Income Tax Appellate Tribunal - Mumbai
Assistant Commissioner Of Income Tax vs Jasubhai Business Service (P) Ltd. on 29 July, 2005
Equivalent citations: (2006)100TTJ(MUM)951
ORDER
D.C. Agrawal, A.M.
1. In this appeal, the Revenue raised the following effective grounds :
1. On the facts and in the circumstances of the case and in law, the CIT(A) erred in cancelling the penalty levied under Section 271(l)(c). As laid down in the case of CIT v. Jeevan Lal Sah (1994) 117 CTR (SC) 130 : (1994) 205 ITR 244 (SC), the onus is on the assessee to establish there were bona fide reasons to claim the deductions but in the absence of any reason, penalty has to be levied.
2. The appellant prays that the order of CIT(A) on the above ground be set aside and that of the AO be restored.
2. The only grievance of the Revenue is that CIT(A) had wrongly cancelled penalty of Rs. 69,87,500 levied under Section 271(l)(c).
3. The facts giving rise to levy of penalty are as follows :
(1) The assessee-company was in business of purchase of frozen marine products and yellow soyabeen during the financial year and in addition providing composite services, management services, etc. for which it was receiving1 fee from the constituents during the earlier financial year as well as in the current year, as reflected from Sch. 15 'service charges received' showing services of Rs. 4,60,26,931 and Rs. 4,78,41,850 received during the earlier financial year and current year, respectively. The corresponding figures of export sales were Rs. 6,98,44,880 and nil. Thus, it seems that one of business, i.e., export sales was not operative during this year. In addition, the assessee was also deriving dividend income. During this year, i.e., the period relevant to asst. yr. 1998-99, the assessee purchased rights, titles and ownership of two magazines/periodicals namely 'Chemical products finder' and 'Indian architect and builders' owned by M/s Pan Music & Magazines Ltd. (for short 'PMM'), for which an agreement was entered into between the assessee and PMM on 15th Oct., 1997. As per this agreement, the agreed purchase price of these two titles from PMM was a consideration of Rs. 2 crores and Rs. 0.15 crores totaling to Rs. 2.15 crores. The agreement provided that the seller is the owner and publisher of the titles, which are free from all charges, liens and encumbrances and the assessee can after purchase, use the title and the information in the course of its business. The title over the two periodicals would pass on to the assessee on 1st Nov., 1997. Along with use of the title, the assessee would get technical knowledge, information for publishing the two periodicals with right to get existing subscribers and advertisers of the journals. All the employees will also be transferred to the assessee. Accordingly, the MoU was acted upon.
(2) The return of income was filed by the assessee on 30th Nov., 1997 declaring a loss of Rs. 1,52,55,092 claiming Rs. 2.15 crores paid for acquiring the titles of two magazines as revenue expenditure. The return was processed on 30th March, 1999 under Section 143(1). Subsequently, the case was taken up for scrutiny by issuing the notice under Section 143(2). During the course of assessment proceedings, two MoUs for purchase of business with titles of two periodicals as aforesaid, were submitted to the AO. It was claimed by the learned Authorised Representative of assessee that the assessee has appended a note 'No. 5' in the 'computation of income' sheet as under :
Note 5. Expenses of Rs. 2,15,00,000 for purchase of publishing rights of journal is revenue expenditure, as it is incurred for acquiring right to get subscriber and advertisement customer for publishing journal and for use of trademark in view of Supreme Court decision in Alembic Chemical Works Co. Ltd. v. CIT and CIT v. Aquapump Industries (1996) 132 CTR (Mad) 506 : (1996) 218 ITR 427 (Mad).
(3) Before the AO it was claimed that the consideration was paid for the use of trademark of the above journals and know-how for editorial content which is very prime for the journal. It was argued that the amount was paid not for acquiring any patent, right or copyright covered under Section 35A and the amount was paid for acquiring the running business for use of trade name of the journal with existing rights of the subscribers and the advertisers; which is a revenue expenditure. The AO, however, did not agree and by giving a finding, as under, made the addition of Rs. 2,15,00,000 in the total income of the assessee.
