Case: Dilip N. Shroff Vs. Joint Commnr. Of Income Tax, Mumbai &amp;Anr

The Appellant herein is an assessee under the Income Tax Act. It is an HUF. For the assessment year 1998-99, an income of Rs.30,80,030/- was declared by it, inter alia, showing a long term capital loss of Rs.34,12,000/- .The said capital loss was said to have arisen on account of sale of property being land and building known as Jekison Niwas, 220 Walkeshwar Road, Mumbai. Admittedly, the Appellant had 1/4th share therein. It entered into an agreement for sale of undivided 1/4th share in the said property for a sum of Rs.8 crores with one M/s Layer Exports Pvt. Ltd.. For the purpose of valuation of the said property, one Shri U.D. Chande, a registered valuer, was appointed. On 01.04.1981, the value of the said 1/4th share in the property was determined at R, were stated. s. 2,52,00,000/-. In the said valuation report, it was stated that the purpose was valuation for computation of capital gains. The report was filed in the prescribed form. All the required particulars/ information were furnished. In the said report, description of the property, location thereof, whether situated in residential/commercial/mixed/industrial area, and classification thereof were shown. As regard, proximity to civic amenities, it was stated that the plot is very close to "Raj Bhawan". All other amenities except cinema were within 1 k.m. Means and proximity to surface communication by which the locality is served were also stated. All other requisite particulars, as specified3. After noticing that the total development area of land is 4605 sq. yds with an F.S.I. of 1.33, it wasam informed that the land was reserved for a vegetable & retail market before 1965. I am of the opinion that it is possible to get this reservation modified or waived and hence I consider the effect of this on the value of the property negligible. In any event there will be no loss of F.S.I. even if reservation is retained for the purpose of my valuation of share in the property.Based on the sales instances the prices given in "Accommodation Times" I am of the opinion and feel that the rate of the Residential Apartment in the area in 1981 would be in between Rs.2500 to Rs.3000/- per S.FT. I think that the lower value of Rs.2500 per S.FT. as fair and reasonable.This rate will be fair and reasonable for the share of property belonging to Late Mr. Natwarlal Shroff & Late Mrs. Sonabai Shroff as the title of their holding is clear and Marketable.I am appointed to give value of the share of the property belonging to the Late Mrs. Sonabai Shroff i.e. 1/4th share of the property.As regards (valuation of) 1/4th share of Mr. Bhagwandas Dwarkadas Shroff and 1/4th share of Mr. Madhavdas Dwarkadas I am informed that there is suit pending in courts regarding title to the property and tenancy rights. Each of the other holders will fetch the reports of valuation for their respective shares separately.In 1981 the cost of construction may be taken at Rs.275/- per S.FT. Further, considering the Builders Profit Rs.700/- per S.Ft. and deducting both the value of cost of construction and the Builders profits from the above stated works out to Rs.1,525/- per S.FT of saleable area. Considering that it is a jointly owned property, I take it as fair and reasonable.As these rate the value of the share of the property belonging to late Mr. Natwarlal Shroff comes to -16536.5 x 1525.00 = Rs.2,52,18,165.05Say Rs.2,50,00,000.00 .(I)Though the building itself is old and dilapidated, I consider the scrap value of it at Rs.50/- per S.FT. As the Built up area is 16000 S.FT., the scrap value of structure comes to Rs.8,00,000.00. The value of the share of Late Mr. Natwarlal Shroff of this scrap value is Rs,8,00,000.00. The value of the share of Late Mr. Natwarlal Shroff of this scrap value is= Rs. 2,00,000.00 -.(II)Therefore value of the property belonging to Late Mr. Nartwarlal Shroff works out to (I)+(II).Rs.2,50,00,000.00+Rs.2,00,000.00 = Rs.2,52,00,000.00I therefore value the share of the above property belonging to Late Mr. Natwarlal Shroff at Rs.2,52,00,000.00 (Rs. Two Crore Fifty Two Lakhs Only) as onAs regard existence of sale instances, however, although a sheet was said to have been attached thereto, no such thing was done. As against column 40, namely, if sale instances are not available or not relied upon, the basis of arriving at the land rate, it was statedaddition to Sales Instances & "Accommodation Times" areValuer in his report, inter alia, statedI 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 the value of only land as the basis of my valuation.In the year 1997 by reason of a consent decree passed in Suit No.3845 of 1997, 1/4th undivided share in Jekison Niwas was sold and possession was transferred to M/s Layer Export Pvt. Ltd. against final payment.6. The return filed by the Appellant on 30.09.1998 came up for scrutiny before the First Respondent, who in exercise of its power under Section 55A of the Income Tax Act, 1961 (for short, the Act) referred the matter for valuation of the said 1/4th undivided share of the Appellant as on 01.04.1981 to the District Valuation Officer; whereupon the District Valuation Officer submitted a report dated 29.06.2000 wherein the 1/4th undivided share of the Appellant in the said property as on 01.04.1981 was determined at Rs.1,14,92,907, the basis whereof is said to be as underof Property Land along with Bungalow known as "Jekinson Niwas"220-Walkeshwar Road,Mumbai-400 0061 Land Area as per records 5250 sq. yds. = 4389.63 sq. mt.2 Land rate adopted @ Rs.12842/- sq. mt. (897/- x 1.33 x 10.764)3 Consideration of land component Rs.5,63,71,628 (A)4 Built-up Area existing as on 1-4.81 (Gr.