NO CONCEALMENT PENALTY U/S 271 (1)(c) ON ENHANCED INCOME DUE TO DVO’s REPORT

By Subash Agarwal, Advocate

In the case of Britannia Industries 238 ITR 57, Hon’ble Calcutta High Court has held that it cannot be said that there was escapement of income in a case where the DVO has enhanced the valuation of a property. DVO’s report is merely an expression of opinion.

Hon’ble Supreme Court in the case of ACIT vs. Dhariya Construction Co. 328 ITR 515 (SC) held that re-opening for escapement of income is not possible on the basis of DVO’s report.

2.         Thus, in the opinion of the courts, DVO’s report is merely an expression of opinion.

Thus, on the basis of opinion and estimation, no penalty u/s. 271(1)(c) is leviable since offence of concealment has not been proved in such a situation. When the courts have held that there is no “escapement of income” on the basis of DVO’s report, same proposition will apply where there is allegation of concealment of income.

3.         In the case of National Textiles V. CIT 249 ITR 125, the Hon’ble Gujarat High Court held that –

In order to justify the levy of penalty, two factors must co-exist, (i) there must be some material or circumstances leading to the reasonable conclusion that the amount does represent the assessee's income. It is not enough for the purpose of penalty that the amount has been assessed as income, and (ii) the circumstances must show that there was animus i.e., conscious concealment or act of furnishing of inaccurate particulars on the part of the assessee. The Explanation has no bearing on factor No. 1 but it has bearing only on factor No. 2. The Explanation does not make the assessment order conclusive evidence that the amount assessed was in fact the income of the assessee. No penalty can be imposed if the facts and circumstances are equally consistent with the hypothesis that the amount does not represent concealed income as with the hypothesis that it does. If a assessee gives an explanation which is unproved but not disproved i.e., it is not accepted but circumstances do not lead to the reasonable and positive inference that the assessee's case is false, the Explanation cannot help the Department because there will be no material to show that the amount in question was the income of the assessee.

4.         In DILIP N. Shroff’s case 291 ITR 519 (SC) it was held as under –

“The registered valuer has arrived its opinion on certain basis. He while making the valuation report, disclosed all the particulars. He disclosed that he had chosen to the index value method. He did not rely upon any sale instance. He might have referred to the valuation of the property as mentioned in a local newspaper. But it is not in dispute that he did not furnish any inaccurate particulars. It is true that he has not enclosed the sheet showing sale instance but nothing turns out thereupon as he had not relied upon any sale instances”.

There can be a genuine difference of opinion between two experts.

In the above circumstances, penalty was deleted by the Hon’ble Supreme Court.

5.         It was further held in the following cases that penalty imposed only on the basis of valuer's estimate regarding cost of construction is not valid –

(i)         Dy. CIT vs. JMD Advisors (P) Ltd. 310 ITR 280 (Del - Trib)

(ii)        CIT vs. Apsara Talkies 155 ITR 303 (Mad)