TMI Blog2003 (3) TMI 287X X X X Extracts X X X X X X X X Extracts X X X X ..... on 14th July, 1995, with Escorts Ltd., and as per this agreement, the assessee-company assigned the right to use its technical know-how for a period of three years to Escorts Ltd. for a lump sum consideration of 50 lakhs US $. The same was to be received in Indian rupees under a tripartite agreement dt. 14th July, 1995. The assessee, as such, received an amount of Rs. 15,68,50,000 which was treated by the assessee as advance in its books of accounts and only a sum of Rs. 3,72,44,848 was credited to the P L a/c as the amount attributable for the period 15th July, 1995 to 31st March, 1996. The balance amount was shown as liability and offered as income in the subsequent assessment years proportionate to the period of user. This action of the assessee in spreading over of the income was not accepted by the AO. Relying upon E.D. Sassoon Co. Ltd. Ors. vs. CIT (1954) 26 ITR 27 (SC), it was held by the AO that the entire amount received by the assessee-company accrued in the year under consideration. As such, the amount of Rs. 11,96,05,152 shown as liability was added as income. As a result of this, the entire amount received by the assessee-company as technical fee was assessed as i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f being under financial hardship, NHTIPL promptly paid up the demand as and when directed by the Revenue." 2.3 Considering the same, the ITO was of the view that penalty under s. 271(1)(c) was attracted. He was of the view that in both the situations contemplated in the relevant section, the result is the same. In the facts of the present case, he was of the view that the assessee-company has furnished inaccurate particulars and carefully postponed the tax liability. The fact that the assessee has declared the know-how receipt in the subsequent assessment years was considered to be of no help as simply because the technical know-how has been allowed to be used for a few years does not mean that the income is to be apportioned in those number of years. He was of the view that since the assessee has received the entire fee in a lump sum and noting that there was no clause in the agreement which stipulated that the assessee-company shall be given an advance fee by Escorts Ltd., the ITO was of the view that the income not only has been received in the year but has also accrued in the year. This finding was confirmed by the CIT(A) as well as the Tribunal. In these circumstances, he wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gh escrow agent after completion of all legal formalities mentioned in cls. 4.01 and 4.02. Such formalities were required to be completed by 16th Aug., 1995. If such formalities could not be completed then such agreement was to be automatically terminated. In fact, not only all the formalities were completed but the payment of technical fees was also made through escrow agent by 16th Aug., 1995. Thus, nothing remained to be done on the part of the assessee. There is no clause for revocation or termination of the agreement before the expiry date of the agreement. Further, there is no clause of refund of money if the technology is not used for a part of the three years. Therefore, accrual of income did not depend upon any future event. Hence, in our opinion, the receipt of money could not be treated as advance or contingent receipt. Consequently, the contention of the assessee that money received by the assessee was in the nature of advance, cannot be accepted. It is settled legal position that accounting entries do not determine the character of the receipt. Therefore, if the income has accrued, it has to be taxed and taxability cannot be postponed on the basis of the entries made i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e its order dt. 24th Sept., 2002, and the following substantial question of law for adjudication had been framed: "Whether, in the circumstances of the case and on the true and correct interpretation of tripartite agreement dt. 14th July, 1995, the Tribunal was correct in law in concluding that the entire licence fee of Rs. 15,68,50,000, received by the appellant-company, for granting the right to use technical known-how, could be taxed in the asst. yr. 1996-97?" 2.7 The contention on behalf of the assessee based on this was that the fact that the High Court is satisfied that the case involved a substantial question of law, accordingly, no penalty could be levied on the basis of such addition. Reliance was placed on the following decisions: (i) CIT vs. Bhoj Raj Co. (2001) 247 ITR 696 (P H) (ii) CIT vs. Devi Dayal Aluminium Industries (P) Ltd. (iii) CIT vs. Santosh Financiers Ors. (iv) CIT vs. Ajaib Singh Co. (2001) 170 CTR (P H) 489 : (2002) 253 ITR 630 (P H) 2.8 Considering the same, the CIT(A) rejected the contention of the assessee upholding the action of the ITO in the following terms: "6. I have examined the facts of the case carefully and I find that tho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tive circumstances that the assessee had concealed his income that was not required to be done by the Revenue in view of the Explanation to s. 271(1)(c). Since the effect of the Explanation added to s. 271(1)(c) has been lost sight of, the Tribunal was not justified in cancelling the penalty. The Delhi High Court followed the judgment of the Supreme Court in the case of CIT vs. Jeevan Lal Sah (1994) 117 CTR (SC) 130 : (1994) 205 ITR 244 (SC). As per Explanation to s. 271(1)(c), the assessee should give an explanation which should not be vague or fanciful and without any foundation and basis. It has been held by the Supreme Court in the case of Shadilal Sugar General Mills Ltd. vs. CIT (1987) 64 CTR (SC) 199 : (1987) 168 ITR 705 (SC) that if explanation is vague or fanciful and without any foundation and basis, it is certainly open to Revenue authority to impose penalty. Therefore, it would depend upon the acceptability of the explanation offered by the appellant in the background of the statutory provisions as prevailing at the relevant time [CIT vs. Jugal Kishore Hargopal Das (2000) 161 CTR (Ker) 74 : (2000) 243 ITR 220 (Ker)]. It was also held by the Madras High Court in the ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... facts of the case, it as contended that the action of the AO was confirmed by the CIT(A) which, in the quantum proceedings was confirmed by the Tribunal. However, it was his contention that the issue is wide open in view of the fact that the High Court has admitted a question of law for which our attention was invited to paper book pp. 113 to 115. 3.2 It was also his contention that in the facts of the case, the AO, while initiating penalty proceedings, has not recorded his satisfaction which was mandatory. As such, in line with the decision of the jurisdictional High Court in the case of CIT vs. Ram Commercial Enterprises Ltd. (2001) 167 CTR (Del) 321 : (2000) 246 ITR 568 (Del), the penalty proceedings deserve to be quashed. Our special attention was invited to the decision of the apex Court which had been relied upon by the jurisdictional High Court in the case of D.M. Manasvi vs. CIT 1972 CTR (SC) 437 : (1972) 86 ITR 557 (SC). Anticipating the reply of the learned Departmental Representative which the learned Departmental Representative had made while arguing the stay petition on an earlier date before this Bench wherein the contention of the learned Departmental Representativ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y and every method used by the assessee in order to reduce his taxability could not be called a colorable device. In the facts of the case, the Revenue has to first show as to how the assessee has resorted to a "device", let alone a "colorable device". It was vehemently contended that the agreement entered into has not been shown as to how it can be called to be a colourable device. Referring to the facts of the case as appreciated by the Hon ble Supreme Court, it was contended that there is a material difference in facts and circumstances as appreciated by the Hon ble Supreme Court vis-a-vis plain and simple facts in the issue at hand. Referring to the decision of the Supreme Court in the case of Union of India vs. Playworld Electronics (P) Ltd. Anr. (1990) 184 ITR 308 (SC), it was contended that their Lordships have therein held that tax planning may be legitimate provided it is within the framework of the law and colorable devices cannot be part of tax planning. Thus, reverting back to his arguments, it was contended that in the facts of the case, it has not been shown as to how the agreement can be considered to be a device which has been found by the Department to be a color ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpensation, special attention was invited to pp. 6 to 17 of the synopsis. Reliance was placed upon Muralidhar Chatterjee vs. International Firm Co. Ltd. AIR 1943 PC 34. Our attention was also invited to art. 2.02 of the disengagement agreement which deals with "product differentiation" on the basis of which it was argued that in case any violation of any stipulation contained in the clause with regard to the colour identification or brand name, etc., then the assessee under the Contract Act could have been made liable to return the money. The eventuality of any damages being claimed by the other party to the contract from the assessee has not been appreciated at all. 3.8 The Bench was also addressed on the aspect of role of equity for which reliance was placed upon CIT vs. J.H. Gotla (1985) 48 CTR (SC) 363 : (1985) 156 ITR 323 (SC) at pp. 339-340, CST vs. Auraiya Chamber of Commerce (1987) 167 ITR 458 (SC) at p. 464 and CIT vs. Madho Prasad Jatia 1976 CTR (SC) 438 : (1976) 105 ITR 179 (SC) at pp. 183-184. On the basis of the said decisions, it was submitted that the assessee was under a bona fide belief that the licence fee accrued to the assessee over the period of use of the li ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ontention that there is no doubt over the issue that the assessee has disclosed the receipt of income in the subsequent assessment years. 3.12 Our attention was also invited to the decisions in CWT vs. Arvind Narottam (1988) 72 CTR (SC) 94 : (1988) 172 ITR 479 (SC), Union of India Ors. vs. Playworld Electronics (P) Ltd. Anr. and Banyan Berry vs. CIT (1996) 131 CTR (Guj) 127 : (1996) 222 ITR 831 (Guj), wherein the decision of the apex Court in the case of McDowell has been analyzed. Accordingly, the contention was that every device cannot be held to be a colorable device and in the penalty order, no reasons have been given by the officer for using the said term. 3.13 It was further contended that on a perusal of the note given by the assessee can anyone come to the conclusion that there has been any concealment. It was argued that the amount received has been correctly disclosed. All facts are on record. Thus, on the facts, it was contended, it cannot be argued that this is a concealment. Thus, how the action of apportionment could result in a situation that the assessee can be considered to have filed inaccurate particulars of his income. 