TMI Blog1993 (9) TMI 162X X X X Extracts X X X X X X X X Extracts X X X X ..... ng provision for payment of contribution towards approved gratuity fund to LIC. (4) Disallowance of share issue expenses and survey expenses amounting to Rs. 6,92,805 (Rs. 6,02,805 + Rs. 90,000). (5) Expenses relating to earlier years amounting to Rs. 4,38,912. On the basis of Appellate Tribunal's order wherein the above additions/disallowances were confirmed, the Assessing Officer initiated penalty proceedings under section 271(1)(c). In reply to show-cause notice, the assessee submitted various letters, finally letter dated20-11-1992wherein it was pleaded that imposition of penalty under section 271(1)(c) would be unjustified. Pointwise additions/disallowances considered by the Assessing Officer are as under:--- (1) The assessee incurred an expenditure of Rs. 1,12,48,100 on the purchase of following plant machinery:--- (a) Horizontal Boring Drilling Milling machine. Rs. 78,40,263 (b) CNC Zig Boring machine Rs. 25,73,718 (c) Pannwalt Super D. Centre Horizontal Centrifuge Rs. 8,40,889. The expenditure was claimed a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unt along with interest, this amount does not belong to the assessee. The assessee is manufacturing UF/MF moulding, UF Prescol Glues, Formaldehyde and Hexamine. A dispute arose between the assessee and the Central Excise authority about the payment of excise duty on certain articles manufactured by the assessee. The assessee filed writ petition before the Hon'ble High Court of Delhi to restrain the Excise Department from enforcing the demand of excise duty. The Hon'ble High Court ordered the clearance of goods by Excise Department on the assessee furnishing bank guarantee for the amounts in dispute. Pursuant to the orders passed by the Hon'ble Delhi High Court the assessee paid full amount to the bank covering the differential amount of duty, obtained a bank guarantee and on furnishing the bank guarantee to the excise authorities obtained a clearance of the goods. In order to issue a bank guarantee in favour of the Government as directed by the Hon'ble Delhi High Court the assessee's bank required 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... penses have been disallowed as they were stated to have been incurred for the purpose of raising capital structure of the company. The Appellate Tribunal held that the expenditure incurred was in regard to raising further fresh capital thereby resulting in augmenting the base of the company. Therefore, it held the expenditure as capital in nature and did not allow any deduction. The Assessing Officer was of the view that the assessee was aware of the fact that this is not a revenue expenditure and as such was not allowable against the current year's income. Initially the assessee has claimed expenses as deferred revenue expenditure and 1/10th of the same was written off. Therefore, the assessee has made a wrong claim and as such furnished inaccurate particulars of its income in respect of this amount. (5) The Assessing Officer also initiated penalty proceedings in respect of disallowance relating to earlier year and legal and professional charges paid to Shri D.D. Verma and consultancy charges paid to Vital Management Services Pvt. Ltd. However, in appeal, the CIT (Appeals) accepted the assessee's contention and this item was not considered for the purpose of levy of penalty. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /disallowances are attributed to suppression of material facts. It was submitted that none of the appellate authority has held that the material facts relating to the computation of income have been suppressed by the assessee. Neither they have held that the explanation given by the assessee is false nor there is a finding that the explanation remained unsubstantiated. It is pertinent to mention here that the Tribunal has discussed the facts and law applicable on this item of addition/disallowance. There is no finding that the assessee has suppressed material relating to this disallowance. Therefore, it cannot be said that the assessee is guilty of suppressing material facts relating to its income. There is also no finding in any authority that full material facts have not been disclosed by the assessee. It only mentioned that the authorities have not accepted the explanation of the assessee for certain reasons. Fact that the assessee's explanation has 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 bona fide. The onus is on the department to show th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y. CIT [1993] 115 Taxation 26 (Delhi)(Trib.); where one of us was a party; (2) Harshvardhan Chemicals Minerals Ltd. v. Dy. CIT [1991] 39 TTJ (JP) 212. It was pointed out that while disallowing the claim of the assessee as revenue expenditure, the Hon'ble Bench has relied on the observations of the Hon'ble Supreme Court in the case of India Cements Ltd. and of the Andhra Pradesh High Court in the case of Vazir Sultan Tobacco Co. Ltd. In fact the Supreme Court in India Cements Ltd.'s case was not concerned with a case of raising fresh capital and in the case of Vazir Sultan Tobacco Co. Ltd. the issue arose whether the Hon'ble Andhra Pradesh High Court taking support from the decision of India Cements Ltd.'s case. The view was taken against the assessee. However, there is a divergent view in favour of the assessee by some High Courts in the case of Warner Hindustan Ltd. v. CIT [1988] 171 ITR 224 (AP) and CIT v. Kisenchand Chellaram (India) (P.) Ltd. [1981] 130 ITR 385 (Mad.). The Hon'ble Madras High Court has also placed reliance on the decision of the Hon'ble Supreme Court in the case of India Cements Ltd. It was pointed out that in such a situation where the matter has not been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee cannot be treated as mala fide. The assessee has disclosed all material particulars pertaining to the computation of income and they were not found false by any authority, it cannot be said that in the given facts and circumstances, the assessee's claim was not bona fide. Further, it cannot be concluded that the assessee had concealed either particulars of income or furnished inaccurate particulars of income. 7. With regard to 4th item, where the assessee has claimed the expenditure incurred on share issue and survey expenses as revenue in nature whereas the authorities have held it as a capital in nature, we find that allowability of this expenditure on issue of shares and survey expenses under the Income-tax Act, was always a point of controversy and number of High Courts of the country have ventured to clarify the position and different High Courts have clarified the same point in different manners and reached different conclusions. The Hon'ble Supreme Court has never considered this question though some observations of the Supreme Court in the case of India Cements Ltd. are relied on by the various High Courts in support of their view point. The ratio of judgment o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... il Storage Distributing Co. of India Ltd., the Hon'ble Calcutta High Court has taken this view. 8. Explanation 1 to section 271(1)(c) envisages a number of situations. We have to analyse whether that situation existed in this case or not. In this case the assessee had offered an explanation for claiming higher deduction. The question to be considered is whether such explanation was false or whether it was a case where the assessee though held to be not able to substantiate the explanation had also failed to prove that such explanation was bona fide and that all the facts relating to the same and material to the computation of his total income had been disclosed by him. In both the situations, the deduction disallowed in computing the total income was to be deemed, for the purposes of section 271(1)(c) to represent the income in respect of which the particulars had been concealed. If an assessee interprets the law in a particular way disclosing all the relevant facts in the returns so that if the legal position taken by him is not accepted, full tax can be imposed but it cannot be said that the assessee had filed false return. This is what has been held by the Hon'ble Madhya Pra ..... X X X X Extracts X X X X X X X X Extracts X X X X
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