+I upper floor bungalow structures) 16,000 sq. ft.5 Salvage/Scrap value (16000 sq. ft @ Rs.100/- sq. ft.) as adopted by the Regd. Valuer Rs.16,00,000/- (B)6 Total consideration (A)+(B) Rs.5,79,71,628/-7 1/4th share of the above (6) consideration as Fair Market Value Rs.1,44,92,907/- Say Rs.144.93 lakhs"7. For the aforementioned purpose the land rate was taken at Rs.897/- sq. ft. on the basis of the following sale instances :"Sl. No.Date ofSaleName of PropertyConsiderationAreaRate127.11.79Land Survey No. 218(Pt) Street No.25, 27,27(A) at NarayanDhabolkar Rd. Off N.S.Rd., MumbaiRs.3,15,00,000/7114.08sq. mt.Rs.4428/-sq. mt.219.10.82Flat No.302,3rd floor atSanudeep CHS Ltd. Plot No.631 (Pt) at AltamountRoad, MumbaiRs.68,00,000/-346.60sq. mt.Rs.1823/-sq. ft.By comparing and considering the sale instances property with the subject property after taking into account size-shape, time-gap, location-situation and also the factors like physical, social legal and economical, the land FSI rate as on 1.4.81 is Rs.897 sq. ft is considered to be fair and reasonable.Comments on Regd. Valuers report :The assessee have submitted Regd. Valuer Shri Uday D Chandes 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. Valuers report cannot be accepted.The First Respondent having regard to the aforementioned valuation report of the District Valuation Officer passed an order of assessment on 08.08.2000 holdingcost 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 :Less:Cost of acquisition as on 1.4.81 as per the Dept. Valuers report as discussed is Rs.1,44,92,907 Indexed cost = 1,44,907 x 331 100Rs.8,00,00,000Rs.4,79,71,5223,20,28,478LessExpenses incurred in relation to sale of property :Solicitors fees : Rs.2,50,000Brokerage : Rs.8,00,000------------LONG TERM CAPITAL GAINSRs. 10,50,000-------------------Rs.3,09,78,478===========The claim of the assessee for deduction of Rs.22,200/- being expenses incurred on account of fees paid to Uday Chande is not admissible as it cannot be said to be related to sale of property. Accordingly, the same is not allowed.6. Subject to the above remarks, the total income of the assessee is computed as under:Property Income : RsAs per statement 64,664Long term Capital Gains :As discussed above 3,09,78,478Income from Other Sources :Interest income as per Statement 30,31,364-------------TOTAL INCOME 3,40,59,506Rounded off 3,40,59,5107. Assessed accordingly. Give credit for prepaid taxes. Charge interest u/s 234B and 234C. Initiate penalty proceedings u/s 271(1)(c) of the Act. Issue demand notice and challan.Thus, in the said order, valuation of the land as made by the District Valuation Officer was adopted and on the basis thereof long term capital gain was determined to be Rs.3,09,78,478 by taking the valuation of the 1/4th undivided share of the Appellant as Rs.1,44,92,907 as on 01.04.1981. In view of the said order of assessment, a show cause notice under Section 274 read with Section 271 of the Act was served to which a reply was filed by the Appellant on or about 14.08.2000 claiming that there was no concealment of income as all the details of property were submitted along with the return of income and the difference in the matter of valuation of the 1/4th share of the appellant does not amount to concealment. It was stated thereinAll the material facts in respect of the 1/4th share of the sale of property has been disclosed when the return was filed. It is the difference of pinion in respect of value of the property as of 1.4.1981 between the Registered Valuer and Divisional Valuation Officer with regard to value of the property as of 1.4.1981 does not amount to concealment.4. The Valuation Report by the Divisional Valuer of the department has been arrived at by using his best judgment and perception. The value determined by him as of 1.4.1981 has been on the basis of concepts and methods adopted by him, without taking into account the objections and suggestions made by the assessee.The difference between the value as determined by the Registered Valuer and Departments Divisional Valuation Officer does not change the basis character or the details of valuation, hence there is no concealment whatsoever. You are therefore requested to drop the penalty proceedings initiated u/s 271(1)(c) and oblige.Our client for the sake of mental peace and in order to co-operate with the Department does not wish to go in to appeal and dispute the assessment done by you. He does not want to contest the assessment completed by you.He will pay the demand of Rs.94,97,657.00 as per the demand notice and will show you the Challan of having made the payment shortly.