3.14 Our attention was invited ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly stipulates that the appellant is obliged to provide escorts with the license to exploit the know-how for the entire period of three years. Therefore, the on going duty of the licensor (i.e., the appellant) was to suffer use and make it possible for the licensee (i.e., Escorts) to use the same, over a specified period, failing which, the appellant would have breached the terms of the agreement. 3.19 Apart from this, it was also contended that cl. 4.04 of the agreement referred to the termination of all the earlier agreements entered into between the New Holland group companies and Escorts group during subsistence of the joint venture relationship. It was stated that this clause states "the releases do not include any claim that may be brought as a result of failure of the party to comply with the terms of this agreement". Thus, the contention was that the obligation of the appellant to make available technical know-how to Escorts continued over the period of license of technical know-how and did not get discharged in the previous year relevant to subject year itself. 3.20 Thus, in these facts, it was contended that the mere fact that there was no clause for revocation of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... osure of the apportionment licence fee is made in the computation of income for which attention was invited to p. 54 of the paper book. 3.25 The learned Authorised Representative contended that the assessment proceedings are separate from the penalty proceedings and thus, the fact that the addition had been made in the assessment cannot automatically justify the imposition of penalty under s. 271(1)(c). Reliance was placed upon: 1. CIT vs. Bhoj Raj Co. 2. CIT vs. Devi Dayal Aluminium Industries (P) Ltd. 3. CIT vs. Santosh Financiers Ors. 4. CIT vs. Ajaib Singh Co. 5. Vidyut Metallics Ltd. vs. Dy. CIT (2001) 116 Taxman 273 (Mumbai)(Mag). 3.26 It was also contended by the learned Authorised Representative that the timing of accrual of income is not a settled issue and is subject to difference of opinion, Reliance was placed upon: 1. CIT vs. Jagabandhu Prasanna Kumar Rooplal Sen Poddar; 2. CIT vs. Late G.D. Naidu Ors. (1986) 51 CTR (Mad) 256 : (1987) 165 ITR 63 (Mad); 3. Dy. CIT vs. Nuchem Ltd.; 4. Burmah Shell Oil Storage and Distributing Company of India Ltd. vs. ITO [affirmed by the Division Bench of the same Court in ITO vs. Burmah Shell Oil Storage a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (1988) 69 CTR (All) 213 : (1989) 175 ITR 384 (All). 3.30 Reliance was also placed upon the decisions of the Supreme Court in the case of Madras Industrial Investment Corporation Ltd. and CIT vs. Jai Prakash Om Prakash Co. Ltd. (1964) 52 ITR 23 (SC). 3.31 It was further contended that the CIT(A) on the facts of the case was not correct in relying upon the decision of the Allahabad High Court in Addl. CIT vs. D.D. Lamba Co.. 4.1 Learned Departmental Representative, apart from relying upon the orders of the tax authorities vehemently contended that there is no dispute over the fact that the assessment order has been confirmed by the CIT(A) which has been confirmed by the Tribunal in the quantum proceedings. Thus, it was contended, on merits, the arguments of the assessee vis-a-vis the addition has been already decided in the quantum proceedings. It was further contended by him that the joint venture agreement entered into by the assessee has not been placed before the Bench by the assessee and only disengagement agreement had been relied upon. 4.2 Referring to the said disengagement agreement, it was contended that no string has been attached in the said disengagement agreem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e has been found to be false by the AO. The notices have been issued to the assessee since the AO is satisfied that true income has not been disclosed and, in fact, the assessee has not disclosed true income in the computation of income. Reliance was placed upon CIT vs. Sree Krishna Trading Co. (2002) 172 CTR (Ker) 380 : (2002) 253 ITR 645 (Ker) and CIT vs. K.R. Sadayappan (1990) 86 CTR (SC) 120 : (1990) 185 ITR 49 (SC). Reliance was also placed upon the decisions relied upon by the AO and the CIT(A). 4.6 Reliance was placed upon (1987) 165 ITR 14 (SC) and (2002) 253 ITR 619 (Del) for the contention that the onus is on the assessee. 