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CASE NO.:

Appeal (civil) 2746 of 2007

PETITIONER:

Dilip N. Shroff

RESPONDENT:

Joint Commissioner of Income Tax, Mumbai & Anr

DATE OF JUDGMENT: 18/05/2007

BENCH:

S.B. Sinha & P.K. Balasubramanyan

JUDGMENT:

J U D G M E N T

CIVIL APPEAL NO. 2746 OF 2007

[Arising out of S.L.P. (Civil) No.26831 of 2004]

S.B. SINHA, J :

1. Leave granted.

2. The Appellant herein is an assessee under the Income Tax Act. It is

an HUF. For the assessment year 1998-99, an income of Rs.30,80,030/- was

declared by it, inter alia, showing a long term capital loss of Rs.34,12,000/- .

The said capital loss was said to have arisen on account of sale of property

being land and building known as 'Jekison Niwas', 220 Walkeshwar Road,

Mumbai. Admittedly, the Appellant had 1/4th share therein. It entered into

an agreement for sale of undivided 1/4th share in the said property for a sum

of Rs.8 crores with one M/s Layer Exports Pvt. Ltd.. For the purpose of

valuation of the said property, one Shri U.D. Chande, a registered valuer,

was appointed. On 01.04.1981, the value of the said 1/4th share in the

property was determined at Rs. 2,52,00,000/-. In the said valuation report, it

was stated that the purpose was valuation for computation of capital gains.

The report was filed in the prescribed form. All the required particulars/

information were furnished. In the said report, description of the property,

location thereof, whether situated in residential/commercial/mixed/industrial

area, and classification thereof were shown. As regard, proximity to civic

amenities, it was stated that the plot is very close to "Raj Bhawan". All

other amenities except cinema were within 1 k.m. Means and proximity to

surface communication by which the locality is served were also stated. All

other requisite particulars, as specified, were stated.

3. After noticing that the total development area of land is 4605 sq. yds

with an F.S.I. of 1.33, it was stated

"I am informed that the land was reserved for a vegetable

& retail market before 1965. I am of the opinion that it is

possible to get this reservation modified or waived and

hence I consider the effect of this on the value of the

property negligible. In any event there will be no loss of

F.S.I. even if reservation is retained for the purpose of

my valuation of share in the property.

Based on the sales instances the prices given in

"Accommodation Times" I am of the opinion and feel

that the rate of the Residential Apartment in the area in

1981 would be in between Rs.2500 to Rs.3000/- per

S.FT. I think that the lower value of Rs.2500 per S.FT.

as fair and reasonable.

This rate will be fair and reasonable for the share of

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property belonging to Late Mr. Natwarlal Shroff & Late

Mrs. Sonabai Shroff as the title of their holding is clear

and Marketable.

I am appointed to give value of the share of the property

belonging to the Late Mrs. Sonabai Shroff i.e. 1/4th share

of the property.

As regards (valuation of) 1/4th share of Mr. Bhagwandas

Dwarkadas Shroff and 1/4th share of Mr. Madhavdas

Dwarkadas I am informed that there is suit pending in

courts regarding title to the property and tenancy rights.

Each of the other holders will fetch the reports of

valuation for their respective shares separately.

In 1981 the cost of construction may be taken at

Rs.275/- per S.FT. Further, considering the Builder's

Profit Rs.700/- per S.Ft. and deducting both the value of

cost of construction and the Builder's profits from the

above stated works out to Rs.1,525/- per S.FT of saleable

area. Considering that it is a jointly owned property, I

take it as fair and reasonable.

As these rate the value of the share of the property

belonging to late Mr. Natwarlal Shroff comes to -

16536.5 x 1525.00 = Rs.2,52,18,165.05

Say Rs.2,50,00,000.00 \005.(I)

Though the building itself is old and dilapidated, I

consider the scrap value of it at Rs.50/- per S.FT. As the

Built up area is 16000 S.FT., the scrap value of structure

comes to Rs.8,00,000.00. The value of the share of Late

Mr. Natwarlal Shroff of this scrap value is

Rs,8,00,000.00. The value of the share of Late Mr.

Natwarlal Shroff of this scrap value is

= Rs. 2,00,000.00 \005.(II)

Therefore value of the property belonging to Late Mr.

Nartwarlal Shroff works out to (I)+(II).

Rs.2,50,00,000.00+Rs.2,00,000.00 = Rs.2,52,00,000.00

I therefore value the share of the above property

belonging to Late Mr. Natwarlal Shroff at

Rs.2,52,00,000.00

(Rs. Two Crore Fifty Two Lakhs Only) as on 1/4/81"

4. As regard existence of sale instances, however, although a sheet was

said to have been attached thereto, no such thing was done. As against

column 40, namely, 'if sale instances are not available or not relied upon,

the basis of arriving at the land rate', it was stated :

"In addition to Sales Instances & "Accommodation

Times" are used."

The Valuer in his report, inter alia, stated :

"When I inspected the premises I found the

building in a dilapidated condition. In fact part of the

building has collapsed. I am informed that in 1981 the

building was in similar condition I am therefore inclined

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to consider only the scrap value of the building and the

value of only land as the basis of my valuation."

5. In the year 1997 by reason of a consent decree passed in Suit No.3845

of 1997, 1/4th undivided share in Jekison Niwas was sold and possession was

transferred to M/s Layer Export Pvt. Ltd. against final payment.

6. The return filed by the Appellant on 30.09.1998 came up for scrutiny

before the First Respondent, who in exercise of its power under Section 55A

of the Income Tax Act, 1961 (for short, 'the Act') referred the matter for

valuation of the said 1/4th undivided share of the Appellant as on 01.04.1981

to the District Valuation Officer; whereupon the District Valuation Officer

submitted a report dated 29.06.2000 wherein the 1/4th undivided share of the

Appellant in the said property as on 01.04.1981 was determined at

Rs.1,14,92,907, the basis whereof is said to be as under :

"Name of Property Land along with Bungalow

known as "Jekinson Niwas"

220-Walkeshwar Road,

Mumbai-400 006

1

Land Area as per records

5250 sq. yds. =

4389.63 sq. mt.

2

Land rate adopted @

Rs.12842/- sq. mt.

(897/- x 1.33 x

10.764)

3

Consideration of land

component

Rs.5,63,71,628 (A)

4

Built-up Area

existing as on 1-4.81

(Gr.+I upper floor

bungalow structures)

16,000 sq. ft.

5

Salvage/Scrap value

(16000 sq. ft @

Rs.100/- sq. ft.) as

adopted by the Regd.

Valuer

Rs.16,00,000/- (B)

6

Total consideration

(A)+(B)

Rs.5,79,71,628/-

7

1/4th share of the

above (6)

consideration as Fair

Market Value

Rs.1,44,92,907/-

Say Rs.144.93 lakhs"

7. For the aforementioned purpose the land rate was taken at Rs.897/- sq.

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ft. on the basis of the following sale instances :

"

Sl.

No.

Date of

Sale

Name of Property

Consideration

Area

Rate

1

27.11.79

Land Survey No. 218

(Pt) Street No.25, 27,

27(A) at Narayan

Dhabolkar Rd. Off N.S.

Rd., Mumbai

Rs.3,15,00,000/

7114.08

sq. mt.

Rs.4428/-

sq. mt.

2

19.10.82

Flat No.302, 3rd floor at

Sanudeep CHS Ltd. Plot

No.631 (Pt) at Altamount

Road, Mumbai

Rs.68,00,000/-

346.60

sq. mt.

Rs.1823/-

sq. ft.

By comparing and considering the sale instances property with the subject

property after taking into account size-shape, time-gap, location-situation and also the

factors like physical, social legal and economical, the land FSI rate as on 1.4.81 is Rs.897

sq. ft is considered to be fair and reasonable."

8. As regard the Registered Valuer's Report, whereupon the Appellant

relied upon, the District Valuation Officer commented :

"8.0 Comments on Regd. Valuer's report :

The assessee have submitted Regd. Valuer Shri Uday D

Chande's report dated 25.6.96 valuing the subject

property 1/4th share as Rs.2,52,00,000/- as on 1.4.81.