8. I have considered the submissions of the Authorised Representative and found that they are not acceptable. The assessee paid the consideration mainly for acquiring the titles of the monthly journals viz., Chemical Product Finder and Indian Architect and Builder. There was no transfer of technical know-how involved in the process of acquisition of the above title. It is only incidental that the existing subscribers of the journals and the advertisers transferred to the assessee-company. The transfer of employees to the assessee-company is only incidental. There is no binding obligation on the part of the subscribers, advertisers and the employees to remain with the assessee after transfer of the title to the assessee. So essentially what is paid towards consideration is mainly for the purpose of acquiring the titles of the above two journals. In a way the assessee acquired trademark or the copyright of the above journals and the assessee is squarely covered by the provisions of Section 35A of the IT Act,
9. The consideration paid for acquiring the titles of the journals are in the nature of capital expenditure since the assessee gets enduring benefit over a period of time. This is more akin to acquisition of goodwill and the purchase of goodwill is a capital expenditure as per the provisions of the IT Act. Therefore, the assessee's case is covered under the provisions of Section 35A and the assessee gets a deduction of 1/14th of the consideration paid for the purchase of title.
10. The Authorised Representative relied upon the decision of the Hon'ble Supreme Court in the case of Alembic Chemical Works Co. Ltd. v. CIT in his favour. However, the decision cited supra is mainly on the acquisition of technical know-how. There is no such issue involved in the instant case; hence the decision cited supra is not applicable to the facts of the present case.
11. The Authorised Representative also relied upon the decision of Hon'ble Madras High Court in the case of CIT v. Aquapump Industries (1996) 132 CTR (Mad) 506 : (1996) 218 ITR 427 (Mad). In this case, the Court mainly dealt with the transfer of technical know-how for a period of 5 years and payment of royalties consideration thereof and the Court held that the expenditure was revenue in nature. However, in the instant case, there is no such issue of transfer of technical know-how and payment of royalty, hence the ratio of the above-mentioned case has no bearing on the facts of the present case.
(4) Thus, the total income was assessed at Rs. 47,09,194 as against returned loss of Rs. 1,52,55,092. At the end, he also initiated penalty proceedings under Section 271(l)(c) for furnishing inaccurate particulars.
(5) The above decision of the AO to disallow the claim of entire sum of Rs. 2.15 crores in one year and to allow only l/14th thereof in the year under consideration seems to have been accepted by the assessee, as no appeal was filed against disallowance before CIT(A). This was also confirmed by the learned Counsel for the assessee before us during the course of hearing.
(6) In the penalty proceedings, the AO after extensively discussing the issue from paras 12 to 16 of penalty order levied the penalty.
(7) The penalty was cancelled by the CIT(A) by observing as under :
3.4 This fact is also borne out from a letter dt. 5th Jan., 2001 written by the AO to the appellant calling for certain information in which the AO has acknowledged that in the return an amount of Rs, 2,15,00,000 has been claimed as incurred towards purchase of publishing rights of journal as revenue expenditure. It is a different matter that in the assessment order as well as in the penalty order the AO has not mentioned this fact creating an impression as if the fact of the expenditure of Rs. 2,15,00,000 has been discovered by the AO during the assessment proceedings. This being so, it is clear that the AO did not make any fresh discovery and what has been discussed in the assessment order was only a different interpretation of the claim made by the appellant.
3.5 While discussing the facts of the case in the detailed penalty order under Section 271(l)(c) the AO has dealt with the issue in sufficient detail. However, what has actually emerged from this discussion in the penalty order is that the consideration paid for acquiring the title for the journals is not revenue expenditure as claimed by the appellant but is a purchase of goodwill, in the nature of capital expenditure and, therefore, covered under the provisions of Section 35A. It is not clear as to how the AO has reached the conclusion that this is a case of claiming wrong deduction on the basis of furnishing inaccurate particulars of income.