5.1 In reply, the learned Authorised Representative submitted that since the birth of the assessee-company took place in 1995, i.e., 9th May, 1995, no joint venture agreement had been entered into, thus any joint venture agreement entered into with the predecessor of the assessee is not relevant. The only agreement entered into after the inception of the assessee-company was the disengagement agreement entered on 14th July, 1995, which has been placed on record. Accordingly, the arguments of the learned Departmental Representative on this aspect des ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rder. 6.3 A perusal of this decision shows that the facts were materially different. The starting premise of the said decision was the finding given by the Tribunal that satisfaction has not been recorded by the AO which was confirmed by the Hon ble High Court. Their Lordships therein in the decision of the apex Court in the case of D.M. Manasvi vs. CIT, wherein on the facts before their Lordships, it was held that: "Held, (i) that the penalty proceedings were validly initiated; (ii) that, on the facts, there was relevant material before the Tribunal to hold that the assessee had deliberately concealed the particulars of his income; this was not a case of inference from mere falsity of the explanation given by the assessee in the assessment proceedings, but a case where there were definite findings that a device had been deliberately created by the assessee for the purpose of concealing his income." 6.4 The facts before their Lordships in brief were that in the appeal relating to the refusal of registration of firm constituting of four major partners including the assessee and three minors who were his grand children, the Tribunal had found that the three other major partne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessment year following the asst. yr. 1996-97 the company has huge losses and it could very well set off the income from the Escorts against the losses. Therefore, it was a plain and simple device with an obvious purpose to reduce the incidence of tax on the income in the asst. yr. 1996-97." 6.7 On the basis of this, ultimately at p. 21 of his order, he further observed "Penalty proceedings under s. 271(1)(c) for concealing the particulars of income has been initiated separately" which finding has come after considering replies of the assessee and the specific facts of the case at a later point of time. Accordingly, we are of the view that at the assessment stage, the mere recording by the AO is enough. If anything is found in the assessment orders which shows that the AO was satisfied with regard to the concealment or furnishing of inaccurate particulars of income by the assessee, the requirement of the section in this regard gets satisfied. The above extracted paragraph of the assessment order is a clear pointer towards the recording of satisfaction. Accordingly, in the peculiar facts of the case at hand, we are not inclined to agree with this argument raised on behalf of the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ew Holland India hereby agree to appoint for escrow/custodial services The Citibank NA, Jeevan Bharati, 124 Connaught Circus, New Delhi 110001, India (hereafter "escrow agent") with which the escrow account is hereby agreed to be opened in accordance with the instructions referred to in (e) hereinbelow/hereinafter "Escrow Account"). (b) New Holland will deliver all the share certificates of the shares along with duly executed transfer deeds and the registration letters of the New Holland nominated three (3) directors on the Board of ETL, to be effective from the date of their release from the escrow account if any, to the escrow agent into the escrow account within 7 days of binding date. (c) Escorts will pay the purchase price into the escrow account with the escrow agent within 7 days of the binding date. (d) Escorts will pay the technical fee into the escrow account with the escrow agent within 24 hours of the binding date. (e) New Holland, NH India and Escorts shall give irrevocable instructions to the escrow agent to release the said share certificates of the shares, transfer deeds and resignation letters to Escorts or its nominee(s) and the purchase price to New Holla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , ETL and their affiliated companies shall not use the brand name Ford and in any case shall comply with the limitations contained in art. 10.3 of the registered user agreement dt. 14th Dec., 1990, between Ford Motor Company of Canada Ltd. and Escorts Tractors Ltd. (ii) Colour: In order to distinguish the colour of products manufactured by EL, ETL or any affiliated company from those to be manufactured by New Holland and its affiliates, EL, ETL and its affiliated companies shall only use colours which are not blue; or Bureau of Indian Standards (September, 1994) blue colours with a Munsell value between 0 and 2.5 or with a Munsell value between 7.5 and 10 (including within these two preceding ranges of blue shades are Bureau of Indian Standards (September, 1994) ISC Nos. 105, 106, 108 and 177 which are permitted). In the preceding specifications of blue colours, they are mutually exclusive; id est, the permitted shades of blue cannot be mixed with any other colour or shade of blue to form a colour which would fall within the range of colours defined by Bureau of Indian Standards (September, 1994) as a blue colour with a Munsell value of greater than 2.5 and less than 7.5. (iii) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s required being notified to New Holland and a copy provided to the escrow Agent. If by 16th Aug., 1995, or by such subsequent date as may be mutually agreed to in writing by both parties, all conditions referred to herein shall not have been satisfied or should the escrow agent be unable for any reason to release all of the documents or all of the sums in accordance with the escrow agent instructions, then this agreement shall be automatically terminated. 4.03 Entire agreement This agreement represents the entire understandings of the parties with regard to the subject-matter hereof. Any prior agreements or understandings, whether written or oral are superseded. This agreement shall not be amended except in a writing signed by both parties hereto. 