The Regd. Valuer has simply adopted the rates published

in local paper (Accommodation Times). These rates

cannot be considered as authentic. The valuer has not

based his valuation on any actual sales instance. As

such, the Regd. Valuer's report cannot be accepted."

9. The First Respondent having regard to the aforementioned valuation

report of the District Valuation Officer passed an order of assessment on

08.08.2000 holding :

"\005The cost of acquisition as on 1.4.1981 is therefore, adopted

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at Rs.1,44,92,907/- as per the report of the Dist. Valuation

Officer-II, Mumbai. Accordingly, the Long Term Capital Gain

is worked out as under :

Less:

Cost of acquisition as on 1.4.81 as per the

Dept. Valuer's report as discussed is Rs.

1,44,92,907

Indexed cost = 1,44,907 x 331

100

Rs.8,00,00,000

Rs.4,79,71,522

3,20,28,478

Less

Expenses incurred in relation to

sale of property :

Solicitor's fees : Rs.2,50,000

Brokerage : Rs.8,00,000

--------------

LONG TERM CAPITAL GAINS

Rs. 10,50,000

-------------------

Rs.3,09,78,478

===========

The claim of the assessee for deduction of Rs.22,200/- being

expenses incurred on account of fees paid to Uday Chande is

not admissible as it cannot be said to be related to sale of

property. Accordingly, the same is not allowed.

6. Subject to the above remarks, the total income of the

assessee is computed as under :

Property Income : Rs

As per statement 64,664

Long term Capital Gains :

As discussed above 3,09,78,478

Income from Other Sources :

Interest income as per Statement 30,31,364

---------------

TOTAL INCOME 3,40,59,506

Rounded off 3,40,59,510

7. Assessed accordingly. Give credit for prepaid taxes.

Charge interest u/s 234B and 234C. Initiate penalty

proceedings u/s 271(1)(c) of the Act. Issue demand notice and

challan."

10. Thus, in the said order, valuation of the land as made by the District

Valuation Officer was adopted and on the basis thereof long term capital

gain was determined to be Rs.3,09,78,478 by taking the valuation of the 1/4th

undivided share of the Appellant as Rs.1,44,92,907 as on 01.04.1981. In

view of the said order of assessment, a show cause notice under Section 274

read with Section 271 of the Act was served to which a reply was filed by

the Appellant on or about 14.08.2000 claiming that there was no

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concealment of income as all the details of property were submitted along

with the return of income and the difference in the matter of valuation of the

1/4th share of the appellant does not amount to concealment. It was stated

therein :

"3. All the material facts in respect of the 1/4th share of

the sale of property has been disclosed when the

return was filed. It is the difference of opinion in

respect of value of the property as of 1.4.1981

between the Registered Valuer and Divisional

Valuation Officer with regard to value of the

property as of 1.4.1981 does not amount to

concealment.

4. The Valuation Report by the Divisional Valuer of

the department has been arrived at by using his

best judgment and perception. The value

determined by him as of 1.4.1981 has been on the

basis of concepts and methods adopted by him,

without taking into account the objections and

suggestions made by the assessee.

The difference between the value as determined by

the Registered Valuer and Department's Divisional

Valuation Officer does not change the basis

character or the details of valuation, hence there is

no concealment whatsoever. You are therefore

requested to drop the penalty proceedings initiated

u/s 271(1)(c) and oblige.

Our client for the sake of mental peace and in

order to co-operate with the Department does not

wish to go in to appeal and dispute the assessment

done by you. He does not want to contest the

assessment completed by you.

He will pay the demand of Rs.94,97,657.00 as per

the demand notice and will show you the Challan

of having made the payment shortly.

*** *** ***

You are once against requested to decide the fate

of penalty U/s 271(1)(c) immediately as desired by

the assessee, since I am leaving the country for

good and intend to prefer an appeal against the

order of Penalty if passed."

11. The First Respondent, however, in his order dated 23.08.2000

purported to be in exercise of its power under Section 271(1)(c) of the Act,

held :

"\005The assessee, it would appear, has not filed an appeal

against the order under Section 143(3) of the Act and

hence the conclusions drawn as regards the computation

of total income in this case are final\005.By no stretch of

imagination a property in a posh locality like

Walkeshwar, Mumbai would have resulted in loss after

substitution of indexed cost of acquisition. The intention

of assessee in obtaining the valuation report is obviously

viewed in the context of assessee having returned loss

under the head Capital Gains\005\005In the circumstances,

the assessee is considered to have furnished inaccurate

particulars of income in respect of the amount added

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under the head capital gains. The amount of tax sought

to be evaded is worked out as per clause (a) to

Explanation 4 to Sec. 271(1)(c) of the Act at 20% of

Rs.3,43,90,478 i.e. Rs.68,78,095. Accordingly, a

minimum penalty of Rs.68,78,095 is levied under Section

271(1)(c) of the Act."

12. The Appellant preferred an appeal thereagainst before the

Commissioner contending :

"..There is no concealment of particulars of income or

furnishing inaccurate particulars of such income nor there

is deemed income to represent the income in respect of

which particulars have been concealed."

13. The said appeal was, however, dismissed by the Commissioner of

Income Tax by an order dated 13.11.2000 holding :

"\005 To summarize differences between two reports

cannot be attributed universally to a single reason i.e.

difference of opinion. I have already stated in case a

report is incorrect for any reason the assessee is expected

not to rely upon it because he cannot shift the burden of

concealment u/s 271(1)(c) to any other person who might

have helped him in the matter of preparation of the return

and drawing the statement of income.

It was further held :

"\005This is very strange way of valuing the land after first

arriving at the value of the building and deducting

therefrom the value of the superstructure instead of

directly calculating value of land with reference to sales

instances."

9. Secondly I find that the basis adopted by the

Registered Valuer to rely upon a newspaper is totally

unacceptable and does not conform to the accepted

principles of valuation.

10. As such the report is therefore unacceptable and at

clear variance with the accepted principles of valuation.

It is totally incorrect and wrong, if not outrageous.

11. I find the Departmental Valuer's report is based on

specific sales instances and computation of land value

which constituted the major portion of the report is based

on direct sales instances of land. It is not a circuitous

method as adopted by the Registered Valuer."

14. The Appellant preferred an appeal before the Income Tax Appellate

Tribunal being aggrieved by and dissatisfied with the said order. He also

affirmed an affidavit stating that he had honestly relied on the professional

advice of the Registered Valuer and the Chartered Accountant and had not

approached the Valuer for the purpose of obtaining the report at any

specified value in order to avoid paying taxes. The Income Tax Appellate

Tribunal, however, dismissed the said appeal and confirmed the order of the

Commissioner of Income Tax by an order dated 10.08.2001, holding :

"It was also frankly admitted that the words "sales

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instances" mentioned against Col. 40 of the report were

incorrectly mentioned.

It was further held :

"We are afraid that the above arguments cannot be

accepted what is enjoined upon the assessee is a duty to

make a correct and complete disclosure of his income

and not only of the material facts such as disclosure of

the details of the property and factum of sale thereof as in

the assessee's case. As stated earlier the assessee

disclosed long term capital loss of Rs.34,12,000/- and

claimed carry forward thereof to the subsequent year as

against taxable long term capital gain of Rs.3,09,78,428/-

. The disclosure made of the particulars of income in the

return under the head capital gain by the assessee is

certainly incorrect for which the impugned penalty is

exigible. The assessee cannot take shelter under a report

of a registered valuer which is found by the revenue

authorities to have been prepared without due regard to

the accepted principles of valuation\005"

It was also held :

"Acceptance by the assessee of the value of his

share of property as on 1.4.1981 estimated in the DVO's

report for computation of capital gains is an important

factor to be noticed\005.In the case before us, the

difference in the valuation between the registered valuer

and the DVO arose on account of incorrect application of

the principles of valuation or non adherence thereto by

the registered valuer as against the valuation made by the

DVO as per accepted norms of valuation which

valucation has been accepted by the assessee.

As stated earlier, perusal of the orders of the

revenue authorities will make it abundantly clear that the

impugned penalty has been levied upon the assessee for

furnishing inaccurate particulars of income under the

main clause of sec.271(1)(c)."

