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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 ..... he appellant was regularly claiming depreciation on buildings occupied by the tenants - the building has not been used for the assessee's business and no depreciation could be allowed. Significance of the Word “False” – Held that:- 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. The claim for depreciation was made quite without any basis - In view of the amended definition of "undisclosed income" such claim would render it undisclosed income - Merely because it is not in so many words mentioned that the claim is made falsely in the facts of this case it does not mean it is not made falsely - The word "false" in this context need be given only the wide meaning as the direct impact is that amount included will be assessed as undisclosed income -where there can be no explanation from the assessee for illegaly claiming depreciation, there is no need for relegating the matter for regular assessment - The possibility of penalty cannot be a reason to require that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the course of regular assessment. (f). Whether the order of the Tribunal is erroneous, illegal and on an improper appreciation of the facts and the law. 2. Appellant is a firm doing business in wholesale pharmaceutical distribution. One Shri. Sebastian Thomas was the holder of power of attorney given by the Partners for operation of the bank account of the firm. There was a search at the business premises as well as at the residence of the Partners on 30.7.1998. Shri. Sebastian Thomas gave a sworn statement wherein he had declared an amount of Rs..4 Lakhs under Section 132(4) of the Income Tax Act (hereinafter referred to as the Act) towards the unaccounted investment in the building owned by the firm. The assessee filed a return pursuant to notice under Section 158BC of the Act. The appellant had constructed a building known as "Thomas Puthur Memorial Bldg". The accounts revealed the cost of construction as Rs..6,95,700/=only. Shri. Sebastian Thomas had confirmed that there was a deficiency of Rs..4,00,000/= in accounting the cost of construction. The matter was referred by the Assessing Officer to the Valuation Officer of the Department. The Executive Engineer (Valuation), ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r 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 appellant is before us. 4. We heard the learned counsel for the appellant and the learned counsel for the Revenue. 5. Learned counsel for the appellant would submit that there is no basis for making the addition of Rs..4,00,000/= towards cost of construction in proceedings under Chapter 14B of the Act. The Assessing Officer and the Tribunal have relied on estimation made by the Valuation Officer. The valuation was unacceptable. As far as the question of depreciation is concerned, he would submit that there is no basis for overturning the order of the Appellate Authority. More importantly, it is submitted that under the provisions relied on by the Tribunal, it has to be found that the claim made by the assessee was false. In this case, it is submitted that there is no finding that the claim made by the assessee was false. It is submitted that the use of the word "false" would necessarily bring in the requirement of the element of mens rea and as long as as the assessee is not attributed with any criminal intent, the disallowance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 61, 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 AO while dealing with regular assessment is free to examine the veracity of the return as well as the claims made by the assessee with regard to exemption and/or deduction, those can be considered under S.143(3) of the said Act of 1961, whereas the third income being "the undisclosed income" is taxed and by way of block assessment resulting in search and seizure. Such block assessment is made under S.158BA. The logic behind the two different modes of assessment, according to us, is that concealment of income and claiming deduction or exemption of taxes in respect of a disclosed income cannot be treated at par. The former is an offence which goes to the root of the matter and the other is on the basis of the cases shown by the assessee where the AO is free to accept the justification shown or reject the same. The said two types of cases cannot be treated at par." However, we notice that the Court pronounced the judgment on 19.02.2001. It is by Finance Act 2002, no doubt with retrospective effect from 01.7.1995 that the defini ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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), with retrospective effect from 1st July, 1995. The object of the amendment is to specifically provide that any expense, deduction or allowance claimed under this Act which is found to be false, shall be included in the undisclosed income as defined in this clause. The last line of the said definition "or any expense, deduction or allowance claimed under this Act which is found to be false" makes it clear that unless and until the said deduction claimed by the assessee is found to be false by the Revenue, there is no scope for the Revenue to treat the disallowance made under S.40A(2) as undisclosed income. As in this case, the AO had not given a finding that this expenditure claimed by the assessee was false. The AO only disallowed the expenditure under S.40A(2) on the ground that this expenditure is unreasonable. The disallowance made under S.40A (2) of the Act, would not be considered for the purpose of making block assessment under Chapte XIV-B of the Act, unless and until the Revenue gives a categorical finding that the w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 entertained." (5) Still further, he sought support from the decision of the Apex Court in Commissioner of Sales Tax, Uttar Pradesh v. Sanjiv Fabrics [(2010) 9 SCC 630)] . There, the case arose under the Central Sales Tax Act. The Court was considering the question whether mens rea was an essential element to levy penalty under Section 10(b) with Section 10A of the Central Sales Tax Act, 1956. Section 10 of the Act provides for penalties. Clause (b) related to a case where a person being a registered dealer falsely represents that when purchasing any class of goods, goods are covered by his Certificate. Clause ( c ) refers to a case where a person not being a registered dealer falsely represents when purchasing goods in the course of industrial trade or commerce that he is a registered dealer. Clause (d) of Section 10 referred to any person who fails to make use of the goods after purchasing such goods for the purpose mentioned therein. Section 10A on the other hand, reads as follows: "10-A. Imposition of penalty in lieu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 which are relatable to such evidence. Therefore, the focus must be on the evidence which was unearthed during the course of the search or other material or information relating to such evidence. There is no relevant material as such which can be relied on by the appellant to justify the finding about the cost of construction being what was estimated. In the statement, in fact, what is stated is, as already noted, approximately one crore of rupees was spent. The AO could not have by way of estimation in proceedings under Chapter XIV-B, determined the cost of construction and therefrom arriving at the undisclosed income by deducting the alleged admitted cost of construction." 