Recent Judgments Under Income Tax Act

8/8/2019 Recent Judgments Under Income Tax Act

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Recent Judgments under Income-tax Act

1. CIT V. Sabari Enterprises (213 CTR 269) (Kar)

Whether payments made towards PF and ESI before due date of filingreturn of income in respect of assessment year prior to A.Y. 2004-05

could be allowed as deduction?

In this case, it has been held that PF and ESI on account of employers

contribution and employees contribution is allowable as deduction if they are

paid before due date of filing the return of income even if they are not paid

within due date of the provisions of Provident Fund Act. The case related to

assessment yea prior to amendment to section 43B of the Act which has been

introduced by the Finance Act 2003 w.e.f. 1/4/2004. By way of the

amendment, second proviso was deleted so as to include all types of

payments, including statutory dues of PF and EST, covered u/s 43B, for

deduction if they are paid before due date of filing return of income. It was

pleaded on behalf of assessee that as the proviso was deleted and not

repealed, it should be considered as deleted retrospectively on basis of

decision of Supreme Court in case of General Finance Co. v. CIT (257 ITR

338). It was also argued that even otherwise, the amendment should be

considered as clarificatory in the light of the decision by Apex Court in Allied

Motors P. Ltd. V. CIT (224 ITR 677). These contentions were accepted by

Honourable High Court. It was held that amendment in section 43B will be

applicable both for employers contribution and employees contribution.

Before delivery of the above decision, the Chennai Special Bench in case of

Kwality Biscuits held in favour of assessee holding that amendment made in

section 43B by Finance Act, 2003 is retrospective in operation. However

immediately after decision of Special Bench, The Madras High Court in CIT v.

Synergy Financial Exchange Ltd. [2007] 288 ITR 366 distinguished Allied

Motors P. Ltd.s case (supra) on the ground, that it related to an amendment

intended to remove hardship in cases where payment for the last instalment

of sales tax had necessarily to be made in the succeeding year. Thereafter,

above decision came. Thereafter Bombay High Court in the case of Godavari


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Sahakari Sakhar Karnataka Ltd dissented from the above decision. However,

the Supreme Court in the case of CIT v. Vijay Cement Ltd. 213 CTR 268 has

rejected SLP against the Guahati High court decision in case of CIT v. George

Willamson (Assam) Ltd. 284 ITR 619 observing that contribution made to

provident fund before filing of the return could not be disallowed under section

43B as stood prior to the amendment w.e.f. 1/4/2004.

2. CIT Vs. Cholamandalam Inv. and Fin. Co. Ltd. (294 ITR 438) (Mad)

Whether interest u/s 244A could be allowed on excess payment of self

assessment tax?

Even though the short title to section 140A of the Income-tax Act, 1961, reads

self-assessment, the charging phrase employed in section 140A, namely,

where any tax is payable on the basis of any return required to be furnished

under section 115WD or 115WH or section 139 or section 142 or section 148

or section 153A, as the case may be, the assessee shall be liable to pay such

tax together with interest payable under any provision of this Act for any delay

in furnishing the return, makes it clear that there is no difference between : (i)

the tax paid under section 115WJ, which deals with advance tax in respect of

fringe benefits ; or (ii) the tax collected at source under section 206C ; or (iii)

any tax paid by way of advance tax or any tax treated as paid under section

199, which deals with credit for tax deducted, which are provided under

section 244A(1)(a).

The proviso to section 244A(1)(a) makes it clear that no interest shall be

payable if the amount of refund is less than 10 per cent. on regular

assessment with regard to the refund of advance tax paid under section

115WJ in respect of fringe benefits ; (ii) the tax collected at source under

section 206C ; and (iii) advance tax or any tax treated as paid under section

199, but with respect to other tax under section 244A(1)(b), the interest shall

be payable even if the amount is less than 10 per cent of the tax as

determined under section 143(1) or on regular assessment, because there is

no proviso to section 244A(1)(b) as provided under section 244A(1)(a) of the

Act.


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Even for refund of the tax paid under section 140A on self-assessment, the

assessee is entitled to interest.

CIT v. Ashok Leyland Ltd. [2002] 254 ITR 641 (Mad) relied on.

It is trite law that wherever the assessee is entitled to refund, there is a

statutory liability on the Revenue to pay interest on general principles on sums

wrongfully retained.

3. Inductotherm (India) P. Ltd. Vs. Asst. CIT (294 ITR 341) (Guj)

Whether parallel proceeding could be taken u/s 148 and u/s 263?

There is no bar under the provisions of the Income-tax Act, 1961, for parallel

proceedings in consequence of notice under section 148 and notice under

section 263. After issuance of notice under section 148, the Assessing Officer

himself can pass a fresh assessment order and under section 263 if the

original assessment order of the Assessing Officer is erroneous and

prejudicial to the interests of the Revenue, the Commissioner of Income-tax

can revise that order. Both the authorities are empowered under different

provisions of the Act, though both have to see that the income escaped in the

original assessment should be taxed.

Held, (i) that the Assessing Officer had found that there were errors in the

computation of allowances. The reassessment proceedings were valid.

(ii) That notice under section 263 had been issued, and those proceedings

were stayed, but the proceedings initiated after the issuance of notice under

section 148 were not stayed. Therefore, the Assessing Officer was at liberty to

proceed with the proceedings and make final assessment

4. CIT Vs. Star Builders (294 ITR 338) (Guj)

Whether enhancement of cost of construction by valuation officer is

allowable as deduction in case of builder?


