Ita/221/2012 Of M/S.medical Land, Trichur v. Commissioner Of Income Tax,Kochi

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT: THE HONOURABLE MR.JUSTICE K.M.JOSEPH & THE HONOURABLE MR.JUSTICE K.HARILAL WEDNESDAY, THE 29TH DAY OF JANUARY 2014/9TH MAGHA, 1935 ITA.No. 221 of 2012 () ----------------------- (ITA.NO.118/COCH/2004 OF INCOME TAX APPELLATE TRIBUNAL, COCHIN BENCH, COCHIN DATED 30-07-1998) ------------------------------ APPELLANT : ------------------------ M/S.MEDICAL LAND, PUTHUR BUILDINGS, ERINJERI ANGADI, TRICHUR. BY ADV. SRI.A.KUMAR RESPONDENT : ---------------------------- COMMISSIONER OF INCOME TAX,(APPEALS), KOCHI -682 031. BY ADV. SRI.JOSE JOSEPH, SC, INCOME TAX THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 27-08-2013, THE COURT ON 29-01-2014 DELIVERED THE FOLLOWING: sts I.T.A.NO.221/2012 APPENDIX PETITIONER'S ANNEXURES: ANNEX 1COPY OF THE ASSESSMENT ORDER DATED 31/8/2000 ANNEX IICOPY OF THE ORDER OF THE CIT (APPEALS) IS DATED 2/08/2004 ANNEX IIICOPY OF THE ORDER DATED 30/3/2010 PASSED BY THE TRIBUNAL SERVED ON THE APPELLANT ON 15/4/2010 RESPONDENT'S ANNEXURES: NIL /TRUE COPY/ P.A.TO.JUDGE sts K. M. JOSEPH & K. HARILAL, JJ. ---------------------------------------------- I. T. A. NO.221 OF 2012 ----------------------------------------------- Dated this the 29[th] day of January, 2014 JUDGMENT K.M. Joseph, J. Following Questions of law arise for consideration beforethis Hon'ble Court.; (a). Whether in the facts and circumstances of the case and in law, the Tribunal had erred or not in overlooking the evidence relating to the cost ofconstruction provided by the assessee and acceptingthe valuation as provided by the Valuation Officer. (b). Whether in the facts and circumstances of the case and in law, the Tribunal could have basedthe value of construction on the statement of the I.T.A.NO.221 OF 2012 assessee under Section 132 (4) alone when the assessee had led in evidence on the prevailing cost of construction which stood at a much lesser rateand ought not the Tribunal have accepted the saidevidence being material available on record andfacts and accepted the same de hors the statement ofthe assessee under section 132 (4) of the I.T. Act. (c). Whether in the facts and circumstances ofthe case and in law, the Tribunal had erred or not indisallowing the deprecision claimed on the building under Section 32 as business assets in blockassessment proceedings under Section 158 BB bytreating the said amounts as undisclosed income asdefined under Section 158 B (b). (d). Whether in the facts and circumstances of the case and in law, the Tribunal had erred in I.T.A.NO.221 OF 2012 holding that the depreciation claimed under Section 32 would be subject to the assessment under Section 158 BB even when the said depreciation wasclaimed by the assessee in regular assessment forthe relevnat Assessment Years treating the buildingas business asset. (e). Whether in the facts and circumstances ofthe case and in law, when the building is reflected in the Balance Sheet for the relevant Accounting Yearand depreciation claimed in regular assessment, could the said aspect be subject to assessment under Section 158 BB at all and is it not a matter to beconsidered during the course of regular assessment. (f). Whether the order of the Tribunal iserroneous, illegal and on an improper appreciationof the facts and the law. I.T.A.NO.221 OF 2012 I.T.A.NO.221 OF 2012 holding that the depreciation claimed under Section 32 would be subject to the assessment under Section 158 BB even when the said depreciation wasclaimed by the assessee in regular assessment forthe relevnat Assessment Years treating the buildingas business asset. (e). Whether in the facts and circumstances ofthe case and in law, when the building is reflected in the Balance Sheet for the relevant Accounting Yearand depreciation claimed in regular assessment, could the said aspect be subject to assessment under Section 158 BB at all and is it not a matter to beconsidered during the course of regular assessment. (f). Whether the order of the Tribunal iserroneous, illegal and on an improper appreciationof the facts and the law. I.T.A.NO.221 OF 2012 2. Appellant is a firm doing business in wholesalepharmaceutical distribution. One Shri. Sebastian Thomas was theholder of power of attorney given by the Partners for operation ofthe bank account of the firm. There was a search at the businesspremises as well as at the residence of the Partners on 30.7.1998.Shri. Sebastian Thomas gave a sworn statement wherein he haddeclared an amount of `.4 Lakhs under Section 132(4) of theIncome Tax Act (hereinafter referred to as the Act) towards theunaccounted investment in the building owned by the firm. Theassessee filed a return pursuant to notice under Section 158BC ofthe Act. The appellant had constructed a building known as“Thomas Puthur Memorial Bldg”. The accounts revealed the costof construction as `.6,95,700/=only. Shri. Sebastian Thomas hadconfirmed that there was a deficiency of `.4,00,000/= inaccounting the cost of construction. The matter was referred by theAssessing Officer to the Valuation Officer of the Department. The I.T.A.NO.221 OF 2012 Executive Engineer (Valuation), Calicut fixed the value at`.11,47,600/=. When this was pointed out to the assessee, itcontended that the valuation was based on CPWD rates at Delhiand increased cost was taken. The Assessing Officer not findingany documentary evidence for the lower valuation, took`.4,51,900/=being the difference