3.6 After a careful consideration of the matter, I am inclined to agree with the arguments advanced by the appellant that this is not a case where the appellant has either concealed particulars of income or has furnished inaccurate particulars of income. On the contrary, it is clearly a case where the genuineness of the expenditure has not been doubted and there is only an apparent difference of opinion between the appellant's stand and the stand of the AO. The fact that the appellant accepted the allowance of l/14th of the expenditure under Section 35A against its claim of the entire amount as revenue and did not contest it in appeal certainly cannot be held against the appellant. The difference of opinion between the AO and the appellant by itself cannot lead to the conclusion that the appellant had concealed its income by furnishing inaccurate particulars of income. Vide for instance, CIT v. Kishanchand Tarachand 151 Taxation 72 (MP).
(8) Thus, according to learned CIT(A), the genuineness of expenditure was not doubted and there was a difference of opinion between appellant's stand and that of the AO. Merely because the assessee accepted the allowance of 1/14th under Section 35A as against entire claim should not go against him. The difference of opinion cannot lead to conclusion that assessee has concealed its income by furnishing inaccurate particulars. The Department is now agitated against the cancellation of penalty by the impugned order of CIT(A).
4. Before us, the learned Departmental Representative submitted that the assessee has purchased rights and titles of the two journals, the expenditure for which is clearly a capital expenditure and now covered under Section 35A. Further, the note given by the assessee in the computation of income sheet is wrong and misleading. The agreement is for entire title and business and not for customers and advertisers. The assessee did not furnish the copy of agreement along with the return so as to know the exact nature of payment. Assessment was originally completed under Section 143(1). As the returns were accepted under Section 143(1) and only a limited scrutiny @ 2 per cent of the total returns is being carried out, it is expected of the assessee to make a full and true disclosure. Had the assessment not made under Section 143(3) by issuing notice under Section 143(2), the AO would not have known the true nature of the claim. To dub the expenditure as made for know-how so as to cover the same under the decision in Alembic Chemical Works Co. Ltd v. CIT and CIT v. Aquapump Industries (1996) 132 CTR (Mad) 506 : (1996) 218 ITR 427 (Mad) is misleading and tantamount to filing inaccurate particulars of the claim. Further according to learned Departmental Representative question of two opinions does not arise as the disallowance of the claim was accepted by the assessee as no appeal was filed. Had the assessee declared in the return that he has made payment for purchase of title and the entire running business, the question of claim as revenue expenditure would not have arisen as it was clearly a capital expenditure. According to learned Departmental Representative, the case of the assessee is squarely covered by ExpIn. 1 to Section 271(l)(c), as the assessee's claim of expenditure as revenue was not bona fide. He clearly wanted to get away under Section 143(1) by showing the payment made for trademark in the manner covered in the decisions cited by the assessee in the footnote in the computation of income sheet. The learned Departmental Representative also pointed out that notwithstanding that expenditure is capital or revenue, the auditors have pointed out that the claim is deferred revenue expenditure only. One-third thereof was claimed in the computation by auditors made and two-third was shown in the balance sheet as 'deferred revenue expenditure'. Thus, the entire claim of Rs. 2.15 crores could not be allowed as revenue expenditure in one year even as per auditor's working and comments.
5. On the other hand, the learned Counsel for the assessee defended the order of CIT(A) and submitted that the assessee had disclosed all facts by way of a note below the computation of income sheet and entire amount was shown. Further, the assessee had formed an opinion on the basis of decision of Hon'ble Supreme Court in Alembic Chemical Works Co. Ltd.'s case (supra) and Aquapump Industries' case (supra) that his claim is allowable in full as revenue expenditure. He drew our attention to p. 22 para 8 of the assessment order, wherein it has been admitted by AO in a way, that the assessee has acquired a trademark or copyright. Further, there is no finding of concealment in the assessment order. The assessee furnished a reply to the AO, which was placed on p. 25 of the paper book. In this reply, it was clearly mentioned that the said expenditure is allowable as revenue expenditure. Since, there are two possible opinions, the assessee has adopted one opinion. The issue is clearly debatable as to whether it is revenue expenditure or not. One view is that of the assessee and other view is that of the AO. On debatable issues, if addition is made, then no penalty can be levied. He has claimed expenditure under Section 37(1) and not under Section 35A, which is clearly not applicable. Thus, there is clear debate as to whether expenditure is allowable under Section 3bA or under Section 37(1). In fact, the assessee has purchased a license, which is revenue expenditure. It was w.e.f. 1st April, 2002 under Section 55(2A) that trademark has been made a capital asset, which means that prior to 1st April, 2002, the expenditure incurred on trademark would be revenue expenditure. The learned Authorised Representative of assessee also submitted that he did not prefer appeal because of saving money from litigation and not for the reason that that assessee did not have a case. The learned Counsel for the assessee also relied on the decision of Tribunal in Rupam Mercantile Ltd. v. By. CIT (2004) 85 TTJ (Ahd)(TM) 609 : (2004) 91 ITD 237 (Ahd)(TM).