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The assessee was engaged in construction business. On a reference of the

question whether there could be any addition on account of the Valuation

Officers report that the assessee had invested unexplained income :

Held, that if the unexplained income in the investment was added, that would

give rise to the cost of the construction and the result would remain the same,

i. e. zero. This addition was made on the basis of the Valuation Officers

report. Reference could be made to the Valuation Officer for the purpose of

sections 55(A), 131, 133(6) and 142(2) of the Income-tax Act, 1961, and not

for the purpose of finding out the cost.

5. CIT v. Eicher Ltd. (294 ITR 310) (Del)

Whether reassessment is permissible on mere change of opinion?

The assessee took term loans from banks and financial institutions but being

unable to pay interest on these loans and having not paid any interest to the

banks and financial institutions, it did not claim any expenditure or any

deduction on this account. Subsequently, as a result of negotiations between

the assessee and the banks and financial institutions the outstanding interest

against the loans was converted into a funded interest term loan. This was in

addition to the earlier amounts that were taken by the assessee as loans from

the banks and financial institutions. In respect of the assessment years 1988-

89 to 1991-92, the interest outstanding was treated as discharged and

replaced by an equivalent amount of loan. The amount was treated as a

deduction under section 43B of the Act and necessary book entries were

made in this regard. The assessee filed its return of income for the

assessment year 1993-94, declaring a loss and claiming that the waiver of the

funded interest credited to the profit and loss account was not liable to tax

under section 41(1) of the Act as it was a capital receipt. The Assessing

Officer completed the assessment under the provisions of section 143(3) of

the Income-tax Act, 1961. Subsequently, he issued a notice under section 148

of the Act to tax the waiver of interest allegedly not offered to tax by the

assessee. The assessee raised an objection but the Assessing Officer

rejected the contention of the assessee that this case was merely one of


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change of opinion on the same facts. The assessee preferred an appeal

before the Commissioner (Appeals) who allowed the appeal. The Revenue

preferred an appeal before the Tribunal, which dismissed it holding that in the

letter sent by the assessee on November 8, 1995, in reply to a questionnaire

of the Assessing Officer, the assessee had disclosed all the relevant material

facts at the time when the original order of assessment was made and in it

explained its stand regarding non-taxability of the amount, that since there

was a full and true disclosure by the assessee, there was no reason for the

Assessing Officer to come to the conclusion that income chargeable to tax

had escaped assessment. On further appeal :

Held, dismissing the appeal, that the assessee had placed all the material

before the Assessing Officer and where there was a doubt, even that was

clarified by the assessee in its letter dated November 8, 1995. Since the facts

were before the Assessing Officer at the time of framing the original

assessment, and later a different view was taken by him or his successor on

the same facts, it clearly amounted to a change of opinion. This could not

form the basis for permitting the Assessing Officer or his successor to reopen

the assessment of the assessee. If the Assessing Officer, while passing theoriginal assessment order, chose not to give any finding in this regard, that

could not give him or his successor in office a reason to reopen the

assessment of the assessee or to contend that because the facts were not

considered in the assessment order, a full and true disclosure was not made.

If the entire material had been placed by the assessee before the Assessing

Officer at the time when the original assessment was made and the

Assessing Officer applied his mind to that material and accepted the view

canvassed by the assessee, then merely because he did not express this in

the assessment order, that by itself would not give him a ground to conclude

that income has escaped assessment and, therefore, the assessment needed

to be reopened.

An assessee has no control over the way an assessment order is drafted.

Generally, issues which are accepted by the Assessing Officer do not findmention in the assessment order and only such points are taken note of on


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which the assessees explanations are rejected and additions/disallowances

are made.

Hari Iron Trading Co. v. CIT [2003] 263 ITR 437 (P & H) followed.

Held also, that it would not be correct on the courts part to overlook the

decision of the Full Bench in CIT v. Kelvinator of India Ltd. [2002] 256 ITR 1

(Delhi) and rely upon the decision of the Division Bench in Consolidated

Photo and Finvest Ltd. v. Asst. CIT [2006] 281 ITR 394 (Delhi). That would be

subversive of judicial discipline.

6. CIT Vs. Raj Kumar Sharma (294 ITR 131) (Raj)

Whether penalty u/s 269SS is sustainable when assessee was under

bona fide belief that the limit of Rs. 20,000 is applicable for each

transaction of receipt of loan when transactions of loan were

considered as genuine?

The assessee accepted a loan of Rs. 90,000 in cash from April 1, 2000, to

March 31, 2001, on different dates from his brother. In response to the notice,

the assessee explained that the loan was taken from his brother for

immediate business needs and that he was under the bona fide belief that

acceptance of cash deposit below Rs. 20,000 did not contravene section

269SS of the Income-tax Act, 1961. The Assessing Officer imposed penalty of

Rs. 90,000 under section 271D. The Commissioner (Appeals) maintained the

order of the Assessing Officer. However, the Tribunal set aside the penalty.

On appeal :

Held, dismissing the appeal, that the genuineness of the deposit made by the

assessees brother was not disputed and none of the transactions exceeded

Rs. 20,000. The Tribunal accepted that the assessee bona fide believed that

cash transactions below Rs. 20,000 were permissible and the cause shown

by him constituted reasonable cause. The finding of the Tribunal could not be

said to be grossly perverse or unsustainable in law.

