Holding

Penalty under Section 271(1)(c) can be imposed only when the assessing officer is satisfied that the assessee deliberately concealed income or furnished inaccurate particulars, and the revenue bears the primary burden of proof; a mere valuation dispute does not meet this threshold.

Summary

The appellant, a Hindu Undivided Family, reported a long‑term capital loss on the sale of its one‑fourth share in a property and relied on a valuation report prepared by a registered valuer. The Assessing Officer, after adopting a higher valuation by the District Valuation Officer, levied a penalty under Section 271(1)(c) for alleged concealment of income and furnishing of inaccurate particulars. The appellant contended that the differing valuations were merely expert opinions and that no deliberate act or omission occurred. The Supreme Court examined the meaning of "concealment" and "inaccurate particulars", the requirement of mens rea, and the allocation of the burden of proof in penalty proceedings. It held that a penalty may be imposed only when the revenue establishes a deliberate act of concealment or furnishing false particulars, and that a mere difference of opinion on valuation does not satisfy this requirement. Consequently, the penalty order was set aside.

Issues considered

Whether the expressions "concealment of income" and "furnishing inaccurate particulars" under Section 271(1)(c) require a deliberate act or mens rea.
Whether the primary burden of proof in penalty proceedings lies on the revenue to establish concealment or inaccurate particulars.
Whether a difference of opinion between two valuation experts amounts to concealment of income or furnishing inaccurate particulars.
Whether Explanation I to Section 271(1)(c) applies to both parts of clause (c) and how it affects the burden of proof.
Whether the assessing officer exercised a proper application of mind in levying the penalty.

Legislation cited

Income Tax Act, 1961s. 271(1)(c), s. 27(1)(c), s. 274, s. 34AB, s. 48, s. 55, s. 55A
Wealth Tax Act, 1957s. 6A

Subjects

concealment of incomeinaccurate particularspenalty under section 271burden of proofmens reavaluation disputeexplanation clausequasi‑criminal penaltytax evasion

Judgment

DILIP N. SHROFF A
v.
JOINT COMMISSIONER OF INCOME TAX, MUMBAI AND ANR.

MAY 18, 2007

[S.B. SINHA AND P.K. BALASUBRAMANYAN, JJ.] B

Income Tax Act, 196I:

Section 27 I (J)(c )-Concealment of income and furnishing of
inaccurate particulars of such income-Ingredients of-Imposition of C
penalty-AY 1998-99-Assessee, an HUF, filed a return of income showing a
long term capital loss-The said capital loss had arisen on account of sale
of property in which the assessee had a I/4th share-The assessee had
appointed a registered valuer for valuation of the said property-The value
of the property was fixed at a certain sum-In the valuation report, it was D
. stated that the pwpose of valuation was for computation of capital gains-
The Assessing Officer referred the valuation to the District Valuation Officer-
The valuation of the property as made by the District Valuation Officer was
adopted and on the basis thereof long term capital gain was determined-
As there was a difference between the two valuations, a show cause notice E
was served on the assessee for concealment of income and furnishing of
inaccurate particulars of such income-The assessee explained that there
was no 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 I/4th share of the assessee did not amount to concealment-The
Assessing Officer r cted the explanation ofthe assessee and levied a minimum F
penalty on the assessee-Appeals field by the assessee rejected by CIT
(Appeals), !TAT and the High Court-Correctness of-Held: The expression
"conceal" signifies a deliberate act or omission on the part of the assessee-
Such deliberate act must be either for the purpose of concealment of income
or furnishing of inaccurate particulars-The Assessing Officer is required to G
arrive at a finding that the explanation offered by an assessee, in the event
he offers one, was false-Primary burden of proof, therefore, is on the
revenue-The statute requires satisfaction on the part of the assessing officer
that the assessee deliberately concealed his income or furnished inaccurate
499 H
500 SUPREME COURT REPORTS [2007) 7 S.C.R.

A particulars in respect of such income-A mere omission or negligence would +
not constitute a deliberate act-S. 271(/)(c) remains a penal statute-Rule
of strict construction shall apply thereto-Mere difference of opinion between
two experts regarding the valuation of the property does not constitute
concealment of income or furnishing inaccurate particulars-The impugned
B order, therefore, suffers from non-application of mind-Penalty set aside.

Words & Phrases:

"Concealment" and "inaccurate particulars"-Meaning of-In the
context of Section 27l(/)(c) of the Income Tax Act, 1?61.

C The appellant was an assessee under the Income Tax Act, 1961 and was
an HUF. For the assessment year I998-99, a certain income was declared by
him, inter alia, showing a long term capital loss. The said capital loss was
said to have arisen on account of sale of property being land and building in
which the appellant had a I/4th share. The appellant entered into an agreement
D for the sale of the undivided I/4th share in the said property for a certain
sum with one Mr. 'L'. For the purpose ofvaluation of the said property a
registered valuer was appointed. The value of the said I/4th share in the
property was fixed at a certain sum. In the valuation report, it was stated that
the purpose was valuation for computation of capital gains. As regard
existence of sale instances, however, although a sheet was said to have been ·
E attached thereto, no such thing was done. By reason of a consent decree, the
I/4th undivided share was sold and possession was transferred to 'L' against
final payment

The return filed by the appellant for the assessment year I998-99 came
up for scrutiny before the Assessing Officer, who, in exercise of the power
F under Section SSA of the Act, referred the matter for valuation of the said I/
4th undivided share of the appellant to the District Valuation Officer. The
valuation of the land as made by the District Valuation Officer was adopted
and on the basis thereof long term capital gain was determined.