6. In his rejoinder, the learned Departmental Representative submitted that if assessee's case was covered by the decision of Hon'ble Supreme Court in Alembic Chemical Works Co. Ltd.'s case (supra), then it was more prudent for him to fight out. The fact that no appeal was preferred even before the CIT(A) shows that the decision of Hon'ble Supreme Court was not at all applicable on the facts of the case. The learned Departmental Representative reiterated that note given in the computation sheet of income was misleading and was not bona fide. The assessee wanted, by giving inaccurate particulars by way of note, to get his return accepted under Section 143(1). The fact that issue was not contested shows that there was no debate and no debatable issue was existing.
7. We have heard the rival submissions and considered the facts and materials on record. The main issues involved in this case are :
(i) whether the declaration made by the assessee as a footnote in the computation sheet was complete, accurate and bona fide,
(ii) whether there was any debatable issue and assessee has taken one stand, while the AO had taken the other,
(iii) whether the assessee has filed inaccurate particulars, and
(iv) whether the case of the assessee is hit by Expln. 1 of Section 271(1)(c).
8. Before discussing these issues, it is important to thrash out some more facts, which are available on record and placed before us to which learned Departmental Representative has also referred.
9. The auditors of the assessee-company have given in the notes forming part of the account for the year ended on 31st March, 1998 a note No. 15 of Sen. 24 on p. 17 of paper book as under:
15. During the year the company has paid compensation to M/s Pan Music and Magazines Ltd. of Rs. 5 crores for use of title for publishing journals named as 'Chemical Products Finder' and 'Indian Architect and Builder' along with right to get existing subscribers and advertisers of the journals and for providing the information for publishing the above journals. The expenditure incurred for purchase of above is debited to deferred revenue expenditure to be amortised over a period of three years.
10. It shows that auditors had treated the expenditure of Rs. 2.15 crores as deferred revenue expenditure to be amortised over a period of 3 years and was accordingly debited to 'deferred revenue expenditure account'. Accordingly, in the Sen. 14 to the balance sheet and P&L a/c as at 31st March, 1998 an amount of Rs. 71,66,667 was written off and balance of Rs. 1,43,33,333 was shown as balance under the head 'Deferred revenue expenditure'.
11. It shows that in the P&L a/c only a claim of Rs. 71,66,667 was made as per auditors note. However, in computation of income, the assessee added back Rs. 71,66,667 to the declared loss and claimed entire sum as deduction. The working of this Annex. I (p. 2 of paper book) is given as under :
Annexure I Profit and gains from business or profession :
Loss as per P&L a/c considered separately -- (15,69,804) Depreciation as per P&L a/c 40,05,870 Loss on asset discarded 8,05,421 Disallowance under Section 43B Bonus 49,642 Exgratia 3,02,661 Employers and employees contribution to 1,06,361 PF/Pension Employers and employees contribution of ESIC 14,102 Municipal tax Baroda 54,845 Purchase tax 5,484 Provision for gratuity 90,987 Publication expenses considered separately 71,66,667 1,26,02,040 ___________ _____________ 1,10,32,236 Less : Expenditure of publication rights (refer note : 5) 2,15,00,000 _____________ (1,04,67,764) _____________
12. The balance sum of Rs. 1,43,33,333 was taken in the balance-sheet under the head 'Miscellaneous expenditure' (and became part of Rs. 1,43,69,161) stating this sum as 'deferred revenue expenditure'. Thus, after adding the said sum, the assessee claimed in the computation of income, entire sum of Rs. 2.15 crores as revenue expenditure in the year under consideration.