as liable to be taxed as theundisclosed income for the assessment year 1995-96. Still further,the Assessing Officer noted that the assessee was regularlyclaiming depreciation on the building owned by the assessee whichhad been rented out to third parties, noting that depreciation underSection 32 of the Act is allowable only when it is used for thepurpose of the business and as it was evident that the building wasnot used for the purpose of the business, no depreciation could beclaimed. Depreciation claimed from 1995-96 to 1998-99 wasordered to be treated as the undisclosed income. There were otherfindings and assessment made with which we are not to be I.T.A.NO.221 OF 2012 detained. In appeal by the appellant, the Appellate Authoritydeleted the addition of `.4,51,900/-. Likewise, the AssessingOfficer was directed to delete the amount of depreciation from thetotal undisclosed income and the same was directed to beconsidered in the regular assessment. 3. The Revenue appealed the decision of the AppellateAuthority. The Revenue's Appeal was partly allowed. TheTribunal found that the appellant had singularly failed to dischargethe burden of proof qua what is claimed by it. This is in regard tothe addition made towards the cost of construction of the building.It is found that the Revenue's case is not only supported by thevoluntary statement under Section 132(4) which stands notretracted, but also corroborated by the DVO's report to which novalid rebuttal has been made by the assessee. But, the Tribunalfound it justifiable to restrict the addition towards unexplainedinvestment to building at `.4,00,000/= as declared by the assessee. I.T.A.NO.221 OF 2012 3. The Revenue appealed the decision of the AppellateAuthority. The Revenue's Appeal was partly allowed. TheTribunal found that the appellant had singularly failed to dischargethe burden of proof qua what is claimed by it. This is in regard tothe addition made towards the cost of construction of the building.It is found that the Revenue's case is not only supported by thevoluntary statement under Section 132(4) which stands notretracted, but also corroborated by the DVO's report to which novalid rebuttal has been made by the assessee. But, the Tribunalfound it justifiable to restrict the addition towards unexplainedinvestment to building at `.4,00,000/= as declared by the assessee. I.T.A.NO.221 OF 2012 As far as the second issue, namely the claim of depreciationallowance also was concerned, the Tribunal took note of the words“or any expense, deduction or allowance claimed under this Actwhich is found to be false” added to the definition of theundisclosed income vide Section 158B(b) of the Act by theFinance Act, 2002 with effect from 01/7/1995 which clinched theissue against the assessee. The Tribunal found that Chapter 14Bprovides separate procedure for assessment of any income revealedby search or requisition. It is against the said order of the Tribunalthat the appellant is before us. 4. We heard the learned counsel for the appellant and thelearned counsel for the Revenue. 5. Learned counsel for the appellant would submit that thereis no basis for making the addition of `.4,00,000/= towards cost of construction in proceedings under Chapter 14B of the Act. TheAssessing Officer and the Tribunal have relied on estimation made I.T.A.NO.221 OF 2012 by the Valuation Officer. The valuation was unacceptable. As faras the question of depreciation is concerned, he would submit thatthere is no basis for overturning the order of the AppellateAuthority. More importantly, it is submitted that under theprovisions relied on by the Tribunal, it has to be found that theclaim made by the assessee was false. In this case, it is submittedthat there is no finding that the claim made by the assessee wasfalse. It is submitted that the use of the word “false” wouldnecessarily bring in the requirement of the element of mens rea andas long as as the assessee is not attributed with any criminal intent,the disallowance of the depreciation in block assessment and whatis more exposing the assessee to possible penal provisions, isclearly impermissible. 6. Learned counsel for the appellant relied on the followingcase law: v. (1) Bhagwati Prasad KediaCommissioner of Income I.T.A.NO.221 OF 2012 Tax [(2001) 248 ITR 562 (Cal)] was a case where the questionarose whether the genuineness of the loan in question can beconsidered under the block assessment, though the loan had beenduly accounted in the regular business of account found during thetime of search. During the time of search, the assessee was calledupon to explain the advance taken. Assessee filed confirmationletter including the income tax file numbers to the creditor. Theloan was found to be a fictitious one and it was directed to beconsidered as the undisclosed income. The Court took thefollowing view: “10. A statute is a creature of the legislature.Every statute has its preamble, it has objects andreasons for which it was enacted. To find out thecorrect meaning of a particular provision of thestatute, it is the duty of the Court of law to examinenot only the words of the said provision, but also thebackground in which such law is enacted. Everystatute must be given a logical meaning and harmonious construction. The words used in thestatute are not used for nothing. Each and everyword has its significance. It is a duty of the judiciaryto interpret the same for its implementation as andwhen they are approached. “10. A statute is a creature of the legislature.Every statute has its preamble, it has objects andreasons for which it was enacted. To find out thecorrect meaning of a particular provision of thestatute, it is the duty of the Court of law to examinenot only the words of the said provision, but also thebackground in which such law is enacted. Everystatute must be given a logical meaning and harmonious construction. The words used in thestatute are not used for nothing. Each and everyword has its significance. It is a duty of the judiciaryto interpret the same for its implementation as andwhen they are approached. 