TMI Blog2007 (5) TMI 198X X X X Extracts X X X X X X X X Extracts X X X X ..... n on account of sale of property being land and building known as "Jekison Niwas", 220 Walkeshwar Road, Mumbai. Admittedly, the appellant had a 1/4th share therein. It entered into an agreement for sale of the undivided 1/4th share in the said property for a sum of Rs. 8 crores with one M/s. Layer Exports Pvt. Ltd. For the purpose of valuation of the said property, one Shri U. D. Chande, a registered valuer, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2,00,000.00.(II) Therefore value of the property belonging to the late Mr. Natwarlal Shroff works out to (I) + (II). Rs. 2,50,00,000.00 + Rs. 2,00,000.00 = Rs. 2,52,00,000.00 I therefore value the share of the above property belonging to the late Mr. Natwarlal Shroff at Rs. 2,52,00,000.00 (Rs. two crore fifty two lakhs only) as on April 1, 1981" As regards existence of sale instances, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onsidered to be fair and reasonable." As regards the registered valuer's report, whereupon the appellant relied upon, the District Valuation Officer commented: "8.0 Comments on regd. valuer's report : The assessee have submitted regd. valuer Shri Uday D. Chande's report dated June 25, 1996, valuing the subject property 1/4th share as Rs. 2,52,00,000 as on April 1, 1981. The regd. valuer has simply adopted the rates published in local paper (accommodation times). These rates cannot be considered as authentic. The valuer has not based his valuation on any actual sales 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 In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isional Valuer of the Department has been arrived at by using his best judgment and perception. The value determined by him as of April 1, 1981, has been on the basis of concepts and methods adopted by him, without taking into account the objections and suggestions made by the assessee. The difference between the value as determined by the registered valuer and the Department's Divisional Valuation Officer does not change the basic character or the details of valuation, hence there is no concealment whatsoever. You are therefore requested to drop the penalty proceedings initiated under section 271(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 pen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... does not conform to the accepted principles of valuation. 10. As such the report is therefore unacceptable and at clear variance with the accepted principles of valuation. It is totally incorrect and wrong, if not outrageous. 11. I find the Departmental Valuer's report is based on specific sales instances and computation of land value which constituted the major portion of the report is based on direct sales instances of land. It is not a circuitous method as adopted by the registered valuer." The appellant preferred, an appeal before the Income-tax Appellate Tribunal being aggrieved 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 inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e value furnished by the assessee was held to be factually incorrect. If the computation of the long-term capital gains by the assessee was found to be wrong obviously, the finding of the revenue authorities and the Tribunal that the assessee furnished inaccurate particulars cannot be faulted." Mr. Anil B. Dewan, learned senior counsel appearing on behalf of the appellant, would contend that the first respondent in the order of assessment, did not record his satisfaction that the assessee had concealed the particulars of his income or furnished inaccurate particulars which were conditions 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 havi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... particulars. Existence of mens rea is no longer an essential element for initiating the penalty proceeding having regard to the amendments made in the Act. Before adverting to the rival contentions, we may notice the legal history of the provisions of section 271(1)(c) of the Act. In the Indian Income-tax Act, 1922, the provision for penalty was provided in section 28(1)(c) which dealt with the matter relating to imposition of penalty in the following terms: "28. Penalty for concealment of income or improper distribution of profits.-(1) If the Income-tax Officer, the Appellate 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 constitute ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ever, it is good evidence. Before penalty can be imposed the entirety of 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 deliberately furnished inaccurate particulars." Vaidialingam J. followed the said dicta in CIT v. Khoday Eswarsa and Sons [1971] 3 SCC 555, in the following terms: "19. From the above it is clear that penalty proceedings being penal in character, the Department must establish that the receipt of the amount in dispute constitutes 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it was observed: "2.75. Several persons who appeared before us urged the need for deleting the Explanation to clause (c) of sub-section (1) of section 271 of the Income-tax Act, 1961, for various reasons. The primary objection against this Explanation is that it is being invoked indiscriminately and penalty proceedings are initiated in all cases where the income shown in the return is less than eighty per cent. of the assessed income. This Explanation was introduced in order to cast on the assessee the burden of proving that the omission to disclose true income 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 ret ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Taxation Laws (Amendment) Act, 1975, the Explanation to section 271(1)(c) was deleted and four Explanations were inserted with effect from April 1, 1976. Section 271(c) reads as follows: "271. Failure to furnish returns, comply with notices, concealment of income, etc.-(1) If the Assessing Officer or the Commissioner (Appeals) or the Commissioner in the course of any proceedings under this Act, is satisfied that any person (c) has concealed the particulars of his income or furnished inaccurate particulars of such income, he may direct that such person shall 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 particu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... und by the Assessing Officer or the Commissioner (Appeals) or the Commissioner to be false, or (B) such person offers an explanation which he is not able to substantiate and fails to prove that such explanation is bona fide and that all the facts relating to the same and material to the computation of his total income have been disclosed by him, 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. 