TaxTMI 
TaxTMI 
1993 (8) TMI 118
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.... result of the Tribunal's order the following main disallowances/additions were confirmed : (i) Disallowance of expenditure amounting to Rs. 34,03,163 on purchase of 1146 KVA diesel generator. (ii) Addition/disallowance of Rs. 10,33,553 on account of amount paid to M/s. Dalal Consultants. (iii) Interest on FD Rs amounting to Rs. 32,84,506. (iv) Expenses relating to earlier years (61,024 + 2,86,252) = Rs. 3,47,276. On the basis of Tribunal's order wherein the above additions/disallowances were confirmed, the Assessing Officer initiated penalty proceedings under section 271(1)(c). In reply to the show-cause notice the assessee submitted written reply vide letter dated27-7-1992wherein it was pleaded that imposition of penalty under section 271(1)(c) would be unjustified. Pointwise additions and disallowances considered by the Assessing Officer are as under : (i) Expenditure on purchase of Diesel Generating Set : The assessee incurred an expenditure of Rs. 34,03,163 on the purchase of 1146 KVA diesel generator and claimed it as a revenue expenditure on the basis that this diesel generator was purchased and installed to re....
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....ch it claimed weighted deduction under section 35(2B) of the Act. This amount included payment of Rs. 10,40,000 to M/s. Dalal Consultants. On revising the claim under section 35(2B) the expenditure of Rs. 7,73,000 was allowed by the Assessing Officer. The dispute remained only in respect of payment of Rs. 10,40,000 paid to M/s. Dalal Consultants and Engineers Pvt. Ltd. under agreement dated31-10-1983. Under this agreement M/s. Dalal Consultants and Engineers Pvt. Ltd. was to render various services to the assessee and the assessee had to pay lump sum fees of Rs. 15,25,000. 10 per cent of Rs. 15,25,000 was to be paid as advance and 60 per cent was to be paid in 12 equal monthly instalments. In pursuance to this agreement the assessee paid Rs. 10 lakhs as ad hoc advance fee. The amount was to be adjusted towards consultants progress invoices from time to time. This sum of Rs. 10 lakhs paid by the assessee to M/s. Dalal Consultants was passed over as a deposit to M/s. Nuware India Ltd., a company connected with the assessee. The Assessing Officer in the absence of work schedule given to M/s. Dalal Consultants and evidence to show whether they had rendered any service, decline to grant....
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....t as directed by the Hon'ble Delhi High Court the assessee's bank, i.e., New Bank ofIndia,Faridabadrequired the assessee to deposit the amount equal to the amount of disputed excise duty in fixed deposit. In the guarantee furnished by the bank to the Excise Department the Bank had unequivocally and unconditionally agreed to pay the sum mentioned in the guarantee only to the Excise authorities on the matter being decided by the Delhi High Court. It has undertaken to pay the money on demand to the Central Excise authorities without a demur of the said amount. When the High Court decides the matter against the assessee, all that the Central Excise authorities have to do is to request the Bank to make the payment. On these facts the Assessing Officer was of the view that the amount accrued on the FDRs remained the property of the assessee and it was crediting the interest received on the FDRs in its accounts and for the interest amount, the assessee was getting either FDRs made with the bank or was availing the same in its C/C overdraft and other hypothecation accounts. Thus, he held that the interest belonged to the assessee as do the FDRs. So no deduction was allowed. The App....
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....the amount is treated as concealed income of the assessee in respect of inaccurate particulars have been furnished by the assessee. Since the facts have been given in assessment year 1984-85, there is no need to repeat the same. (ii) Addition/disallowance of expenditure amounting to Rs. 35,54,834 on account of purchase of NPC Twin Screw Machine and Transformer for Rs. 31,39,839 and Rs. 4,15,000 respectively. The assessee claimed cost of replacement of an old machinery namely Busco Kneader machine with new NPC Twin Screw Machine at the cost of Rs. 31,39,837 and also the cost of transformer purchased for Rs. 4,15,000 to replace 500 KVA burnt out transformer. This was claimed as a revenue expenditure. The Tribunal observed that Busco Kneader machine is an independent machine which can work even without there being other machine. At no stretch of imagination the purchase of new machine like that be allowed as revenue expenditure because there is no technical evidence produced by the assessee to show that Busco Kneader Machine was such a subordinate part of the assessee's plant that its replacement would amount to effecting repairs to the remaining plant. Similarly an elect....
