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CASE NO.: Appeal (civil)  2746 of 2007

PETITIONER: Dilip N. Shroff

RESPONDENT: Joint Commissioner of Income Tax, Mumbai & Anr

DATE OF JUDGMENT: 18/05/2007

BENCH: S.B. Sinha & P.K. Balasubramanyan

JUDGMENT: J U D G M E N T

CIVIL APPEAL NO.  2746                   OF 2007 [Arising out of S.L.P. (Civil) No.26831 of 2004]

S.B. SINHA, J :

1.      Leave granted.

2.      The Appellant herein is an assessee under the Income Tax Act.  It is  an HUF.  For the assessment year 1998-99, an income of Rs.30,80,030/- was  declared by it, inter alia, showing a long term capital loss of Rs.34,12,000/- .  The said capital loss was said to have arisen on account of sale of property  being land and building known as ’Jekison Niwas’, 220 Walkeshwar Road,  Mumbai.  Admittedly, the Appellant had 1/4th share therein.  It entered into  an agreement for sale of 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 01.04.1981, 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, description of the property,  location thereof, whether situated in residential/commercial/mixed/industrial  area, and classification thereof were shown.  As regard, proximity to civic  amenities, it was stated that the plot is very close to "Raj Bhawan".  All  other amenities except cinema were within 1 k.m.  Means and proximity to  surface  communication by which the locality is served were also stated.  All  other requisite particulars, as specified, were stated.   

3.      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  & 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 purpose of  my valuation of share in the property.

Based on the sales instances the prices given in  "Accommodation Times" I am of the opinion and feel  that the rate of the Residential Apartment in the area in  1981 would be in between Rs.2500 to Rs.3000/- per  S.FT.    I think that the lower value of Rs.2500 per S.FT.  as fair and reasonable.

This rate will be fair and reasonable for the share of

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property belonging to Late Mr. Natwarlal Shroff & Late  Mrs. Sonabai Shroff as the title of their holding is clear  and Marketable.

I am appointed to give value of the share of the property  belonging to the Late Mrs. Sonabai Shroff i.e. 1/4th share  of the property.

As regards (valuation of) 1/4th share of Mr. Bhagwandas  Dwarkadas Shroff and 1/4th share of Mr. Madhavdas  Dwarkadas I am informed that there is suit pending in  courts regarding title to the property and tenancy rights.   Each of the other holders will fetch the reports of  valuation for their respective shares separately.

In  1981 the cost of construction may be taken at  Rs.275/- per S.FT.   Further, considering the Builder’s  Profit Rs.700/- per S.Ft. and deducting both the  value of  cost of construction and the Builder’s profits from the  above stated works out to Rs.1,525/- per S.FT of saleable  area.  Considering that it is a jointly owned property, I  take it as fair and reasonable.  

As these rate the value of the share of the property  belonging to late Mr. Natwarlal Shroff comes to -  

               16536.5 x 1525.00 = Rs.2,52,18,165.05

                               Say         Rs.2,50,00,000.00 \005.(I)                  Though the building itself is old and dilapidated, I  consider the scrap value of it at Rs.50/- per S.FT.  As the  Built up area is 16000 S.FT., the scrap value of structure  comes to Rs.8,00,000.00.  The value of the share of Late  Mr. Natwarlal Shroff of this scrap value is  Rs,8,00,000.00.  The value of the share of Late Mr.  Natwarlal Shroff of this scrap value is

                       =  Rs. 2,00,000.00      \005.(II)

Therefore value of the property belonging to Late Mr.  Nartwarlal 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 Late Mr. Natwarlal Shroff at  Rs.2,52,00,000.00 (Rs. Two Crore Fifty Two Lakhs Only) as on 1/4/81"

4.      As regard 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 & "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

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to consider only the scrap value of the building and the  value of only land as the basis of my valuation."

5.      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.   

