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Taxman not to go by jottings

Freny Patel

You won't need to fret about scribbles made on loose papers or entries in diaries if they are seized by income tax officials during a raid.

The entries or scribbles may deal with money matters but the I-T department cannot treat them as books of accounts any more unless, of course, it finds supporting evidence in the form of cash, jewellery or investment, outside the books. This is in sharp contrast to what the I-T department has been doing so far.

Traditionally, financial entries made on loose papers or diaries were taken into account when deciding what constituted the income of the assessee from whom the papers or diaries were recovered.

But last month, the president of the Income Tax Appellate Tribunal, V Dongzathang, ruled that when it is a mere entry on a loose sheet of paper, and if the assessee claims that it the entry related to only something that had been planned and was not supported by actual cash, there has to be circumstantial evidence to support that entries really represent cash.

"Where no such evidence is found by the revenue department in the form of extra cash, jewellery or investment outside the books, the explanation offered by the assessee cannot be rejected," the ITAT ruling says.

Dongzathang agreed with the arguments put forth by advocate Prakash Jotwani on behalf of his client S P Goyal against the deputy commissioner of I-T.

Jotwani argued that there was no proof of his client having actually received the sum of money stated on a torn sheet of paper, and neither was there any proof of him having incurred any expenses against the sum mentioned.

"The loose papers appear to be a part of a 1992 diary....There is no closing balances, or opening balances, and there is no reconciliation of these entries..." stated the judgment.

The IT department used to take a universal stand that all entries made on loose sheets or diaries, whether coded or otherwise, constitute the assessee's income.

Correspondingly, the department used to levy tax, interest on tax not paid on the so-called income and a penalty for allegedly concealing the amount.

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