12. Now the question comes what does thisExplanation mean. Clause (a) of the Explanationmakes it clear that the block assessment is in additionto the regular assessment in respect of each previousyear included in the block period; (b) means totalundisclosed income relating to the block periodcannot be tagged with regular assessment; ( c ) statesthat the income under Chapter XIV-B, i.e., blockassessment shall not be included in regularassessment and other than undisclosed income isassessable in regular assessment under S.143(3) ofthe Act. On a composite reading of the said three partsof the Explanation, it is crystal clear that thelegislature thought it fit to make a distinction betweenthe block assessment and the regular assessment. Ashas been held by the Division Bench in Shaw Wallace & Co. Ltd.'s case (supra) that there are three types ofincome within the meaning of the said Act of 1961,i.e., incomes which are offered for taxation, incomeswhich are shown in the return but deductions havebeen claimed wrongly; and undisclosed income. TheAO while dealing with regular assessment is free toexamine the veracity of the return as well as theclaims made by the assessee with regard to exemptionand/or deduction, those can be considered underS.143(3) of the said Act of 1961, whereas the thirdincome being “the undisclosed income” is taxed andby way of block assessment resulting in search andseizure. Such block assessment is made underS.158BA. The logic behind the two different modes ofassessment, according to us, is that concealment ofincome and claiming deduction or exemption of taxesin respect of a disclosed income cannot be treated atpar. The former is an offence which goes to the rootof the matter and the other is on the basis of the casesshown by the assessee where the AO is free to acceptthe justification shown or reject the same. The saidtwo types of cases cannot be treated at par.” I.T.A.NO.221 OF 2012 However, we notice that the Courtpronounced the judgment on19.02.2001. It is by Finance Act 2002, no doubt with retrospectiveeffect from 01.7.1995 that the definition of “undisclosed income”was added to include any exception, deduction or allowanceclaimed which is found to be false. The Court had no occasion toconsider the effect of the said provision. Therefore, the saiddecision may not assist the appellant. No doubt, the observation ismade in paragraph 12 which we have extracted to the effect thatconcealment of income and claiming deduction cannot be treated atpar as the former is an offence. (2) The next decision relied on by the learned counsel for the v. appellant is TCV Engineering Ltd.Assistant Commissioner ofIncome Tax [(2006) 284 ITR 470 (Mad)]. That was a case wherethe assessee's main business was civil engineering contracts.Proceedings were initiated under Section 132A. There werecertain materials related to the assessee. The assessee admitted (2) The next decision relied on by the learned counsel for the v. appellant is TCV Engineering Ltd.Assistant Commissioner ofIncome Tax [(2006) 284 ITR 470 (Mad)]. That was a case wherethe assessee's main business was civil engineering contracts.Proceedings were initiated under Section 132A. There werecertain materials related to the assessee. The assessee admitted certain amount as undisclosed income. The assessee had beenusing bulldozers, road rollers, jeep with a trailer and so on. Theassessee claimed higher depreciation rate at forty per cent on thebasis that these were earth moving machinery which included eventhe jeep with trailer. For the assessment years 1994-95 and 1995-96, supervisory charges payable to one M/s. T.C.V. Packers wereclaimed at `.24.68 lakhs and `.33.67 lakhs respectively, while theamount that was actually found paid in the financial year relevantto the assessment year 1994-95 was only `.6 lakhs. The claim ofthe assessee was that the assessee was due to pay ten per cent ofthe gross income on contracts executed to M/S. T.C.V. Packers. Itwas further found that M/S. T.C.V. Packers was a proprietoryconcern of Mr. T.T.V. Dinakaran upto 31[st] March 1994. The saidDinakaran was the Director of the assessee company. In M/s.T.C.V. Packers, other than Mr. T.T.V. Dinakaran, there was noperson having any knowledge or experience. In short, the I.T.A.NO.221 OF 2012 Assessing Officer found that there was no necessity for payment ofthe supervisory charges to M/S.T.C.V. Packers which was only acover up, as the same work could have been carried out in hiscapacity as Director of the company and, therefore, the AssessingOfficer took the view that the supervisory charges were notallowable and it was treated as undisclosed income. This was thecase where the Court did consider the effect of the words“undisclosed income” as amended by the Finance Act, 2002. TheCourt made the following observation: “6. The Finance Act of 2002 has inserted thewords “or any expense, deduction or allowanceclaimed under this Act which is found to be false” atthe end of the cl.