AI Drafter 
TaxTMI 
TaxTMI 
2007 (5) TMI 198
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....er, was appointed. On April 1, 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, 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 t....
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....ances, 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 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 Ap....
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....s instance. As such, the regd. valuer's report cannot be accepted." The first respondent having regard to the aforementioned valuation report of the District Valuation Officer passed an order of assessment 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: ....
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....(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 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 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 ....
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....ed 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 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 inco....
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....nditions 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 v....
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....e Assistant Commissioner or the Appellate Tribunal, 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, . . . " Interpreting the said provision some of the High Courts were of the 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. 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. Abraha....
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....onstitutes 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" 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 pe....
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.... did not proceed from any fraud, or gross or willful neglect. A similar Explanation was also introduced in the Wealth-tax Act, 1957. This was a 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 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 pa....
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....l pay by way of penalty,- . . . Explanation 1.-Where in respect of any facts material to the computation of the total income of any person under this Act (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 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 i....
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....pect of which particulars have been concealed. Explanation 2.-. . . . . . Explanation 3.-. . . . . . 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." Explanation 1, therefore, is applicable to the facts of the case. The correctness of the orders passed by the Assessing Officer, Com....
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..... 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 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. ....
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....ere applicable to both the parts. However, each case must be considered on its own facts. The role of the 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 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. ....
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....t 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 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 ....
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....t. 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. 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 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. 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 ....
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.... by the District Valuer were of 1979 and 1982. In Union of India v. Pramod Gupta [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 p....
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.... the title of the Rent Act. It is interesting to note that this court in Workmen of Firestone Tyre and Rubber Co. of India P. Ltd. v. Management, 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: "At 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." 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 "fu....
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....f 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 diffe....
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....consideration received or accruing as a result of the 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 of indexed 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 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 ye....
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....rred 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 thereupon as he had not relied upon any sale instances. 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 October 19, 1982, wherein 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 rep....
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....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 276C(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, 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....