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 inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e instance was relied upon by the Valuer and, thus, by reason thereof no inaccurate particulars thereof can be said to have been furnished. It is not a case where the appellant is alleged to have concealed the income as the authorities proceeded on the basis that the penalty was to be levied upon the appellant only on the ground of furnishing inaccurate particulars. We are not oblivious that some decisions point out that the principles of 4 mens rea may have application only in certain categories of cases. Same of which are: In Sherras v. 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 vio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... valuer and, therefore, the furnishing of inaccurate particulars was not deliberate, meaning thereby that an element of mens rea is needed before penalty can be imposed, would have received serious consideration in the light of a large number of decisions of this court. The question, however, in a case of this nature, would be whether it was a fit case where discretionary jurisdiction was properly exercised or not. The legal history of section 271(1)(c) of the Act traced from the 1922 Act prima facie shows that the Explanations were 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 discre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 582, wherein the object of the Explanation is stated in the following terms: "52. Thus, from a conspectus of the authorities referred to above, it is manifest that the object of an Explanation to a statutory provision is (a) to explain the meaning and intendment of the Act itself, (b) where there is any obscurity or vagueness in the main enactment, to clarify the same so as to make it consistent with the dominant object which it seems to subserve, (c) to provide an additional support to the dominant object of the Act 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ge way of valuing although no reason, far less than sufficient or cogent reason, has been assigned in support thereof. The said comments were unwarranted. The primary burden of proof, therefore, is on the Revenue. The statute requires a satisfaction on the part of the Assessing Officer. He is required to arrive at a satisfaction so as to show that there is primary evidence to establish that the assessee had concealed the amount or furnished inaccurate particulars and this onus is to be discharged by the Department. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on, as we know, may be different. A registered valuer is supposed to know as to which method or mode should be adopted for the purpose of valuing a particular land or a building having regard to a large number of factors involved therein. The tax on capital gains does not envisage that the valuation given must be true and exact market value. Even the market value of a property may be found to be different having regard to the locale thereof. There was no direct sale instance. The sale instances relied upon 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the District Board, before this court a distinction was sought to be made that whereas in the Madras Act which was applicable in the case of P. J. Irani v. State of Madras [1962] SCR 169, the expression used was "unreasonable eviction of tenants" ; in the Punjab Act, the expression used was "eviction of tenants". But this court found no distinction between the two Acts as one of the objects of the Acts was eviction of unreasonable tenants and the expression "unreasonable" thus was held to be read in 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 omiss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aded" finds place. In CIT v. Mussadilal Ram Bharose [1987] 2 SCC 39, this court while holding that the onus would lie on the assessee to discharge the same, in the case, the difference between the income returned and income assessed was less than 80 per cent, meaning thereby, a rebuttable presumption arose against the assessee, opined: "10. It is clear that if the Income-tax Officer and the Appellate Assistant Commissioner were satisfied that the assessee had concealed the particulars of 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rule 8A lays down the qualifications of registered valuers. Rule 13 of the said Rules provides that a registered valuer can be deregistered if the circumstances so warrant. It is in the aforementioned premise, the provisions of the Act, the imposition of tax relating to "capital gain" are required to be taken into consideration. Section 48 of the Act, inter alia, provides that the income chargeable under the head "Capital gains" shall be computed by deducting from full value of the 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 whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion done through any other mode of index value, or the assessee could have engaged any other valuer other than a registered valuer also. In the instant case, the assessee had chosen to obtain the opinion of a registered valuer. The registered valuer has arrived his opinion on certain basis. He while making the valuation report, disclosed all the particulars. He disclosed that he had chosen to the index value method. He did not rely upon any sale instance. He might have referred 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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y imposed under section 271(1)(c) of the Income-tax Act and prosecution under section 276C of the Income-tax Act are simultaneous? (b) Whether the criminal prosecution gets quashed automatically when the Income-tax Appellate Tribunal which is the final court on the facts comes to the conclusion that there is no concealment of income, since no offence survives under the Income-tax Act thereafter? (c) Whether the High Court was justified in dismissing the criminal 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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