6.      The return filed by the Appellant on 30.09.1998 came up for scrutiny  before the First Respondent, who in exercise of its 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 01.04.1981  to the District Valuation Officer; whereupon the District Valuation Officer  submitted a report dated 29.06.2000 wherein the 1/4th undivided share of the  Appellant in the said property as on 01.04.1981 was determined at  Rs.1,14,92,907, the basis whereof is said to be as under :

"Name of Property       Land along with Bungalow  known    as    "Jekinson Niwas"          220-Walkeshwar Road,  Mumbai-400 006

1 Land Area as per records 5250 sq. yds.       =  4389.63 sq. mt. 2 Land rate adopted @  Rs.12842/- sq. mt.  (897/- x 1.33 x  10.764)   

3 Consideration of land  component  Rs.5,63,71,628 (A) 4 Built-up Area  existing as on 1-4.81  (Gr.+I upper floor  bungalow structures)    16,000 sq. ft. 5 Salvage/Scrap value  (16000 sq. ft @  Rs.100/- sq. ft.) as  adopted by the Regd.  Valuer  Rs.16,00,000/- (B) 6 Total consideration  (A)+(B) Rs.5,79,71,628/- 7 1/4th share of the  above (6)  consideration as Fair  Market Value  Rs.1,44,92,907/-

               Say Rs.144.93 lakhs"

7.      For the aforementioned purpose the land rate was taken at Rs.897/- sq.

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ft. on the basis of the following sale instances :

" Sl.  No. Date of  Sale Name of Property Consideration Area Rate 1 27.11.79 Land Survey No. 218  (Pt) Street No.25, 27,  27(A) at Narayan  Dhabolkar Rd. Off N.S.  Rd., Mumbai Rs.3,15,00,000/ 7114.08  sq. mt. Rs.4428/-  sq. mt. 2 19.10.82 Flat No.302, 3rd floor at  Sanudeep CHS Ltd. Plot  No.631 (Pt) at Altamount  Road, Mumbai Rs.68,00,000/- 346.60  sq. mt. Rs.1823/-  sq. ft.   

       By comparing and considering the sale instances property with the subject  property after taking into account size-shape, time-gap, location-situation and also the  factors like physical, social legal and economical, the land FSI rate as on 1.4.81 is Rs.897   sq. ft is considered to be fair and reasonable."

8.      As regard 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 25.6.96 valuing the subject  property 1/4th share as Rs.2,52,00,000/- as on 1.4.81.   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."

9.      The First Respondent having regard to the aforementioned valuation  report of the District Valuation Officer passed an order of assessment on  08.08.2000 holding :

"\005The cost of acquisition as on 1.4.1981 is therefore, adopted

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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 1.4.81 as per the Dept. Valuer’s report as discussed is Rs. 1,44,92,907 Indexed cost = 1,44,907 x 331                                   100      

Rs.8,00,00,000

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 :

Property Income :                                                            Rs 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                                                         ---------------                          TOTAL INCOME                    3,40,59,506                 Rounded off                             3,40,59,510

7.      Assessed accordingly.  Give credit for prepaid taxes.   Charge interest u/s 234B and 234C.  Initiate penalty  proceedings u/s 271(1)(c) of the Act.  Issue demand notice and  challan."

10.     Thus, in the said order, valuation of the land as made by the District  Valuation Officer was adopted and on the basis thereof long term capital  gain was determined to be Rs.3,09,78,478 by taking the valuation of the 1/4th  undivided share of the Appellant as Rs.1,44,92,907 as on 01.04.1981.  In  view of the said order of assessment, a show cause notice under Section 274  read with Section 271 of the Act was served to which a reply was filed by  the Appellant on or about 14.08.2000 claiming that there was no

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concealment of income as all the details of property were submitted along  with the return of income and the difference in the matter of valuation of the  1/4th share of the appellant does not amount to concealment.  It was stated  therein :

"3.     All the material facts in respect of the 1/4th share of  the  sale of property has been disclosed when the  return was filed.  It is the difference of opinion in  respect of value of the property as of 1.4.1981  between the Registered Valuer and Divisional  Valuation Officer with regard to value of the  property as of 1.4.1981 does not amount to  concealment.

4.      The Valuation Report by the Divisional Valuer of  the department has been arrived at by using his  best judgment and perception.  The value  determined by him as of 1.4.1981 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 Department’s Divisional  Valuation Officer does not change the basis  character or the details of valuation, hence there is  no concealment whatsoever.  You are therefore  requested to drop the penalty proceedings initiated  u/s 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 to 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 against requested to decide the fate  of penalty U/s 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."

