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TMI Blog2014 (2) TMI 236X X X X Extracts X X X X X X X X Extracts X X X X ..... der section 132 (4) of the I.T. Act. (c). Whether in the facts and circumstances of the case and in law, the Tribunal had erred or not in disallowing the deprecision claimed on the building under Section 32 as business assets in block assessment proceedings under Section 158 BB by treating the said amounts as undisclosed income as defined under Section 158 B (b). (d). Whether in the facts and circumstances of the case and in law, the Tribunal had erred in holding that the depreciation claimed under Section 32 would be subject to the assessment under Section 158 BB even when the said depreciation was claimed by the assessee in regular assessment for the relevnat Assessment Years treating the building as business asset. (e). Whether in the facts and circumstances of the case and in law, when the building is reflected in the Balance Sheet for the relevant Accounting Year and depreciation claimed in regular assessment, could the said aspect be subject to assessment under Section 158 BB at all and is it not a matter to be considered during the course of regular assessment. (f). Whether the order of the Tribunal is erroneous, illegal and on an improper appreciation of the facts and t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al was partly allowed. The Tribunal found that the appellant had singularly failed to discharge the burden of proof qua what is claimed by it. This is in regard to the addition made towards the cost of construction of the building. It is found that the Revenue's case is not only supported by the voluntary statement under Section 132(4) which stands not retracted, but also corroborated by the DVO's report to which no valid rebuttal has been made by the assessee. But, the Tribunal found it justifiable to restrict the addition towards unexplained investment to building at Rs..4,00,000/= as declared by the assessee. As far as the second issue, namely the claim of depreciation allowance also was concerned, the Tribunal took note of the words "or any expense, deduction or allowance claimed under this Act which is found to be false" added to the definition of the undisclosed income vide Section 158B(b) of the Act by the Finance Act, 2002 with effect from 01/7/1995 which clinched the issue against the assessee. The Tribunal found that Chapter 14B provides separate procedure for assessment of any income revealed by search or requisition. It is against the said order of the Tribunal that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts significance. It is a duty of the judiciary to interpret the same for its implementation as and when they are approached. 12. Now the question comes what does this Explanation mean. Clause (a) of the Explanation makes it clear that the block assessment is in addition to the regular assessment in respect of each previous year included in the block period; (b) means total undisclosed income relating to the block period cannot be tagged with regular assessment; ( c ) states that the income under Chapter XIV-B, i.e., block assessment shall not be included in regular assessment and other than undisclosed income is assessable in regular assessment under S.143(3) of the Act. On a composite reading of the said three parts of the Explanation, it is crystal clear that the legislature thought it fit to make a distinction between the block assessment and the regular assessment. As has been held by the Division Bench in Shaw Wallace & Co. Ltd.'s case (supra) that there are three types of income within the meaning of the said Act of 1961, i.e., incomes which are offered for taxation, incomes which are shown in the return but deductions have been claimed wrongly; and undisclosed income. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sment year 1994-95 was only Rs..6 lakhs. The claim of the assessee was that the assessee was due to pay ten per cent of the gross income on contracts executed to M/S. T.C.V. Packers. It was further found that M/S. T.C.V. Packers was a proprietory concern of Mr. T.T.V. Dinakaran upto 31st March 1994. The said Dinakaran was the Director of the assessee company. In M/s. T.C.V. Packers, other than Mr. T.T.V. Dinakaran, there was no person having any knowledge or experience. In short, the Assessing Officer found that there was no necessity for payment of the supervisory charges to M/S.T.C.V. Packers which was only a cover up, as the same work could have been carried out in his capacity as Director of the company and, therefore, the Assessing Officer took the view that the supervisory charges were not allowable and it was treated as undisclosed income. This was the case where the Court did consider the effect of the words "undisclosed income" as amended by the Finance Act, 2002. The Court made the following observation: "6. The Finance Act of 2002 has inserted the words "or any expense, deduction or allowance claimed under this Act which is found to be false" at the end of the cl.