(b), with retrospective effect from 1[st]July, 1995. The object of the amendment is tospecifically provide that any expense, deduction orallowance claimed under this Act which is found to befalse, shall be included in the undisclosed income asdefined in this clause. The last line of the saiddefinition “or any expense, deduction or allowance claimed under this Act which is found to be false”makes it clear that unless and until the said deductionclaimed by the assessee is found to be false by theRevenue, there is no scope for the Revenue to treatthe disallowance made under S.40A(2) as undisclosedincome. As in this case, the AO had not given afinding that this expenditure claimed by the assesseewas false. The AO only disallowed the expenditureunder S.40A(2) on the ground that this expenditure isunreasonable. The disallowance made under S.40A(2) of the Act, would not be considered for thepurpose of making block assessment under ChapteXIV-B of the Act, unless and until the Revenue gives acategorical finding that the whole expenditure ofdeduction is totally false. In the present case, theactual finding given by the Tribunal in respect ofsupervisory charges, is as under: “However, by claimingcertain expenditure as has been donein the instant case of supervisorycharges, which is not legitimatebusiness expenditure, the income whichwould have otherwise been shown wasreduced and consequently it leads to undisclosed income. This is limitedonly to supervisory charges. The otherdisallowances including depreciation,building repairs, cash payment wouldnot be valid in making blockassessment.” .It is this decision which is principally relied on by the learned counsel for the appellant to contend that there must be a findingthat the allowance or expenditure is false. (3) Next, the learned counsel for the appellant relied on the “However, by claimingcertain expenditure as has been donein the instant case of supervisorycharges, which is not legitimatebusiness expenditure, the income whichwould have otherwise been shown wasreduced and consequently it leads to undisclosed income. This is limitedonly to supervisory charges. The otherdisallowances including depreciation,building repairs, cash payment wouldnot be valid in making blockassessment.” .It is this decision which is principally relied on by the learned counsel for the appellant to contend that there must be a findingthat the allowance or expenditure is false. (3) Next, the learned counsel for the appellant relied on the decision in (A) Commissioner of Income Tax v. Vikram A. Doshi & Anr. [2002) 256 ITR 129 (Bom)]. Therein the Court, inter alia,held as follows: “4. The other questions sought to be raised bythe Revenue need no consideration as the issuesraised therein are based on transactions which, byno stretch of imagination can be said to beundisclosed transactions falling under S.158B of theIT Act, since the transactions in question weredisclosed in returns which were the subject matter ofregular assessment. The same ought to have been I.T.A.NO.221 OF 2012 assessed in the regular assessment and not in the block assessment. We, therefore, affirm theconclusions or findings recorded by the Tribunalwith respect to those transactions referred to inother questions sought to be canvassed, may be foradditional different reason recorded herein.” (4) Next, he relied on the Judgment of the Bombay High Court in Commissioner of Income Tax v. Templetion AssetManagement (India) (P) Ltd. [2011) 337 ITR 541 (Bom)]. TheCourt held, inter alia, as follows: “3. As regards questions Nos.2 and 5 relatingto the deletion of accrued interest are concerned, thefinding of fact recorded by the Tribunal is that theassessee had purchased the debentures in question inthe year 1999 and the same were reflected in thebooks of account maintained by the assessee.Therefore, whether interest on those debentures wereincludible in the total income on accrual basis or not,was a question to be considered in the regularassessment and not in the block assessment. Therefore, no fault can be found with the decision ofthe Tribunal in deleting the interest on accrual basisin the block assessment order. Accordingly, questionsNos. 2 and 5 cannot be entertained.” (5) Still further, he sought support from the decision of the Apex Court in Commissioner of Sales Tax, Uttar Pradesh v.Sanjiv Fabrics [(2010) 9 SCC 630)] . There, the case arose underthe Central Sales Tax Act. The Court was considering the questionwhether mens rea was an essential element to levy penalty underSection 10(b) with Section 10A of the Central Sales Tax Act, 1956.Section 10 of the Act provides for penalties. Clause (b) related to acase where a person being a registered dealer falsely representsthat when purchasing any class of goods, goods are covered by hisCertificate. Clause ( c ) refers to a case where a person not being aregistered dealer falsely represents when purchasing goods in thecourse of industrial trade or commerce that he is a registereddealer. Clause (d) of Section 10 referred to any person who fails to make use of the goods after purchasing such goods for the purpose mentioned therein. Section 10A on the other hand, readsas follows: to make use of the goods after purchasing such goods for the purpose mentioned therein. Section 10A on the other hand, readsas follows: “10-A. Imposition of penalty in lieu ofprosecution.