7. Per contra, learned counsel for the Revenue sought to support the order. He pointed out that as far as the addition of a sum of Rs..4,00,000/= as sustained by the Tribunal is concerned, the Partner had made the statement that there was a short fall of Rs..4,00,000/=. No doubt, there was also the report of the Valuation Officer. As far a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y 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, deduction or allowance could be treated as undisclosed income. In this context, the learned counsel for the appellant also drew our attention to Section 158BFA of the Act which provides for levy of interest and penalty in certain cases. Sub-section (1) of Section 158BFA deals with levy of interest. We are not concerned with the same. Apparently, the appellant seeks to draw support from Sub-section (2) of Section 158BFA. It reads as follows: "158 BFA. (1). xxxxxxxx (2). The Assessing Officer or the Commissioner (Appeals) in the course of any proceedings under this Chapter may direct that a person shall pay by way of penalty a sum which shall not be less than the amount of tax leviable but which shall not exceed three times the amount of tax s leviable in respect of the undisclosed income determined by the Assessing Officer under clause( c ) of section 158 BC" Sub-section (3) provides for certain conditions to be fulfilled in the matter of imposing penalty. 11. In order to appreciate this argument, w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 Section 158 BF reads as follows: "158BF. No interest under the provisions of section 234A, 234B or 234C or penalty under the provisions of clause ( c ) of sub-section (1) of section 271 or section 271A or section 271B shall be levied or imposed upon the assessee in respect of the undisclosed income determined in the block assessment." Thus, no penalty can be levied for concealment of income under Section 271C of the Act in a case where undisclosed income is determined in the block period. It is thereafter that Section 158BFA provides for levy of penalty. The most important provision which we are called upon to consider is the definition of the word "undisclosed income". We extract the same as under: "158B. In this Chapter, unless the context otherwise requires, - (a). xxxxxxxxx (b). "undisclosed income" includes any money, bullion, jewellery or other valuable article or thing or any income based on any entry in the books of account or other documents or transactions, where such money, bulli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovident 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.,Forgery and Counter Feiting Act 1981(c.45), s.9. Def.,"False Registration card' ("means a document which is designed to appear to be a registration card") s. 26A of the Immigration Act 1971 (c.77), inserted by s. 148 of the Nationality, Immigration and Asylum Act 2002 (c.41). "False representations" see. REPRESENTATIONS. In S.T.Commr.v.Bombay Gen.Stores(AIR 1969 MP 213), a Division Bench Judgment was authored by Justice G.P. Singh, the author of the well known book "Principles of Statutory Interpretation". It was a case which involved Section 10B of the Central Sales Tax Act and the words used were "falsely represents". The Court took the view that mens rea was an indispensable element to impose a penalty for contravention of Section 10B. We deem it apposite to refer to the following discussion: "3. The question referred to us is not happily worded but it is clear that it relates to the construction of the words "falsely represents" as they occur in clause (b) of Section 10, whether ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d"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, People v. Wahl 39 Cal. App 771 = 100 P. 2d 550, 551 and Salt's Textile Mfg. Co. v. Ghent. 107 Conn. 211 = 139 A 694. 695. It will thus be seen that the word"false" may be used in a wider or a narrower sense. In wider sense it will embrace all types of falsehoods whether they be intentional or innocent but in narrower sense it will cover only such falsehoods which are intentional. The question whether in a particular enactment the word "false" is used in a restricted sense or in a wider sense would depend on the context in which it is used. Clause (b) of Section 10 of the Central Sales Tax Act, with which we are concerned, uses the words " falsely represents" as an ingredient of a criminal offence, for which a penalty of imprisonment which may extent to six months is prescribed. We begin with a presumption that a guilty intent is an essential element of a statutory offence and this presumption is strengthened when the offence is made punishable with a sentence of imprisonment. Thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 as to minimise the incidence of tax. "Unacceptable tax avoidance typically involves the creation of complex artificial structures by which, as though by wave of a magic wand the tax-payer conjures out of the air a loss or a gain or expenditure or whatever it may be which otherwise would never have existed. These structures are designed to achieve an adventitious tax benefit for the tax-payer and in truth are no more than raids on the public funds at the expense of the general body of tax-payer and as such are unacceptable. Taxation is the price which we pay for civilization. Indeed the courts have now gone to the extent of not recognising tax avoidance schemes or devices even if they are strictly not non- genuine. This new approach to tax avoidance schemes has been accepted in India. In the words of CHINNAPPA REDDY, J.: " We now live in a welfare state whose financial needs, if backed by the law, have to be respected and met. We must recognise that there is behind taxation l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 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 claimed by way of deduction or allowance as undisclosed income, only if the same are claimed with an evil intention or with knowing that it is false. There can be no doubt that widely interpreted the word "false" is capable of taking in intentional and innocent falsehoods. In other words, if widely interpreted, it is capable of bearing the meaning that the claim is untrue on the basis of mistake or accident or it was untue even though care had been taken and the appellant had honestly thought that the claim was sustainable. 15. It is no doubt true that the Legislature has made use of the word "false". We cannot also be unmindful of the fact that when the claim is found to be false in the wider sense and hence rejected, there is the possibility that the Officer may invoke Section 158BFAand impose penalty. We are of the view that in the facts of this case, the claim for depreciation was made quite without any basis. In view of the amended definition of "undisclosed income" su ..... X X X X Extracts X X X X X X X X Extracts X X X X
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