G In view of the said order of assessment, a show cause .notice under
Section 274 read with Section 27I of the Act was served on the appellant to
which a reply was med by the appellant claiming that there was no 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 oft.he I/4th share of
the appellant did not amount to concealment
H
DILIP N. SHROFF"· JOINTCOMMNR. OF INCOME TAX, MUMBAI 501
The Assessing .Officer, however, levied a minimum penalty under A
~
Section 27l(l)(c) of the Act. The Commissioner oflncome Tax (Appeals) and
the Income Tax Appellate Tribunal dismissed the appeals filed by the appellant.
The High Court dismissed the appeal preferred by the appellant in limine
under Section 260A of the Act. Hence the appeal.

Allowing the appeal, the Court B

HELD: 1. Interpreting Section 27(1)(c) of the Income Tax Act, 1961,
1..,, 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 c
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. [Para 19] [518-C-D]
D
Commissioner of Income Tax v. Anwar Ali, [1970] 2 sec 185;
_. Commissioner of Income Tax v. Gokuldas Harivallabhas, 34 ITR 98 and
+. Commissioner of Income Tax v. Mis Khoday Eswarsa & Sons, (1971] 3 SCC
555, referred to.

2. Thus, it appears that there is a distinct line of authorities which clearly E
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 n~t 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 F
'~-
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.
(Para 35] [528-B-C]

Sherras v. De Rutzen, (1895) 1 QB 918; Director ofEnforcement v. MCT
G
M Corp. Pvt. Ltd, [1996) 2 SCC 471; Addi. CITv. Dargapandarinath Taliayya
and Co., (1977) 107 ITR 85; Gujarat Travancore Agency v.CIT, (1989) 177
-!- ITR 455 (SC); Lim Chin Aik v. The Queen, (1963) Appeal Cases 160 and
~
Ummali Umma v. Inspecting Assistant Commissioner of Income Tax 64 ITR
669 (Kerala), referred to. H
502 SUPREME COURT REPORTS [2007) 7 S.C.R.

A Corpus Juris Secundum 85, Para 1023 and the Law Quarterly Review,
4-
(1936), p. 66, referred to.

3. The legal history of Section 27l(l)(c) of the Act traced from the
Income Tax Act, I922primafacie shows that he explanations were applicable
to both the parts. However, each case must be considered on its own facts.
B The role of explanation, having regard to the principle of statutory
interpretation, must be done in mind before interpreting the aforementioned
provisions. Section 271(1)(c) categorically states that the penalty would be
leviable if the assessee conceals the particulars of his income or furnishes 1-
'(

inaccurate particu!ars thereof. By reason of such concealment or furnishing
of inaccurate particulars alone, the assessee does not ipso facto become liable
c for pe,nalty. 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, inure on the face ......
D of the statutory provisions. Penalty proceedings are not be initiated only to
harass the assessee. The approach of the Assessing Officer in this behalf
must be fair and objective. (Para 37) (528-E-G) ._
-1-
4.1. Section 271(l)(iii) again proyides for a discretionary jurisdiction
upon the assessing authority inasmuch as the amount of penalty may not be
E 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 materials for the purpose of computation of total income as
is sought to be emphasized in Explanation-I, refer to computation of income
on the part of the assessee which is directly relatable to: (a) failure to offer
F an explanation and/or offering an explanation which is false: and (b) which he
not able to substantiate and fails to prove that such explanation is bonajide.
I
[Para 38) (528-H; 529-A) "f

4.2. Only in the event the factors enumerated in clauses (A) and (B) of
Explanation-I are satisfied and a finding in the behalf is arrived at by the
G Assessing Officer, the legal fiction created there under would be attracted.
[Para 39) [529-B]

Ashok Leyland Ltd v. State ofT.N., (2004) 3 SCC I, S. Sundaram Pillai
v. V. R Pattabiraman, AIR (1985) SC 582 and Swedish Match AB v. Securities -r~
& Exchange Board of India, [2004) 11 SCC 64I, referred to.
H
DILIP N. SHROFF v. JOINT COMMNR. OF INCOME TAX, MUMBAI 503
5. The expression "conceal signifies a deliberate act or omission on A
the part of the assessee. Such deliberate act must be either for the purpose of
concealment of income or furnishing of inaccurate particulars.
(Para 44] (530-F]

Law Lexicon and Webster's Dictionary, referred to.
B
6.1. 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-I 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 c
-I to have failed to prove that such explanation is not only not bona fide but all
i the facts relating to the same and materials 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 were material
to the computation of his income. (Para 45) [530-G-H; 531-A) D
Commissioner of Income Tax v. Ram Commercial Enterprises Ltd., 246
~ ITR 568 and Diwan Enterprises v. Commissioner ofIncome Tax, 246 ITR 571,
+"
relied on.

6.2. Primary burden of proof, therefore, is on the revenue. The statute E
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.
[Para 48) (531-E)
F
D.M Manasvi v. Commissioner ofIncome Tax, (1973] 3 SCC 207, relied
)
on.

-
y

6.3. 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. G
[Para 49) (531-F]

6.4. Once the primary burden of proof is discharged, the secondary
-.i;
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
H
I'
l
504 SUPREME COURT REPORTS [2007] 7 S.C.R.

A intended to be an effective deterrent which will not 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 o,f the
particulars of income. (Para 50) (531-G]

Commissioner of Income Tax v. Atrwar Ali, (1970) 2 SCC 18S and
B Commissioner of Income Tax v. Mis Khoday Eswarsa & Sons, (197113 SCC
5SS, relied on.

7.1. The order imposing penalty is quasi-criminal in nature and, thus,
burden lies on the department to establish that the assessee had concealed
C his income. Since burden or 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 basement 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.
D [Para SI] [S31-H; S32-A-B]

Anatharam Veerasinghaiah & Co. v. CIT, 1,1980) Supp. SCC 13, relied
on.