11.     The First Respondent, however, in his order dated 23.08.2000  purported to be in exercise of its power under Section 271(1)(c) of the Act,  held :

"\005The 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\005.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 assessee in obtaining the valuation report is obviously  viewed in the context of assessee having returned loss  under the head Capital Gains\005\005In the circumstances,  the assessee is considered to have furnished inaccurate  particulars of income in respect of the amount added

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under the head capital gains.  The amount of tax sought  to be evaded is worked out as per clause (a) to  Explanation 4 to Sec. 271(1)(c) of the Act at 20% of  Rs.3,43,90,478 i.e. Rs.68,78,095.  Accordingly, a  minimum penalty of Rs.68,78,095 is levied under Section  271(1)(c) of the Act."

12.     The Appellant preferred an appeal thereagainst before the  Commissioner contending :

"..There is no concealment of particulars of income or  furnishing inaccurate particulars of such income nor there  is deemed income to represent the income in respect of  which particulars have been concealed."

        13.     The said  appeal was, however, dismissed by the Commissioner of  Income Tax by an order dated 13.11.2000 holding :

"\005 To summarize differences between two reports  cannot be attributed universally to a single reason i.e.  difference of opinion.  I have already stated in case a  report is incorrect for any reason the assessee is expected  not to rely upon it because he cannot shift the burden of  concealment u/s 271(1)(c) to any other person who might  have helped him in the matter of preparation of the return  and drawing the statement of income.

                It was further held :

"\005This is very strange way of valuing the land after first  arriving at the value of the building and deducting  therefrom the value of the superstructure instead of  directly calculating value of land with reference to sales  instances."

9.      Secondly I find that the basis adopted by the  Registered Valuer to rely upon a newspaper is totally  unacceptable and 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."   

14.     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 10.08.2001, holding :

"It was also frankly admitted that the words "sales

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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 valuation\005"            

       It was also held :

       "Acceptance by the assessee of the value of his  share of property as on 1.4.1981 estimated in the DVO’s  report for computation of capital gains is an important  factor to be noticed\005.In the case before us, the  difference in the valuation between the registered valuer  and the DVO arose on account of incorrect application of  the principles of valuation or non adherence thereto by  the registered valuer as against the valuation made by the  DVO as per accepted norms of valuation which  valucation has been accepted by the assessee.

As stated earlier, perusal of the orders of the  revenue authorities will make it abundantly clear that the  impugned penalty has been levied upon the assessee for  furnishing inaccurate particulars of income under the  main clause of sec.271(1)(c)."  

                                15.     Indisputably, the Appellant deposited a sum of Rs.68,78,095/- towards  penalty.  An appeal preferred by him before the High Court in terms of  Section 260A of the Act was dismissed in limine, stating :

       "We are not persuaded by the submission of the  learned counsel for the assessee.  The revenue authorities  as well as the Income Tax Appellate Tribunal have  concurrently  held that the assessee furnished inaccurate  particulars.  This finding is based on the aspect that the  valuation report submitted by the assessee did not reflect  the correct cost of acquisition.  What is the market value  of the property as on 01.04.1981 is an aspect of the fact  and the 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..."       

16.     Mr. Anil B. Dewan, the learned Senior Counsel appearing on behalf

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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 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.  Valuation being based on estimate  and, thus, being a matter of opinion can always vary.  The Appellant having  availed the services of an expert, could not have gone into the correctness  thereof as has been observed by the Commissioner of Income Tax in his  impugned order.  In view of the fact that the explanation offered by the  assessee was bona fide, no penalty proceeding could have been initiated.   

17.     Mr. Gopal Subramanium, the learned Additional Solicitor General  appearing on behalf of the Respondents, on the other hand, would take us  through the legal history of the provision of section 271(1)(c) of the Act; and  furthermore draw our attention to the fact that neither the sheet showing the  sale instances had been annexed with the return nor the particulars thereof  had been furnished; and even no copy of the Accommodation Times had  been annexed, wherefrom it could be inferred that deliberate attempt had  been made on the part of the Appellant in providing inaccurate particulars.   It was submitted that the show cause notice issued by the authority will have  to be read with the order of assessment and so read it would appear that the  notice was issued upon due application of mind.  It was submitted that the  factors governing concealment of income and furnishing of inaccurate  particulars overlap with each other and as such it may not be possible for the  authority while issuing notice to specify whether it is a concealment of  income or furnishing of inaccurate 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.

18.     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 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. \026 (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 \026

(c)  has concealed the particulars of his income or  deliberately furnished inaccurate particulars of such  income\005"                

19.     Interpreting the said provision some of the High Courts were of the

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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.   