13. Now let us examine whether the claim of the assessee that entire expenditure be allowed in one year is in any way supported by the decisions relied upon by the assessee, In Alembic Chemical Works Co. Ltd.'s case (supra), the proposition laid down by the Hon'ble Supreme Court was that where payment is made for acquiring a right which is not enduring, it has necessarily to be allowed as revenue expenditure. The Hon'ble Supreme Court observed as under in this case :
On 8th June, 1961, the appellant, a company engaged in the manufacture of antibiotics and Pharmaceuticals, was granted a licence for the manufacture of penicillin. By the year 1963, it had already made an outlay of more than Rs. 66 lakhs for setting up a plant for the production of penicillin. In the initial years, the appellant was able to achieve only moderate yields of penicillin. With a view to increasing the yield, the appellant started negotiations in 1963, with Meiji, a reputed Japanese enterprise engaged in the manufacture of antibiotics, which culminated in an agreement dt. 9th Oct., 1963, whereunder Meiji, in consideration of a 'once for all payment' of US $ 50,000 (equivalent then to Rs. 2,39,625), agreed to supply to the appellant the 'subcultures of Meiji's most suitable penicillin producing strains,' in a pilot plant, the technical information, know-how and written description of Meiji's process for fermentation of penicillin along with a flow-sheet of the process in the pilot plant, and the design and specifications of the main equipment in such pilot plant, and to arrange for the training of the appellant's representatives in Meiji's plant in Japan at the appellant's expense and advise the appellant in large scale manufacture of penicillin for a period of two years. The appellant was to keep the technical know-how confidential and secret and was not to seek any patent for the process. For the asst. yr. 1964-65, the appellant claimed deduction of the sum of Rs. 2,39,625 as a revenue expenditure. Both the Department and the Tribunal rejected the claim holding that the expenditure was capital in nature. . In coming to this conclusion, the Tribunal held, on an interpretation of the agreement, (i) that the appellant had to install a larger plant modelled on the pilot plant; (ii) that the payment was not made in the course of carrying out an existing business but was for the purpose of setting up a new plant and a new process; (iii) that the outlay was incurred for complete replacement of the equipment of the business inasmuch as a new process with a new type of plant was to be put up in the place of the old process and old plant. On a reference, the High Court held that the sum of Rs. 2,39,625 was not a revenue expenditure. On appeal to the Supreme Court :
Held, reversing the decision of the High Court, (i) that there was no material before the Tribunal to come to the finding that the appellant had obtained under the agreement a 'completely new plant' with a completely new process and a completely new technical know-how from Meiji. The business of the appellant from the commencement of its plant in 1961 was the manufacture of penicillin. Even after the agreement, the product continued to be penicillin and the agreement with Meiji stipulated the supply of the 'most suitable sub-cultures' evolved by Meiji for purposes of augmentation of the yield of penicillin.
(ii) That there was no material for the Tribunal to hold that the area of improvisation was not a part of the existing business or that the entire gamut of the existing manufacturing operations for the commercial production of penicillin in the appellant's existing plant had become obsolete or inappropriate in relation to the exploitation of the new subcultures of the high yielding strains supplied by Meiji. The mere improvement in or updating of the fermentation process would not necessarily be inconsistent with the relevance and continuing utility of the existing infrastructure, machinery and plant of the appellant,
(iii) That the limitations placed in the agreement on the right of the appellant in dealing with the know-how and the conditions as to non-partibility, confidentiality and secrecy of the know-how, pertained more to the use of the know-how than to its exclusive acquisition.
(iV) That the improvisation in the process and technology in some areas of the enterprise was supplemental to the existing business and there was no material to hold that it amounted to a new or fresh venture. The further circumstance that the agreement pertained to a product already in the line of the appellant's established business and not to a new product indicated that what was stipulated was an improvement in the operations of the existing business and its efficiency and profitability not removed from the area of the day-to-day business of the appellant's established enterprise. The financial outlay under the agreement was for the better conduct and improvement of the existing business and was revenue in nature and was allowable as a deduction in computing the business profits of the appellant.