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....e. Therefore, provision of Explanation 1 to section 271(1)(c)(iii) is attracted. It was treated as concealed income in respect of which inaccurate particulars have been furnished. 4. The Assessing Officer also levied penalty in respect of addition/ disallowance of expenditure relating to earlier years amounting to Rs. 1,58,425. However, the CIT (Appeals) accepted the assessee's contention and held that no penalty is attracted in respect of this item. Therefore, this item is not a subject matter of penalty before us. 5. Penalty levied under section 271(1)(c) by the Assessing Officer for assessment years 1984-85 and 1985-86 was confirmed by the CIT (Appeals) except for expenditure incurred in earlier years. Aggrieved by that order the assessee filed appeals before us. 6. The learned counsel for the assessee Shri M.P. Mehrotra very vehemently argued that the penalty has been levied on account of concealment of income and for concealing particulars of income as well. The penalty order does not specifically mentioned the relevant default categorised under section 271(1)(c) under which the penalty has been imposed. Section 271(1)(c) can be invoked in a situation where there ....
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.... on account of difference of opinion which is always possible amongst various authorities. This will not justify that the explanation given by the assessee is false or unsubstantiated. There is no finding by any authority that full material facts have not been disclosed by the assessee. It only mentioned that the authorities have not accepted this explanation for certain reasons. The fact that the assessee's explanation had been duly considered by the Assessing Officer without holding the explanation of assessee false, fraudulent or mala fide, itself proves that the explanation given by the assessee is bonafide. The onus is on the department to show that the explanations offered were not substantiated. It is a different matter if the explanations have not been accepted by the authorities. Mere rejection of explanation does not amount that the assessee has failed to substantiate it. Under the deeming provision if the explanation offered is bona fide and all facts relating to the explanation and material to the computation of total income are disclosed by the assessee, Explanation 1 will not apply. It is an established law that legal fiction should only be limited for the purpose....
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....he return the assessee claimed this interest on the ground that this income is contingent in nature. It was pointed out that the payment of excise duty through bank guarantee has been held to be actual payment under the provision of section 43B and as such those FDRs cannot be held to be owned by the assessee. As long as the case is pending before the Delhi High Court relating to Excise matter, the ownership of the assessee on those FDRs is in doubt. Therefore, the interest accrued is not an income of the assessee. It is true that it has been held as assessee's income but it has not been held that it is a concealed income of the assessee. Since the assessee has brought all material facts relating to its claim, Explanation 1 to section 271(1)(c) cannot be attracted. Reliance was placed on the following decisions : (1) Cement Marketing Co. of India Ltd. v. Asstt. CST [1980] 124 ITR 15 (SC) ; (2) CIT v. Devi Dayal Aluminium Industries (P.) Ltd. [1988] 171 ITR 683 (All.) ; (3) Addl. CIT v. Chhotey Lal Radhey Shyam [1991] 190 ITR 316 (All.); and (4) CIT v. Nepani Biri Co. Trust [1991] 190 ITR 402 (All.). 9. In respect of addition/disallowance o....
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....see has claimed it as a revenue expenditure but the same was not accepted. However, Explanation 1 to section 271(1)(c) cannot be attracted. When the assessee had not suppressed any material fact and offered an explanation which is bona fide. 11. As against this, the learned Departmental Representative Shri D. K. Srivastava very vehemently argued that Explanation 1 to section 271(1)(c) is attracted in the present case. It was submitted that Explanation 1 to section 271 (1)(c) is a rule of evidence. Two questions arise namely (1) who will discharge the burden and (2) what type of burden is to be discharged. Due care and caution should be taken while deciding this issue. In the present case when the Tribunal has dismissed the explanation of the assessee with regard to claim of the assessee and additions/disallowances have been confirmed, Explanation 1 to section 271(1)(c) is attracted. The burden is on the assessee to prove that explanation given is bona fide which he could not prove by producing evidence. Therefore, penalty was rightly upheld by the CIT (Appeals). 12. We have considered the rival submissions and have gone through the material available on the record. In this ca....