-(1) If any person purchasing goods isguilty of an offence under clause (b) or clause ( c ) orclause (d) of Section 10, the authority who granted tohim or, as the case may be, is competent to grant tohim a certificate of registration under this Act, may,after giving him a reasonable opportunity of beingheard, by order in writing, impose upon him by wayof penalty a sum not exceeding one-and-a-half timesthe tax which would have been levied under sub-section (2) of Section 8 in respect of the sale to himof the goods, if the sale had been a sale falling withinthat sub-section; Provided that no prosecution for anoffence under Section 10 shall be institutedin respect of the same facts on which apenalty has been imposed under thisSection.” The Court took note of the words “falsely represents” in clause (b) in contra-distinction of the words “wrongfully represents” and heldas follows: “36. In view of the above, we are of theconsidered opinion that the use of the expression“falsely represents” is indicative of the fact that theoffence under Section 10(b) of the Act comes intoexistence only where a dealer acts deliberately indefiance of law or is guilty of contumacious ordishonest conduct. Therefore, in proceedings for levyof penalty under Section 10-A of the Act, burdenwould be on the Revenue to prove the existence ofcircumstances constituting the said offence.” Based on the same, learned counsel for the appellant would submitthat the Tribunal has acted illegally in not noting that there was nofinding by the Assessing Officer that the assessee had falselyclaimed the benefit of depreciation. In other words, apart fromthere being a finding on the said lines as such, it is necessary to I.T.A.NO.221 OF 2012 sustain an addition by way of undisclosed income that thedepreciation should have been claimed falsely, that is to say, itshould have been claimed with the knowledge that it wasknowingly and intentionally false. (6) Lastly, he also relied on the Judgment of this Court in Commissioner of Income Tax v. SMT. C. Sabira [(2011) 338 ITR226), wherein this Court was also dealing with a case of blockassessment and it was, inter alia, held as follows: “17. We are of the view that there is no merit inthe contention of the appellant. Chapter XIV-B dealswith ascertainment of the undisclosed income of theparty for the block period. In the case of a search,the undisclosed income must be determined withreference to the evidence unearthed during thesearch and also the other materials or informationavailable which are relatable to such evidence.Therefore, the focus must be on the evidence whichwas unearthed during the course of the search orother material or information relating to such evidence. There is no relevant material as suchwhich can be relied on by the appellant to justify thefinding about the cost of construction being what wasestimated. In the statement, in fact, what is stated is,as already noted, approximately one crore of rupeeswas spent. The AO could not have by way ofestimation in proceedings under Chapter XIV-B,determined the cost of construction and therefromarriving at the undisclosed income by deducting thealleged admitted cost of construction.” 7. Per contra, learned counsel for the Revenue sought to support the order. He pointed out that as far as the addition of asum of `.4,00,000/= as sustained by the Tribunal is concerned, thePartner had made the statement that there was a short fall of`.4,00,000/=. No doubt, there was also the report of the Valuation Officer. As far as the undisclosed income in the form ofdepreciation is concerned, it was pointed out that it was found thatit was claimed falsely and that is sufficient. 7. Per contra, learned counsel for the Revenue sought to support the order. He pointed out that as far as the addition of asum of `.4,00,000/= as sustained by the Tribunal is concerned, thePartner had made the statement that there was a short fall of`.4,00,000/=. No doubt, there was also the report of the Valuation Officer. As far as the undisclosed income in the form ofdepreciation is concerned, it was pointed out that it was found thatit was claimed falsely and that is sufficient. 8. As far as the question relating to reckoning of Rs.4,00,000/= as undisclosed income is concerned, we find there isno merit. As correctly held by the Tribunal, it is supported by thevoluntary statement given under Section 132(4). The statementwas not retracted. No doubt, corroboration was sought to bedrawn from the report of the DVO. The Tribunal has in factlimited the addition strictly on the basis of the statement made bythe assessee and not accepted Rs.4,52,000/= which would involvesome variations. We would think that in such circumstances, therecan be no room for complaint and none of the decisions cited bythe appellant can come to its rescue. 9. The second question which arises is whether on findingthat the assessee had used the building by way of renting it outand, therefore, the claim for depreciation could not be allowedand, therefore, relying on the definition of the words “undisclosedincome”, the said amount claimed as depreciation could beconsidered as undisclosed income. There is no case for the I.T.A.NO.221 OF 2012 appellant that the finding that the building was let out, is notcorrect. Therefore, the building was not used for the purpose ofthe business of the assessee. Depreciation was, however, claimedby the assessee, even though the building could not be said to havebeen used for the business of the assessee. Thus, in law, thedepreciation could not have been claimed or granted. The case ofthe appellant is that as held by the Appellate Authority, this is amatter for consideration in the regular assessment and it is not amatter to be considered in the block assessment. 