7.2. The appellant in the penalty proceedings had produced relevant
.
E particulars to show that there were material in support of the valuation report,
~

although a part of which was not annexed with the report.
(Para S2] [532-C]

7.3. Before, thus, a penalty can be iimposed, the entirely of the
circumstances must reasonably point to the conclusion that the disputed
F amount represented income and that the assessee had consciously concealed
the particulars of his income or had furnished inaccurate particulars thereof.
[Para S3] [S32-D]

7.4. It is now a well-settled principle of law that more stringent of law,
more strict construction thereof would be necessary. Even when the burden
G is required to be discharged by an assessee, it would not be as heavy as the
prosecution.
[Para SS] [532-FJ

P.N. Krishna Lal v. Govt. ofKera/a, (199SJ Supp. 2 SCC 187, relied on. -r
H
DILIP N, SHROFF v. JOfNT COMMNR. OF INCOME TAX, MUMBAI 505

+
8. It may be true that the legislature has attempted to shift the burden
form revenue to the assessee. It may further be correct that different views
A
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. (Para 61) (534-D)

Union of India v. Pramod Gupta, (2005( 12 SCC 1 and D. M Manasvi B
v. Commissioner of Income Tax, (197313 SCC 207, referred to.

' -\_,, 9. Section 271(l)(c) remains a penal statute. Rule of strict construction
shall apply thereto. Ingredients of imposing penalty remain 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
c
1922 Act to 300% in 1985. [Para 66) (535-B)

Sadhu Singh v. District Board (1969) RCR 156, P.J. Irani v. State of
Madras, [1962) 2SCR169 and The Workmen ofMis Firestone Tyre & Rubber
Co. ofIndia (P) ltd v. The Management AIR (1973) SC 1227, referred to.
D
.... 10. 'Concealment of income' and 'furnisl}ing of inaccurate particulars'
t- are different. But concealment and furnishiilg inaccurate particulars refer
to deliberate act on the part of the assessee. A mere omission or negligence
would not constitute a deliberate act of suppression veri or suggestionfalsi.
Although it may not be very accurate or apt but suppression veri would amount E
to concealment, suggestion falsi would amount to furnishing of inaccurate
particulars. [Para 67) (535-C-D] ,;_

11.1. The authorities did not arrive at a finding that the consideration
amount fixed for the sale of property was wholly inadequate. The authorities
also do not show what inaccurate particulars are furnished by the appellant. F
:~ They also do not state what should have been the accepted principles of
valuation. It is, therefore, not possible to accept the submissions of the
respondent that concealment or furnishing of inaccurate particulars would
overlap each other, but the same would not mean that they do not represent
different concepts. Had they not been so, the Parliament would not have used
G
the different terminologies. [Para 68) (535-E-F)

.
....,.
11.2. 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-I, therefore,
categorically states that such explanation must either be false or not otherwise H
506 SUPREME COURT REPORTS (2007] 7 S.C.R.

A substantiated. Even in explanation-4, the expression "evaded" finds place.
(Para 69) (535-H; 536-A(

Commissioner ofIncome Tax v. Mussadila/ Ram Bharose, (1987) 2 SCC
39 and Commissioner of Income Tax v. K.R. Sadayappan, (1990) 4 SCC 1,
relied on.
B
12.1. 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 ofa registered valuer. (Para 79( (539-B)
;
C 12.2. The registered valuer has arrived at its opinion on certain basis.
He, while making the valuation report, disclosed all the particulars. He
disclosed that he had chosen the index method. He did not rely upon any sales
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
D 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 instance. (Para 80) (539-C)

13. A duty may be enjoined on the assessee to make a correct discloser
of income but if such disclosure is based on the opinion of an expert, who is
E 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 I-
arriving at a conclusion that the assessee has furnished inaccurate

F
particulars. (Para 82) (539-G-H)

14. It is of some significance that in the standard proforma used by the
r
Assessing Office in issuing a notice despite the fact that the same postulates I
-..,'
that inappropriate words and paragraphs were to be deleted, but the same has
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
'-
G he had furnished inaccurate particulars. Even, the respondent, while placing
the order of assessment, laid emphasis that he had dealt with both the t
situations. [Para 83) [540-A-B) r-
15. The impugned order, therefore, suffers from non-application of .~~
.
y--
mind. It was also bound to comply with the principles of natural justice.
H [Para 84) [540-C)
I
i

,_
i1
DILIP N. SHROFFv. JOINT COMMNR. OF INCOME TAX, MUMBAI (S.S. SINHA, J.] 507

Malabar Industrial Co. Ltd v. Commissioner of Income Tax, (2000) 2 A
sec 718, relied on.
16. 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 (Para 85( (540-D) B

~
.,, K. C. Builders v. Assistant Commissioner of Income Tax, [2004) 2 SCC
731, referred to.

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 2746 of2006.
c
From the Final Judgment and Order dated 10.08.2004 of the High Court
of Judicature at Mumbai on Income Tax Appeal No. 102 of 2002.

Anil B. Dewan, Sr. Adv., S.J. Mehta, Ramesh Singh, Bina Gupta and
Inklee Barooah for the Appellant.
D
... Gopal Subramanium, ASG., Amit Dayal, and B.V. Balaram Das for the
"' Respondents.

The Judgment of the Court was delivered by

S.B. SINHA, J. I. Leave granted. E
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 F
~ Walkeshwar Road, Mumbai. Admittedly, the Appellant had I/4th share therein.
It entered into an agreement for sale of undivided I/4th share in the said
property for a sum of Rs.8 crores with one Mis 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 I/4th
G
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/
""I:
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 H
-'
I
508 SUPREME COURT REPORTS [2007) 7 S.C.R.