15. Indisputably, the Appellant deposited a sum of Rs.68,78,095/- towards

penalty. An appeal preferred by him before the High Court in terms of

Section 260A of the Act was dismissed in limine, stating :

"We are not persuaded by the submission of the

learned counsel for the assessee. The revenue authorities

as well as the Income Tax Appellate Tribunal have

concurrently held that the assessee furnished inaccurate

particulars. This finding is based on the aspect that the

valuation report submitted by the assessee did not reflect

the correct cost of acquisition. What is the market value

of the property as on 01.04.1981 is an aspect of the fact

and the value furnished by the assessee was held to be

factually incorrect. If the computation of the long term

capital gains by the assessee was found to be wrong

obviously, the finding of the revenue authorities and the

Tribunal that the assessee furnished inaccurate particulars

cannot be faulted..."

16. Mr. Anil B. Dewan, the learned Senior Counsel appearing on behalf

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of the Appellant, would contend that the First Respondent in the order of

assessment, did not record his satisfaction that the assessee had concealed

the particulars of his income or furnished inaccurate particulars which were

conditions precedent for initiating penalty proceeding under Section

271(1)(c) of the Act. The show cause notice also was issued in a standard

form without deleting therefrom inappropriate words and paragraphs and it

showed total non-application of mind on the part of the Assessing Officer. It

was contended that the penalty proceeding had been initiated on all possible

grounds although in the order of assessment the only ground taken was the

alleged furnishing of inaccurate particulars of income. The Commissioner

of Income Tax as also the Income Tax Appellate Tribunal while passing the

impugned orders having failed to record any finding in their respective

orders that there had been any conscious act on the part of the Appellant in

furnishing the inaccurate particulars with intention to evade tax, the penalty

orders are vitiated in law. The assessee having furnished all material facts

and furthermore having appointed a registered valuer recognized for the

purpose of valuation of property specifically under the provisions of the

Wealth Tax Act, cannot be said to have the requisite mens rea which is the

sine qua non for imposition of penalty. It was argued that whereas the

registered valuer relied upon the figures mentioned in the Accommodation

Times, the Departmental Valuation Officer relied upon two sale instances,

one of the year 1979 (rate approximately Rs.500/- per sq. ft.) and another of

the year 1982 (rate Rs.1,823/- per sq. ft.) and arrived at a figure of Rs.897/-

per sq. ft. without any objective basis. Valuation being based on estimate

and, thus, being a matter of opinion can always vary. The Appellant having

availed the services of an expert, could not have gone into the correctness

thereof as has been observed by the Commissioner of Income Tax in his

impugned order. In view of the fact that the explanation offered by the

assessee was bona fide, no penalty proceeding could have been initiated.

17. Mr. Gopal Subramanium, the learned Additional Solicitor General

appearing on behalf of the Respondents, on the other hand, would take us

through the legal history of the provision of section 271(1)(c) of the Act; and

furthermore draw our attention to the fact that neither the sheet showing the

sale instances had been annexed with the return nor the particulars thereof

had been furnished; and even no copy of the Accommodation Times had

been annexed, wherefrom it could be inferred that deliberate attempt had

been made on the part of the Appellant in providing inaccurate particulars.

It was submitted that the show cause notice issued by the authority will have

to be read with the order of assessment and so read it would appear that the

notice was issued upon due application of mind. It was submitted that the

factors governing concealment of income and furnishing of inaccurate

particulars overlap with each other and as such it may not be possible for the

authority while issuing notice to specify whether it is a concealment of

income or furnishing of inaccurate particulars. Existence of mens rea is no

longer an essential element for initiating the penalty proceeding having

regard to the amendments made in the Act.

18. Before adverting to the rival contentions, we may notice the legal

history of the provisions of Section 271(1)(c) of the Act. In the Income Tax

Act, 1922, the provision for penalty was provided in Section 28(1)(c) which

dealt with the matter relating to imposition of penalty in the following terms

:

"28. Penalty for concealment of income or improper

distribution of profits. \026 (1) If the Income Tax Officer,

the Appellate Assistant Commissioner or the Appellate

Tribunal in the course of any proceedings under this Act,

is satisfied that any person \026

(c) has concealed the particulars of his income or

deliberately furnished inaccurate particulars of such

income\005"

19. Interpreting the said provision some of the High Courts were of the

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opinion that the burden of proof and the onus lay upon the department to

establish that the assessee was guilty of concealment of the particulars of

income and even if the assessee had given a false explanation, the same by

itself would not prove that the receipt necessarily constituted income of the

assessee. However, some High Courts opined differently, holding that the

penalty proceeding is included in the expression 'assessment" and the true

nature of penalty had been held to be additional tax.

20. The said question came up for consideration before this Court in

Commissioner of Income Tax, West Bengal vs. Anwar Ali [(1970) 2 SCC

185], wherein it was held :

"\005The section is penal in the sense that its consequences

are intended to be an effective deterrent which will put a

stop to practices which the Legislature considers to be

against the public interest. It is significant that in C.A.

Abraham case this court was not called upon to

determine whether penalty proceedings were penal or of

quasi-penal nature and the observations made with regard

to penalty being an additional tax were made in a

different context and for a different purpose. It appears to

have been taken as settled by now in the sales tax law

that an order imposing penalty is the result of a quasi-

criminal proceedings: (Hindustan Steel Ltd. v. State of

Orissa7). In England also it has never been doubted that

such proceedings are penal in character; Fattorini

(Thomas) (Lancashire) Ltd. v. Inland Revenue

Commissioner\005"

21. In Commissioner of Income Tax, Ahmedabad v. Gokuldas

Harivallabhas, [34 ITR 98], as regard onus of proof, it was opined :

"That the assessee has concealed the particulars of

his income or deliberately furnished inaccurate

particulars of such income and, therefore, the Department

must establish that the receipt of the amount in dispute

constitutes income of the assessee."

22. As regard the question as to whether a finding given in the order of

assessment that particular receipt is income after rejecting the explanation

given by the assessee as false, would prima facie be sufficient for

establishing in proceedings under Section 28 that the disputed amount was

the assessee's income, it was observed :

"6\005It must be remembered that the proceedings under

Section 28 are of a penal nature and the burden is on the

Department to prove that a particular amount is a revenue

receipt. It would be perfectly legitimate to say that the

mere fact that the explanation of the assessee is false

does not necessarily give rise to the inference that the

disputed amount represents income. It cannot be said

that the finding given in the assessment proceedings for

determining or computing the tax is conclusive.

However, it is good evidence. Before penalty can be

imposed the entirety of circumstances must reasonably

point to the conclusion that the disputed amount

represented income and that the assessee had consciously

concealed the particulars of his income or had

deliberately furnished inaccurate particulars."

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23. Vaidialingam, J. followed the said dicta in Commissioner of Income

Tax v. M/s Khoday Eswarsa & Sons [(1971) 3 SCC 555], in the following

terms :

"19. From the above it is clear that penalty proceedings

being penal in character, the Department must establish

that the receipt of the amount in dispute constitutes

income of the assessee. Apart from the falsity of the

explanation given by the assessee, the Department must

have before it before levying penalty cogent material or

evidence from which it could be inferred that the assessee

has consciously concealed the particulars of his income

or had deliberately furnished inaccurate particulars in

respect of the same and that the disputed amount is a

revenue receipt. No doubt the original assessment

proceedings, for computing the tax may be a good item

of evidence in the penalty proceedings; but the penalty

cannot be levied solely on the basis of the reasons given

in the original order of assessment."

24. When the law stood thus, the new Income Tax Act in 1961 was

enacted wherein Section 271(1)(c) was couched in the following language :

"271. Failure to furnish returns, comply with notices,

concealment of income, etc. \026 (1) If the Income-tax

Officer or the Appellate Assistant Commissioner in the

course of any proceedings under this Act, is satisfied that

any person \026

(a) \005 \005 \005

(b) \005 \005 \005

(c) has concealed the particulars of his income or

deliberately furnished inaccurate particulars of such

income,

he may direct that such person shall pay by way of

penalty, -

(i) \005 \005

(ii) \005 \005

(iii) in the cases referred to in clause (c), in

addition any tax payable by him, a sum which shall not

be less than twenty per cent, but which shall not exceed

one and a half times the amount of the tax, if any, which

would have been avoided if the income as returned by

such person had been accepted as the correct income."