4.04 Release and hold harmless As from the date the transfer of shares and the payments of money to New Holland and/or NH India have been effected, Escorts for itself and in the name of and on behalf of ETL shall release any and all claims they have or may ever have against New Holland, NH India or any of their related companies arising out of or in connection with New Holland s investment in ETL and any other agreement en ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... confused with the Ford tractors, then, no limitations have been put upon the assessee and the assessee is free to take whatever remedy is available to it under law if the Escorts group violates the conditions which have been specifically brought out in cl. 2.02 of the said agreement. 7.4 Clause 3.01 deals with termination of agreement upon the fulfilment of the requirements under the said agreement which as far as New Holland group is concerned is the release of New Holland share certificates to Escorts or its nominee(s) and where the assessee is concerned, it is on receiving the purchase price and the payment of the technical fee from the Escorts group on receiving the technical know-how. As such, there is nothing in cl. 3.01 which supports the alleged bona fide belief of the assessee that the receipt was contingent. 7.5 Clause 4.01 of the said agreement lays down the binding date. The parties signing this agreement were required to file within two working days this agreement with the Company Law Board and request that it enter an order making this agreement a Court ordered settlement. The date on which the Company Law Board entered the above order was to be taken as the bind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arising out of or in connection with New Holland s investment in ETL and any other agreement entered into between or among New Holland or any of its related companies and Escorts, ETL or any of its related companies. 7.9 Similarly, the said clause further states that New Holland from the date of transfer of shares and payments of money to New Holland and/or New Holland India, i.e., the assessee has been effected, the New Holland group shall release any and all claims it has or may ever have against Escorts group and its related companies arising out of or in connection with its investment in ETL and entered into between or among New Holland or any of its related companies. 7.10 This clause further clearly states that these releases do not include any claims that may be brought as a result of the failure of a party to comply with the terms of the agreement. Each party agrees that it will obtain the required corporate approval to enter the agreement and will hold the order parties harmless for any consequences related to failure to obtain the required approval. 7.11 A careful analysis of the above clause read with the analysis of the entire disengagement agreement shows that no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... furnished computation in accordance with the provisions of IT Act, assessee has to invoke some interpretation, its account books, the state of affairs as it believes to be and the expert guidance......." 8.3 The Tribunal in para. 26 of the said order observed that when different interpretation exists in the hierarchy of the assessing machinery, it would be unreasonable to hold that the assessee s interpretation and choice about taxability of income under particular head carries an element of falsehood or intention of deliberately furnishing inaccurate particulars. On applying the proposition laid in the said order to the facts of the present case, it is seen that the consistent view of the tax authorities which has been upheld by the Tribunal in the quantum proceedings is that the apportionment made by the assessee was neither justified by facts, circumstances nor position of law. As such, there are no contradictory findings by different authorities in the case of the assessee. Thus, this order does not help the assessee to establish its bona fides as the material facts of the two cases are distinguishable. On the other hand, after a careful perusal of various clauses of the dise ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as to be treated as an advance payment could be gleaned. The conditions, in fact, operate against the Escorts group who can be taken to Court to compensate the assessee in case of conditions enumerated in cl. 2.02. Thus, if any breach of the contract is contemplated, it is a breach which can be occasioned only by Escorts group not adhering to cl. 2.02 which would result to the material advantage in favour of the assessee. Clause 4.01 holding and disclosure clause in fact clearly entitles the assessee to seek remedy in accordance with law in the eventuality of the breach of this contract and, as such, in these facts, how the assessee could have entertained a bona fide belief that the amounts so received were to be apportioned has not been demonstrated and only general arguments have been advanced that under ss. 39, 64, 65, 70 and 75 of the Contract Act have not been considered. Merely relying upon various decisions for various propositions with which there is no quarrel the case of the assessee is not strengthened at all. On analysis of the applicability of the said sections to the facts of the case, it