10. The argument of the learned counsel for the appellantaddressed before us is essentially two-fold: He would submit thateven going by the definition of the word “undisclosed income”,the requirement is that the expense, deduction or allowance mustbe found to be false. Apart from the fact that the matter was to bedecided in regular assessment, it is pointed out that there is nofinding that the depreciation was claimed falsely. The further I.T.A.NO.221 OF 2012 aspect is apparently an offshoot of the employment of the word“false”. That is to say, the learned counsel would contend that thedeliberate use of the word “false” necessarily means that theLegislature contemplated that only if the claim of expense,deduction or allowance was made with the evil intention or withdeliberateness that the said expense, deduction or allowance couldbe treated as undisclosed income. In this context, the learnedcounsel for the appellant also drew our attention to Section158BFA of the Act which provides for levy of interest and penaltyin certain cases. Sub-section (1) of Section 158BFA deals withlevy of interest. We are not concerned with the same. Apparently,the appellant seeks to draw support from Sub-section (2) of Section 158BFA. It reads as follows: “ 158 BFA. (1). xxxxxxxx (2). The Assessing Officer or the Commissioner (Appeals) in the course of any proceedings under this Chapter may direct that a person shall pay by way of penalty a sum whichshall not be less than the amount of tax leviablebut which shall not exceed three times the amountof tax s leviable in respect of the undisclosedincome determined by the Assessing Officer underclause( c ) of section 158 BC” Sub-section (3) provides for certain conditions to be fulfilled inthe matter of imposing penalty. “ 158 BFA. (1). xxxxxxxx (2). The Assessing Officer or the Commissioner (Appeals) in the course of any proceedings under this Chapter may direct that a person shall pay by way of penalty a sum whichshall not be less than the amount of tax leviablebut which shall not exceed three times the amountof tax s leviable in respect of the undisclosedincome determined by the Assessing Officer underclause( c ) of section 158 BC” Sub-section (3) provides for certain conditions to be fulfilled inthe matter of imposing penalty. 11. In order to appreciate this argument, we must considerthe scheme of Chapter 14B. As the very heading suggests, theprovisions in the Chapter provides for a special procedure forassessment of such cases. No doubt, the body of the provisionsshow that they are intended to cover cases not only of a case ofsearch under Section 132, but they are intended to also deal with a I.T.A.NO.221 OF 2012 case where books of account, other document or assets arerequisitioned under Section 132A. Section 158BA sub-section (2)vide its Explanation declares that the assessment under Chapter14B is to be in addition to the regular assessment in respect ofeach previous year including the block period. Further, it isdeclared that the total undisclosed income relating to the blockperiod shall not include the income assessed in any regularassessment. Likewise, the income assessed under Chapter 14B isnot to be included in the regular assessment of any previous yearincluded in the block period. Section 158BB provides for thecomputation of undisclosed income for the block period. Theundisclosed income of the block period is the aggregate of the totalincome for the relevant previous years computed in accordancewith the Act on the basis of the evidence found as a result of thesearch or requisition of the book of account, documents and othermaterials as are available relatable to such evidence. The said total income is to be reduced, inter alia, on the basis of the incomewhere assessments have been concluded under Sections 143, 144or 147 on the basis of the assessments. In a case where returns arefiled, but the assessment has not been made till the date of thesearch or requisition, the undisclosed total income for the blockperiod is to be reduced by the amount shown in the return. In acase where return is not filed, clause ( C ) applies. Likewise,Clauses C(a) to (f) provide for other situations. The Explanationto Section 158BB Clause (a) reads as follows: “Explanation.- For the purposes of determination of undisclosed income, - (a) Thetotal income or loss of each previous year shall, forthe purpose of aggregation, be taken as the totalincome or loss computed in accordance with theprovisions of this Act without giving effect to set offof brought forward losses under Chapter VI orunabsorbed depreciation under sub-section (2) ofSection 32: Provided that in computing deductions I.T.A.NO.221 OF 2012 under Chapter VIA for the purposes of the saidaggregation, effect shall be given to set off ofbrought forward losses under Chapter VII orunabsorbed depreciation under sub-section (2) ofSection 32.” It is thereafter that Section 158 BF reads as follows: “158BF. No interest under the provisions of section 234A, 234B or 234C or penalty under the provisions of clause ( c ) of sub-section (1) ofsection 271 or section 271A or section 271B shall be levied or imposed upon the assessee in respect of the undisclosed income determined in the blockassessment.” Thus, no penalty can be levied for concealment of income underSection 