7. DI (Exemption) Vs. Raunaq Edu. Foundation (294 ITR 76) (Del)


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Whether the deemed income added u/s 68 in case of educational

institution is allowable as deduction u/s 10(22)?

The words derived from (or some other similar words) do not occur in

section 10(22) of the Income-tax Act, 1961, and, therefore, the word income

as occurring in section 10(22) cannot be given a restrictive meaning and must

be given its natural meaning or the meaning ascribed to it in section 2(24).

Hence, an assessee who is entitled to exemption under section 10(22) can

claim the benefit thereof for the purpose of income deemed to be chargeable

to tax under section 68.

8. CIT Vs. P. V. Kalyanasundaram (294 ITR 49) (SC)

Whether addition on money could be sustained on basis of vague

noting in loose sheet recovered in search and contradictory statement

of vendor?

Certain land was sold for a sum of Rs. 4.10 lakhs. In the course of a search

and seizure, contradictory statements of the vendor were recorded and loose

sheets allegedly in the hands of the purchaser were found. The Assessing

Officer concluded that the sale consideration was actually Rs. 34.85 lakhs and

not Rs. 4.10 lakhs as recited in the deed of sale and made an addition of Rs.

30,75,005 as undisclosed income for the block period April 1, 1988, to

December 8, 1998, in the hands of the respondent (assessee). The

Commissioner (Appeals), after examining the entire matter, held that the

statements of the vendor could not be relied upon particularly as the floor

price fixed by the authorities for such property was much lower than the value

which would result if the sale deed had been registered at Rs. 34.85 lakhs

and deleted the addition. The Appellate Tribunal affirmed the decision of the

Commissioner (Appeals) holding, inter alia, that the notings on the loose

sheets were vague and could not be relied upon. On appeal under section

260A of the Income-tax Act, 1961, the High Court, borrowing extensively from

the orders of the Commissioner (Appeals) and the Appellate Tribunal, held

that no substantial question of law arose out of the order of the Appellate

Tribunal. On appeal by the Department before the Supreme Court :


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Held, affirming the decision of the High Court, that the implication of

contradictory statements made by the vendor or whether reliance could be

placed on the loose sheets recovered in the course of the raid were all

questions of fact, and no question of law arose out of the order of the

Appellate Tribunal.

Decision of the Madras High Court in CIT v. P. V. Kalyanasundaram [2006]

282 ITR 259 affirmed.

By the court : Quoting from an order of some authority, particularly a

specialized one, cannot per se be faulted as this procedure can often help in

making for brevity and precision. But to the extent that any borrowed words

are used in a judgment, they must be acknowledged as such in an

appropriate manner as a courtesy to the true author(s).

9. CIT v. Ravi Kumar 294 ITR 78 (P & H)

Whether section 69A regarding unexplained money etc. could be

applied on the basis of loose slips found during the search when in fact

assessee was not found to be owner of money or things?

The provisions of section 69A of the Income-tax Act, 1961, can be applied if

(i) the assessee is found to be owner of any money, bullion, jewellery or other

valuable article, and (ii) the same had not been recorded in the books of

account, if any, maintained by him.

During the search carried out at the premises of the jewellery shop owned by

the assessee, the assessee was found in possession of 1470 grams of gold

and Rs. 50,750 in cash and some loose slips containing some calculations

written. The assessee surrendered a sum of Rs. 5 lakhs for tax on account of

the unexplained cash and jewellery and the return was filed declaring an

income of Rs. 4,79,800. The Assessing Officer included the amounts written

on the loose slips. The Commissioner (Appeals) upheld the additions made by

the Assessing Officer observing that the assessee failed to explain the

contents of the documents. The Tribunal allowed the appeal filed by the

assessee. On a reference :


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Held, that the assessee was found to be in possession of loose slips and not

of any valuable articles or things. Neither the possession nor the ownership of

any jewellery mentioned in the slips was proved. Therefore, the Tribunal had

rightly held that the provisions of section 69A of the Act were not applicable.

The Tribunal also held that if the assessee failed to explain the contents of the

slips, it was for the Revenue to prove on the basis of material on record that

they represented transactions of sales or stock-in-hand before making any

addition on this score. The assessee had duly explained that these were

rough calculations and the assessees explanation had not been rebutted by

any material evidence. Therefore, the order of the Tribunal could not be said

to be perverse.

10. Sandeep Kumar v. CIT (293 ITR 294) (Del)

Whether mere identification of donor and showing that foreign gift was

received through proper banking channel was sufficient for proving

genuineness of foreign gift?

Mere identification of the donor and showing movement of the gift amount

through banking channels is not sufficient to prove the genuineness of the gift.

Since the claim of the gift is made by the assessee, the onus lies on him to

establish not only the identity of the person making the gift but also his

capacity to make such a gift.

The Assessing Officer added the gifts received by the assessee from the

donor as income of the assessee from undisclosed sources as he was unable

to establish the financial capacity of the donor and the genuineness of the

gifts. The Tribunal while considering the genuineness of the gift transactions

held that the donors were not even distantly related to the assessee and were

residents of foreign countries. The return of the donor filed by the assessee

had not been accompanied by the balance-sheet and was simply a copy not

bearing any authentication from the Revenue Department of that country. On

appeal :

Held, dismissing the appeal, that there was nothing on record to show thefinancial capacity of the donor, the creditworthiness of the donor, relationship


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of the donor with the assessee, what were the sources of funds gifted to the

assessee and whether they had the capacity of giving large amounts of gift to

the assessee. Therefore the gifts received by the assessee from the donor

could not be held to be genuine gifts and the authorities below were fully

justified in treating the amount received as gifts as representing the concealed

income of the assessee and adding it to the income of the assessee as being

the assessees income from undisclosed sources.

