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

- **Citation:** [2007] 7 S.C.R. 499
- **Court:** Supreme Court of India
- **Decided:** 2007-05-18
- **Case number:** Civil Appeal No. 2746 of2006
- **Bench:** S.B. Sinha, P.K. Balasubramany An
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/dilip-n-shroff-v-joint-commissioner-of-income-tax-mumbai-and-anr-23189
- **Pages:** 44

## Headnote

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 gainsThe Assessing Officer referred the valuation to the District Valuation OfficerThe valuation of the property as made by the District Valuation Officer was
adopted and on the basis thereof long term capital gain was determinedAs 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 of the assessee and levied a minimum
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 assesseeSuch deliberate act must be either for the purpose of concealment of income
F
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 27 l(/)(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 Dis

## Text

_Characters 0–39,950 of 98,853. This is a partial read: ask again with offset=39950 for what follows._

DILIP N. SHROFF
A
v.
JOINT COMMISSIONER OF INCOME TAX, MUMBAI AND ANR.
MAY 18, 2007
[S.B. SINHA AND P.K. BALASUBRAMANY AN, 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 gainsThe Assessing Officer referred the valuation to the District Valuation OfficerThe valuation of the property as made by the District Valuation Officer was
adopted and on the basis thereof long term capital gain was determinedAs 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 of the assessee and levied a minimum
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 assesseeSuch deliberate act must be either for the purpose of concealment of income
F
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 27 l(/)(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 c
a false explanation, the same by itself would not prove that the receipt
necessarily constituted income of the assessee. However, some High Courts
opined differently, holding that the penalty proceeding is included in the
expression 'assessment' and the true nature of penalty had been held to be
,...
additional tax. [Para 19] [518-C-D]
Commissioner of Income Tax v. Anwar Ali, [1970] 2 sec 185; D
_.
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
F
placed on some valuation of an approved valuer and, therefore, the furnishing
'
of inaccurate particulars was not deliberate, meaning thereby that an element
~-
of mens rea is needed before penalty can be imposed, would have received
serious consideration in the light of a large number of decisions of this Court.
(Para 35] [528-B-C]
Sherras v. De Rutzen, (1895) 1 QB 918; Director of Enforcement 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,
(1936), p. 66, referred to.
43. 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
c of inaccurate particulars alone, the assessee does not ipso facto become liable
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)
._
-14.1. Section 271(l)(iii) again proyides for a discretionary jurisdiction
E
upon the assessing authority inasmuch as the amount of penalty may not be
less than the amount of tax sought to be evaded by reason of such concealment
of particulars of his income, but it may not exceed three times thereof. The
factors which are 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.
[Para 38) (528-H; 529-A)
I
"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
H
& Exchange Board of India, [2004) 11 SCC 64I, referred to.
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 c
offered by an assessee, in the event he offers one, was false. He must be found
-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 of Income 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 of Income 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
G
presumption that he is guilty.
[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. of Kera/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 A
form revenue to the assessee. It may further be correct that different views
have been expressed as regard construction of statutes in the light of the
changing legislative scenario, but the tenor of a penal proceeding remains
the same. (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 c
evidenced by the increase in the quantum of penalty, from 20% under the
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 of Mis Firestone Tyre & Rubber
Co. of India (P) ltd v. The Management AIR (1973) SC 1227, referred to.
D
....
10. 'Concealment of income' and 'furnisl}ing of inaccurate particulars'
tare 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(
B
Commissioner of Income Tax v. Mussadila/ Ram Bharose, (1987) 2 SCC
39 and Commissioner of Income Tax v. K.R. Sadayappan, (1990) 4 SCC 1,
relied on.
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
arriving at a conclusion that the assessee has furnished inaccurate
particulars. (Para 82) (539-G-H)
F
14. It is of some significance that in the standard proforma used by the
Assessing Office in issuing a notice despite the fact that the same postulates
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
situations. [Para 83) [540-A-B)
15. The impugned order, therefore, suffers from non-application of
mind. It was also bound to comply with the principles of natural justice.
H
[Para 84) [540-C)
;
Ir
I
-..,'
'-
t
r-.
.~~
y--
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
""I:
gains. The report was filed in the prescribed form. All the required particulars/
information were furnished. In the said report, description of the property,
location thereof, whether situated in residential/commercial/mixed/industrial
area, and classification thereof were shown. As regard, proximity to civic 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
c
on the value of the property negligible. In any event there will be no