20.     The said question came up for consideration before this Court in  Commissioner of Income Tax, West Bengal vs. Anwar Ali [(1970) 2 SCC  185], wherein it was held :   

"\005The 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  quasi-penal 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 penalty is the result of a quasi- criminal proceedings: (Hindustan Steel Ltd. v. State of  Orissa7). In England also it has never been doubted that  such proceedings are penal in character; Fattorini  (Thomas) (Lancashire) Ltd. v. Inland Revenue  Commissioner\005"

21.     In Commissioner of Income Tax, Ahmedabad v.  Gokuldas  Harivallabhas, [34 ITR 98], as regard onus of proof, it was opined :

       "That the assessee has concealed the particulars of  his income or deliberately furnished inaccurate  particulars of such income and, therefore, the Department  must establish that the receipt of the amount in dispute  constitutes income of the assessee."

22.     As regard the question as to whether a finding given in the order of  assessment  that particular receipt is income after rejecting the explanation  given by the assessee as false, would prima facie be sufficient for  establishing in proceedings under Section 28 that the disputed amount  was  the assessee’s income, it was observed :

"6\005It must be remembered that the proceedings under  Section 28 are of a penal nature and the burden is on the  Department to prove that a particular amount is a revenue  receipt.  It would be perfectly legitimate to say that the  mere fact that the explanation of the assessee is false  does not necessarily give rise to the inference that the  disputed amount represents income.  It cannot be said  that the  finding given in the assessment proceedings for  determining or computing the tax is conclusive.   However, 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."   

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23.     Vaidialingam, J. followed the said dicta in  Commissioner of Income  Tax v. M/s Khoday Eswarsa & 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  in the original order of assessment."

24.     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. \026 (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 \026

(a)     \005            \005            \005 (b)     \005            \005            \005

(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, -         (i)     \005    \005         (ii)    \005    \005          (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."     

25.     An amendment thereto was carried out in the year 1964, where by and  whereunder the word ’deliberately’ occurring in clause (c) of Section 271 (1)  was omitted and an explanation was inserted thereto; as a result whereof the  said provision reads thus :  

"271.  Failure to furnish returns, comply with notices,  concealment of income, etc. \026 (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 \026 (a)     \005            \005            \005 (b)     \005            \005            \005

(c)     has concealed the particulars of his income or  furnished inaccurate particulars of such income.

"Explanation.- Where the total income returned by any  person is less than eighty per cent of the total  income  (hereinafter in this Explanation referred to as the correct

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income) as assessed under section 143 or section 144 or  section 147 (reduced by the expenditure incurred bona  fide by him for the purpose of making or earning any  income included in the total income but which has been  disallowed as a deduction), such person shall, unless he  proves that the failure to return the correct income did  not arise from any fraud or any gross or willful neglect  on his part, be deemed to have concealed the particulars  of his income or furnished inaccurate particulars of such  income for the purposes of clause ( c) of this sub- section."

26.     While the things stood thus, the Government of India appointed a  Committee of Experts headed by Justice Wanchoo, the former Chief  Justice  of India, and in his report, 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 Tact, 1957.  This was 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 will 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 \026 some technical, like estimate of gross profit  and others purely arithmetical \026 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 draconian, we also strongly feel that those who are  tempted to resort to concealment of income should not be  allowed to get away with tenuous legal interpretations.   We would recommend the following changes in the  Income Tax Act in this regard :

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(a)     Presumption of concealment where explanation  found false \026 Several officers of the Department invited  our  attention to the Supreme Court’s decision in the case  of Commissioner of Income-tax, West Bengal v. Anwar  Ali (76 ITR 696).  It has been held by the Court that  penalty for concealment of income cannot be imposed  merely because the explanation given by an assessee is  found to be false.  While this decision was given in the  context of clause (c) of sub-section (1) of section 28 of  the Indian Income Tax Act, 1922, it is not reasonably  certain that it would not apply to penalties under the  Income Tax Act, 1961.  We would, therefore,  recommend as a measure of abundant caution, that an  Explanation to sub-section (1) of section 271 of the  Indian Income Tax Act, 1961, may be inserted to clarify  that where a taxpayer’s explanation in respect of any  receipt, deposit, outgoing or investment is found to be  false, the amount represented by such receipt, etc., shall  be deemed to be income in respect of which particulars  have been concealed or inaccurate particulars have been  furnished within the meaning of clause  (c) of sub-section  (1)  of section 271 of the Income Tax Act, 1961."        

