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TMI Blog1993 (8) TMI 118X X X X Extracts X X X X X X X X Extracts X X X X ..... inally as a 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 replace an old, obsolete derated Generator ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct. 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 deduction for the payment to M/s. Dalal Consultants as this e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... badrequired 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 Appellate Tribunal also held that the interest accrued on FDRs is income of the assessee. On this basis the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 electric transformer is an independent machine performing specific and independent function. This expenditure cannot be treated as expenditure revenue in nature rather it is an expen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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 is a positive concealment of income or there is a positive act of furnishing inaccurate particulars of such income. But there is no finding by any authority that the assessee had concealed either the particulars of income or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acts 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 for which it is intended and there cannot be any justification for extending it. Reliance in this connection was placed on the decision of the Supreme Court in the case of CIT v. C.P. Sarathy Mudaliar [1972] 83 ITR 170. 7. It was brought to ou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 on expenditure on account of purchase of NPC Twin Screw Machine the submission of the learned counsel for the assessee was that the issue involved was whether the expenditure was revenue or capital in nature. The assessee claimed it as a revenue expenditure. However, the Tribunal has h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esentative 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 case penalty has been levied by attracting Explanation 1 to section 271(1)(c). Explanation 1 to section 271(1)(c) reads as under : " Explanation 1 : Where in respect of any facts material to the computation of the total income of any person under this Act,---- (A) such person fails to offer an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 material facts for the computation of its Income, Explanation 1 to section 271(1)(c) is still attracted. Similarly in respect of items enumerated as (2) to (4) in this paragraph, the assessee claimed these items as revenue expenditure. However, the Appellate Tribunal for its reasoning, has not accepted assessee's claim and treated it a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 that the amount of freight did not form part of the sale price and was not includible in the taxable turnover, did not show it in the returns, but the Assistant Commissioner of Sales-tax took the view that having regard to the provision of the Cement Control Order, the amount of freight formed part of the sale price and was includible in the taxabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o 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 Hon'ble High Court has held that no penalty can be levied because the assessee has disclosed all the particulars relating to computation of its income. Similar view was taken by the Hon'ble Gujarat High Court in the case of K.M. Bhatia (Quarry) v. CIT [1992] 193 ITR 379. In the case of J.K. Jajoo v. CIT [1990] 181 ITR 410 (MP) certain expenditures were disallowed which were claimed by the assessee. Whe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 places a burden on the revenue authority to establish as a matter of fact before a penalty is imposed treating the amount added or disallowed as concealment of income, that the explanation offered was not bona fide and all the material facts were not disclosed. The detailed and elaborate order passed by my learned Brother show that all the facts relating to the same contentions along with supporting material was furnished to the Asse ..... X X X X Extracts X X X X X X X X Extracts X X X X
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