11. Bajaj Ashok Chunila v. Dy. CIT (293 ITR 48) (AT) (Banglore)

Whether computation of minors income has to be done independently

while clubbing minors income with income of parent?

Section 64 of the Income-tax Act, 1961, enacts a deeming provision for

inclusion of others income in the income of assessee. Though under section

64(1A), the income of a minor child is to be included in the total income of his

parents, the minor child is basically an assessee. If a particular income does

not fall within the gamut of section 5 of the Act, it cannot be made taxable by

invoking the provisions of section 64. To club the income under section 64 it

should primarily be part of income of the minor child under section 5.

Unless and until the income of the minor child is computed, the clubbing

provision will not apply. The income of the minor child has to be computed

considering the provisions of section 145. Thus unless and until income is

said to be received by the minor child on the basis of the method of

accounting regularly employed by him, section 64 cannot be invoked to club

the income which otherwise would have accrued to the minor child. This is not

a case of an assessee following a different method of accounting for

expenses and income but of two different assessees whose computation is to

be made based on the method of accounting employed by each of them

individually.

In the profit and loss account of his business for the assessment year 1997-

98, the assessee had debited Rs. 92,217 being interest paid to his minor son

and shown it as interest payable in the balance-sheet. During the year, a sumof Rs. 13,800 was paid as interest to the minor son and this sum was clubbed


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with the income of the assessee in accordance with the provisions of section

64. The Assessing Officer however treated the entire interest payable by the

assessee as income accruing to the minor son on the ground that the

assessee could not follow a different system of accounting in his own case.

He accordingly treated the difference between Rs. 92,217 claimed as interest

paid to the minor son and the sum of Rs. 13,800 actually received as interest

by the minor son as income of the assessee under section 64(1A). The

Commissioner (Appeals) affirmed this. On appeal :

Held,accordingly, that undoubtedly, the minor son was not following the

mercantile system of accounting. The interest had not been received by the

minor child. Thus by invoking the provisions of section 64(1A), the interest

payable by the assessee could not be considered to have been received by

the minor son. The addition of Rs. 78,417 being the interest having not been

received by the minor child could not be clubbed in the hands of the assessee

and was to be deleted.

12. CIT v. Alagendran Fianance Ltd. (293 ITR 1) (SC)

When item sough to be revised is not subject matter of reassessment,

whether time limit for revision should be reckoned from the date of

original assessment or reassessment?

Assessments for the assessment years 1994-95, 1995-96 and 1996-97 on the

assessee were completed in 1997 and 1998. In the orders of assessment, the

assessees claim relating to Lease Equalisation Fund was accepted.

Thereafter orders of reassessment were initiated in respect of three other

items but not the item relating to Lease Equalisation Fund and

reassessments were made. Thereafter, the Commissioner, by an order dated

March 29, 2004, initiated revision proceedings only in relation to the item

Lease Equalisation Fund. The Appellate Tribunal held that the revision

proceedings were barred by limitation as they were initiated more than four

years after the original assessments ; and the High Court dismissed the

appeal therefrom. The Department appealed to the Supreme Court :


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Held, affirming the decision of the High Court, that the Commissioner had

sought to revise only that part of the order of assessment which related to

Lease Equalisation Fund ; but the proceedings for reassessment had nothing

to do with that item of income. The doctrine of merger did not apply in a case

of this nature : the period of limitation commenced from the dates of the

original assessments and not from the reassessments since the latter had not

had anything to do with the Lease Equalisation Fund. This was not a case

where the subject-matter of reassessment and the subject-matter of the

assessment were the same.

CIT v. Shri Arbuda Mills Ltd. [1998] 231 ITR 50 (SC) relied on.

CWT v. A. K. Thanga Pillai [2001] 252 ITR 260 (Mad) approved.

There may not be any doubt or dispute that once an order of assessment is

reopened, the previous under-assessment will be held to be set aside and the

whole proceedings would start afresh, but that would not mean that even

when the subject-matter of reassessment is distinct and different, the entire

proceeding would be deemed to have been reopened.

Explanation (c) appended to sub-section (1) of section 263 of the Income-tax

Act, 1961, which deals with the power of the Commissioner in revision, is

clear and unambiguous, as in terms thereof the doctrine of merger applies

only in respect of such items which were the subject-matter of appeal and not

in respect of those which were not.

Decision of the Madras High Court affirmed.

13. CIT v. S. M. Aggarwal (293 IT 43)

Whether addition based on dump document recovered in search could

be sustained without giving the assessee the opportunity to controvert

the statement of assesees daughter or give further evidence?