27.     In the year 1975 by reason of Section 61 of the Taxation Laws  (Amendment) Act, 1975, Explanation to Section 271(1)(c) was deleted and  four Explanations were inserted with effect from 01.04.1976.  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 \026

       (a)     \005            \005

       (b)     \005            \005

       (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, -                          \005            \005            \005         Explanation 1.- Where in respect of any facts  material to the computation of the total income of any  person under this Act, or

       (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

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income have been disclosed by him.

Explanation 2\005\005\005\005\005. Explanation 3\005\005\005\005\005.

Explanation 4.  For the purpose 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 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."   

28.     The provision which is relevant for the purpose of this case, namely,  Assessment year 1998-99, reads as under : "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 -    

(a)     [omitted]

(b)     \005            \005

(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, -

(i)     [omitted]

(i)     \005            \005

in the cases referred to in clause (c), in addition to tax, if  any, payable by him, a sum which shall not be less than ,  but which shall not exceed three times, the amount of tax  sought to be evaded by reason of the concealment of  particulars of his income or the furnishing of inaccurate  particulars of such income.

Explanation 1.- Where in respect of any facts material to  the computation of the total income of any person under  this Act, -

(A)  such person fails to offer an explanation or offers an  explanation which is found 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

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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\005\005\005\005. Explanation 3\005\005\005\005.

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."    

28.     Explanation 1, therefore, is applicable to the facts of the case. 29.     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.   

30.     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 valuation and as against Item  No.40 in addition to the Accommodation Times, which was a local  newspaper, no other sale instance was taken, and even a copy thereof had  not been furnished; nor the sale instances had been mentioned.  The  explanation of the assessee was that in the instant case, Explanation to  Section 271(1)(c) was never invoked.   

31.     Section 271(1)(c) of the Act is in two parts.  Whereas the first part  refers to concealment of income, the second part refers to furnishing of  inaccurate particulars thereof.  In the instant case, the penalty has been  levied upon the Appellant under the second part of Section 271(1)(c) of the  Act.  One of the questions which arises for consideration is as to whether   Explanation 1 is applicable in respect of both the parts or in respect of the  first part only.

32.     Let us also assume that later part of clause (c) of Section 271(1) did  not invite any investigation into whether it was done deliberately or willfully  or not; but let us leave final consideration of this nicety of application  thereof in a more appropriate case and apply the element of deliberation in  the fact of the present case.

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33.     However, according to the assessee the omission to annex the sheet as  mentioned against column No. 38 as also to enclose a copy of the  ’Accommodation Times" was a clerical error and no significance could have  been attached thereto inasmuch no sale 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.

34.     We are not oblivious that some decisions point out that the principles  of Mens Rea may have application only in certain categories of cases Some  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 it’s nature,  and is for 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. MCT M Corp. Pvt. Ltd. [(1996) 2 SCC  471] it was suggested that what applies to "tax delinquency" equally holds  good for the "blame worthy" conduct for the contravention of the provision  of FERA.  In Addl. CIT v. Dargapandarinath Taljayya and Co. (1977) 107  ITR 850, it was suggested that Section 271(1)(a) does not take in mens rea  which forms part of Section 276 C which creates offence of willful failure.   This was the view taken in Gujarat Travancore Agency v. CIT (1989) 177  ITR 455 (SC)         In Lim Chin Aik v. The Queen (1963) Appeal Cases 160, notices that  where "public welfare offences" are concerned, there was a presumption of  strict liability and the presumption of mens rea was displaced.  In Ummali  Umma v. Inspecting Assistant Commissioner of Income Tax [64 ITR 669  (Kerala)], it was stated : "I cannot say that the penalty imposed under  Section 28 of the repealed Act or under Section  371 of the Act was or is imposed on the basis that  it was or is an offence.  For the offence  punishment was or is prescribed such as  imprisonment, fine or both.  The imposition of  penalty on the basis of an act or omission by an  assessee is not because the act or omission  constitutes an offence, but because that act or  omission would constitute an attempt at evasion.   Therefore, penalty is exacted not because an act or  omission is an offence but because it is an attempt  at evasion of tax on the part of the assessee."

       Stallybrass in (1936) The Law Quarterly Review at page 66 suggests  that : "In the case of modern statutory offences the  maxim has no general application and the statutes  are to be regarded as themselves prescribing the  mental element which is a pre-requisite to a  conviction.  The learned author suggests that much  of the confusion can be avoided if reference to  mens rea in modern statutory offences is avoided."