*** *** ***You are once against requested to decide the fate of penalty U/s 271(1)(c) immediately as desired by the assessee, since I am leaving the country for good and intend to prefer an appeal against the order of Penalty if passed.The First Respondent, however, in his order dated 23.08.2000 purported to be in exercise of its power under Section 271(1)(c) of the Act, heldThe assessee, it would appear, has not filed an appeal against the order under Section 143(3) of the Act and hence the conclusions drawn as regards the computation of total income in this case areBy no stretch of imagination a property in a posh locality like Walkeshwar, Mumbai would have resulted in loss after substitution of indexed cost of acquisition. The intention of assessee in obtaining the valuation report is obviously viewed in the context of assessee having returned loss under the head Capital Gains.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(1)(c) of the Act at 20% of Rs.3,43,90,478 i.e. Rs.68,78,095. Accordingly, a minimum penalty of Rs.68,78,095 is levied under Section 271(1)(c) of the Act.The Appellant preferred an appeal thereagainst before the Commissioner contendingis 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.The said appeal was, however, dismissed by the Commissioner of Income Tax by an order dated 13.11.2000 holdingsummarize differences between two reports cannot be attributed universally to a single reason i.e. difference of opinion. I have already stated in case a report is incorrect for any reason the assessee is expected not to rely upon it because he cannot shift the burden of concealment u/s 271(1)(c) to any other person who might have helped him in the matter of preparation of the return and drawing the statement ofwas further heldis 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.Secondly I find that the basis adopted by the Registered Valuer to rely upon a newspaper is totally unacceptable and does not conform to the accepted principles of valuation.10. As such the report is therefore unacceptable and at clear variance with the accepted principles of valuation. It is totally incorrect and wrong, if not outrageous.11. I find the Departmental Valuers report is based on specific sales instances and computation of land value which constituted the major portion of the report is based on direct sales instances of land. It is not a circuitous method as adopted by the Registered Valuer."14. The Appellant preferred an appeal before the Income Tax Appellate Tribunal being aggrieved by and dissatisfied with the said order. He also affirmed an affidavit stating that he had honestly relied on the professional advice of the Registered Valuer and the Chartered Accountant and had not approached the Valuer for the purpose of obtaining the report at any specified value in order to avoid paying taxes. The Income Tax Appellate Tribunal, however, dismissed the said appeal and confirmed the order of the Commissioner of Income Tax by an order dated 10.08.2001, holdingwas also frankly admitted that the words "sales instances" mentioned against Col. 40 of the report were incorrectlywas further heldare afraid that the above arguments cannot be accepted what is enjoined upon the assessee is a duty to make a correct and complete disclosure of his income and not only of the material facts such as disclosure of the details of the property and factum of sale thereof as in the assessees case. As stated earlier the assessee disclosed long term capital loss of Rs.34,12,000/- and claimed carry forward thereof to the subsequent year as against taxable long term capital gain of Rs.3,09,78,428/-. The disclosure made of the particulars of income in the return under the head capital gain by the assessee is certainly incorrect for which the impugned penalty is exigible. The assessee cannot take shelter under a report of a registered valuer which is found by the revenue authorities to have been prepared without due regard to the accepted principles ofwas also heldby the assessee of the value of his share of property as on 1.4.1981 estimated in the DVOs 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.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).Indisputably, the Appellant deposited a sum of Rs.68,78,095/- towards penalty. An appeal preferred by him before the High Court in terms of Section 260A of the Act was dismissed in limine, statingare 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..."

Court's reasoning:
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 isIncome 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 Appellateis of some significance that in the standard proforma used by the Assessing Officer in issuing a notice despite the fact that the same postulates that inappropriate words and paragraphs were to be deleted, but the same had not beenthe Assessing Officer himself was not sure as to whether he had proceeded on the basis that the assessee had concealed his income or he had furnished inaccurateimpugned order, therefore, suffers from non-application of mind. It was also bound to comply with the principles of natural justice.