(b), w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e been assessed in the regular assessment and not in the block assessment. We, therefore, affirm the conclusions or findings recorded by the Tribunal with respect to those transactions referred to in other questions sought to be canvassed, may be for additional different reason recorded herein." (4) Next, he relied on the Judgment of the Bombay High Court in Commissioner of Income Tax v. Templetion Asset Management (India) (P) Ltd. [2011) 337 ITR 541 (Bom)]. The Court held, inter alia, as follows: "3. As regards questions Nos.2 and 5 relating to the deletion of accrued interest are concerned, the finding of fact recorded by the Tribunal is that the assessee had purchased the debentures in question in the year 1999 and the same were reflected in the books of account maintained by the assessee. Therefore, whether interest on those debentures were includible in the total income on accrual basis or not, was a question to be considered in the regular assessment and not in the block assessment. Therefore, no fault can be found with the decision of the Tribunal in deleting the interest on accrual basis in the block assessment order. Accordingly, questions Nos. 2 and 5 cannot be enterta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of circumstances constituting the said offence." Based on the same, learned counsel for the appellant would submit that the Tribunal has acted illegally in not noting that there was no finding by the Assessing Officer that the assessee had falsely claimed the benefit of depreciation. In other words, apart from there being a finding on the said lines as such, it is necessary to sustain an addition by way of undisclosed income that the depreciation should have been claimed falsely, that is to say, it should have been claimed with the knowledge that it was knowingly and intentionally false. (6) Lastly, he also relied on the Judgment of this Court in Commissioner of Income Tax v. SMT. C. Sabira [(2011) 338 ITR 226), wherein this Court was also dealing with a case of block assessment and it was, inter alia, held as follows: "17. We are of the view that there is no merit in the contention of the appellant. Chapter XIV-B deals with ascertainment of the undisclosed income of the party for the block period. In the case of a search, the undisclosed income must be determined with reference to the evidence unearthed during the search and also the other materials or information available wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wever, claimed by the assessee, even though the building could not be said to have been used for the business of the assessee. Thus, in law, the depreciation could not have been claimed or granted. The case of the appellant is that as held by the Appellate Authority, this is a matter for consideration in the regular assessment and it is not a matter to be considered in the block assessment. 10. The argument of the learned counsel for the appellant addressed before us is essentially two-fold: He would submit that even going by the definition of the word "undisclosed income", the requirement is that the expense, deduction or allowance must be found to be false. Apart from the fact that the matter was to be decided in regular assessment, it is pointed out that there is no finding that the depreciation was claimed falsely. The further aspect is apparently an offshoot of the employment of the word "false". That is to say, the learned counsel would contend that the deliberate use of the word "false" necessarily means that the Legislature contemplated that only if the claim of expense, deduction or allowance was made with the evil intention or with deliberateness that the said expense, d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nter alia, on the basis of the income where assessments have been concluded under Sections 143, 144 or 147 on the basis of the assessments. In a case where returns are filed, but the assessment has not been made till the date of the search or requisition, the undisclosed total income for the block period is to be reduced by the amount shown in the return. In a case where return is not filed, clause ( C ) applies. Likewise, Clauses C(a) to (f) provide for other situations. The Explanation to Section 158BB Clause (a) reads as follows: "Explanation.- For the purposes of determination of undisclosed income, - (a) The total income or loss of each previous year shall, for the purpose of aggregation, be taken as the total income or loss computed in accordance with the provisions of this Act without giving effect to set off of brought forward losses under Chapter VI or unabsorbed depreciation under sub-section (2) of Section 32: Provided that in computing deductions under Chapter VIA for the purposes of the said aggregation, effect shall be given to set off of brought forward losses under Chapter VII or unabsorbed depreciation under sub-section (2) of Section 32." It is thereafter that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rate, the facts are totally dissimilar. In this case, the assessee could not have claimed depreciation when the asset was being let out and not being used for the purpose of the business. It may be true that the Assessing Officer did not use the words that the claim is false. In stead, what is found is that the appellant was regularly claiming depreciation on buildings occupied by the tenants. It is further found that it is evident that the building has not been used for the assessee's business and no depreciation could be allowed. 