25. An amendment thereto was carried out in the year 1964, where by and

whereunder the word 'deliberately' occurring in clause (c) of Section 271 (1)

was omitted and an explanation was inserted thereto; as a result whereof the

said provision reads thus :

"271. Failure to furnish returns, comply with notices,

concealment of income, etc. \026 (1) If the Income-tax

Officer or the Appellate Assistant Commissioner in the

course of any proceedings under this Act, is satisfied that

any person \026

(a) \005 \005 \005

(b) \005 \005 \005

(c) has concealed the particulars of his income or

furnished inaccurate particulars of such income.

"Explanation.- Where the total income returned by any

person is less than eighty per cent of the total income

(hereinafter in this Explanation referred to as the correct

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income) as assessed under section 143 or section 144 or

section 147 (reduced by the expenditure incurred bona

fide by him for the purpose of making or earning any

income included in the total income but which has been

disallowed as a deduction), such person shall, unless he

proves that the failure to return the correct income did

not arise from any fraud or any gross or willful neglect

on his part, be deemed to have concealed the particulars

of his income or furnished inaccurate particulars of such

income for the purposes of clause ( c) of this sub-

section."

26. While the things stood thus, the Government of India appointed a

Committee of Experts headed by Justice Wanchoo, the former Chief Justice

of India, and in his report, it was observed :

"2.75. Several persons who appeared before us urged the

need for deleting the Explanation to clause (c) of sub-

section (1) of section 271 of the Income Tax Act, 1961,

for various reasons. The primary objection against this

Explanation is that it is being invoked indiscriminately

and penalty proceedings are initiated in all cases where

the income shown in the return is less than eighty per

cent of the assessed income.

This Explanation was introduced in order to cast on the

assessee the burden of proving that the omission to

disclose true income did not proceed from any fraud, or

gross or willful neglect. A similar Explanation was also

introduced in the Wealth-tax Tact, 1957. This was sequel

to the recommendation made by the Direct Taxes

Administration Enquiry Committee (1958-59), based on

a similar provision in the United Kingdom law. We

understand that in a number of cases that came up on

appeal, the appellate authorities were not inclined to

uphold the penalties imposed on the basis of this

Explanation, since they were of the view that the

Department will still under obligation to prove the

concealment. The difference between the assessed

income and the returned income can be due to a variety

of reasons \026 some technical, like estimate of gross profit

and others purely arithmetical \026 and in our opinion, it

would not be correct to initiate proceedings in every case

where the difference exceeds twenty per cent. In the

United Kingdom itself, the provision on which this

Explanation was based has not been dropped. In any

event, if past experience is any indication, we feel that

the Explanation has failed to serve any useful purpose.

On the other hand, it has resulted in unwarranted

harassment to the taxpayers, and too much of paper work

caused by indiscriminate initiation of penalty

proceedings and consequent appeals.

We recommend that Explanation to clause (c) of sub-

section (1) of section 271 of the Income-tax Act, 1961,

and also Explanation I to clause (c) of sub-section (1) of

section 18 of the Wealth Tax Act, 1957, may be deleted.

2.76. While we are of the view that penalties should not

be draconian, we also strongly feel that those who are

tempted to resort to concealment of income should not be

allowed to get away with tenuous legal interpretations.

We would recommend the following changes in the

Income Tax Act in this regard :

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(a) Presumption of concealment where explanation

found false \026 Several officers of the Department invited

our attention to the Supreme Court's decision in the case

of Commissioner of Income-tax, West Bengal v. Anwar

Ali (76 ITR 696). It has been held by the Court that

penalty for concealment of income cannot be imposed

merely because the explanation given by an assessee is

found to be false. While this decision was given in the

context of clause (c) of sub-section (1) of section 28 of

the Indian Income Tax Act, 1922, it is not reasonably

certain that it would not apply to penalties under the

Income Tax Act, 1961. We would, therefore,

recommend as a measure of abundant caution, that an

Explanation to sub-section (1) of section 271 of the

Indian Income Tax Act, 1961, may be inserted to clarify

that where a taxpayer's explanation in respect of any

receipt, deposit, outgoing or investment is found to be

false, the amount represented by such receipt, etc., shall

be deemed to be income in respect of which particulars

have been concealed or inaccurate particulars have been

furnished within the meaning of clause (c) of sub-section

(1) of section 271 of the Income Tax Act, 1961."

27. In the year 1975 by reason of Section 61 of the Taxation Laws

(Amendment) Act, 1975, Explanation to Section 271(1)(c) was deleted and

four Explanations were inserted with effect from 01.04.1976. Section 271(c)

reads as follows :

"271. Failure to furnish returns, comply with

notices, concealment of income, etc. (1) If the Assessing

Officer or the Commissioner (Appeals) or the

Commissioner in the course of any proceedings under

this Act, is satisfied that any person \026

(a) \005 \005

(b) \005 \005

(c) has concealed the particulars of his income

or furnished inaccurate particulars of such income, he

may direct that such person shall pay by way of penalty, -

\005 \005 \005

Explanation 1.- Where in respect of any facts

material to the computation of the total income of any

person under this Act, or

(A) such persons failed to offer an explanation

or offers an explanation which is found by the Income

Tax Officer or the appellate Assistant Commissioner to

be false, or

(B) such person offers an explanation which he

is not able to substantiate,

then, the amount added or disallowed in computing the

total income of such person as a result thereof shall, for

the purposes of clause (c) of this sub-section, be deemed

to represent the income in respect of which particulars

have been concealed :

Provided that nothing contained in this explanation

shall apply to a case referred to in Clause (B) in respect

of any amount added or disallowed as a result of the

rejection of any explanation offered by such person, if

such explanation is bona fide and all the facts relating to

the same and material to the computation of his total

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income have been disclosed by him.

Explanation 2\005\005\005\005\005.

Explanation 3\005\005\005\005\005.

Explanation 4. For the purpose of clause (iii) of this sub-

section, the expression "the amount of tax sought to be

evaded".

(a) in any case where the amount of income in

respect of which particulars have been concealed or

inaccurate particulars have been furnished exceeds the

total income assessed means the tax that would have been

chargeable on the income in respect of which particulars

have been concealed or inaccurate particulars have been

furnished had such income been the total income;

(b) in any case to which Explanation 3 applies,

means the tax on the total income assessed;

(c) in any other case, means the difference

between the tax on the total income assessed and the tax

that would have been chargeable had such total income

been reduced by the amount of income in respect of

which particulars have been concealed or inaccurate

particulars have been furnished."

28. The provision which is relevant for the purpose of this case, namely,

Assessment year 1998-99, reads as under :

"271. Failure to furnish returns, comply with notices,

concealment of income, etc. (1) If the Assessing Officer

or the Commissioner (Appeals) or the Commissioner in

the course of any proceedings under this Act, is satisfied

that any person -

(a) [omitted]

(b) \005 \005

(c) has concealed the particulars of his income or

furnished inaccurate particulars of such income, he may

direct that such person shall pay by way of penalty, -

(i) [omitted]

(i) \005 \005

in the cases referred to in clause (c), in addition to tax, if

any, payable by him, a sum which shall not be less than ,

but which shall not exceed three times, the amount of tax

sought to be evaded by reason of the concealment of

particulars of his income or the furnishing of inaccurate

particulars of such income.

Explanation 1.- Where in respect of any facts material to

the computation of the total income of any person under

this Act, -

(A) such person fails to offer an explanation or offers an

explanation which is found by the Assessing Officer or

the Commissioner (Appeals) or the Commissioner to be

false, or

(B) such person offers an explanation which he is not

able to substantiate and fails to prove that such

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explanation is bona fide and that all the facts relating to

the same and material to the computation of his total

income have been disclosed by him,

then, the amount added or disallowed in computing the

total income of such person as a result thereof shall, for

the purposes of clause (c) of this sub-section be deemed

to represent the income in respect of which particulars

have been concealed.

Explanation 2\005\005\005\005.

Explanation 3\005\005\005\005.