A amenities, it was stated that the plot is. very close to "Raj Bhawan". All other +
amenities except cinema were within I 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
B 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 tQ 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
c 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
D Rs.3000/- per S.FT. I think that the lower value ofRs.2500 per S.FT.
as fair and reasonable. ..
'-1
This rate will be fair and reasonable for the share of property belonging
to Late Mr. Natwarlal Shroff & Late Mrs. Sonabai Shroff as the title
of their holding is clear and Marketable.
E
I am appointed to give value of the share of the property belonging
to the Late Mrs. Sonabai Shroff i.e. l/4th share of the property.

As regards (valuation of) l/4th share of Mr. Bhagwandas Dwarkadas
Shroff and I/4th share of Mr. Madhavdas Dwarkadas I am informed
F that there is suit pending in courts reg_~ding title to the property and
(
tenancy rights. Each of the other holders will fetch the reports of -r
valuation for their respective shares separately.
t
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
G both the value of cost of construction and the Builder's profits from
the above stated works out fo Rs.1,525/- per S.FT of saleable area.
Considering that it is a jointly owned property, I take it as fair and ·
reasonable. y

As these rate the value of the share of the property belonging to late
H
t
t
DILIP N. SHROFh. JOINT COMMNR. OF INCOME TAX, MUMBAI (S.B. SINHA, J.] 509
Mr. Natwarlal Shroff comes to - A
16536.5 x 1525.00 = Rs.2,52,18,165.05

Say Rs.2,50,00,000.00 ....(1)

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 B
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 vah1e of the share of Late Mr. Natwarlal Shroff of this scrap value
is

=Rs. 2,00,000.00.................. (II) c
Therefore value of the property belonging to Late Mr. Nartwarlal
Shroff works out to (I)+(Il).

Rs.2,50,00,000.oo+Rs.2,00,000.00 = Rs.2,52,00,000.00
D
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"'l\vo Lakhs Only) as on 114/81"

4. As regard existence of sale instances, however, although a sheet was E
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 : F
"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 G
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, I/4th undivided share in Jekison Niwas was sold and possession was
transferred to Mis Layer Export Pvt. Ltd. against fmal payment.

H
510 SUPREME COURT REPORTS (2007] 7 S.C.R.

A 6. The return filed by the Appellant o~ 30.09.1998 came up for scrutiny
before the First Respondent, who in exercise of its power under Section 55A _-J-
~f the Income Tax Act, 1961 (for short, 'the Act') referred the matter for
valuation of the said I/4th undivided share of the Appellant as on 0 l.04.1981
to the District Valuation Officer; whereupon the District Valuation Officer
B submitted a report dated 29.06.2000 wherein the I/4th undivided share of the
Appellant in the said property as on 0 l.04.1981 was determined at
Rs.l,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
c I 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)
D
3 Consideration of land Rs.5,63,71,628 (A)
component
4 Built-up Area existing 16,000 sq. ft.
as on 1-4.81 (Gr.+I
upper floor bungalow
E structures)
5 Salvage/Scrap value Rs.16,00,000/-(B)
(16000 sq. ft @Rs. I 00/-
sq. ft.) as adopted by
the Regd. Valuer
F 6 Total consideration Rs.5,79,71,628/-
(A)+(B)
7 I/4th share of the above Rs. l ,44,92,907/-
(6) consideration as Fair
Market Value
G Say Rs.144.93 lakhs"

7. For the aforementioned purpose the land rate was taken at
Rs.897/- sq. ft. on the basis of the following sale instances :

H
DILIPN. SHROFFv. JOINTCOMMNR OF INCOME TAX, MUMBAI [S.B. SINHA,J.) 511

"SI. Date of Name of Consideration Area Rate A
No. Sale Property

I 27.11.79 Land Survey No. 218 Rs.3, I 5,00,000/ 7114.08 Rs.4428/-
(Pt) Street No.25, 27, sq. mt. sq. mt.
27(A) at Narayan
Dhabolkar Rd. Off N.S.
B
Rd., Mumbai

2 19.10.82 Flat No.302, 3rd floor Rs.68,00,000/- 346.60 Rs.1823/-
at Sanudeep CHS Ltd. sq. mt sq. ft.
Plot No.631 (Pt) at
Altamount
Road, Mumbai
c
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." D
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:
E
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 F
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 :
G
" ..... The cost of acquisition as on 1.4.1981 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:

H
512 SUPREME COURT REPORTS [2007) 7 S.C.R.

A Less: Cost of acquisition as on 1.4.81 as per the Rs.8,00,00,000
Dept. Valuer's report as discussed is
Rs. 1,44,92,907 Indexed cost= 1.44;907 x 331 Rs.4,79,71,522
100 3,20,28,478

B Less: Expenses incurred in relation
to sale of property :
Solicitor's fees : Rs.2,50,000
Brokerage Rs.8,00,000 Rs. 10,50,000
----------------- ------------------
LONG TERM CAP ITAL GAINS Rs.3,09,78,478
c
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.
D
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 :
E 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
F Rounded off 3,40,59,510
7. Assessed accordingly. Give credit for prepaid taxes. Charge interest
T
u/s 2348 and 234C. Initiate penalty proceedings u/s 27l(l)(c) of the
Act. Issue demand notice and challan."

10. Thus, in the said order, valuation of the land as made by the District
G Valuation Officer was adopted and on the basis thereoflong 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 . y
with Section 271 of the Act was served to which a reply was filed by the
H Appellant on or about 14.08.2000 claiming that there was no concealment of
DILIP N. SHROFF v. !OINT COMMNR OF INCOME TAX, MUMBAI {S.B. SINHA, J.] 513

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

"3. All the material facts in respect of the I/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 B
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. c
The value detennined 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 detennined by the Registered
Valuer and Department's Divisional Valuation Officer does not D
change the basis character or the details of valuation, hence
~
.y
there is no concealment whatsoever. You are therefore requested
to drop the penalty proceedings initiated u/s 27l(l)(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 E
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.
F
'·~ ••• ••• •••
You are once against requested to decide the fate of penalty U/
s 27l(l)(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." G
11. The First Respondent, however, in his order dated 23.08.2000
.. ....... purported to be in exercise of its power under Section 271(1Xc) of the Act,
held:

" ... The assessee, it would appear, has not filed an appeal against the H
514 SUPREME COURT REPORTS [2007) 7 S.C.R.