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....ety. To cover-up such a situation as per legal advice, the accrued interest was being credited. However, this claim was not accepted. In respect of provision of payment of gratuity the disallowance was confirmed in view of provision of section 43B on the basis that the amount was not actually paid in this year. However, the claim of the assessee was rejected by the revenue authorities as well as by the Appellate Tribunal but it is pertinent to mention here that neither the CIT (Appeals) nor the Appellate Tribunal has given any finding that the explanation given by the assessee was found false. In order to attract Explanation 1 to section 271(1)(c). It will also be pertinent to mention here that in respect of purchase of diesel generator set, the assessee in the return itself claimed as a revenue expenditure. However, an alternative claim was also made by him that in case his claim of revenue expenditure is not accepted, without prejudice to the merit of the claim, the depreciation allowance and investment allowance be granted, if it is treated as capital expenditure. Can by any stretch of imagination be said that where the assessee had made alternative claim by disclosing all mater....
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....der section 43B but it is clear that the assessee has given all the material particulars relating to this claim but the same were not accepted by the Tribunal. In our opinion, the addition/disallowance of expenditure was a matter of opinion and it cannot be said that the claim of the assessee was mala fide specially when the assessee himself has filed revised return with explanation for revising the return and also made a claim and disclosed all material facts relating to the computation of income. In such a situation can it be said that Explanation 1 to section 271(1)(c) is attracted. In our view the claim of the assessee was bona fide based on material evidence. Therefore, it cannot be said that Explanation 1 to section 271(1)(c) is attracted. 15. In the case of Cement Marketing Co. of India Ltd. a question arose whether the amount of freight which was included in the " free on rail destination railway station " price, but which was paid by the purchasers and hence deducted from the price shown in the invoices sent to the purchasers, formed part of the sale price so as to be liable to be included in the taxable turnover of the assessee. The assessee proceeding on the basis tha....
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.... although the explanation of the assessee was not accepted, there was no material on which it could be said that it was not bona fide. The rejection of explanation of the assessee did not render it false so as to attract section 271(1)(c) of Income-tax Act. Though the assessee failed to substantiate the claim of melting loss or wastage so long as the claim was bona fide, could not be held to be false. In the case of CIT v. C.R. Niranjan [1991] 187 ITR 280 (Mad.), the ITO rejected the account books and estimated the business income. On appeal, the Tribunal partly deleted the additions and partly sustained the additions on account of unexplained cash credit. When the matter of penalty came before the Hon'ble Madras High Court, it was held that the department had not brought any material to show that the assessee had concealed income or furnished inaccurate particulars of income. In the case of Chhotey Lal Radhey Shyam the Hon'ble Allahabad High Court observed that the difference between the assessed income and the returned income arose because of certain additions and certain disallowances. The penalty was levied which travelled up to the stage of Hon'ble High Court. The ....
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....w of our above discussion, we are of the opinion that penalty levied in the given facts and circumstances is illegal and invalid. We, therefore, cancel the same. 18. In the result, both the appeals are allowed. Per Ch. G. Krishnamurthy, President ---I entirely agree with the reasoning and conclusions reached by my learned Brother in cancelling the penalties levied under section 271(1)(c). I would only like to add that unless the amounts disallowed were deemed to represent the income in respect of which particulars have not been furnished, no conclusion of concealment of income can be reached. This was what was clearly provided for in the Explanation 1 added to section 271(1)(c). The very same Explanation also provided that nothing contained in that Explanation would apply to a case where the amount added or disallowed as a result of the rejection of any explanation offered by such person, if such explanation is bona fide and all the facts relating to the same and the material to the computation of his total income have been disclosed by him. Thus the safety valve provided to a honest assessee making a bona fide claim is contained in this exclusionary provision. This also plac....