During the course of search, certain documents containing details of monetary

transactions such as advancement of loan of Rs. 22.50 lakhs by the assessee

and also income by way of interest thereon at Rs. 3.55 lakhs were found. The


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explanation given by the assessee that the account belonged to his daughter

was denied by her. The Assessing Officer concluded in his assessment order

that the assessee had earned income from undisclosed sources which was

circulated by way of loan for the purpose of earning interest. Thus, the amount

of Rs. 22.5 lakhs and interest of Rs. 3.5 lakhs were added to the income of

the assessee for the assessment year 1998-99. The addition was deleted by

the Commissioner (Appeals) and his order was upheld by the Tribunal. On

appeal to the High Court :

Held, dismissing the appeal, that the statement made by the assessees

daughter could not be said to be relevant or admissible evidence against the

assessee, since the assessee was not given any opportunity to cross-

examine her and even from the statement, no conclusion could be drawn that

the entries made on the relevant page belonged to the assessee and

represented his undisclosed income. It was also an admitted fact that the

statement of the assessee was not recorded at any stage during the

assessment proceedings. The only person competent to give evidence on the

truthfulness of the contents of the document is the writer thereof. So, unless

and until the contents of the documents are proved against a person, thepossession of the document or handwriting of that person on such document

by itself could not prove the contents of the document. The findings of fact

had been recorded by both the Commissioner (Appeals) and the Tribunal.

The documents recovered during the course of search from the assessee

were dumb documents. The deletion of the addition was justified.

14. CIT v. Caplin Point Laboratories Ltd. (293 ITR 524) (Mad)

Whether penalty for concealment can be imposed on disallowance of

claim of deduction u/s 80HHC on interest income?

The assessee-company, engaged in the manufacture and sale of

pharmaceutical products, filed its return of income declaring a total income of

Rs. 2,57,270 claiming deduction under sections 80HHC and 80-I of the

Income-tax Act, 1961, of Rs. 1,76,116 and Rs. 1,44,463, respectively. The

return was processed under section 143(1)(a) of the Act. In response to the


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notice issued under section 148 of the Act, for reopening the assessment, the

assessee filed a letter dated March 29, 2000, confirming that there was no

change in the income returned and also requested to treat the original return

filed as correct and filed in response to the notice. After the assessment was

completed under section 147 of the Act, the Assessing Officer disallowed the

deduction claimed by the assessee under sections 80HHC and 80-I of the

Act. The Assessing Officer also initiated penalty proceedings on the ground

that the assessee had concealed particulars of income and furnished

inaccurate particulars of income, and levied penalty of Rs. 30,00,000 under

section 271(1)(c) of the Act. On appeal, the Commissioner (Appeals) held that

the Assessing Officer was not able to prove that the claim of the assessee for

deduction under sections 80HHC and 80-I of the Act was not bona fide and

allowed the appeal and deleted the penalty. The Tribunal confirmed the order

of the Commissioner (Appeals). On appeal by the Revenue :

Held, dismissing the appeal, that it was found by the Tribunal that when

disallowances were made on the basis of different interpretations, it could not

be said that particulars of income had been concealed. In this case, the

assessee had adopted a particular view on the basis of certain case law orsome bona fide belief and a mere rejection of the claim of the assessee by

relying on different interpretations did not amount to concealment of

particulars of income or furnishing inaccurate particulars of income by the

assessee. The Tribunal held that it was not a fit case for levying penalty. The

concurrent findings given by both the authorities below that there was no

concealment of particulars of income or furnishing inaccurate particulars of

income by the assessee were based on valid materials and evidence whichdid not warrant interference.

15. Dinbandhu Pal v. ITO (293 ITR 199) (AT)

Whether penalty for concealment could be imposed when details of

loans were furnished with confirmation from creditors?

The satisfaction of the Assessing Officer during the course of assessment

proceedings is a pre-condition for initiating penalty proceedings under section


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271(1)(c) of the Income-tax Act, 1961. However, whether the Assessing

Officer was prima facie satisfied or not during the course of assessment

proceedings would depend upon the facts of each case.

If at the foot of the assessment order the Assessing Officer has recorded the

finding that penalty proceedings under section 271(1)(c) are separately

initiated, it would be sufficient to hold that the Assessing Officer was satisfied

during the course of assessment proceedings for initiation of penalty

proceedings.

Where in the body of the assessment order while making the addition the

Assessing Officer had mentioned the addition clearly attracts the penalty

provision under section 271(1)(c) and at the end of the order, i.e., after the

determining of total income and the computation of tax again he had

mentioned penalty proceedings under section 274/271(1)(c) initiated

separately :

Held, that the Assessing Officer must be held to have been satisfied during

the course of assessment proceedings that the assessee had concealed his

income.

CIT v. S. V. Angidi Chettiar [1962] 44 ITR 739 (SC) applied.

The Explanation to section 271(1)(c) is part of section 271 and when a notice

is issued under section 271 the burden is upon the assessee to prove that his

case does not fall within the circumstances stated in the Explanation.

Whether a particular case falls within the ambit of the Explanation or not

would depend upon the facts of each case. Part A of the Explanation would

be applicable in circumstances (i) where a person fails to offer an explanation

; (ii) where a person offers an explanation which is found by the Assessing

Officer or by the Commissioner (Appeals) to be false. Part B of the

Explanation would be applicable (i) where a person offers an explanation but

he is unable to substantiate it ; and (ii) he also fails to prove that such

explanation is bona fide and that all the facts relating to the same which are

material to the computation of the total income have been disclosed by him.


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Part B of the Explanation would be applicable only if both the above

conditions are satisfied. If the assessee is able to prove that the explanation is

bona fide and all the facts relating to the same have been disclosed, the

assessee's case would not fall within Part B of the Explanation even if he is

unable to substantiate the explanation.