A or.:'.er under Section 143(3) of the Act and hence the conclusions
drawn as regards the computation of total income in this case are
final.By no stretch of imagination a property in a posh locality like
Walkeshwar, Mumbai would have resulted in loss after substitution of
indexed cost of acquisition. The intention of assessee in obtaining the
valuation report is obviously viewed in the context of assessee having
B returned loss under the head Capital Gainsln the circumstances, the
assessee is considered to have furnished inaccurate particulars of
income in respect of the amount added under the head capital gains.
The amount of tax sought to be evaded is worked out as per clause
(a) to Explanation 4 to Sec. 271(1Xc) of the Act at20°.A1 ofRs.3,43,90,478
c i.e. Rs.68,78,095. Accordingly, a minimum penalty of Rs.68,78,095 is
levied under Section 271 (I)(c) of the Act."

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

D " .. 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
E Income Tax by an order dated 13.I 1.2000 holding:

" ... 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
F concealment u/s 27l(l)(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 :

G "This 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.
H rely upon a newspaper is totally unacceptable and does not conform
DILIP N. SHROFF v. JOINT COMMNR OF INCOME TAX, MUMBAI [S.B. SINHA, J .] 515
to the accepted principles of valuation. A
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 Depdmental Valuer's report is based on specific sales B
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 C
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 : D
"It was also frankly admitted that the words "sales instances"
mentioned against Col. 40 of the report were incorrectly mentioned.

"It was further held :
E
''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 F
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 ret:.im 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 G
found by the revenue authorities to have been prepared without due
regard to the accepted principles of valuation"

It was also held :

"Acceptance by the assessee of the value of his share of property H
516 SUPREME COURT REPORTS [2007) 7 S.C.R.

A as on 1.4.1981 estimated in the DVO's report for computation of
capital gains is an important factor to be noticed.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
B 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 )-
y
levied upon the assessee for furnishing inaccurate particulars of income
c· under the main clause of sec.271(1)(c)."

15. Indisputably, the Appellant deposited a sum ofRs.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
D 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
E 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 ..."

F 16. Mr. Anil B. Dewan, the 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 27l(l)(c)
of the Act. The show cause notice also was issued in a standard form without
G 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
H the Income Tax Appellate Tribunal while passing the impugned orders having
DILIP N. SHROFF v. JOINT COMMNR. OF INCOME TAX, MUMBAI [S.B. SINHA, J.] 517

-+ failed to record any finding in their respective orders that there had been any A
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 furthennore 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
B
of penalty. h was argued that whereas the registered valuer relied upon the
.., figures mentioned in the Accommodation Times, the Departmental Valuation
v
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. l,823/- per sq. ft.)
and arrived at a figure of Rs.897 /- per sq. ft. without any objective basis. c
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 oflncome 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. D
·-I
.,... 17. Mr. Gopal Subramanium, the learned Additional Solicitor General
r appearing on behalf of the Respondents, on the other hand, would take us
through the legal history of the provision of section 271(l)(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
E
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 F
\- 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 G
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(l)(c) which
H

•
518 SUPREME COURT REPORTS [2007) 7 S.C.R.

A dealt with the matter relating to imposition of penalty in the following terms:

"28. Penalty for concealment of income or improper distribution of
profits. (I) 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
B
( c) has concealed the particulars of his income or deliberately furnished
inaccurate particulars of such income"

19. 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 !O
C 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
D 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 v. Anwar Ali, (1970] 2 SCC 185,
wherein it was held:

" .... The section is penal in the sense that its consequences are intended
E 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
F 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
G Commissioner"

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
H deliberately furnished inaccurate particulars of such income and,
DILIPN. SHROFFv.JOINTCOMMNR OF INCOME TAX, MUMBAI [S.S. SINHA,J.] 519

~
therefore, the Department must establish that the receipt of the amount A
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 B
income, it was observed :

"6 ... .lt must be remembered that the proceedings under Section 28 are
""
'V
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 c
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 D
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."

23. Vaidialingam, J. followed the said dicta in Commissioner of Income
Tax v. Mis Khoday Eswarsa & Sons, [1971] 3 SCC 555, in the following terms: E
"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 F
l which it could be inferred that the assessee has consciously concealed
t' 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 G
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 H
520 SUPREME COURT REPORTS (2007) 7 S.C.R.

A income, etc.-{ I) If the Income-tax Officer or the Appellate Assistant
Commissioner in the course of any proceedings under this Act, is +
I
satisfied that any person ~
I
(a) .....

(b) .....
B
(c) has concealed the particulars of his income or deliberately furnished
inaccurate particulars of such income,
f'
y
he may direct that such person shall pay by way of penalty, -

c (i)

(ii)

(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 halftimes the amount of the tax,
D if any, which would have been avoided if the. income as returned by
such person had been acr::epted as the correct income."
...
'f
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
E the said provision reads thus :
,

"271. Failure to furnish returns, comply with notices, concealment of
income, etc.-{l) If the Income-~x Officer or the Appellate Assistant
Commissioner in the course of any proceedings under this Act, is
satisfied that any person
F
(a) .....
J'
(b) .....