By the Court : (i) 'It would be unrealistic to ignore the rapid advances in research in antibiotic medical microbiology and to attribute a degree of endurability and permanence to the technical know-how at any particular stage in this fast changing area of medical science. The state-of-the-art in some of these areas of high priority research is constantly updated so that the know-how could not be said to bear the element of the requisite degree of durability and non-ephemerality to share the requirements and qualifications of an enduring capital asset. The rapid strides in science and technology in the field should make us a little slow and circumspect in too readily pigeonholing an outlay, such as this, as capital'
(ii) 'In the infinite variety of situational diversities in which the concept of what is capital expenditure and what is revenue arises, it is well-nigh impossible to formulate any general rule, even in the generality of cases, sufficiently accurate and reasonably comprehensive, to draw any clear line of demaraction. However, some broad and general tests have been suggested from time to time to ascertain on which side of the line the outlay in any particular case might reasonably be held to fall. These tests are generally efficacious and serve as useful servants; but as masters they tend to be over-exacting.'
(iii) 'The question in each case would necessarily be whether the tests relevant and significant in one set of circumstances are relevant and significant in the case on hand also. Judicial metaphors are narrowly to be watched, for, starting as devices to liberate thought, they end often by enslaving it.' The idea of 'once for all' payment and 'enduring benefit' are not to be treated as something akin to statutory conditions; nor are the notions of 'capital' or 'revenue' a judicial fetish. What is capital expenditure and what is revenue are not eternal verities but must needs to be flexible so as to respond to the changing economic realities of business. The expression 'asset or advantage of an enduring nature' was evolved to emphasise the element of a sufficient degree of durability appropriate to the context.
There is also no single definitive criterion which, by itself, is determinative whether a particular outlay is capital or revenue. The 'once for all' payment test is also inconclusive. What is relevant is the purpose of the outlay and its intended object and effect, considered in a commonsense way having regard to the business realities. In a given case, the test of 'enduring benefit' might break down.
14. In this case the facts and inferences therefrom are that (i) the assessee is doing the business in manufacturing the penicillin. It was achieving only moderate yield. By making one time payment of 50,000 US $ the appellant received sub-culture of most suitable penicillin producing strains along with flow sheet. Thus, what assessee received was a substance to augment its production in its own line of business, (ii) The appellant was required to keep the process, technical know-how confidential and secret and non-partibility and was not to seek any patent for the process. Thus, the assessee did not become owner of any process or technical know-how in its own right. The expenditure was thus for use and not for acquisition, (iii) The product pertained to the line of the business and was not for a new product.
15. As contrast to this in the case of present assessee the facts are that (i) the assessee acquired an entirely new line of business, a running business for which payment of Rs. 2.15 crores was made, (ii) It acquired it to the exclusion of previous owner i.e., the seller, (iii) The assessee was not required to follow any instruction, guidelines about secrecy, confidentiality or partibility. (iv) No technical know-how or process was involved in the acquisition made by the assessee. It was only the two titles and right to publish the two magazines as an exclusive owner, for which entire payment was made. This clearly shows that the case of Alembic Chemical Works Co. Ltd. (supra) is applicable but in contrast i.e., where the assessee gets an enduring benefit it will be a capital expenditure as in the case of this assessee whereas if the expenditure is incurred to obtain a benefit, which is not enduring, it will be revenue expenditure. Thus, where the expenditure is incurred to improve the existing product line and to acquire know-how, the expenditure will only be revenue. It was also so held in CIT v. South India Exports Co. Ltd. . On the other hand, if there was an initial contribution by way of purchasing technical know-how, the amount attributable to such know-how as initial contribution would not be an expenditure much less a revenue expenditure under Section 37(1), It is so held in Eimco KCP Ltd. v. CIT . While making the claim of entire sum as revenue expenditure, the assessee had also relied on the decision in CIT v. Aquapump Industries (supra). In this case, facts and the decision of Hon'ble Madras High Court are as under:
There is no single definitive criterion which, by itself, is determinative as to whether a particular expenditure is capital or revenue. The "once for all" payment test is also inconclusive. What is relevant is the purpose of the expenditure and its intended object and effect, considered in a commonsense way having regard to business realities. In a given case, the test of "enduring benefit" might break down. Expenditure to acquire knowledge cannot be disallowed merely because knowledge dies hard. It is only where the expenditure bears on the fixed capital or other capital structure of the assessee that it can be regarded as capital in nature. Where the expenditure, although enduring in character has its impact on the running of the business, there can be no doubt that it is revenue expenditure.