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35.     Thus, it appears that there is distinct line of authorities which clearly  lay down that in considering a question of penalty, mens rea is not a relevant  consideration.  Even assuming that when the statute says that one is liable  for penalty if one furnishes inaccurate particulars, it may or may not by itself  be held to be enough if the particulars furnished are found to be inaccurate is  anything more needed but the question would still be as to whether reliance  placed on some valuation of an approved 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.

36.     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.         

37.     The legal history of Section 271(1)(c) of the Act traced from the 1922  Act prima facie shows that explanations were applicable to both the parts.   However, each case must be considered on its own facts.  The role of  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  not only is 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. 38.     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 part of the assessee   which is directly relatable to  : (a) failure to offer an explanation and/ or  offering an explanation which is false; and (b)  which he is not able to  substantiate and fails to prove that such explanation is bona fide.   

39.    Only in the event the factors enumerated in clauses (A) and (B) of   Explanation-1 are satisfied and a finding in this behalf is arrived at by the  Assessing Officer, the legal fiction created thereunder would be attracted.   

40.     For the purpose of invoking Clause (iii) of sub-section (1) of Section  271, the expression "amount of tax sought to be evaded" is set out in  Explanation \026 4.  This sub-clause would be attracted when a finding is  arrived at that some amount of tax was sought to be evaded by the assessee  as envisaged by Clause (a) thereof.  Explanation appended to Section 271  (1)(c) is an exception to the general rule.  It raises a legal fiction by reason  whereof a presumption is raised against an assessee as a result whereof the  burden of proof shifts from the department to the assessee.  Legal fiction,  however, as is well-known must be given its full effect when the conditions  precedent therefor are satisfied and not otherwise.  [Ashok Leyland Ltd. v.  State of T.N. and Another, (2004) 3 SCC 1]

41.     What would be the scope of such ’explanation’ has been considered  by this Court in S. Sundaram Pillai, etc. v. V.R. Pattabiraman [AIR 1985 SC  582] wherein object of the explanation is stated in the following terms :

"53. Thus, from a conspectus of the authorities

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referred to above, it is manifest that the object of an  Explanation to a statutory provision is\027 "(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 an  hindrance in the interpretation of the same.""

[See also Swedish Match AB and Another v. Securities & Exchange  Board of India and Another, (2004) 11 SCC 641]

42.     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.   

43.     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."

44.     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.

 45.   The term ’inaccurate particulars’ is not defined.  Furnishing of an  assessment of value of the property may not by itself be furnishing of  inaccurate particulars.   Even if the explanations are taken recourse to, a  finding has to be arrived at having regard to clause (a) of Explanation 1 that  the Assessing Officer is required to arrive at a finding that the explanation  offered by an assessee, in the event he offers one, was false.   He must be  found to have failed to prove that such explanation is not only not bona fide  but all the facts relating to the same and material to the income were not  disclosed by him.  Thus, apart from his explanation being not bona fide, it  should have been found as of fact that he has not disclosed all the facts  which was material to the computation of his income.

46.     The explanation, having regard to the decisions of this Court, must be  preceded by a  finding as to how and in what manner he furnished the

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particulars of his income.  It is beyond any doubt or dispute that for the said  purpose the Income Tax Officer must arrive at a satisfaction in this behalf.   [See Commissioner of Income Tax v. Ram Commercial Enterprises Ltd.,  246 ITR 568 and Diwan Enterprises v. Commissioner of Income Tax, 246  ITR 571]

47.     It is furthermore of some significance that the Commissioner in its  order dated 30.11.2000 made a terse comment that the assessee cannot shift  the burden of concealment to any other person, meaning thereby, the  registered valuer.  He, furthermore, made a comment that the registered  valuer had adopted a strange way of valuing although no reason, far less  than sufficient or cogent reason, has been assigned in support thereof.  The  said comments were unwarranted.

48.     Primary burden of proof, therefore, is on the revenue.  The statute  requires 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.  [See D.M.  Manasvi v. Commissioner of Income Tax, Gujarat,-II  [(1973) 3 SCC 207]

49.     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.

50.     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 the  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.  [See Anwar Ali (supra) and M/s Khoday Eswarsa  (supra)].