is seen that the possibility of breach on account of non-performance of any cond ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pointed by New Holland USA in the Escorts group were to resign and hand over who had been appointed at an earlier date to ensure product quality. Thus, whatever services were performed by New Holland USA for making the technology available to the Escorts group in the earlier years on the handing over of the technical know-how to New Holland India who leased the same on the receipt of payment of the stipulated amount to Escorts group, nothing more was required to be done by the assessee on account of non-performance of which the Escorts group could take the assessee to Court. Thus, in these peculiar and specific facts, the assessee has not been able to establish how the assessee could entertain a bona fide belief that the apportionment made by it was supported by any fact or law. 9.1 In the course of the hearing, we have also been addressed at length by the learned Authorised Representative on the principle laid down by the Supreme Court in the case of McDowell Co. Ltd. vs. CTO on the basis of which it has been argued at length as to how the disengagement agreement entered into by the assessee, with the Escorts group and the New Holland USA a colorable device. We have also been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the facts of the case the assessee could have a bona fide belief that apportionment was in order is not acceptable. The act of apportionment in the absence of any clause stating the same to be an advance or by conduct shown it to be an advance or necessitating the same to be a contingent payment is not borne out. In these specific facts and circumstances, the decision of the apex Court in the case of McDowell Co. Ltd. analyzed by their Lordships of the Gujarat High Court in the case of Banyan and Berry also does not help the case of the assessee. The facts before their Lordships of the Gujarat High Court and the facts of the present case are entirely distinguishable. We are fully in agreement with the observation of their Lordships that the principle enunciated in McDowell Co. Ltd. s case has not effected the freedom of the citizen to act in a manner according to his requirements, his wishes in the manner of doing any trade, activity or planning his affairs with circumspection, within the framework of law, unless the same falls in the category of colorable device which has been expounded in the said decision. Their Lordships in the same decision were called upon to decide the f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y of mustard at Rs. 27-8-0 per maund, the due date being 7th June. The price fell soon thereafter and the purchaser purported to cancel the contract before the due date but the assessee refused to accept the cancellation. On 28th February, the assessee sent a telegram to the purchaser to the effect that if the purchaser did not inform it within 4 hours acceptance of settlement of the contract at Rs. 16-14-6 per maund it would presume that the purchaser had accepted a settlement at that rate. There was no response to the telegram. On the basis of this settlement the assessee instituted a suit for the recovery of Rs. 74,253 after giving credit for Rs. 20,000 due from the assessee. The trial Court decreed the amount and at the date of the assessment order, an appeal was pending before the High Court. The ITO included the sum of Rs. 94,253 in the total income of the assessee for the accounting year 1952-53, but the Tribunal excluded that amount from the assessment on the ground that the liability of the other party still being in dispute, the sum of Rs. 94,253 could not be said then to have accrued. On these facts, the Tribunal having been declined to state a case before the High Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .11 Reliance has been placed upon the decision and order of the Madhya Pradesh High Court in the case of M.V. Valliappan vs. ITO, a perusal of which shows that it operates in the peculiar facts of its own in the context of which the principles laid down in the case of McDowell and Co. Ltd. have been analysed. It may be noted that the said judgment of the Madras High Court has been reversed by the Supreme Court in (1999) 238 ITR 1027 (SC) and, thus, apart from the fact that the facts are distinguishable, the decision also stands reversed. As such, the assessee does not derive any support therefrom. 10.1 It may be pertinent to state that we have taken into consideration the disclosure made in its audited accounts and the computation filed along with the return. The fact of filing returns in the subsequent assessment year before the notice under s. 142 in the present year has also been noted. We have also seen that the dates on which the subsequent return disclosing the remaining balance have been filed which has been taxed by the Revenue on a positive basis. The fact that when the apportionment was done for the year under consideration and return was filed, the assessee could not h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned the provisions of the Contract Act and the disengagement agreement and unhesitantly thereafter come to the conclusion that there was nothing in the disengagement agreement by way of which any limitation was either placed upon the assessee or the assessee could entertain a genuine/bona fide belief that that it was required to adhere to any