Explanation 4.- For the purposes of clause (iii) of this

sub-section, the expression "the amount of tax sought to

be evaded",-

(a) in any case where the amount of income in respect

of which particulars have been concealed or inaccurate

particulars have been furnished has the effect of reducing

the loss declared in the return or converting that loss into

income, means the tax that would have been chargeable

on the income in respect of which particulars have been

concealed or inaccurate particulars have been furnished

had such income been the total income;

(b) in any case to which Explanation 3 applies, means

the tax on the total income assessed;

(c) in any other case, means the difference between

the tax on the total income assessed and the tax that

would have been chargeable had such total income been

reduced by the amount of income in respect of which

particulars have been concealed or inaccurate particulars

have been furnished."

28. Explanation 1, therefore, is applicable to the facts of the case.

29. The correctness of the orders passed by the Assessing Officer,

Commissioner of Income Tax as also the Income Tax Appellate Tribunal

must be judged in the aforementioned context.

30. We have noticed hereinbefore that the main contention raised on

behalf of the revenue justifying the levy of penalty against the Appellant,

inter alia, is that although as against Item No.38 of the report, a sheet was

purported to have been attached but in fact the same had not been done and

furthermore no land rate was adopted for valuation and as against Item

No.40 in addition to the Accommodation Times, which was a local

newspaper, no other sale instance was taken, and even a copy thereof had

not been furnished; nor the sale instances had been mentioned. The

explanation of the assessee was that in the instant case, Explanation to

Section 271(1)(c) was never invoked.

31. Section 271(1)(c) of the Act is in two parts. Whereas the first part

refers to concealment of income, the second part refers to furnishing of

inaccurate particulars thereof. In the instant case, the penalty has been

levied upon the Appellant under the second part of Section 271(1)(c) of the

Act. One of the questions which arises for consideration is as to whether

Explanation 1 is applicable in respect of both the parts or in respect of the

first part only.

32. Let us also assume that later part of clause (c) of Section 271(1) did

not invite any investigation into whether it was done deliberately or willfully

or not; but let us leave final consideration of this nicety of application

thereof in a more appropriate case and apply the element of deliberation in

the fact of the present case.

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33. However, according to the assessee the omission to annex the sheet as

mentioned against column No. 38 as also to enclose a copy of the

'Accommodation Times" was a clerical error and no significance could have

been attached thereto inasmuch no sale instance was relied upon by the

Valuer and, thus, by reason thereof no inaccurate particulars thereof can be

said to have been furnished. It is not a case where the Appellant is alleged to

have concealed the income as the authorities proceeded on the basis that the

penalty was to be levied upon the Appellant only on the ground of furnishing

inaccurate particulars.

34. We are not oblivious that some decisions point out that the principles

of Mens Rea may have application only in certain categories of cases Some

of which are::

In Sherras v. De Rutzen (1895) 1 QB 918, it was suggested that Mens

Rea is an essential ingredient in every offence except in three cases;

i) Cases not criminal in any real sense but which in the public

interest are prohibited under a penalty, e.g. Revenue Acts;

ii) Public Nuisances

iii) Cases criminal in form but which are really only a summary

mode of enforcing a civil right.

In 85, Corpus Juris Secundum, Paragraph 1023, it is stated :

"A penalty imposed for a tax delinquency is a civil

obligation, remedial and coercive in it's nature,

and is for different from the penalty for a crime or

a fine or forfeiture provided as punishment for the

violation of criminal or penal laws."

In Director of Enforcement v. MCT M Corp. Pvt. Ltd. [(1996) 2 SCC

471] it was suggested that what applies to "tax delinquency" equally holds

good for the "blame worthy" conduct for the contravention of the provision

of FERA. In Addl. CIT v. Dargapandarinath Taljayya and Co. (1977) 107

ITR 850, it was suggested that Section 271(1)(a) does not take in mens rea

which forms part of Section 276 C which creates offence of willful failure.

This was the view taken in Gujarat Travancore Agency v. CIT (1989) 177

ITR 455 (SC)

In Lim Chin Aik v. The Queen (1963) Appeal Cases 160, notices that

where "public welfare offences" are concerned, there was a presumption of

strict liability and the presumption of mens rea was displaced. In Ummali

Umma v. Inspecting Assistant Commissioner of Income Tax [64 ITR 669

(Kerala)], it was stated :

"I cannot say that the penalty imposed under

Section 28 of the repealed Act or under Section

371 of the Act was or is imposed on the basis that

it was or is an offence. For the offence

punishment was or is prescribed such as

imprisonment, fine or both. The imposition of

penalty on the basis of an act or omission by an

assessee is not because the act or omission

constitutes an offence, but because that act or

omission would constitute an attempt at evasion.

Therefore, penalty is exacted not because an act or

omission is an offence but because it is an attempt

at evasion of tax on the part of the assessee."

Stallybrass in (1936) The Law Quarterly Review at page 66 suggests

that :

"In the case of modern statutory offences the

maxim has no general application and the statutes

are to be regarded as themselves prescribing the

mental element which is a pre-requisite to a

conviction. The learned author suggests that much

of the confusion can be avoided if reference to

mens rea in modern statutory offences is avoided."

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35. Thus, it appears that there is distinct line of authorities which clearly

lay down that in considering a question of penalty, mens rea is not a relevant

consideration. Even assuming that when the statute says that one is liable

for penalty if one furnishes inaccurate particulars, it may or may not by itself

be held to be enough if the particulars furnished are found to be inaccurate is

anything more needed but the question would still be as to whether reliance

placed on some valuation of an approved valuer and, therefore, the

furnishing of inaccurate particulars was not deliberate, meaning thereby that

an element of mens rea is needed before penalty can be imposed, would

have received serious consideration in the light of a large number of

decisions of this Court.

36. The question, however, in a case of this nature, would be whether it

was a fit case where discretionary jurisdiction was properly exercised or not.

37. The legal history of Section 271(1)(c) of the Act traced from the 1922

Act prima facie shows that explanations were applicable to both the parts.

However, each case must be considered on its own facts. The role of

explanation having regard to the principle of statutory interpretation must be

borne in mind before interpreting the aforementioned provisions. Clause (c)

of sub-section (1) of Section 271 categorically states that the penalty would

be leviable if the assessee conceals the particulars of his income or furnishes

inaccurate particulars thereof. By reason of such concealment or furnishing

of inaccurate particulars alone, the assessee does not ipso facto become

liable for penalty. Imposition of penalty is not automatic. Levy of penalty

not only is discretionary in nature but such discretion is required to be

exercised on the part of the Assessing Officer keeping the relevant factors in

mind. Some of those factors apart from being inherent in the nature of

penalty proceedings as has been noticed in some of the decisions of this

Court, inheres on the face of the statutory provisions. Penalty proceedings

are not to be initiated, as has been noticed by the Wanchoo Committee, only

to harass the assessee. The approach of the assessing officer in this behalf

must be fair and objective.

38. Clause (iii) of sub-section (1) of Section 271 again provides for a

discretionary jurisdiction upon the assessing authority inasmuch as the

amount of penalty may not be less than the amount of tax sought to be

evaded by reason of such concealment of particulars of his income, but it

may not exceed three times thereof. The factors which are material for the

purpose of computation of total income as is sought to be emphasized in

Explanation-1, refer to computation of income on the part of the assessee

which is directly relatable to : (a) failure to offer an explanation and/ or

offering an explanation which is false; and (b) which he is not able to

substantiate and fails to prove that such explanation is bona fide.

39. Only in the event the factors enumerated in clauses (A) and (B) of

Explanation-1 are satisfied and a finding in this behalf is arrived at by the

Assessing Officer, the legal fiction created thereunder would be attracted.

40. For the purpose of invoking Clause (iii) of sub-section (1) of Section

271, the expression "amount of tax sought to be evaded" is set out in

Explanation \026 4. This sub-clause would be attracted when a finding is

arrived at that some amount of tax was sought to be evaded by the assessee

as envisaged by Clause (a) thereof. Explanation appended to Section 271

(1)(c) is an exception to the general rule. It raises a legal fiction by reason

whereof a presumption is raised against an assessee as a result whereof the

burden of proof shifts from the department to the assessee. Legal fiction,

however, as is well-known must be given its full effect when the conditions

precedent therefor are satisfied and not otherwise. [Ashok Leyland Ltd. v.

