that a prudent man ought, under the circumstances of the particular case, to act upon the supposition that it exists. ‘’
And where is this coming from?Its not debris from Mars. It is from s 3 of the Indian Evidence Act,1872!. Lets enlighten ourselves more:this is the principle of PREPONDERANCE OF PROBABILITY.
6. 1 And what about ‘’FACT’’?well that too is standing right there. In s 3.
“Fact” – “Fact” means and includes-
(1) any thing, state of things, or relation of things, capable of being perceived by the sense;
(2) any mental condition of which any person is conscious.
7. Two final aspects
a. ’ASSET’’ OCCURING IN S 149:
IN 149: Explanation. —For the purposes of clause (b) of this sub- section, “asset” shall include immovable property, being land or building or both, shares and securities, loans and advances, deposits in bank account.
This was a copy paste job from erstwhile s 153A ignoring the wonderful,utilizable description as an additive or as a standalone.
IN EXPN 5 TO S 271 (1) (c) : [Explanation 5. —Where in the course of a [search initiated under section 132 before the 1st day of June, 2007], the assessee is found to be the owner of any money, bullion, jewellery or other valuable article or thing (hereafter in this Explanation referred to as assets) ……….
Has the revenue missed a trick here by ignoring the very Act which it was trying to amend? It is to assessee’s benefit. It is said that ‘’Those who forget their history shall be condemned to repeat it’’. Time for repetition approaches us.
b. REVEAL VS SUGGEST OCCURRING IN S 149:The final frontier-
This is the final conundrum.
Suggest is defined as or is meant to ‘’propose something or offer up a potential option for consideration’’. Legally we can take it as a (value neutral)’’insinuation’’. It would mean to mention or introduce (an idea, proposition, plan, etc. ) for consideration or possible action: to propose (a person or thing) as suitable or possible for some purpose,here a 148 notice issuance.
This is for year 1 to 3.
Its not enough for the book of account or document or evidence to merely SUGGEST. It has to reveal. What does reveal mean?
REVEAL: transitive verb. 1 : to make known through divine inspiration. 2 : to make (something secret or hidden) publicly or generally known reveal a secret.
True,revenue will need a divine inspiration for the charge to stick!
We may take it to mean :to make known; disclose; divulge. So revenue will have to disclose and demonstrate what revelation took place from the books etc. so as to validate the action of issuance of notice under s 148. The income escaping implication will have to be objectively demonstrated, live link between the fact and the implication will need to be established. I don’t envy their task at all.