There was a credit of Rs. 8,70,000 in the assessee's books of account being

unsecured loans. The assessee furnished the loan confirmation of the

creditors before the Assessing Officer and later filed details of loans taken.

The Assessing Officer asked the assessee to produce the loan creditors in

person immediately. The assessee appeared before the Assessing Officer

and stated that no loan creditor was ready to depose before the Assessing

Officer and therefore, he was forced to offer the whole amount for taxation.

The Assessing Officer also found that the assessee had shown the closing

stock in the trading account and balance-sheet at different figures. Since the

assessee was unable to explain the discrepancy, he offered the income of Rs.

87,500 in this regard. The Assessing Officer completed the assessment

making additions of Rs. 8,70,000 and Rs. 87,500 and levied penalty under

section 271(1)(c) which was upheld by the Commissioner (Appeals). Onappeal to the Tribunal :

Held, (i) that the assessee had offered an explanation relating to cash credit

by furnishing necessary details and also substantiated it by producing the

confirmation of the creditors. The explanation of the assessee was not found

to be false by the Revenue. The Assessing Officer had asked the assessee to

produce the creditors which the assessee was unable to do and, therefore, he

offered the income. Thus it was clear that no material was found by the

Department to hold that the confirmation of the creditors produced by the

assessee was false. The assessees case did not fall within the ambit of Part

A of the Explanation. Since the assessee offered an explanation and

substantiated it by producing the confirmation of creditors, Part B was also not

applicable. Merely because the assessee accepted the credit as his income

because he was unable to produce the creditors, it could not be said that the

assessee had concealed the particulars of income or furnished inaccurate


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particulars of such income. The assessee was not liable for penalty under

section 271(1)(c) in respect of the addition of Rs. 8,70,000 for unexplained

cash credit.

(ii) That admittedly, the assessee had no explanation for the discrepancy in

recording the closing stock at different figures in the trading account and

balance sheet. In view of this, Part A of the Explanation, i.e., the assessee

fails to offer explanation would be satisfied. Therefore, the assessee would

be deemed to have concealed the particulars of income of Rs. 87,500. The

levy of penalty on this count was justified.

16. Dilip N. Shroff Vs. Jt. CIT (291 ITR 519) (SC)

Whether penalty for concealment could be imposed when capital gain

was computed on basis of registered valuer report but assessment was

made on basis of DVO report?

Clause (c) of section 271(1) of the Income-tax Act, 1961, categorically states

that penalty would be leviable if the assessee conceals particulars of his

income or furnishes inaccurate particulars thereof. But 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. Not only is the levy of penalty discretionary in nature but the

discretion is also 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, inhere on the face of the

statutory provisions. Penalty proceedings are not to be initiated merely to

harass the assessee. The approach of the Assessing Officer in this behalf

must be fair and objective.

Concealment of income and furnishing inaccurate particulars are different.

Both concealment and furnishing of inaccurate particulars refer to deliberate

acts on the part of the assessee. A mere omission or negligence would not

constitute a deliberate act of suppressio veri or suggestio falsi.


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A duty may be enjoined on the assessee to make a correct disclosure of

income but if such disclosure is based on the opinion of an expert, who is

otherwise also a registered valuer having been appointed in terms of a

statutory scheme, merely 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.

Clause (iii) of section 271(1) 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 income but it may not exceed three times

thereof. The factors which are material for the purpose of the computation of

total income as sought to be explained in Explanation 1 refer to computation

of income on the part of the assessee which is directly relatable to (a) failure

to offer an explanation and/or offering an explanation which is false ; and (b)

which he is not able to substantiate and fails to prove that such explanation is

bona fide. Only in the event both factors enumerated in clauses (A) and (B) of

Explanation 1 are satisfied and a finding in this behalf is arrived at by theAssessing Officer, the legal fiction created thereunder would be attracted. For

the purpose of invoking clause (iii) of section 271(1) the expression amount

of tax sought to be evaded is set out in Explanation 4. This clause would be

attracted when a finding is arrived at that some amount of tax was sought to

be evaded by the assessee as envisaged by clause (a) thereof.

The Explanation appended to section 271(1)(c) is an exception to the general

rule. It raises a legal fiction by reason whereof the burden of proof shifts from

the Department to the assessee. Legal fiction, however, as is well known,

must be given full effect when the conditions precedent thereof are satisfied

and not otherwise.

The object of an Explanation to a statutory provision is : (a) to explain the

meaning and intendment of the Act itself ; (b) where there is any obscurity or

vagueness in the main enactment, to clarify the same so as to make itconsistent with the dominant object which it seems to subserve ; (c) to provide


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additional support to the dominant object of the Act in order to make it

meaningful and purposeful ; (d) an Explanation cannot in any way interfere

with or change the enactment or any part thereof, but where some gap is left

which is relevant for the purpose of the Explanation, in order to suppress the

mischief and advance the object of the Act, it can help or assist the court in

interpreting the true purport or intendment of the enactment ; (e) it cannot,

however, take away a statutory right with which any person under a statute

has been clothed or set at naught the working of an Act by becoming a

hindrance in the interpretation of the same.

S. Sundaram Pillai v. V. R. Pattabiraman [1985] AIR 1985 SC 582 and

Swedish Match AB v. Securities and Exchange Board of India [2004] 122

Comp Cas 83 (SC) ; [2004] 11 SCC 641 followed.