condition or perform any service, etc. in future. Nowhere is any situation contemplated or for that matter is there any possibility to suffer the benefit that any such condition is there. There is not scope to entertain the belief that as per the disengagement agreement, the assessee could be required to refund any amount received by it. The possibility of non-user at all or user for a later period of the know-how rights obtained by Escorts group has also not been considered relevant and the payment has been made simply for allowing the user for a stipulated period of the know-how rights regardless of the fact whether it is used or not used. In fact, various clauses in the said agreement very categorically contemplate various situations where violation of various conditions by the Escorts group would entitle the assessee to seek remedy by way ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion was on receipt basis, then, there could always be some dispute or difference regarding the actual amount receivable as commission and dispute can arise subsequently because of sales return, quality difference, complaint from customers and expenditure incurred by the assessee. Thus, only when the credit note is sent only then it could be said that there is no further dispute on account of commission receivable. Thus, where the commissions on receipt basis are shown, their addition on basis of rejection of method of accounting does not invite the penal consequences on account of inaccurate particulars of income, as no deliberate separation of income is made out in such case. 11.3 In the issue at hand, the entire process started from the disengagement agreement and as we have already analysed the various clauses of the said agreement and come to the conclusion that as far as the assessee was concerned, the same received by it had also accrued in the year under consideration. We have also examined the bona fides of the assessee. Thus, on account of apportioning the same for the period of lease a case of deliberate suppression of income is squarely made out. As such, the decision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve held therein that penalty proceedings are distinct and different from assessment proceedings and findings in the assessment proceedings are not conclusive but are relevant. They have also laid down the principle that the entire material available should be considered afresh by the authorities before imposing penalty and thus even after the addition of the Explanation to s. 271(1)(c) of the IT Act, 1961, conscious concealment is necessary. The Explanation provides only a rule of evidence raising a rebuttable presumption in such circumstances. No substantive right is created or annulled thereby. The initial burden of proof is cast on the assessee to displace the presumption arising in certain cases. The assessee can discharge the onus either by direct evidence or circumstantial evidence or both. The cumulative effect of all facts should be taken into consideration. It may be stated at the outset that there is no quarrel with these accepted principles and they have to be applied to the facts and circumstances of each and every case where penal proceedings are contemplated. It is worth mentioning that the facts of that case were that different assessees were engaged in the business ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the present facts of the case, it is seen that it is not a case of disallowance of expenditure but a case of withholding substantial income allegedly on the plea that it was understood to be apportioned for the period of lease. The basis of the said plea has not been substantiated by the assessee either through the disengagement agreement on which heavy reliance has been placed on nor on any judgment wherein such a view has been approved. Provisions of the Contract Act had been referred to which have been considered and the explanation of the assessee that the eventuality of refunding a portion of the sum has been considered and found not tenable on the peculiar facts of the case. Thus, where income has not only been received but has accrued in the year under consideration, the action of not offering the entire sum is a device used consciously by the assessee to suppress its income in the year under consideration. As such, penal consequences are justified. The reason for not offering the entire sum in its assessable income in the year under consideration has not been substantiated either by facts or circumstances. Accordingly, by this act of not offering the entire sum, the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expenses which were claimed as deduction in computing the income but were disallowed in the assessment which, as laid down by the Explanation to s. 271(1)(c) of the IT Act, 1961, had to be excluded for the purpose of determining whether the Explanation was applicable, that the estimated income of Rs. 8,000 in Pakistan was subject to rectification on the production of the Pakistan assessment order, which was not liable to tax in India in view of the Indo-Pakistan DTAA, and that, therefore, there could not be any charge of concealment of income or furnishing of inaccurate particulars thereof or fraud or gross or willful neglect and that the levy of penalty under s. 271(1)(c) was not valid." 