Burden of Proof for Penalty under Income Tax on Revenue: SC

AIT News Network

NEW DELHI. Giving relief to several Income Tax payers who are subjected to Penalty by the Department; the Apex Court vide a recent ruling AIT-2007-204-SC has ruled as under:

• In penalty proceeding under Section 271(1)(c) of the Income Tax Act,  Primary burden of proof is on the revenue.  The statute requires satisfaction on the part of the assessing officer.  He is required to arrive at a satisfaction so as to show that there is primary evidence to establish that the assessee had concealed the amount or furnished inaccurate particulars and this onus is to be discharged by the department
• While considering as to whether the assessee has been able to discharge his burden, the assessing officer should not begin with the presumption that he is guilty.
• The order imposing penalty is quasi-criminal in nature and, thus, burden lies on the department to establish that the assessee had concealed his income.  Since burden of proof in penalty proceedings varies from that in the assessment proceeding, a finding in an assessment proceeding that a particular receipt is income cannot automatically be adopted, though a finding in the assessment proceeding constitute good evidence in the penalty proceeding.  In the penalty proceedings, thus, the authorities must consider the matter afresh as the question has to be considered from a different angle.  
• 'Concealment of income' and 'furnishing of inaccurate particulars' are different.  Both concealment and furnishing inaccurate particulars refer to deliberate act on the part of the assessee.  A mere omission or negligence would not constitute a deliberate act of suppressio veri or suggestio falsi.  Although it may not be very accurate or apt but suppressio veri would amount to concealment, suggestio falsi would amount to furnishing of inaccurate particulars.
• The expression "conceal" is of great importance.  According to Law Lexicon, the word "conceal" means: "to hide or keep secret.  The word "conceal" is con+celare which implies to hide.  It means to hide or withdraw from observation; to cover or keep from sight; to prevent the discovery of; to withhold knowledge of.  The offence of concealment is, thus, a direct attempt to hide an item of income or a portion thereof from the knowledge of the income tax authorities."                 In Webster's Dictionary, "inaccurate" has been defined as: "not accurate, not exact or correct; not according to truth; erroneous; as an inaccurate statement, copy or transcript." It signifies a deliberate act or omission on the part of the assessee.  Such deliberate act must be either for the purpose of concealment of income or furnishing of inaccurate  particulars.
• The term 'inaccurate particulars' is not defined.  Furnishing of an assessment of value of the property may not by itself be furnishing of inaccurate particulars.   Even if the explanations are taken recourse to, a finding has to be arrived at having regard to clause (a) of Explanation 1 that the Assessing Officer is required to arrive at a finding that the explanation offered by an assessee, in the event he offers one, was false.   He must be found to have failed to prove that such explanation is not only not bona fide but all the facts relating to the same and material to the income were not disclosed by him.  Thus, apart from his explanation being not bona fide, it should have been found as of fact that he has not disclosed all the facts which was material to the computation of his income.
• The explanation, having regard to the decisions of this Court, must be preceded by a  finding as to how and in what manner he furnished the particulars of his income.  It is beyond any doubt or dispute that for the said purpose the Income Tax Officer must arrive at a satisfaction in this behalf.
• It is furthermore of some significance that the Commissioner in its order dated 30.11.2000 made a terse comment that the assessee cannot shift the burden of concealment to any other person, meaning thereby, the registered valuer.  He, furthermore, made a comment that the registered valuer had adopted a strange way of valuing although no reason, far less than sufficient or cogent reason, has been assigned in support thereof.  The said comments were unwarranted.
• Before, thus, a penalty can be imposed, the entirety of the circumstances must reasonably point to the conclusion that the disputed amount represented income and that the assessee had consciously concealed the particulars of his income or had furnished inaccurate particulars thereof.
• It is now a well-settled principle of law that more stringent the law, more strict construction thereof would be necessary.  Even when the burden is required to be discharged by an assessee, it would not be as heavy as the prosecution.
• It is one thing to say that the valuation based on a newspaper is totally unacceptable, but it is another thing to say that by reason of the return, the assessee furnished inaccurate particulars.  The question which was inter alia required to be posed was whether the method adopted by the registered valuer was wholly unknown to law or was contrary to all modes of valuation.  Whether the particulars sought to have been concealed were necessary for the purpose of arriving at a correct valuation or otherwise misleading?  Whether the method of valuation adopted by the registered valuer resulted in a grossly unfair valuation which could not have been done by any reasonable person?  Was the methodology adopted totally wrong?
• The methods of valuation, as we know, may be different.  A registered valuer is supposed to know as to which method or mode should be adopted for the purpose of valuing particular land or a building having regard to a large number of factors involved therein.  The tax on capital gains does not envisage that the valuation given must be true and exact market value.  Even the market value of a property may be found to be different having regard to the locale thereof.  There was no direct sale instance.  The sale instances relied upon by the District Valuer were of 1979 and 1982.
• A duty may be enjoined on the assessee to make a correct disclosure of income but if such disclosure is based on the opinion of an expert, who is otherwise also a registered valuer having been appointed in terms of a statutory scheme, only because his opinion is not accepted or some other expert gives another opinion, the same by itself may not be sufficient for arriving at a conclusion that the assessee has furnished inaccurate particulars.

(Click here for full text of Ruling AIT-2007-204-SC)