There was an agreement between the assessee and T under which T agreed to allow the assessee to use its brand name for the production, manufacture and sale of the specified products, In consideration of royalties T had agreed to allow the assessee to manufacture the articles for five years. T had agreed to furnish technical information pertaining to such manufacture. The ITO disallowed the royalty payments in the asst. yrs. 1978-79, 1979-80 and 1980-81 but the Tribunal allowed them. On a reference :
Held, that the expenditure incurred although it might be enduring in character, would have impact only on the running of the assessee's business. It could not, be said that the technical know-how given in the present case could not become outdated. The Tribunal was right in holding that the expenditure in the asst. yrs. 1978-79, 1979-80 and 1980-81, incurred by the assessee as royalty payments to T under the agreement between the assessee and T were revenue expenditure.
16. Thus, in the above case, the technical know-how was provided to manufacture specified product and was allowed to be used only for five years. Royalty payments against such expenditure was finally allowed as revenue expenditure. Thus, the facts of the Aquapump Industries' case (supra) are entirely different with that of the case on hand. As stated earlier, present assessee acquired entire business, which was a new line for the assessee, it acquired, in the process, right to publish two magazines. In fact, it was not an expenditure but it was an investment. Thus, the assessee's reliance on the decision and then claiming the entire amount paid in purchasing new business as revenue expenditure was misplaced and incorrect.
17. The MoU signed with PMM states as under :
Whereas the seller owns and publishes the periodical entitled Indian Architect & Builder (hereinafter referred to as 'the title') as described in Sch. I to the MoU. The seller is the exclusive owner of the said titles which are free from all charges, liens and encumbrances, with the seller having the right to sell the same. Now the seller has agreed to sell to the purchaser the said title as described above while the purchaser have agreed to purchase the said title from the seller and use the title and the information in the course of its business on the terms and conditions hereinafter appearing.
Now this MoU witnesseth and it is hereby agreed, recorded, confirmed and acknowledged by and between the parties as under :
The buyer agrees to purchase and the seller agrees to sell the said title for a price aggregating Rs. 15 lakhs (Rupees fifteen lakhs only) (shall hereinafter be called the "purchase price"), free from all charges, liens and encumbrances, together with all rights and benefits attached thereto w.e.f. all charges, liens and encumbrances, together with all rights and benefits attached thereto w.e.f. first day of November, 1977.
The total purchase price shall be paid for the use of the title for publishing this journal and to provide the technical knowledge and information for publishing the same with the right to get existing subscribers and advertisers of the journal and for running of the existing business.
The purchaser shall pay to the seller the total purchase price for the purchase of the title referred to above aggregating Rs. 15 lakhs (Rupees fifteen lakhs only) in the following manner :
A sum of Rs. 4 lakhs (Rupees four lakhs only) towards advance payment of the total purchase price from the date hereof upon the signing of the agreement, the receipt of which the seller hereby acknowledges.
A sum of Rs. 11 lakhs (Rupees eleven lakhs and fifty-four thousand only) as full and final payments towards the total purchase price on 15th Dec, 1997 upon the buyer being satisfied about the ownership of the said title being free of all charges, liens and encumbrances and has the right to transfer the same.
On the signing of this MoU :
(a) The seller shall cease to have any proprietarial stake in the said titles and it will be exclusive property of the buyer, its nominee or assignee.
(b) The seller shall handover all relevant artworks, print blocks, all previous editions available with the seller and other relevant documents, registers, computer floppies, data, etc. to the buyer.