11.10 Their Lordships, on the abovementioned facts, observed that since findings recorded by the Tribunal were findings of fact which had not been challenged as perverse or based on no evidence, the levy of penalty under s. 271(1)(c) was not valid. 11.11 Thus, it is seen that the facts of the present case are entirely distinguishable and it is not a case wherein different opinions were taken by the tax authorities and the Tribunal has gone along with one opinion. On this basis, it is held tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he case the said decision lends no support to the assessee. 11.14 The facts in the case of Burma Shell Ors. were that therein discrepancy arose between the income assessed by the ITO and the income returned by the assessee because the contention of the assessee regarding the claim for devaluation loss, increased depreciation and development rebate was rejected by the ITO. The Hon ble High Court in the facts of that case held that legal contention bona fidely raised whether it is ultimately accepted or rejected will not generally be fraud or gross or willful negligence. As there is no fraud or gross or willful negligence on the part of the petitioner, the provisions contained in s. 271(1)(c) of the Act cannot be attracted even if it can be otherwise said that the said explanation applies because of the discrepancy between the income returned by the assessee and the income assessed by the ITO. 11.15 A perusal of this decision shows that on the facts before it, the Hon ble High Court was of the view that the legal contentions raised by the assessee were bona fide. Thus, whether it is ultimately accepted or rejected, it could not be considered generally to be an act of fraud or g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he view of the AAC which was on a reference confirmed by the High Court; the Lordships on the facts of this case confirming the decision of the High Court held that the respondent was entitled only to the minimum guaranteed to him. The Lordships therein relied upon the principle that where the language of the deed of settlement is plain and admits of no ambiguity there is no scope for consideration of tax avoidance. A perusal of this decision shows that the facts were entirely distinguishable inasmuch as that the deeds of settlement clearly and plainly enunciated that A would receive maintenance of a certain amount and there was no ambiguity of the same. At the cost of reiteration, in the present facts of this case not only the money has been received by the assessee in lump sum, it has also accrued to it in the year under consideration and there is nothing in the entire agreement to suggest any ambiguity or any possibility of even the other view being possible as the agreement in plain and simple words enunciates that a specific sum has been paid to the assessee for user of technical know-how for a certain period. As we have already observed nowhere in the said agreement is ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g to assets which were partitioned in the hands of HUF in view of s. 171A of the Act. The assessee filed a writ petition on the ground that the income of the property which was the subject-matter of partial partition could not be treated as the income of the HUF. It was contended that s. 171A was violative of arts. 14 and 265 of the Constitution. The case of the Revenue before the Madras High Court was that the dis-recognition of part and partial burden contemplated by s. 171A was only for the limited purpose of levy and collection of income-tax and that the said section was enacted as a measure to prevent the tax evasion and must, therefore, be upheld considering the decision of the Supreme Court in the case of McDowell. Their Lordships therein held that s. 171A suffers from legislative incompetence and also violates the Constitution since it violated Art. 14. It may be noted that the said decision was reversed by their Lordships of the Supreme Court in the principle enunciated in Swastic Gear Ltd. where search was conducted by the IT Department upon the group companies of the assessee. Various account books were seized for which seizure memo was prepared and issued to the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... easily been decided on these limited facts itself. We have taken recourse to the lengthy order not because there was any ambiguity worth its name in the agreement but because the learned Authorised Representative has contended that the issues pertaining to the Contract Act have not been addressed by the Tribunal in the quantum proceedings as these arguments were not argued or considered by it. Thus, after analysis in greater detail, we are still unable to see how the assessee could entertain a bona fide belief that the amount so received was required to be apportioned as nothing in the agreement supports such a belief. Thus, merely relying on the note in the computation sheet in the absence of any reason to support such an act or a rational/bona fide belief for such reliance clearly brings the assessee within the ambit of the penal consequences of such a section and a device to suppress its income on account of the detailed reasons given cannot be encouraged. Apart from that we have gone in great detail so as to ensure that each and every decision which has been relied upon before us by the assessee either by way of a lengthy synopsis numbering 62 pages or arguments advanced in the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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