9911796707
TMI Blog2007 (5) TMI 198X X X X Extracts X X X X X X X X Extracts X X X X ..... are 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, the description of the property, location thereof, whether situated in residential/commercial/mixed/industrial area, and classification thereof were shown. As regards, proximity to civic amenities, it was stated that the plot is very close to "Raj Bhawan". All other amenities except cinema were within 1 km. Means and proximity to surface communication by which the locality is served were also stated. All other requisite particulars, as specified, were stated. 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 and 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gainst 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 and '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 to consider only the scrap value of the building and the value of only land as the basis of my valuation." 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. The return filed by the appellant on September 30, 1998, came up for scrutiny before the first respondent, who in exercise of his 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 April 1, 1981, to the District Valuation Officer; whereupon the District Valuation Officer submitted a report d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sment on August 8, 2000, holding: "The cost of acquisition as on April 1, 1981, is therefore, adopted 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 April 1, 1981 as per the Dept. Valuer's report as discussed is Rs. 1,44,92,907 Rs. 8,00,00,000 Indexed cost = 1,44,907 x 331 100 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: Rs Property income : 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 &nb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... per the demand notice and will show you the challan of having made the payment shortly. You are once again requested to decide the fate of penalty under section 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." The first respondent, however, in his order dated August 23, 2000, purported to be in exercise of its power under section 271(1)(c) of the Act, held: "The 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. . . . 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 the assessee in obtaining the valuation report is obviously viewed in the context of the assessee having returned loss under the head 'Capital gains' . . . . In the circumstances, the assessee is considered to have furnished inaccurate particulars of income in respect of the amount added under the head 'Capital gains'. The amount o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 August 10, 2001, holding: "It was also frankly admitted that the words 'sales 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 valua ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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. The said question carne up for consideration before this court in CIT v. Anwar Ali [1970] 2 SCC 185 wherein it was held: "The 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 quasipenal 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 pena ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f 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" 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.-(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 (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, (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." An amendment thereto was carri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... horities were not inclined to uphold the penalties imposed on the basis of this Explanation, since they were of the view that the Department was 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-some technical, like estimate of gross profit and others purely arithmetical-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 dra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 income have been disclosed by him. 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 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r 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." Explanation 1, therefore, is applicable to the facts of the case. 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. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a tax delinquency is a civil obligation, remedial and coercive in its nature, and is far 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. Met. M. Corp. Pvt. Ltd. [1996] 2 SCC 471, it was suggested that what applies to "tax delinquency" equally holds good for the "blameworthy" conduct for the contravention of the provision of the FERA. In Addl. CIT v. Dargapandarinath Tuljayya and Co. [1977] 107 ITR 850 (AP) [FB], it was suggested that section 271(1) (a) does not take in mens rea which forms part of section 276C which creates offence of wilful failure. This was the view taken in Gujarat Travancore Agency v. ClT [1989] 177 ITR 455 (SC) Lim Chin Aik v. The Queen (1963) Appeal Cases 160 (PC), notices that where "public welfare offences" are concerned, there was a presumption of strict liability and the presumption of mens rea was displaced. In P. Ummali Umma v. IAC of I. T. [1967] 64 ITR 669 (Ker) (Appex. 2) it was stated: "I cannot say that the penalty imposed under section 28 of the repealed Act or under section 271 of the Act was or is imposed on the basis that it was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urnishing of inaccurate particulars alone, the assessee does not ipso facto become liable for penalty. Imposition of penalty is not automatic. Levy of penalty is not only 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. 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 pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hed or set at naught the working of an Act by becoming a hindrance in the interpretation of the same." 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. 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." 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. The term "inaccurate particulars" is not defined. Furni ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re, it was for the Department to establish that the assessee shall be guilty of the particulars of income. The order imposing penalty is quasi-criminal in nature and, thus, the burden lies on the Department to establish that the assessee had concealed his income. Since the 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 constitutes 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. 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. 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. We ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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." 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. It is furthermore interesting to note that this court in D. M. Manasvi categorically opined that it would be the satisfaction of the Income-tax Officer in the course of the assessment proceedings regarding the concealment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... necessary, to set aside the order of discharge or dismissal and direct reinstatement or award any lesser punishment." The omission of the word "deliberate", thus, mayor may not be of much significance but what is material is its application. Section 271(1)(c) remains a penal statute. The rule of strict construction shall apply thereto. The ingredients for 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 per cent. under the 1922 Act to 300 per cent. in 1985. "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. The authorities did not arrive at a finding that the consideration amount fixed for the sale of property was wholly inadequate. The authorities a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ositive 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 c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mount which bears to the cost of acquisition the same proportion as the 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." 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, a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ein the land was valued at about Rs. 1,823 per sq. ft. A valuation was to be arrived at as on April 1, 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. 1,525 per sq. ft. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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, 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 Commissioner of Income-tax (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 276C(2), 277 and 278B of the Act and sections 120B, 34, 193, 196 a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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