12. The next question which would arise is what is the significance of the use of the word "false". In Strouds Judicial Dictionary (Vol.II), we find the following commentary against the word "false": "FALSE See per Alverstone C.J. Korten v. West Sussex CC 72 L.J.K.B. 514, cited PERMIT. The word is not applicable to a story which merely contains some inaccuracies in detail or is somewhat exaggerated ( Mountford v. Crofter ( 1942 ) S.A.S.R 244). (Industrial and Provident Societies Act 1913 (c. 31). s.10(c). could mean no more than incorrect (English and Scottish Properties Mortgage and Investment Society v. Odhams Press {1940} 1 K.B. 440, 458). Stat.Def. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1 = 22A 604. It implies either conscious wrong or culpable negligence, and signifies knowingly, negligently untrue. United State v. Ninety - Nine Diamonds, C.C. A.Minn 139 F 961 = CCA 9 = 2 LRA NS 185. The word ' false' has two distinct and well recognised meanings; (1) intentionally or knowingly or negligently untrue; (2) untrue by mistake or accident, or honestly after the exercise of reasonable care. Metropolitan Life Ins. Co. v. Adams. Mun. App; 37 A 2d. 345, 350. In jurisprudence, "false" and "falsely" are oftenest used to characterize a wrongful or criminal act, such as involves an error or untruth, intentionally or knowingly put forward. A thing is called "false" when it is done, or made with knowledge, actual or constructive, that it is untrue or illegal, or is said to be done falsely when the meaning is that the party is in fault for its error. Fouts v. State 113 Chio St. 450 = 149 Ne 551, 554 and Monahan v. Mutual Life Ins. Co. of New York, 192 Wis 102=212 NW 269. The word"false" in its juristic use implied something more than a mere untruth, Dombroski v. Metropolitan Life Ins. Co., NJL 545 = 19 Ad 2d 678, 680. The word ' false' sometimes connotes an intent to deceive, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he presumption it must be held that the word ' false' is used in that clause in a restricted sense and does not exclude the element of mens rea. In our opinion, in the absence of mens rea a dealer cannot be penalised for contravention of Cl. (b) of Sec. 10. The view that we have taken has also been taken by the Kerala High Court In Varghese and Sons v. Sales Tax Officer, 1965 - 16 STC 323 = ( AIR 1965 Ker.212). Thus, the meaning of the word "false" cannot be divorced from the context in which the word occurs and the statutory setting. A penalty provision in a taxing statute is distinguished from a provision creating an offence and the former does not involve the concept of mens rea {(See M/s. Gujarat Travancore Agency v. I.T. Commr. Kerala (AIR 1989 SC 1671) and. Additional I-T Commr. Gujarat v. I.M.Patel & Co. (AIR 1992 SC 1762)}. We also refer to the following commentary, namely "The Principles of Statutory Interpretation" by Justice G.P. Singh at page 779. Pages f 779 read as follows: "There is a fundamental difference between acceptable tax mitigation and unacceptable tax avoidance. The former are cases in which the tax payer takes advantage of the law to plan his affairs so ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a deliberate act of omission on the part of the assessee. It has also been held that the order imposing penalty is quasi criminal in nature and thus the burden lies on the Department to establish that the assessee has concealed its income (See T.Ashok Pai v. CIT [(2007) 7 SCC 162). It is also no doubt true that in Govind Impex (P) Ltd. v. Incometax Deptt.[(2011) 1 SCC 529) the Court took the view that a penal statute which makes an act a penal offence or imposes a penalty is to be strictly construed and if two views are possible, one favourable to citizens is to be ordinarily preferred. 14. Apparently, no penalty can be imposed under Section 271 (c) where undisclosed income is determined under Chapter 14B. In fact, the provisions of Section 158BFA is a special provision relating to the power to impose penalty as provided therein. No penalty can be imposed if the return is filed as provided in the Explanation followed by payment of tax and the other conditions are satisfied. Secondly, the levy of penalty is not mandatory. There is the discretion. Penalty may be levied. We are called upon to adopt the narrow meaning of the word "false" and to confine the inclusion of any amount cla ..... X X X X Extracts X X X X X X X X Extracts X X X X
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