The word inaccurate 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 inaccurate particulars. The term inaccurate

particulars is not defined. Furnishing of an assessment of the value of

property may not by itself be furnishing inaccurate particulars. Even if the

Explanations are taken recourse to, a finding has to be arrived athaving

regard to clause (A) of Explanation 1that the Assessing Officer is required

to arrive at a finding that the explanation offered by the assessee, in the event

he offers one, was false. He must be found to have failed to prove that such

explanation is not only not bona fide but all the facts relating to the same and

material to the income were not disclosed by him. Thus, apart from his

explanation being not bona fide, it should have been found as a fact that he

has not disclosed all the facts which were material to the computation of his

income. The explanation must be preceded by a finding as to how and in what

manner he furnished the particulars of his income. It is beyond any doubt or

dispute that for the said purpose the Assessing Officer must arrive at a

satisfaction in this behalf.

CIT v. Ram Commercial Enterprises Ltd. [2000] 246 ITR 568 (Delhi) and

Diwan Enterprises v. CIT [2000] 246 ITR 571 (Delhi) followed.


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The primary burden of proof is on the Revenue. The statute requires a

satisfaction on the part of the Assessing Officer : he is required to arrive at a

satisfaction so as to show that there is primary evidence to establish that the

assessee had concealed the amount or furnished inaccurate particulars and

this onus is to be discharged by the Department.

D. M. Manasvi v. CIT [1972] 86 ITR 557 (SC) ; [1973] 3 SCC 207 relied on.

While considering whether the assessee has been able to discharge his

burden the Assessing Officer should not begin with the presumption that he is

guilty.

The order imposing penalty is quasi-criminal in nature and the burden lies

upon the Department to establish that the assessee had concealed his

income. Since burden of proof in penalty proceedings varies from that in the

assessment proceedings, a finding in the assessment proceedings that a

particular receipt is income cannot automatically be adopted, though a finding

in the assessment proceedings constitutes good evidence in the penalty

proceedings. In the penalty proceedings the authorities must consider the

matter afresh as the question has to be considered from a different angle.

Anantharam Veerasinghaiah and Co. v. CIT [1980] 123 ITR 457 (SC) ; [1980]

Supp SCC 131 followed.

It is one thing to say that the valuation based on a newspaper is totally

unacceptable, it is another thing to say that, by reason of the return, the

assessee furnished inaccurate particulars. The questions which are, inter alia,

required to be posed are : (i) whether the method adopted by the registered

valuer was wholly unknown to law or was contrary to all modes of valuation ;

(ii) whether the particulars said to have been concealed were necessary for

the purpose of arriving at a correct valuation or otherwise misleading ; (iii)

whether the method of valuation adopted by the registered valuer resulted in

grossly unfair valuation which could not have been done by any reasonable

person ; (iv) whether the methodology adopted was totally wrong.


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A registered valuer is supposed to know as to which method or mode should

be adopted for the purpose of valuing a particular land or a building having

regard to a large number of factors involved therein. The tax on capital gains

does not envisage that the valuation given must be the true and exact market

value. Even the market value of the property may be found to be different

having regard to the locale thereof.

The assessee (HUF) had an undivided th share in certain land and building,

which was sold during the previous year relevant to the assessment year

1998-99. To value the property for the purpose of capital gains the assessee

appointed a registered valuer. In the report the registered valuer gave all the

requisite particulars as required in the prescribed form, and had stated (i) that

he had based the valuation on the sale prices given in a newspaper and

worked out the value of the assessees share in the property as on April 1,

1981, as Rs. two crores fifty lakhs ; (ii) that on his inspection he had found

that the building was in a dilapidated condition and had collapsed and,

therefore, he had taken the scrap value of the building. For the assessment

year 1998-99 the assessee had disclosed an income of Rs. 30,80,030

showing a long-term capital loss of Rs. 34,12,000 on account of the sale ofthe property and had filed the registered valuers report along with the return.

The Joint Commissioner referred under section 55A of the Income-tax Act,

1961, the matter for valuation of the undivided th share of the appellants

property as on April 1, 1981, to the District Valuation Officer who submitted a

report determining the share of the assessee at Rs. 1,14,92,907 and on that

basis the Joint Commissioner determined the capital gain of the assessee at

Rs. 3,09,78,478. After a show-cause notice under section 274 read withsection 271 the Joint Commissioner imposed a minimum penalty of Rs.

68,78,095 under section 271(1)(c) on the basis that the assessee had

furnished inaccurate particulars of its income. The Commissioner (Appeals)

as well as the Appellate Tribunal affirmed the imposition of penalty. The High

Court dismissed the assessees appeal in limine. On appeal to the Supreme

Court :


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Held,accordingly, reversing the decision of the High Court, (i) that in a case of

this nature, the question would be whether this was a fit case where the

discretionary jurisdiction was properly exercised or not ;

(ii) that the methods of valuation might be different. A registered valuer was

supposed to know which method or mode should be adopted for the purpose

of valuing a particular land or a building having regard to the large number of

factors involved therein. The tax on capital gains did not envisage that the

valuation must be the true and exact market value. Even the market value of a

property might be found to be different having regard to the locale thereof.

The authorities did not arrive at a finding that the consideration amount fixed

for the sale of the property was wholly inadequate. The authori-ties also did

not indicate what were the particulars furnished by the assessee. Nor did they

state what should have been the accepted principles of valuation.