(c) has concealed the particulars of his income or furnished inaccurate
G 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 income) as assessed under section 143 or
section 144 or section 147 (reduced by the expenditure incurred bona ""
H fide by him for the purpose of making or earning any income included

)-
.~

'
DILIP N. SHROFF v. JOINT COMMNR OF INCOME TAX, MUMBAI [S.B. SINHA, J.] 521
..,_.
in the total income but which has been disallowed as a deduction), A
-+ 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."
B
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 (I) of section 271 c
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. D
This Explanation was introduced in order to cast on the assessee the
..J 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 E
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 F
the assessed income and the returned income can be due to a variety
\ of reasons some technical, like estimate of ~oss profit and others
purely arithmetical and in our opinion, it would not be correct to
initiate proceedings in every case where the difference exceeds twenty
per cent. In the United Kingdom itself, the provision on which this G
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
H
522 SUPREME COURT REPORTS
I.
[2007) 7 S.C.R.
1--
A consequent appeals. +
We recommend that Explanation to clause (c) of sub-section (1) of + l
section 271 of the Income-tax Act, 1961, and also Explanation I to ',;
clause (c) of sub-section (I) of section 18 of the Wealth Tax Act, 1957,
may be deleted.
B ,....
2.76. While we are of the view that penalties should not be draconian, I

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 :
+- r
c (a) Presumption of concealment where explanation found false 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. t
I

Anwar Ali, (76 ITR 696). It has been held by the Court that penalty
for concealmen~ of income cannot be imposed merely because the
D explanation given by an assessee is found to be false. While this
·\
decision was given in the context of clause (c) of sub-section (I) of f
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, -r-
1961. We would, therefore, recommend as a measure of abundant
E caution, that an Explanation to sub-section (I) of section 271 of the
Indian Income Tax Act, 1961, may be inserted to clarify that where a
~
r-

,,__
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 I\-
F furnished within the meaning of clause (c) of sub-section (1) of section I
..
271 of the Income Tax Act, 1961."

27. In the year 1975 by reason of Section 61 of the Taxation Laws f I-
l

(Amendment) Act, 1975, Explanation to Section 271(l)(c) was deleted and four t-
~
Explanations were inserted with effect from 01.04.1976. Section 271(c) reads
G as follows :

"271. Failure to furnish returns, comply with notices, concealment l-
of income, etc. (1) If the Assessing Officer or the Commissioner
(Appeals) or the Commissioner in the course of any proceedings ~
(
y
under this Act, is satisfied that any person
H
t
.,_
•
I~
,..,.._
DILIP N. SHROFF v. JOINTCOMMNR OF INCOME TAX, MUMBAI [S.B. SINHA, J.] 523

(a) A
(b)

(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, -
B

Explanation 1.- Where in respect of any facts material to the
""""
computation of the total income of any person ~nder this Act, er
(A) such persons failed to offer an explanation or offers an
explanation which is found by the Income Tax Officer or the appellate
c
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
D
of such person as a result thereof shall, for the purposes of clause
...J (c) of this sub-section, be deemed to. represent the income in respect.
.... of which particulars have been conCfaled :
Provided that nothing contained in this explanation shall apply to
E
a case referred to in Clause (B) in respect of any amount added or
disallowed as a result of the· rejection of any explanation offered by
such person, if such explanation is bona fide and all the facts relating
to the same and material to the computation of his total income have
been disclosed by him.
F
Explanation 2.........
I
-\-- Explanation 3.........

Explanation 4. For the purpose of clause (iii) of this sub-section, the
expression "the amount of tax sought to be evaded".
G
. (a) in any case where the amount of income in respect of which
particulars have been concealed or inaccurate particulars have helm
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 H
f·"
524 SUPREME COURT REPORTS [2007) 7 S.C.R.

A 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
B 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,
C Assessment year 1998-99, reads as under:
"271. Failure to furnish returns, comply with notices, concealment of
income, etc. (I) 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 -
D
(a) [omitt~d]

(b) ........ .

(c) has concealed the particulars of his income or furnished inaccurate
particulars of such income, he may direct that such person shall pay
E by way of penalty, -

(i) [omitted]

(i) ........ .

F 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 '
--f-

inaccurate particulars of such income. .~
,

\'
G Explanation I.- Where in respect of any facts material to the computation
of the total income of any person under this Act, -
f
(A) such person fails to offer an explanation or offers an explanation I

which is found by the Assessing Officer or the Commissioner (Appeals) - 'I
;

H
or the Commissioner to be false, or
--r '
~

·,
... DILIP N. SHROFF v. JOINTCOMMNR OF INCOME TAX, MUMBAI [S.B. SINHA, J.] 525
~

.. (B) such person offers an explanation which he is not able to A
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 B
"'\ (c) of this sub-section be deemed to represent the income in respect
~
of which particulars have been concealed.

Explanation 2.........

Explanation 3.......... c
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
D
1oj
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;
E
(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 F
-Y respect of which particulars have been concealed or inaccurate
particulars have· been furnished."

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

29. The correctness of the orders passed by the Assessing Officer, G
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 a/ia, is that although as against Item No.38 of the report, a sheet was H
A
526 SUPREME COURT REPORTS [2007] 7 S.C.R.