State of T.N. and Another, (2004) 3 SCC 1]

41. What would be the scope of such 'explanation' has been considered

by this Court in S. Sundaram Pillai, etc. v. V.R. Pattabiraman [AIR 1985 SC

582] wherein object of the explanation is stated in the following terms :

"53. Thus, from a conspectus of the authorities

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referred to above, it is manifest that the object of an

Explanation to a statutory provision is\027

"(a) to explain the meaning and intendment of the Act

itself,

(b) where there is any obscurity or vagueness in the

main enactment, to clarify the same so as to make it

consistent with the dominant object which it seems to

subserve,

(c) to provide an additional support to the dominant

object of the Act in order to make it meaningful and

purposeful,

(d) an Explanation cannot in any way interfere with or

change the enactment or any part thereof but where some

gap is left which is relevant for the purpose of the

Explanation, in order to suppress the mischief and

advance the object of the Act it can help or assist the

Court in interpreting the true purport and intendment of

the enactment, and

(e) it cannot, however, take away a statutory right

with which any person under a statute has been clothed

or set at naught the working of an Act by becoming an

hindrance in the interpretation of the same.""

[See also Swedish Match AB and Another v. Securities & Exchange

Board of India and Another, (2004) 11 SCC 641]

42. If the ingredients contained in the main provisions as also the

explanation appended thereto are to be given effect to, despite deletion of the

word 'deliberate', it may not be of much significance.

43. The expression "conceal" is of great importance. According to Law

Lexicon, the word "conceal" means:

"to hide or keep secret. The word "conceal" is con+celare which implies to hide. It means

to hide or

withdraw from observation; to cover or keep from

sight; to prevent the discovery of; to withhold

knowledge of. The offence of concealment is,

thus, a direct attempt to hide an item of income or

a portion thereof from the knowledge of the

income tax authorities."

In Webster's Dictionary, "inaccurate" has been defined as:

"not accurate, not exact or correct; not according

to truth; erroneous; as an inaccurate statement,

copy or transcript."

44. It signifies a deliberate act or omission on the part of the assessee.

Such deliberate act must be either for the purpose of concealment of income

or furnishing of inaccurate particulars.

45. The term 'inaccurate particulars' is not defined. Furnishing of an

assessment of value of the property may not by itself be furnishing of

inaccurate particulars. Even if the explanations are taken recourse to, a

finding has to be arrived at having regard to clause (a) of Explanation 1 that

the Assessing Officer is required to arrive at a finding that the explanation

offered by an assessee, in the event he offers one, was false. He must be

found to have failed to prove that such explanation is not only not bona fide

but all the facts relating to the same and material to the income were not

disclosed by him. Thus, apart from his explanation being not bona fide, it

should have been found as of fact that he has not disclosed all the facts

which was material to the computation of his income.

46. The explanation, having regard to the decisions of this Court, must be

preceded by a finding as to how and in what manner he furnished the

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particulars of his income. It is beyond any doubt or dispute that for the said

purpose the Income Tax Officer must arrive at a satisfaction in this behalf.

[See Commissioner of Income Tax v. Ram Commercial Enterprises Ltd.,

246 ITR 568 and Diwan Enterprises v. Commissioner of Income Tax, 246

ITR 571]

47. It is furthermore of some significance that the Commissioner in its

order dated 30.11.2000 made a terse comment that the assessee cannot shift

the burden of concealment to any other person, meaning thereby, the

registered valuer. He, furthermore, made a comment that the registered

valuer had adopted a strange way of valuing although no reason, far less

than sufficient or cogent reason, has been assigned in support thereof. The

said comments were unwarranted.

48. Primary burden of proof, therefore, is on the revenue. The statute

requires satisfaction on the part of the assessing officer. He is required to

arrive at a satisfaction so as to show that there is primary evidence to

establish that the assessee had concealed the amount or furnished inaccurate

particulars and this onus is to be discharged by the department. [See D.M.

Manasvi v. Commissioner of Income Tax, Gujarat,-II [(1973) 3 SCC 207]

49. While considering as to whether the assessee has been able to

discharge his burden, the assessing officer should not begin with the

presumption that he is guilty.

50. Once the primary burden of proof is discharged, the secondary burden

of proof would shift on the assessee because the proceeding under Section

271(1)(c) is of penal nature in the sense that its consequences are intended to

be an effective deterrent which will put a stop to practices which the

Parliament considers to be against the public interest and, therefore, it was

for the department to establish that the assessee shall be guilty of the

particulars of income. [See Anwar Ali (supra) and M/s Khoday Eswarsa

(supra)].

51. The order imposing penalty is quasi-criminal in nature and, thus,

burden lies on the department to establish that the assessee had concealed his

income. Since burden of proof in penalty proceedings varies from that in the

assessment proceeding, a finding in an assessment proceeding that a

particular receipt is income cannot automatically be adopted, though a

finding in the assessment proceeding constitute good evidence in the penalty

proceeding. In the penalty proceedings, thus, the authorities must consider

the matter afresh as the question has to be considered from a different angle.

[See Anantharam Veerasinghaiah & Co. v. C.I.T., Andhra Pradesh, 1980

Supp SCC 13].

52. The Appellant herein in the penalty proceedings had produced

relevant particulars to show that they were materials in support of the report,

although a part of which was not annexed with the report.

53. Before, thus, a penalty can be imposed, the entirety of the

circumstances must reasonably point to the conclusion that the disputed

amount represented income and that the assessee had consciously concealed

the particulars of his income or had furnished inaccurate particulars thereof.

54. We have noticed hereinbefore that the quantum of penalty has been

increased from time to time under the 1922 Act. Maximum penalty which

could be imposed was only 20% of the tax sought to be evaded whereas, in

terms of the provisions as it stands now, the penalty can be imposed to the

extent of three times of the tax sought to be evaded.

55. It is now a well-settled principle of law that more stringent the law,

more strict construction thereof would be necessary. Even when the burden

is required to be discharged by an assessee, it would not be as heavy as the

prosecution. [See P.N. Krishna Lal and Others v. Govt. of Kerala and

Another, 1995 Supp (2) SCC 187]

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56. It is one thing to say that the valuation based on a newspaper is totally

unacceptable, but it is another thing to say that by reason of the return, the

assessee furnished inaccurate particulars. The question which was inter alia

required to be posed was whether the method adopted by the registered

valuer was wholly unknown to law or was contrary to all modes of

valuation. Whether the particulars sought to have been concealed were

necessary for the purpose of arriving at a correct valuation or otherwise

misleading? Whether the method of valuation adopted by the registered

valuer resulted in a grossly unfair valuation which could not have been done

by any reasonable person? Was the methodology adopted totally wrong?

57. The methods of valuation, as we know, may be different. A registered

valuer is supposed to know as to which method or mode should be adopted

for the purpose of valuing particular land or a building having regard to a

large number of factors involved therein. The tax on capital gains does not

envisage that the valuation given must be true and exact market value. Even

the market value of a property may be found to be different having regard to

the locale thereof. There was no direct sale instance. The sale instances

relied upon by the District Valuer were of 1979 and 1982.

58. In Union of India v. Pramod Gupta (Dead) By LRs. and Others

[(2005) 12 SCC 1], this Court observed:

"24. While determining the amount of

compensation payable in respect of the lands

acquired by the State, the market value therefor

indisputably has to be ascertained. There exist

different modes therefor.

25. The best method, as is well known, would be

the amount which a willing purchaser would pay to

the owner of the land. In absence of any direct

evidence, the court, however, may take recourse to

various other known methods. Evidences

admissible therefor inter alia would be judgments

and awards passed in respect of acquisitions of

lands made in the same village and/or

neighbouring villages. Such a judgment and award,

in the absence of any other evidence like the deed

of sale, report of the expert and other relevant

evidence would have only evidentiary value."

It was further observed:

"78. We have earlier noticed that one of the modes

of computing the market value may be based on a

judgment or award in respect of acquisition of

similar land, subject of course to such increase or

decrease thereupon as may be applicable having

regard to the accepted principles laid down

therefor and as may be found applicable."