51.     The order imposing penalty is quasi-criminal in nature and, thus,  burden lies on the department to establish that the assessee had concealed his  income.  Since 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 constitute 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.   [See Anantharam Veerasinghaiah & Co. v. C.I.T., Andhra Pradesh, 1980  Supp SCC 13].

52.     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.

53.     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.

54.     We have noticed hereinbefore that the quantum of penalty has been  increased from time to time under the 1922 Act.  Maximum penalty which  could be imposed was only 20% of the tax sought to be evaded whereas, in  terms of the provisions as it stands now, the penalty can be imposed to the  extent of three times of the tax sought to be evaded.  

55.     It is now a well-settled principle of law that more stringent the law,  more strict construction thereof would be necessary.  Even when the burden  is required to be discharged by an assessee, it would not be as heavy as the  prosecution.  [See P.N. Krishna Lal and Others v. Govt. of Kerala and  Another, 1995 Supp (2) SCC 187]

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56.     It is one thing to say that the valuation based on a newspaper is totally  unacceptable, but it is another thing to say that by reason of the return, the  assessee furnished inaccurate particulars.  The question which was inter alia  required to be posed was whether the method adopted by the registered  valuer was wholly unknown to law or was contrary to all modes of  valuation.  Whether the particulars sought to have been concealed were  necessary for the purpose of arriving at a correct valuation or otherwise  misleading?  Whether the method of valuation adopted by the registered  valuer resulted in a grossly unfair valuation which could not have been done  by any reasonable person?  Was the methodology adopted totally wrong?

57.     The methods of valuation, 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 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.

58.     In Union of India v. Pramod Gupta (Dead) By LRs. and Others  [(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 principles laid down  therefor and as may be found applicable."

59.     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.

60.     It is furthermore interesting to note that this Court in D.M. Manasvi  (supra) categorically opined that it would be the satisfaction of the Income  Tax Officer in the course of the assessment proceedings regarding the  concealment of income which would constitute the basis of foundation of the  proceedings for levy of penalty.  It was furthermore observed :

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"It may also be observed that what is contemplated by  Sections 271 and 274 of the Act is that there should be,  prima facie, satisfaction of the Income Tax Officer or the  Appellate Assistant Commissioner in respect of the  matters mentioned in sub-section (1) before he hears the  assessee or gives him an opportunity of being heard. The  final conclusion on the point as to whether the  requirements of clauses (a), (b) and (c) of Section 271(1)  have been satisfied would be reached only after the  assessee has been heard or has been given a reasonable  opportunity of being heard."

61.     It may be true that the legislature has attempted to shift the burden  from revenue to the assessee.  It may further be correct that different views  have been expressed as regard construction of statutes in the light of the  changing legislative scenario, but the tenor of a penal proceeding remains  the same.

62.     At this juncture, we may examine the question as to the effect of the  amendments carried out in Section 271(c) of the Act and for the said purpose  we may notice a few decisions of this Court.

63.     In Sadhu Singh vs. District Board [(1969) RCR 156] while upholding  the notification of exemption granted in favour of 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 vs. State of Madras  [(1962) 2 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.

64.     It is interesting to note that this Court  in The Workmen of M/s  Firestone Tyre & Rubber Co. of India P. Ltd. v. The Management and  Others [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 :

"\005At 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\005"  

65.     The omission of the word "deliberate", thus, may or may not be of  much significance but what is material is its application.

66.     Section 271(1)(c) remains a penal statute.  Rule of strict construction  shall apply thereto.  Ingredients of 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% under the  1922 Act to 300% in 1985.

67.     ’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.

68.     The authorities did not arrive at a finding that the consideration

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amount fixed for the sale of property was wholly inadequate.  The  authorities also do not show that what are the inaccurate particulars  furnished by the Appellant.  They also do not state that what should have  been the accepted principles of valuation.  We, therefore, do not accept the  submissions of the learned Additional Solicitor General that concealment or  furnishing of inaccurate particulars would overlap each other, the same  would not mean that they do not represent different concepts.  Had they not  been so, the Parliament would not have used the different terminologies.