271C of the Act in a case where undisclosed income isdetermined in the block period. It is thereafter that Section I.T.A.NO.221 OF 2012 158BFA provides for levy of penalty. The most importantprovision which we are called upon to consider is the definition ofthe word “undisclosed income”. We extract the same as under: It is thereafter that Section 158 BF reads as follows: “158BF. No interest under the provisions of section 234A, 234B or 234C or penalty under the provisions of clause ( c ) of sub-section (1) ofsection 271 or section 271A or section 271B shall be levied or imposed upon the assessee in respect of the undisclosed income determined in the blockassessment.” Thus, no penalty can be levied for concealment of income underSection 271C of the Act in a case where undisclosed income isdetermined in the block period. It is thereafter that Section I.T.A.NO.221 OF 2012 158BFA provides for levy of penalty. The most importantprovision which we are called upon to consider is the definition ofthe word “undisclosed income”. We extract the same as under: “ 158B. In this Chapter, unless the context otherwiserequires, - (a). xxxxxxxxx (b). “undisclosed income” includes any money,bullion, jewellery or other valuable article or thing or any income based on any entry in the books ofaccount or other documents or transactions, where such money, bullion, jewellery, valuable article,thing, entry in the books of account or otherdocument or transaction represents wholly or partlyincome or property which has not been or would nothave been disclosed for the purpose of this Act.( orany expense,deduction or allowance claimed under this Act which is found to be false)” The words “or any expense, deduction or allowance claimed underthe Act which is found to be false” was inserted by the Finance Act,2002 with retrospective effect from 1.7.1995. No doubt, the v.Madras High Court has in the decision in TCV Engineering Ltd.Assistant Commissioner of Income Tax [(2006) 284 ITR 470(Mad)] has taken the view that the expenditure claimed therein bythe assessee was found by the Assessing Officer to be unreasonableand there was no finding that it was false. It was further foundthat unless and until the Revenue gives a categorical finding thatthe whole expenditure of deduction is totally false, thedisallowance could not be considered for making the blockassessment. We have already referred to the facts. We would thinkthat it may not apply to the facts of the present case. In the case athand, the appellant claimed depreciation. The depreciation wasclaimed though the building was being let out. It is not a case where the expenditure was found to be unreasonable, whichinvolves an element of estimation and that, at any rate, the facts aretotally dissimilar. In this case, the assessee could not have claimeddepreciation when the asset was being let out and not being usedfor the purpose of the business. It may be true that the AssessingOfficer did not use the words that the claim is false. In stead, whatis found is that the appellant was regularly claiming depreciationon buildings occupied by the tenants. It is further found that it isevident that the building has not been used for the assessee'sbusiness and no depreciation could be allowed. 12. The next question which would arise is what is thesignificance of the use of the word “false”. In Strouds JudicialDictionary (Vol.II), we find the following commentary against theword “false”: Korten v. West Sussex CC 72 L.J.K.B. 514, cited PERMIT. The word is not applicable to a story which merely contains some inaccuracies in detailor is somewhat exaggerated ( Mountford v. Crofter ( 1942 ) S.A.S.R 244). (Industrial and Provident Societies Act 1913 (c. 31). s.10(c). could mean no more than incorrect (English and Scottish Properties Mortgage and Investment Society v. Odhams Press {1940} 1 K.B.440, 458). Stat.Def.,Forgery and Counter Feiting Act1981(c.45), s.9. Def.,”False Registration card' (“means adocument which is designed to appear to be a registration card”) s. 26A of the Immigration Act 1971 (c.77), inserted by s. 148 of the Nationality,Immigration and Asylum Act 2002 (c.41). “Falsesee.representations” REPRESENTATIONS. Korten v. West Sussex CC 72 L.J.K.B. 514, cited PERMIT. The word is not applicable to a story which merely contains some inaccuracies in detailor is somewhat exaggerated ( Mountford v. Crofter ( 1942 ) S.A.S.R 244). (Industrial and Provident Societies Act 1913 (c. 31). s.10(c). could mean no more than incorrect (English and Scottish Properties Mortgage and Investment Society v. Odhams Press {1940} 1 K.B.440, 458). Stat.Def.,Forgery and Counter Feiting Act1981(c.45), s.9. Def.,”False Registration card' (“means adocument which is designed to appear to be a registration card”) s. 26A of the Immigration Act 1971 (c.77), inserted by s. 148 of the Nationality,Immigration and Asylum Act 2002 (c.41). “Falsesee.representations” REPRESENTATIONS. In S.T.Commr.v.Bombay Gen.Stores(AIR 1969 MP 213), aDivision Bench Judgment was authored by Justice G.P. Singh, theauthor of the well known book “Principles of StatutoryInterpretation”. It was a case which involved Section 10B of theCentral Sales Tax Act and the words used were “falselyrepresents”. The Court took the view that mens rea was anindispensable element to impose a penalty for contravention ofSection 10B. We deem it apposite to refer to the followingdiscussion: “3. The question referred to us is not happily worded but it is clear that it relates to