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 rllo.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 27l(l)(c) was never
B invoked.
/--
3L Section 27l(l)(c) of the Act is in two parts. Whereas the first part 'r
refers to concealment of income, the second part refers to furnishing of
inaccurate particulars thereof. In the instant case, the penalty has been levied
c upon the Appellant under the second part of Section 27l(l)(c) of the Act. One
of the questions which arises for consideration is as to whether Explanation
l 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
D or not; but Jet us leave final consideration of this nicety of application thereof
in a more appropriate case and apply the element of deliberation in the fact I"-

of the present case. --+
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
E '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
F the penalty was to be levied upon the Appellant only on the ground of
furnishing inaccurate particulars. -I
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::
G
In Sherras v. De Rutzen (1895) l 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
r \
interest are prohibited under a penalty, e.g. Revenue Acts;
H
DILIP N. SHROFF v. JOINT COMMNR. OF INCOME TAX, MUMBAI [S.B. SINHA, J.) 527

(ii) Public Nuisances A
(fu) Cases criminal in fonn 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
B
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 C
it was suggested that what applies to "tax delinquency" equally holds good
for the "blame worthy" conduct for the contravention of the provision of
FEJlA. In Addi. CIT v. Dargapandarinath Taljayya and Co., (1977) 107 ITR
850, it was suggested that Section 27l(l)(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. C/T(l989) 177 ITR455 (SC) D

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
(Ke~ala)], it was stated : E
"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 F
'
~- 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."
G
Stallybrass in (1936) The Law Quarterly Review at pagt 66 suggests
that:

"In the case of modem 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. H
528 SUPREME COURT REPORTS (2007] 7 S.C.R.

A The learned author suggests that much of the confusion can be
avoided if reference to mens rea in modern statutory offences is
avoided."
r
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
B 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
C 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.
D
37. The legal history of Section 271(l)(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 born<: in
mind before interpreting the aforementioned provisions. Clause (c) of sub-
E section (l) of Section 271 categorically states that the penalty would be
leviable if the assessee conceals the particulars of his income or furnishes
inaccurate particulars ther~of. 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
F 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.
G 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
H three times thereof. The factors which are material for the purpose of
--4 DILIP N. SHROFF v. JOINT COMMNR OF INCOME TAX, MUMBAI (S.B. SINHA, J.) 529
-~
computation of total income as is sought to be emphasized in Explanation- A
l, 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 B
Explanation- I are satisfied and a finding in this behalf is arrived at by the
-I
-..,.., Assessing Officer, the legal fiction created thereunder would be attracted.

40. For the purpose of invoking Clause (iii) of sub-section (l) of Section
271, the expression "amount of tax sought to be evaded'; is set out in
Explanation 4. This sub-clause would be attracted when a finding is arrived c
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 (l)(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, D
'-4 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 Anr., [2004] 3 SCC l]

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 E
582 wherein object of the explanation is stated in the following terms :

"53. Thus, from a conspectus of the authorities referred to above, it
is manifest that the object of an Explanation to a statutory provision
is
\- F
"(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
G
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
H
530 SUPREME COURT REPORTS [2007) 7 S.C.R.

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
B of an Act by becoming an hindrance in the interpretation of the
same.""

[See also Swedish Match AB and Anr v. $ecurities & Exchange Board
oflndiaandAnr., [2004] II SCC 641].

C 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:
D
"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
E 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."
F
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
G assessment of value of the property may not by itself be furnishing of
inaccurate particulars. Even ifthe explanations are taken recourse to, a fmding
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
H. have failed to prove that such explanation is not only not bona fide but all
DILIP N. SHROFF v. JOINT COMMNR OF INCOME TAX, MUMBAI [S.B. SINHA, J.) 531
the facts relating to the same and material to the income were not disclosed A
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. ,.,. .. explanation, having regard to the decisions of this Court, must
be preceded y a finding as to how and in what manner he furnished the B
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 C
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, furthennore, 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 D
....,,... 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 E
particulars and this onus is to be discharged by the department. [See D.M
Manasvi v. Commissioner of Income Tax, Gujarat,-ll (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. F
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 G
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 Mis Khoday Eswarsa
(supra)].

51. The order imposing penalty is quasi-criminal in nature and, thus, H
532 SUPREME COURT REPORTS (2007) 7 S.C.R.

A 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
B 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 Veerasinghuiah & Co. v. C.J.T., Andhra Pradesh, [1980]
Supp sec 13].

52. The Appellant herein in the penalty proceedings had produced
C 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
D the particulars of his income or had furnished inaccurate particulars thereof.

54. We have noticed hereinbefore that the quantum of penalty has been
iricreased 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
E 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 Ors v. Govt. of Kerala and Anr.,
F [1995] Supp 2 sec 187]

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
G 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
H by any reasonable person? Was the methodology adopted totally wrong?
DILIP N. SHROFF v. JOINT COMMNR. OF INCOME TAX, MUMBAI [S.B. SINHA, J.] 533

57. The methods of valuation, as we know, may be different. A registered A
valuer is supposed to know as to which m.!thod or mode should be adopted
,-4-
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 B
relied upon by the District Valuer were of 1979 and 1982.

58. In Union ofIndia v. Pramod Gupta (Dead) By LRs. and Ors., [2005]
....
~ 12 SCC 1, this Court observed:

"24. While determining the amount of compensation payable in respect c
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 D
various other known methods. Evidences admissible therefor inter
-< alia would be judgments and awards passed in respect of acquisitions
r 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 E
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 F
acquisition of similar land, subject of course to such increase or
~
decrease thereupon as may be applicable having regard to the accepted
.y 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 G
n-0ticed 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 H
534 SUPREME COURT REPORTS [2007) 7 S.C.R.

A concealment of income which would constitute the basis of foundation of the
proceedings for levy of penalty. It was furthermore observed : --+· "1
"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 Comm.lssioner in
B 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 )-
r""
only after the assessee has been heard or has been given a reasonable
opportunity of being heard."
c
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
D same.