69.    We have noticed hereinbefore that even the Wanchoo Committee laid  emphasis on the fact that explanation appended to Sub-section (1) of Section  271 should be inserted to clarify that where a tax payer’s explanation in  respect of any receipt, deposit, outgoing or investment is found to be false,  the amount represented by such receipt, etc. shall be deemed to be income in  respect of which particulars have been concealed or inaccurate particulars  have been furnished.  What was, therefore, necessary to be found out in  respect whereof the assessing officer was required to arrive at a satisfaction  was ’falsity’ in furnishing of explanation by the assessee.  Explanation \026 1,  therefore, categorically states that such explanation must either be false or  not otherwise substantiated.  Even in explanation \026 4, the expression  "evaded" finds place. 70.     In Commissioner of Income Tax 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%, meaning thereby, a  rebuttal 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 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 cannot come within the mischief of the section  and suffer the imposition of penalty. That is the effect of  the provision."

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. 71.     The said decision was followed in Commissioner of Income Tax,  Madras  v. K.R. Sadayappan [(1990) 4 SCC 1].

72.     In the proceedings under the Income Tax Act, there would be cases  and cases of imposition of tax; capital gains being only one of them.  It is not  disputed that the registered valuers are appointed in terms of the provisions  of the Wealth Tax Act, 1957.  Sections 16A thereof provides for reference to  Valuation Officer. 73.     In terms of sub-section (2) of Section 16A, the Valuation Officer may  serve a notice upon the assessee.  Sub-section (4) thereof empowers the  Valuation Officer to serve a notice on the assessee intimating the value  which he proposes to estimate and giving the assessee an opportunity to state  when he is of the opinion that the value of the asset is higher than the value  declare in the return made by him.  The Valuation Officer in terms of Wealth  Tax Act, therefore, is conferred with a statutory power.  74.     Section 34AB occurring in Chapter VIIB of the Act provides for  registration of valuers.  For the purpose of such a registration, the valuer  must possess the qualifications prescribed in that behalf.  Certain conditions  are also imposed in terms of the Act while registering such valuation.   

75.     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.   76.     It is in the aforementioned premise, 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  full value of the consideration received or accruing as a result of 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 index 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 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."

77.     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, and the capital asset became the property  of the previous owner before the1st day of April, [1981],  means the cost of the capital asset to the previous owner  or the fair market value of the asset on the 1st day of

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April, [1981], at the option of the assessee ; (iii) where the capital asset became the property of the  assessee on the distribution of the capital assets of a  company on its liquidation and the assessee has been  assessed to income-tax under the head "Capital gains" in  respect of that asset under section 46, means the fair  market value of the asset on the date of distribution:

78.     Section 55A of the Act provides for reference to Valuation Officer.  A  bare perusal of the said provision will clearly go to show that the reference  to a Valuation Officer is optional.  The said provision is for the purpose of   making an estimate.  Such reference is made, if in the opinion of the  Assessing Officer the value of the assets as claimed by the assessee in  accordance with the estimate made by a registered valuer is less than its fair  market value.  Clause (b) of Section 55A refers to any other case which goes  to show that the assessee had two options, namely, to get the value of the  assets prepared through index value or take any other known mode of  valuation.

79.     The assessee could get the valuation 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.   

80.     The registered valuer has arrived its 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 out thereupon as he had not  relied upon any sale instances.   

81.     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 19.10.1982 wherein the land was valued at about Rs. 1823/- per sq. ft.  A  valuation was to be arrived at on 01.04.1981.  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.1525/- per sq. ft.   

82.     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.   83.     It is of some significance that in the standard proforma 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.

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84.     The impugned order, therefore, suffers from non-application of mind.  It was also bound to comply with the principles of natural justice.  [See  Malabar Industrial Co. Ltd. v. Commissioner of Income Tax, Kerala State,  (2000) 2 SCC 718]

85.     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.

86.     In  K.C. Builders and Another v. Assistant Commissioner of Income  Tax [(2004) 2 SCC 731], this Court formulated the following questions for  consideration :.

"8. On the above pleadings and facts and  circumstances of the case, the following questions of law  arise for consideration by this Court: (a) Whether a penalty imposed under Section  271(1)(c) of the Income Tax Act and prosecution under  Section 276-C 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 276- C(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  (supra), 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 CIT (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 276-C(2), 277 and 278-B of the  Act and Sections 120-B, 34, 193, 196 and 420 of the

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Indian Penal Code." 87.     The learned Additional Solicitor General, however, submitted that  although on the facts of the case the decision rendered is correct but 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 or the part of the assessee to conceal his income so as to evade  income tax thereon may not 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 material 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.      88.     For the reasons aforementioned, the impugned judgment cannot be  sustained.  It is set aside accordingly.  The appeal is allowed.  However, in  the facts and circumstances of this case, there shall be no order as to costs.