59. This Court therein noticed a large number of decisions where different

principles of arriving at a market value have been noticed but it has also

been noticed that even while determining market value under the Land

Acquisition Act, some guess-work may be inevitable.

60. It is furthermore interesting to note that this Court in D.M. Manasvi

(supra) categorically opined that it would be the satisfaction of the Income

Tax Officer in the course of the assessment proceedings regarding the

concealment of income which would constitute the basis of foundation of the

proceedings for levy of penalty. It was furthermore observed :

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"It may also be observed that what is contemplated by

Sections 271 and 274 of the Act is that there should be,

prima facie, satisfaction of the Income Tax Officer or the

Appellate Assistant Commissioner in respect of the

matters mentioned in sub-section (1) before he hears the

assessee or gives him an opportunity of being heard. The

final conclusion on the point as to whether the

requirements of clauses (a), (b) and (c) of Section 271(1)

have been satisfied would be reached only after the

assessee has been heard or has been given a reasonable

opportunity of being heard."

61. It may be true that the legislature has attempted to shift the burden

from revenue to the assessee. It may further be correct that different views

have been expressed as regard construction of statutes in the light of the

changing legislative scenario, but the tenor of a penal proceeding remains

the same.

62. At this juncture, we may examine the question as to the effect of the

amendments carried out in Section 271(c) of the Act and for the said purpose

we may notice a few decisions of this Court.

63. In Sadhu Singh vs. District Board [(1969) RCR 156] while upholding

the notification of exemption granted in favour of the District Board, before

this Court a distinction was sought to be made that whereas in the Madras

Act which was applicable in the case of P.J. Irani vs. State of Madras

[(1962) 2 SCR 169], the expression used was "unreasonable eviction of

tenants"; in the Punjab Act, the expression used was "eviction of tenants".

But this Court found no distinction between the two Acts as one of the

objects of the Acts was eviction of unreasonable tenants and the expression

"unreasonable" thus was held to be read in the title of the Rent Act.

64. It is interesting to note that this Court in The Workmen of M/s

Firestone Tyre & Rubber Co. of India P. Ltd. v. The Management and

Others [AIR 1973 SC 1227], despite insertion of Section 11A in the

Industrial Disputes Act, 1947 by reason of the Industrial Disputes

(Amendment) Act, 1971, held :

"\005At the time of introducing Section 11-A in the Act,

the legislature must have been aware of the several

principles laid down in the various decisions of this Court

referred to above. The object is stated to be that the

Tribunal should have power in cases, where necessary, to

set aside the order of discharge or dismissal and direct

reinstatement or award any lesser punishment\005"

65. The omission of the word "deliberate", thus, may or may not be of

much significance but what is material is its application.

66. Section 271(1)(c) remains a penal statute. Rule of strict construction

shall apply thereto. Ingredients of imposing penalty remains the same. The

purpose of the legislature that it is meant to be deterrent to tax evasion is

evidenced by the increase in the quantum of penalty, from 20% under the

1922 Act to 300% in 1985.

67. 'Concealment of income' and 'furnishing of inaccurate particulars'

are different. Both concealment and furnishing inaccurate particulars refer

to deliberate act on the part of the assessee. A mere omission or negligence

would not constitute a deliberate act of suppressio veri or suggestio falsi.

Although it may not be very accurate or apt but suppressio veri would

amount to concealment, suggestio falsi would amount to furnishing of

inaccurate particulars.

68. The authorities did not arrive at a finding that the consideration

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amount fixed for the sale of property was wholly inadequate. The

authorities also do not show that what are the inaccurate particulars

furnished by the Appellant. They also do not state that what should have

been the accepted principles of valuation. We, therefore, do not accept the

submissions of the learned Additional Solicitor General that concealment or

furnishing of inaccurate particulars would overlap each other, the same

would not mean that they do not represent different concepts. Had they not

been so, the Parliament would not have used the different terminologies.

69. We have noticed hereinbefore that even the Wanchoo Committee laid

emphasis on the fact that explanation appended to Sub-section (1) of Section

271 should be inserted to clarify that where a tax payer's explanation in

respect of any receipt, deposit, outgoing or investment is found to be false,

the amount represented by such receipt, etc. shall be deemed to be income in

respect of which particulars have been concealed or inaccurate particulars

have been furnished. What was, therefore, necessary to be found out in

respect whereof the assessing officer was required to arrive at a satisfaction

was 'falsity' in furnishing of explanation by the assessee. Explanation \026 1,

therefore, categorically states that such explanation must either be false or

not otherwise substantiated. Even in explanation \026 4, the expression

"evaded" finds place.

70. In Commissioner of Income Tax v. Mussadilal Ram Bharose [(1987)

2 SCC 39], this Court while holding that the onus would lie on the assessee

to discharge the same, in the case, the difference between the income

returned and income assessed was less than 80%, meaning thereby, a

rebuttal presumption arose against the assessee, opined :

"10. It is clear that if the Income Tax Officer and the

Appellate Assistant Commissioner were satisfied that the

assessee had concealed the particulars of his income or

furnished inaccurate particulars of such income, he can

direct that such person should pay by a penalty the

amount indicated in sub-clause (ii) of clause (c) of

Section 271(1) of the Act. Before the amendment,

difficulty arose and it is not necessary to trace the history,

under the law as stood prior to the amendment of 1964,

the onus was on the revenue to prove that the assessee

had furnished inaccurate particulars or had concealed the

income. Difficulties were found to prove the positive

element required for concealment under the law prior to

amendment; this positive element had to be established

by the revenue. To obviate that difficulty the Explanation

was added. The effect of the Explanation was that where

the total income returned by any person was less than 80

per cent of the total income assessed, the onus was on

such person to prove that the failure to file the correct

income did not arise from any fraud or any gross or

wilful neglect on his part and unless he did so, he should

be deemed to have concealed the particulars of his

income or furnished inaccurate particulars, for the

purpose of Section 271(1). The position is that the

moment the stipulated difference was there, the onus that

it was not the failure of the assessee or fraud of the

assessee or neglect of the assessee that caused the

difference shifted on the assessee but it has to be borne in

mind that though the onus shifted, the onus that was

shifted was rebuttable. If in an appropriate case the

Tribunal or the fact-finding body was satisfied by the

evidence on the record and inference drawn from the

record that the assessee was not guilty of fraud or any

gross or wilful neglect and if the revenue had not

adduced any further evidence then in such a case the

assessee cannot come within the mischief of the section

and suffer the imposition of penalty. That is the effect of

the provision."

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.

71. The said decision was followed in Commissioner of Income Tax,

Madras v. K.R. Sadayappan [(1990) 4 SCC 1].

72. In the proceedings under the Income Tax Act, there would be cases

and cases of imposition of tax; capital gains being only one of them. It is not

disputed that the registered valuers are appointed in terms of the provisions

of the Wealth Tax Act, 1957. Sections 16A thereof provides for reference to

Valuation Officer.

73. In terms of sub-section (2) of Section 16A, the Valuation Officer may

serve a notice upon the assessee. Sub-section (4) thereof empowers the

Valuation Officer to serve a notice on the assessee intimating the value

which he proposes to estimate and giving the assessee an opportunity to state

when he is of the opinion that the value of the asset is higher than the value

declare in the return made by him. The Valuation Officer in terms of Wealth

Tax Act, therefore, is conferred with a statutory power.

74. Section 34AB occurring in Chapter VIIB of the Act provides for

registration of valuers. For the purpose of such a registration, the valuer

must possess the qualifications prescribed in that behalf. Certain conditions

are also imposed in terms of the Act while registering such valuation.

75. Rule 8A lays down the qualifications of registered valuers. Rule 13 of

the said rules provides that a registered valuer can be deregistered if the

circumstances so warrant.

76. It is in the aforementioned premise, provisions of the Act, the

imposition of tax relating to 'capital gain' are required to be taken into

consideration. Section 48 of the Act, inter alia, provides that the income

chargeable under the head "capital gains" shall be computed by deducting

full value of the consideration received or accruing as a result of transfer of

capital assets the following amounts, namely, the cost of the acquisition of

the assets and cost of any improvement thereto. The second proviso

appended to the said section provides for indexed cost. Such methodology

for valuing the property for the purpose of capital gains by way index cost is

taken recourse to having regard to the rate of inflation in mind.