(iii) That a reference under section 55A to the Valuation Officer was optional

and was for the purpose of making an estimate. Such reference would be

made, if in the opinion of the Assessing Officer the value of the assets as

claimed by the assessee in accordance with the estimate made by the

registered valuer was less than its fair market value. Clause (b) also indicated

that the assessee had two options : to get the value prepared through the

index value or to take any other known mode of valuation. The registered

valuer had arrived at his opinion on a certain basis and while making the

valuation report disclosed all the particulars. He disclosed that he had chosen

the index value method. He did not rely upon any sale instance. He might

have referred to the valuation of property as mentioned in a local newspaper.

But he did not furnish the particulars. Nor had he enclosed the sheet showing

sale instances, but nothing turned upon it as he had not relied upon any sales

instances. There could be a genuine difference of opinion between two

experts. A duty might be enjoined on the assessee to make a correct

disclosure of income but if such disclosure is based on the opinion of an

expert, who was otherwise also a registered valuer having been appointed in

terms of a statutory scheme, only because his opinion was not accepted or

some other expert gave another opinion, that would not by itself be sufficient


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for arriving at the conclusion that the assessee had furnished inaccurate

particulars.

(iv) That, therefore, the penalty was not exigible.

Decision of the Bombay High Court in Dilip N. Shroff v. Joint CIT [2007] 291

ITR 513 reversed.

17. Dr. T. A. Quereshi Vs. CIT (287 ITR 547) (SC)

Whether value of heroine seized from medical practitioner was

allowable as trading loss?

The assessee, a medical practitioner, claimed deduction of the value of heroin

seized from his gross income. The Department denied the deduction. On

appeal the Appellate Tribunal held as a fact that heroin was a part of his

stock-in-trade and allowed deduction of the estimated value of the heroin

seized from the gross income as a business loss. On appeal the High Court

held that the rigour of the Explanation to section 37 of the Income-tax Act,

1961, was fully satisfied, that possession of heroin was an offence, that it was

disgraceful for a doctor to indulge in activities against humanity, and that

hence the question of claiming deduction of the value of the seized article did

not arise. On appeal to the Supreme Court :

Held, reversing the decision of the High Court, (i) that the Explanation to

section 37 had no relevance as this was not a case of business expenditure

but was one of business loss. Business loss was allowable on ordinary

commercial principles in computing the profits. Once it was found that the

heroin seized formed part of the stock-in-trade of the assessee, it followed

that the seizure and confiscation of such stock-in-trade had to be allowed as a

business loss.

CIT v. Piara Singh [1980] 124 ITR 40 (SC) followed.

(ii) That even though the assessee was committing a highly immoral act in

illegally manufacturing and selling heroin, the case had to be decided on legal

principles and not on ones own moral views.


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Loss of stock-in-trade has to be considered as a trading loss.

CIT v. S. N. A. S. A. Annamalai Chettiar [1972] 86 ITR 607 (SC) ; [1973] AIR

1973 SC 1032 followed.

By the court : Law is different from morality, as the positivist jurists Bentham

and Austin pointed out.

Decision of the Madhya Pradesh High Court in CIT v. Dr. T. A. Qureshi [2005]

275 ITR 352 reversed.

18. CIT v. Bharat Aluminium Co. Ltd (163 Taxman 430) (Del)

Whether revision u/s 263 is justified on the ground that the claim was

not made by filing revised return u/s 139(5) and AO allowed deduction

on the basis of revised computation furnished by assessee through

letter filed in course of assessment proceeding?

The assessee claimed 1/5th as differed revenue expenditure. However, in

course of assessment proceeding, assessee enhanced the claim and

expenditure was claimed in full by way of filing revised computation throughletter. The claim of assessee was accepted. Thereafter, the assessment was

revised by commissioner acting u/s 263 and enhanced claim was disallowed.

The tribunal allowed assessees claim. The High Court confirmed the order of

Tribunal by holding that assessees claim was not new one but he only

enhanced the original claim of deduction of expenditure and so it is not

necessary to file revised return of income.

19. Hero Exports v. CIT (213 CTR 291) (SC)

Whether indirect cost is to be reduced by 10% of incentives and other

income while determining export profit of trading goods as defined in

80HHC(1)(b) )or 80HHC(1)(c)(ii).?

Honourable Supreme Court allowed the claim of assessee by holding that

only indirect cost attributable to export is required to be deducted and so

indirect cost relating to incentive received by assessee is not required to be


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deducted. On the basis of rationality of provision of Explanation (baa) of

section 80HHC, the claim of assessee of deduction at 10% was allowed to be

reduced from indirect cost.

20. Radhe Developers v. ITO (Ahmedabad Bench)

Whether ownership of land is the essential condition to be eligible for

claiming deduction of income from construction and development of

residential housing project u/s 80IB(10) ?

The assessee had developed and built a housing project on a land not

belonging to it. It had entered into development agreement with land owner

where the landowners agreed to get the land developed through assessee.

The permission of municipality was also not in the name of assessee. The

revenue rejected the claim of deduction u/s 80IB on the ground that as per

provision, the approval by local authority is required and as the approval was

in the name of land owner, the deduction could not be allowed. The CIT(A)

confirmed the finding of assessing officer. The Tribunal allowed the claim by

noting that approval of project was taken by assessee on behalf of owner and

all expenses of approval was borne by assessee. The tribunal held that it is

the person who develop and build the housing project is eligible to deduction

irrespective of ownership of land.

Documents

Recent Judgments Under Income Tax Act