2007 (5) TMI 198 - SC - Income Tax

Penalty under s.271(1)(c) set aside where registered valuer's opinion used and Assessing Officer showed non-application of mind

Dilip N. Shroff Versus Joint Commissioner of Income-tax And Another

SC allowed the appeal, holding that penalty under s.271(1)(c) could not be sustained where valuation for capital gains was made on the basis of a ... Valuation for computation of capital gains - Hindu undivided family - burden of proof - Legitimacy of the penalty proceedings u/s 271(1)(c) - HELD THAT:- 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. It is of some significance that in the standard pro forma 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. The impugned order, therefore, suffers from non-application of mind. It was also bound to comply with the principles of natural justice. 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. The learned Additional Solicitor General, however, submitted that although on the facts of the case the decision rendered is correct 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 on the part of the assessee to conceal his income so as to evade income-tax thereon may not be 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 materials 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. Appeal is allowed. Issues Involved:1. Valuation of property and computation of capital gains.2. Accuracy and reliability of the registered valuer's report.3. Legitimacy of the penalty proceedings under Section 271(1)(c) of the Income-tax Act.4. Burden of proof and the requirement of mens rea for imposing penalties.5. Interpretation and application of statutory provisions and explanations.Issue-Wise Detailed Analysis:1. Valuation of Property and Computation of Capital Gains:The appellant, a Hindu undivided family, declared an income of Rs. 30,80,030 for the assessment year 1998-99, including a long-term capital loss of Rs. 34,12,000 due to the sale of a 1/4th share in the property 'Jekison Niwas' for Rs. 8 crores. The registered valuer, U. D. Chande, determined the value of the 1/4th share as Rs. 2,52,00,000 as of April 1, 1981, based on various factors including proximity to civic amenities and sales instances. The District Valuation Officer (DVO) later assessed the value at Rs. 1,14,92,907, using different sale instances and methodologies.2. Accuracy and Reliability of the Registered Valuer's Report:The DVO criticized the registered valuer's report for relying on rates published in a local newspaper, 'Accommodation Times,' and not on actual sales instances. The DVO's valuation was based on specific sales instances from 1979 and 1982. The appellant's valuation method was deemed unacceptable by the Commissioner of Income-tax and the Income-tax Appellate Tribunal, which upheld the DVO's valuation.3. Legitimacy of the Penalty Proceedings under Section 271(1)(c):The first respondent initiated penalty proceedings under Section 271(1)(c) for furnishing inaccurate particulars of income. The appellant argued that there was no concealment of income and that the difference in valuation was a matter of opinion between the registered valuer and the DVO. The penalty of Rs. 68,78,095 was imposed, which the appellant paid but contested through appeals.4. Burden of Proof and Requirement of Mens Rea for Imposing Penalties:The appellant contended that the penalty proceedings lacked the necessary mens rea, arguing that the valuation was based on a professional's advice and not intended to evade tax. The Supreme Court examined the legal history of Section 271(1)(c) and concluded that the burden of proof lies with the Revenue to establish that the assessee concealed income or furnished inaccurate particulars. The court emphasized that penalty proceedings are quasi-criminal, requiring strict adherence to procedural fairness and objective assessment.5. Interpretation and Application of Statutory Provisions and Explanations:The Supreme Court analyzed the statutory provisions, including the explanations to Section 271(1)(c). The court noted that the explanation must be bona fide and all material facts must be disclosed. The court found that the Assessing Officer did not apply his mind adequately and that the penalty order lacked a clear basis for concluding that the appellant furnished inaccurate particulars. The court highlighted that the explanation offered by the appellant was bona fide and that there was no deliberate concealment of income.Conclusion:The Supreme Court set aside the impugned judgment, ruling that the penalty imposed under Section 271(1)(c) was not justified. The court emphasized the need for a fair and objective assessment, highlighting the importance of mens rea and procedural fairness in penalty proceedings. The appeal was allowed, and the penalty order was quashed.