62. At this juncture, we may examine the question as to the effect of
the amendments carried out in Section 27l(c) of the Act and for the said I-

purpose we may notice a few decisions of this Court. ~

E 63. In Sadhu Singh v. 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 v. 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
F found no distinction between the two Acts as one of the objects of the Acts
was eviction of unreasonable tenants and the expression "unreasonable"
t
thus was held to be read in the title of the Rent Act. 'f-

64. It is interesting to note that this Court in The Workmen of Mis
Firestone Tyre & Rubber Co. of India P. Ltd v. The Management and Ors.,
G AIR (1973) SC 1227, despite insertion of Section l lA 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 !,aid down in the _,,_-
various decisions of this Court referred to above. The object is stated
H r-
DILIP N. SHROFF v. JOINT COMMNR. OF INCOME TAX, MUMBAI [S.B. SINHA, J .) 53 5

to be that the Tribunal should have power in cases, where necessary, A
to set aside the order of discharge or dismissal and direct reinstatement
or award any lesser punishment"

65. The omission of the word "deliberate", thus, may or may not be of
much significance but what is material is its application.
B
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.
c
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 D
amount to concealment, suggestio fa/si would amount to furnishing of
inaccurate particulars.

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

\ 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, G
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 l,
H
536 SUPREME COURT REPORTS (2007) 7 S.C.R.

A therefore, categorically states that such explanation must either be false or not
otherwise substantiated: Even in explanation 4, the expression "evaded" finds
place.

70. In Commissioner ofIncome Tax v. Mussadilal Ram Bharose, [1987)
2 SCC 39, this Court while holding that the onus would lie on the assessee ,
B to discharge the same, in the case, the difference between the income returned "· .
and income assessed was less than 80%, meaning thereby, a rel-uttal
presumption arose against the assessee, opined :
)-.
"I 0. It is clear that if the Income Tax Officer and the Appellate Assistant y'

Commissioner were satisfied that the assessee had concealed the
c · particulars of his income or furnished inaccurate particulars of such
income, he can direct that such person should pay by a p~nalty 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
D of 1964, the onus was on the revenue to prove that the assessee had
furnished inaccurate particula:s 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 th.at where
""
E the total income returned by any person was less than _80 per cent of
the total income assessed, the onus was on-1uch 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 ofliis income or furnished
F 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
G 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 --y
of penalty. That is the effect of the provision." .
H
DILIP N. SHROFF v. JOINT COMMNR. OF INCOME TAX. MUMBAI [S.B. SINHA, J.] 537

·--t. 71. The said decision was followed in Commissioner of Income Tax,. A
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 t 6A thereof provides for reference to B
Valuation Officer.
....
"'-... 73. In terms of sub-section (2) of Section l 6A, 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
c
.·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 C.hapter VIIB of the Act provides for
D
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 SA lays down the qualifications of registered valuers. Rule 13
of the said rules provides that a registered valuer can be deregistered if the E
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 F
\ 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
G
(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
H
538 SUPREME COURT REPORTS [2007] 7 S.C.R.

A the cost of acquisition the same proportion as Cost Inflation Index fpr ~· /

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 l st day of April, 1981, whi.chever is
later;"

B "(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 r
such previous year, by notification in the Official Gazette, specify, in
this behalf."
c ·l

77. Yet again Section 55(2)(b) refers t.o 'any other capital asset' in the
I
following terms :
t"

"(b) in relation to any other capital asset,-]

D (i) where the capital asset became the property of the assessee before
the l st 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 lst day
....
~
of April, [ 1981 ], at the option of the assessee; ,.

(ii) where the capital asset became the property of the assessee by
E any of the modes specified in sub-section(l) of section 49, and the
capital asset became the property of the previous owner before theist
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 lst day of April, I-
[1981 ], at the option of the assessee ;

F (iii) where the capital asset became the property of the assessee on
the distribution of the capital assets of a company on its liquidation
J
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 _.;set on the date of distribution:

r
I

G 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
-r
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.
H
DILIP N. SHROFF v. JOINT COMMNR. OF INCOME TAX, MUMBAI [S.B. SINHA, J.) 539
~·

·--!.- Clause (b) of Section 55A refers to any other case which goes to show that A
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 B
to obtain the opinion (\f 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
c
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.
D
81. There can be a genuine difference of opinion between two experts.
_, The District Valuer, as noticed hereinbefore, having regard to the sale instances
'r
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 E
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 aftertaking into account the time size-shape, time gap, location-
situation and also the factors like physical, social, legaland economical. Some F
other officer could have picked up holes in the said report. On the other hand,
\. the opinion Qf 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 G
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. H
540 SUPREME COURT REPORTS [2007] 7 S.C.R.

A 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
B Additional Solicitor General while placing the order of assessment laid emphasis
that he had dealt with both. the situations.

84. The impugned order, therefore, suffers from non-application of mind.
It was also bound to comply· with the principles of natural justice. [See
C Malabar Industrial Co. Ltd v. Commissioner of Income Tax, Kera/a State,
c200012 sec 11s1

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 concealm'ent of income; which finding was arrived at
D also by the Commissioner of Income Tax and the Income Tax Appellate
Tribunal.

86. In K. C. Builders and Anr v. Assistant Commissioner ofIncomti Tax, -1·
[2004] 2 SCG 731, this Court formulated the following questions for
consideration :.
E
"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 ~nder Section 271(1)(c) of the
F Income Tax Act and prosecution under Section 276-C of the Income
Tax Act are simultaneous?
I
(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
G 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
H
-
--+
DILIPN. SHROFFv. JOINTCOMMNR. OF INCOME TAX, MUMBAI [S.B. SINHA,J.]

after having been cancelled by the complainant following the Income
Tax Appellate Tribunal's order no offence survives under the Income
541
A
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 B
under Section 276-C(l) 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{1Xc)?

(e) Whether the High Court's order is liable to be set aside in view c
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 D
between the income as per original return and revised income as
.,,_ concealed income. The Assistant Commissioner of Income Tax levied
penalties under Section 27l(I)(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 E
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 F
"'"".
· the 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 unle:;s there is some evidence to show or some circumstances
found from which it can be gathered that the omission was attributable or the G
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
""--T·
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)
H
542 SUPREME COURT REPORTS (2007) 7 S.C.R.

A 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.

B v.s.s. Appeal allowed.