Explanations (iii) and (v) of the second proviso appended thereto also play

an important role which are as under :

"(iii) "indexed cost of acquisition" means an amount

which bears to the cost of acquisition the same proportion

as Cost Inflation Index for the year in which the asset is

transferred bears to the Cost Inflation Index for the first

year in which the asset was held by the assessee or for

the year beginning on the 1st day of April, 1981,

whichever is later;"

"(v) "Cost Inflation Index", in relation to a previous year,

means such Index as the Central Government may,

having regard to seventy-five per cent of average rise in

the Consumer Price Index for urban non-manual

employees for the immediately preceding previous year

to such previous year, by notification in the Official

Gazette, specify, in this behalf."

77. Yet again Section 55(2)(b) refers to 'any other capital asset' in the

following terms :

"(b) in relation to any other capital asset,--]

(i) where the capital asset became the property of the

assessee before the 1st day of April, [1981], means the

cost of acquisition of the asset to the assessee or the fair

market value of the asset on the 1st day of April, [1981],

at the option of the assessee;

(ii) where the capital asset became the property of the

assessee by any of the modes specified in sub-section(1)

of section 49, and the capital asset became the property

of the previous owner before the1st day of April, [1981],

means the cost of the capital asset to the previous owner

or the fair market value of the asset on the 1st day of

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April, [1981], at the option of the assessee ;

(iii) where the capital asset became the property of the

assessee on the distribution of the capital assets of a

company on its liquidation and the assessee has been

assessed to income-tax under the head "Capital gains" in

respect of that asset under section 46, means the fair

market value of the asset on the date of distribution:

78. Section 55A of the Act provides for reference to Valuation Officer. A

bare perusal of the said provision will clearly go to show that the reference

to a Valuation Officer is optional. The said provision is for the purpose of

making an estimate. Such reference is made, if in the opinion of the

Assessing Officer the value of the assets as claimed by the assessee in

accordance with the estimate made by a registered valuer is less than its fair

market value. Clause (b) of Section 55A refers to any other case which goes

to show that the assessee had two options, namely, to get the value of the

assets prepared through index value or take any other known mode of

valuation.

79. The assessee could get the valuation done through any other mode of

index value, or the assessee could have engaged any other valuer other than

a registered valuer also. In the instant case, the assessee had chosen to

obtain the opinion of a registered valuer.

80. The registered valuer has arrived its opinion on certain basis. He

while making the valuation report, disclosed all the particulars. He disclosed

that he had chosen to the index value method. He did not rely upon any sale

instance. He might have referred to the valuation of the property as

mentioned in a local newspaper. But it is not in dispute that he did not

furnish any inaccurate particulars. It is true that he has not enclosed the

sheet showing sale instance but nothing turns out thereupon as he had not

relied upon any sale instances.

81. There can be a genuine difference of opinion between two experts.

The District Valuer, as noticed hereinbefore, having regard to the sale

instances of 1979 wherein the value of the land was fixed at Rs.500/- per sq.

ft., took notice of the fact that the valuation in terms of another sale instance

of 19.10.1982 wherein the land was valued at about Rs. 1823/- per sq. ft. A

valuation was to be arrived at on 01.04.1981. He picked up a figure of

Rs.897/- per sq. ft. No reason had been assigned in support thereof. No

other or further sale instances had been given. We do not know as to

whether any other sale instances were available. He merely stated that such

valuation had been arrived at after taking into account the time size-shape,

time gap, location-situation and also the factors like physical, social, legal

and economical. Some other officer could have picked up holes in the said

report. On the other hand, the opinion of the registered valuer, as would

appear from the report, was that he had taken into consideration the value of

the shop as Rs.1525/- per sq. ft.

82. A duty may be enjoined on the assessee to make a correct disclosure

of income but if such disclosure is based on the opinion of an expert, who is

otherwise also a registered valuer having been appointed in terms of a

statutory scheme, only because his opinion is not accepted or some other

expert gives another opinion, the same by itself may not be sufficient for

arriving at a conclusion that the assessee has furnished inaccurate

particulars.

83. It is of some significance that in the standard proforma used by the

Assessing Officer in issuing a notice despite the fact that the same postulates

that inappropriate words and paragraphs were to be deleted, but the same

had not been done. Thus, the Assessing Officer himself was not sure as to

whether he had proceeded on the basis that the assessee had concealed his

income or he had furnished inaccurate particulars. Even before us, the

learned Additional Solicitor General while placing the order of assessment

laid emphasis that he had dealt with both the situations.

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84. The impugned order, therefore, suffers from non-application of mind.

It was also bound to comply with the principles of natural justice. [See

Malabar Industrial Co. Ltd. v. Commissioner of Income Tax, Kerala State,

(2000) 2 SCC 718]

85. We have, however, noticed hereinbefore that the Income Tax Officer

had merely held that the assessee is guilty of furnishing of inaccurate

particulars and not of concealment of income; which finding was arrived at

also by the Commissioner of Income Tax and the Income Tax Appellate

Tribunal.

86. In K.C. Builders and Another v. Assistant Commissioner of Income

Tax [(2004) 2 SCC 731], this Court formulated the following questions for

consideration :.

"8. On the above pleadings and facts and

circumstances of the case, the following questions of law

arise for consideration by this Court:

(a) Whether a penalty imposed under Section

271(1)(c) of the Income Tax Act and prosecution under

Section 276-C of the Income Tax Act are simultaneous?

(b) Whether the criminal prosecution gets quashed

automatically when the Income Tax Appellate Tribunal

which is the final court on the facts comes to the

conclusion that there is no concealment of income, since

no offence survives under the Income Tax Act thereafter?

(c) Whether the High Court was justified in

dismissing the criminal revision petition vide its

impugned order ignoring the settled law as laid down by

this Court that the finding of the Appellate Tribunal was

conclusive and the prosecution cannot be sustained since

the penalty after having been cancelled by the

complainant following the Income Tax Appellate

Tribunal's order no offence survives under the Income

Tax Act and thus the quashing of the prosecution is

automatic?

(d) Whether the finding of the Income Tax Appellate

Tribunal is binding upon the criminal court in view of the

fact that the Chief Commissioner and the assessing

officer who initiated the prosecution under Section 276-

C(1) had no right to overrule the order of the Income Tax

Appellate Tribunal? More so when the Income Tax

Officer giving the effect to the order cancelled the

penalty levied under Section 271(1)(c)?

(e) Whether the High Court's order is liable to be set

aside in view of the errors apparent on record?

In K.C. Builders (supra), this Court noticed the dictionary meaning of

the explanation and held :

"4. The respondent assessing authority treated the

difference between the income as per original return and

revised income as concealed income. The Assistant

Commissioner of Income Tax levied penalties under

Section 271(1)(c) of the Income Tax Act, 1961

(hereinafter referred to as "the Act") for all the aforesaid

four assessment years. Accordingly, penalty proceedings

were initiated. The first appeal against the order of

penalties levied for concealment of income against the

appellants were confirmed by the CIT (Appeals). As per

the directions of the Chief Commissioner of Income Tax,

four complaints were filed in the Court of the Additional

Chief Metropolitan Magistrate, Egmore, Chennai for

offences under Sections 276-C(2), 277 and 278-B of the

Act and Sections 120-B, 34, 193, 196 and 420 of the

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Indian Penal Code."

87. The learned Additional Solicitor General, however, submitted that

although on the facts of the case the decision rendered is correct but the view

of the court that unless there is some evidence to show or some

circumstances found from which it can be gathered that the omission was

attributable or the part of the assessee to conceal his income so as to evade

income tax thereon may not correct. As at present advised, we do not intend

to go into the said question; as in the facts and circumstances of the case,

there are enough material to show that the action on the part of the appellant

may not be said to be such which would attract the penal provision under

Section 271(1)(c) of the Act.

88. For the reasons aforementioned, the impugned judgment cannot be

sustained. It is set aside accordingly. The appeal is allowed. However, in

the facts and circumstances of this case, there shall be no order as to costs.