the construction of the words “falsely represents” as they occur in clause (b) ofSection 10, whether these clause (b) of Section 10 whether these words mean merelyan incorrect representation or whether theycover only such representations which aremade with a guilty mind that is to say whichare knowingly, willfully or intentionally false.According to Oxford Dictionary the word'false' may mean “erroneous, incorrect” or “purposely untrue, deceitful etc.” In pearlAssurance Company v. Bromley, (1931) 49TLR 446 the words “ false representation”occurring in Section 3 of the IndustrialAssurance Act, 1923 were construed asincluding any untrue statement, whethermade innocently or fraudulently. Similarly inJoitabhai Patel v. Controller of Customs,1965-3 All ER 543, 593 the words”false entry” in Section 116 of the Customs Ordinance ( Fiji) were construed by the Privy Council as meaning an incorrect or untrue entry including even an entry which wasinnocently made false. In contrast to these cases, there are others where the word 'false' has been used to coveronly intentional falsehoods. As stated in Black'sLaw Dictionary(p. 722). “In Law, this word usually means something more than untrue; it meanssomething designedly untrue and deceitful, and implied an intention to perpetrate sometreachery or fraud. Hatcher v. Dunn.102 Lowa 411=71 NW 343 = 36 LRA 689, Mason v . Association, 18 U.C. C.P. 19; State v. Leonard, I.T.A.NO.221 OF 2012 73 Or 451 = 144 P. 113 118 and State v. Smith,63 Vt.201 = 22A 604. It implies eitherconscious wrong or culpable negligence, andsignifies knowingly, negligently untrue. UnitedState v. Ninety - Nine Diamonds, C.C. A.Minn139 F 961 = CCA 9 = 2 LRA NS 185. The word ' false' has two distinct and wellrecognised meanings; (1) intentionally orknowingly or negligently untrue; (2) untrue bymistake or accident, or honestly after theexercise of reasonable care. Metropolitan LifeIns. Co. v. Adams. Mun. App; 37 A 2d. 345, 350.In jurisprudence, “false” and “falsely” areoftenest used to characterize a wrongful orcriminal act, such as involves an error oruntruth, intentionally or knowingly put forward. I.T.A.NO.221 OF 2012 A thing is called “false” when it is done, or 73 Or 451 = 144 P. 113 118 and State v. Smith,63 Vt.201 = 22A 604. It implies eitherconscious wrong or culpable negligence, andsignifies knowingly, negligently untrue. UnitedState v. Ninety - Nine Diamonds, C.C. A.Minn139 F 961 = CCA 9 = 2 LRA NS 185. The word ' false' has two distinct and wellrecognised meanings; (1) intentionally orknowingly or negligently untrue; (2) untrue bymistake or accident, or honestly after theexercise of reasonable care. Metropolitan LifeIns. Co. v. Adams. Mun. App; 37 A 2d. 345, 350.In jurisprudence, “false” and “falsely” areoftenest used to characterize a wrongful orcriminal act, such as involves an error oruntruth, intentionally or knowingly put forward. I.T.A.NO.221 OF 2012 A thing is called “false” when it is done, or made with knowledge, actual or constructive,that it is untrue or illegal, or is said to be donefalsely when the meaning is that the party is infault for its error. Fouts v. State 113 Chio St.450 = 149 Ne 551, 554 and Monahan v. MutualLife Ins. Co. of New York, 192 Wis 102=212 NW269. The word”false” in its juristic use impliedsomething more than a mere untruth, Dombroskiv. Metropolitan Life Ins. Co., NJL 545 = 19 Ad2d 678, 680. The word ' false' sometimes connotes anintent to deceive, People v. Wahl 39 Cal. App771 = 100 P. 2d 550, 551 and Salt's Textile Mfg. Co. v. Ghent. 107 Conn. 211 = 139 A 694. 695. It will thus be seen that the word”false” may be used in a wider or a narrower sense. Inwider sense it will embrace all types offalsehoods whether they be intentional orinnocent but in narrower sense it will cover onlysuch falsehoods which are intentional. Thequestion whether in a particular enactment theword “false” is used in a restricted sense or in awider sense would depend on the context inwhich it is used. Clause (b) of Section 10 of theCentral Sales Tax Act, with which we areconcerned, uses the words “ falsely represents”as an ingredient of a criminal offence, for whicha penalty of imprisonment which may extent tosix months is prescribed. We begin with apresumption that a guilty intent is an essential I.T.A.NO.221 OF 2012 element of a statutory offence and thispresumption is strengthened when the offence ismade punishable with a sentence ofimprisonment. This presumption can berebutted by showing that the object of the statutewould be defeated unless the language used inthe enactment is construed in a wider sense toinclude otherwise innocent persons; (Nathulal v.State of Madhya Pradesh, AIR 1966 SC 43 at p.45. The object of Section 10 (b) is to protect therevenue by preventing missue of registrationcertificates and we do not think that this objectwould be defeated by constructing the section asembracing the element of mens rea. In mostcases, it would not be in doubt that the articlepurchased under 'C' form is not entered in the registration certificate and in such cases it will be easy to infer that the false representation by furnishing the declaration in C form wasknowingly or intentionally made. But casescannot be ruled out where it may be a matter of bona fide dispute whether a particular article purchased by a dealer fell within “ the class orclasses of goods” specified in his registrationcertificate. There is nothing in the section to show that the legislature intended to punish a dealer who honestly