loss of F.S.I. even if reservation is retained for the purpose of my
valuation of share in the property.
Based on the sales instances the prices given in "Accommodation
Times" I am of the opinion and feel that the rate of the Residential
D
Apartment in the area in 1981 would be in between Rs.2500 to
Rs.3000/- per S.FT. I think that the lower value ofRs.2500 per S.FT.
as fair and reasonable.
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
E
of their holding is clear and Marketable.
I am appointed to give value of the share of the property belonging
to the Late Mrs. Sonabai Shroff i.e. 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
valuation for their respective shares separately.
In 1981 the cost of construction may be taken at Rs.275/- per S.FT.
G
Further, considering the Builder's Profit Rs.700/-per S.Ft. and deducting
both the value of cost of construction and the Builder's profits from
the above stated works out 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.
H
As these rate the value of the share of the property belonging to late
~
....,.
..
'-1
(
-r
y
t
t
t
DILIP N. SHROFh. JOINT COMMNR. OF INCOME TAX, MUMBAI (S.B. SINHA, J.] 509
Mr. Natwarlal Shroff comes to -
16536.5 x 1525.00 = Rs.2,52,18,165.05
Say Rs.2,50,00,000.00 .... (1)
A
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)
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
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"
c
D
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:
c
D
E
F
G
H
"Name of Property
I
Land Area as per records
2
Land rate adopted @
Rs.12842/- sq. mt.
(897/- x 1.33 x 10.764)
3
Consideration of land
component
4
Built-up Area existing
as on 1-4.81 (Gr.+I
upper floor bungalow
structures)
5
Salvage/Scrap value
(16000 sq. ft @Rs. I 00/-
sq. ft.) as adopted by
the Regd. Valuer
6
Total consideration
(A)+(B)
7
I/4th share of the above
(6) consideration as Fair
Market Value
Land along with Bungalow known as
"Jekinson Niwas" 220-Walkeshwar
Road, Mumbai-400 006
5250 sq. yds. =
4389.63 sq. mt.
Rs.5,63,71,628 (A)
16,000 sq. ft.
Rs.16,00,000/-(B)
Rs.5,79,71,628/-
Rs. l ,44,92,907 /-
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 :
"SI.
No.
I
2
DILIPN. SHROFFv. JOINTCOMMNR OF INCOME TAX, MUMBAI [S.B. SINHA,J.)
511
Date of
Name of
Consideration
Area
Rate
Sale
Property
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.
Rd., Mumbai
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
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
A
B
c
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 :
" ..... 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:
G
H
A
B
c
D
E
F
512
SUPREME COURT REPORTS
[2007) 7 S.C.R.
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
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 IT AL GAINS
Rs.3,09,78,478
The claim of the assessee for deduction of Rs.22,200/- being expenses
incurred on account of fees paid to Uday Chande is not admissible
as it cannot be said to be related to sale of property. Accordingly, the
same is not allowed.
6. Subject to the above remarks, the total income of the assessee is.
computed as under :
Property Income :
As per statement
Long term Capital Gains :
As discussed above
Income from Other Sources :
Interest income as per Statement
TOTAL INCOME
Rounded off
3,40,59,506
3,40,59,510
Rs
64,664
3,09,78,478
30,31,364
7. Assessed accordingly. Give credit for prepaid taxes. Charge interest
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
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
T
. y
; ._,.,
~
.y
'
·~
..
.......
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
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
A
B
c
D
514
SUPREME COURT REPORTS
[2007) 7 S.C.R.
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
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
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 :
" .. 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:
F
" ... To summarize differences between two reports cannot be attributed
universally to a single reason i.e. difference of opinion. I have already
stated in case a report is incorrect for any reason the assessee is
expected not to rely upon it because he cannot shift the burden of
concealment u/s 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 :
''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
E
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
A
B
SUPREME COURT REPORTS
[2007) 7 S.C.R.
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
valuation which valucation has been accepted by the assessee.
c·
As stated earlier, perusal of the orders of the revenue authorities
will make it abundantly clear that the impugned penalty has been
levied upon the assessee for furnishing inaccurate particulars of income
under the main clause of sec.271(1)(c)."
D
E
F
G
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
for the assessee. The revenue authorities as well as the Income Tax
Appellate Tribunal have concurrently held that the assessee furnished
inaccurate particulars. This finding is based on the aspect that the
valuation report submitted by the assessee did not reflect the correct
cost of acquisition. What is the market value of the property as on
01.04.1981 is an aspect of the fact and the value furnished by the
assessee was held to be factually incorrect. If the computation of the
long term capital gains by the assessee was found to be wrong
obviously, the finding of the revenue authorities and the Tribunal that
the assessee furnished inaccurate particulars cannot be faulted ... "
16. Mr. Anil B. Dewan, the learned Senior Counsel appearing on behalf
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
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
)-
y
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 B
said to have the requisite mens rea which is the sine qua non for imposition
of penalty.