2005 (7) TMI 287 - AT - Income Tax

Business expenditure - Purchase of rights and titles of the two journals - Penalty levied u/s 271(1)(c) - Concealment Or furnishing of inaccurate particulars of income - bona fide claim or Not - Whether the declaration made by the assessee as a footnote in the computation sheet was complete, accurate and bona fide - HELD THAT - From the facts, it is clear that assessee purchased (i) a running business, (ii) right to publish two titles, (iii) on complete and exclusive ownership basis along with all the rights and benefits attached thereto. As an ancillary to the purchase of titles and running business, the assessee also got detailed list of subscribers, advertisers and employees, who want to continue with the assessee after takeover and also space on rent, Thus in addition to title, the assessee also purchased something akin to goodwill. Same customers and advertisers will remain attached to the titles. All the tests lead to one inescapable conclusion that what the assessee had spent was for acquiring a new business/new assets an enduring benefit and a source of income. From all the tests, the expenditure incurred could not have been considered u/s 37(1) for which claim was made. One of the essential conditions for allow ability of the claim u/s 37(1) is that expenditure should not be of the nature of capital expenditure. Hence, the claim of the assessee for Rs. 2.15 crores made in the return was not at all admissible as it was clearly a capital expenditure incurred for acquiring a new business, an advantage of enduring benefit, a source of income and acquisition of disposable rights in the title. The assessee declared only half truth that it is purchasing publishing rights of journal, right to customers and subscribers, use of trademark. The other half as shown above viz.,-(1) to whom payment was made and when, (2) copies of agreements/MoU, (3) that assessee is purchasing a new business, (4) that it is purchasing ownership of the titles along with incidental paraphernalia were kept withheld, (5) the period for which such rights were purchased. The claim was against the explicit opinion of the auditors according to which only 1/3rd could be claimed this year. Hence, the assessee was apparently conscious of the wrong claim. If the claim would have been restricted to one third as per auditor's advice, there could be some semblance of bona fide even though the opinion of the auditors is not according to law as entire expenditure is prima facie disallowable. AO has allowed 1/14th of expenditure u/s 35A hence there was an element of allowability and hence bona fide of the assessee. We are of the view that if ITO has in his wisdom covered the case u/s 35A treating the claim as that of copyright, it does not change the nature of expenditure which is basically capital. Only for this reason claim does not become bona fide. For a deduction to be bona fide made, it should be supported by the express provisions of law or by accounting standards or by decisions of High Court/Hon'ble Supreme Court, if facts matrix is similar. If the claim is made by stating half truth thereon and not disclosing relevant and material facts, the disclosure would not be bona fide. There are two aspects of guilt. One is 'mens rea' and other is 'actus rea'. In the former, the mental element of guilt is involved and in the other, there is an act of commission or omission leading to breach of duty with or without guilty mind. When one has to prove an offence for the purposes of prosecution, a mental element of guilt has to be established. This is necessary when there is an offence against the State. But when there is a disregard to statutory provision, or there is an avoidance of civil liability, it is enough if AO is able to establish that the facts which were required to be disclosed fully and truly for determination of tax liability has been disclosed either in part or are not accurate in the sense that if remaining part of the facts i.e., accurate and full facts are brought on record then the decision arrived at by the assessee about a claim or about taxability of an item would go against the assessee. In the present case, the assessee disclosed those parts of the total facts, which would justify its claim and bring some semblance with Alembic Chemical Works Co. Ltd.'s case. It clearly showed 'actus rea', if not a complete 'mens rea'. If the case of the assessee does not fit completely in the first part i.e., 'concealed particulars of income' which embraces within its scope some element of 'mens rea' as the word 'concealed' has been used in that part in cl. (c) of s. 271(1) his case would certainly fall within the domain of 'actus rea' as he has filed 'inaccurate and incomplete particulars'. Thus, we hold that the assessee has filed inaccurate particulars for claiming the deduction and explanation furnished was not bona fide. We therefore, uphold the levy of penalty and reverse the order of CIT(A). In the result, the appeal of the Revenue is allowed.

Issues Involved:
1. Whether the declaration made by the assessee as a footnote in the computation sheet was complete, accurate, and bona fide.
2. Whether there was any debatable issue and the assessee has taken one stand, while the AO had taken the other.
3. Whether the assessee has filed inaccurate particulars.
4. Whether the case of the assessee is hit by Explanation 1 of Section 271(1)(c).

Issue-wise Detailed Analysis:

1. Declaration Accuracy and Bona Fide Nature:
The Revenue contended that the CIT(A) erred in canceling the penalty levied under Section 271(1)(c) for the assessee's claim of Rs. 2.15 crores as revenue expenditure. The AO found that the assessee purchased rights and titles of two journals, which is a capital expenditure covered under Section 35A, and the claim was misleading. The CIT(A) observed that the expenditure's genuineness was not doubted and there was only a difference of opinion between the assessee and the AO. The Tribunal noted that the auditors treated the expenditure as deferred revenue expenditure, and the assessee's claim was against the auditors' advice, indicating the claim was not bona fide.

2. Debatable Issue:
The assessee argued that the claim was based on the Supreme Court's decision in Alembic Chemical Works Co. Ltd. and Aquapump Industries, suggesting the expenditure was revenue in nature. The Tribunal found that the facts of the assessee's case were different from the cited cases. The assessee acquired a new business and titles in perpetuity, which is a capital expenditure. The Tribunal concluded that there was no debatable issue as the expenditure was clearly capital in nature.

3. Filing of Inaccurate Particulars:
The Tribunal held that the assessee disclosed only partial facts, which were misleading. The assessee did not provide the full details of the agreement with PMM, the nature of the purchase, and the period for which the rights were acquired. The Tribunal determined that the assessee's claim was based on inaccurate particulars and was not bona fide.

4. Applicability of Explanation 1 to Section 271(1)(c):
The Tribunal examined whether the assessee's explanation was bona fide and whether all material facts were disclosed. It found that the assessee's explanation was not substantiated and was against the auditors' opinion. The Tribunal concluded that the case was covered under Explanation 1 to Section 271(1)(c) as the assessee failed to disclose all material facts and the claim was not bona fide.

Conclusion:
The Tribunal upheld the levy of penalty under Section 271(1)(c), reversing the CIT(A)'s order. It held that the assessee filed inaccurate particulars for claiming the deduction, and the explanation furnished was not bona fide. The appeal of the Revenue was allowed.

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