(c) The seller shall provide to the buyer a detailed list of all the subscribers both present and past with their addresses within 7 days from the date of the execution of the agreement and would pay to the buyer the pre-paid unfulfilled portion of the subscription amount received by them so as to enable the buyer to continue the circulation of the said title from first day of November, 1997.
(d) The seller shall provide to the buyer a detailed list of all the advertiser both present and past with their addresses within 7 days from the date of the execution of the agreement and would pay to the buyer the pre-paid unfulfilled portion of the amount collected by them towards fulfilment of the contracts pertaining to publication of the advertisement with regard to issues of November, 1997 and onwards.
(e) The seller shall provide to the buyer a list of employees as detailed in Sch. II with regard to the said title and all relevant details pertaining to the employees.
(f) The employees relating to the said title as detailed in Sch. II would cease to be in the employment of the seller w.e.f. mid-night of 31st Oct., 1997 and it would be the responsibility of the seller to settle all financial dues (including recovery of temporary and long-term loans) relating to the said employees.
(g) The employees relating to the said titles would be absorbed by the buyer after the mid-night of 31st Oct., .1997 at the gross remuneration as detailed in Sen. II. The buyer reserves the right to re-designate such employees having regard to their existing organisation and are free to assign duties as per their requirement. The buyer would not be responsible for any financial liabilities of the employees pertaining to the period prior to mid-night of 31st Oct., 1997.
(h) The seller would enter into a rental contract with the buyer with regard to space occupied by the employees related to the titles being transferred at the same terms and conditions, which are presently enjoyed by the title. The contract would be renewed at the end of three years from the date hereof subject to mutual consent with a 15 per cent increase in the rental terms.
The seller states that there are no disputed/pending liabilities with regard to said titles prior to the date hereof and undertakes to indemnify the buyer all liabilities, which may arise with regard to the said title pertaining to prior period to the date hereof.
The seller would be responsible for the publication of the title for the months of November, 1997, December, 1997 and January, 1998 at no cost basis with a view to maintain continuity and provide enough time for the buyer to take charge of the entire operation of the publication of the journal.
18. From the above, 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.
19. These facts are nowhere near to the facts of the cases relied upon by the assessee and referred/discussed above for the claim that entire outgoing is revenue expenditure. On the other hand, in following cases it has been held that where entire running business is purchased the outgoing will only be investment or a capital expenditure :
(i) Minoo F. Mehta v. CIT .
Under Section 37(1) of the IT Act, 1961, any expenditure incurred wholly and exclusively for the purpose of the business or profession is allowed in computing the income chargeable under the head 'Profits and gains of business or profession', provided it is not in the nature of capital expenditure or personal expenses of the assessee. The line that divides revenue expenditure from capital expenditure is often very thin and hazy. None of the tests evolved from time to time to determine what is attributable to capital and what to revenue is either exhaustive or of universal application. Each case depends on its own facts. To decide, therefore, on which side of the line the expenditure falls, it is necessary to look at the nature of the business, the nature of the expenditure and the nature of the right acquired. If it is incurred by the assessee for the purpose of creating, curing or completing his title to capital, it must be regarded as capital expenditure. But if it is for the purpose of protecting his business, it would be considered as revenue expenditure. Moreover, it is the true nature of the expenditure that is relevant and not the description given to it by the assessee in his books of account or other documents.
(ii) CIT v. Madras Auto Service (P) Ltd, The general principles applicable in determining whether a particular expenditure is capital or revenue expenditure are as follows : (1) Outlay is deemed to be capital when it is made for the initiation of a business, for extension of a business, or for a substantial replacement of equipment, (2) Expenditure may be treated as properly attributable to capital when it is made not only once and for all, but with a view to bringing into existence an asset or an advantage for the enduring benefit of a trade. If what is got rid of by a lump sum payment is an annual business expense chargeable against revenue, the lump sum payment should equally be regarded as a business expense, but if the lump sum payment brings in a capital asset, then that puts the business on another footing altogether; (3) Whether for the purpose of the expenditure, any capital was withdrawn, or, in other words, whether the object of incurring the expenditure was to employ what was taken in as capital of the business. Again, it is to be seen whether the expenditure incurred was part of the fixed capital of the business or part of its circulating capital.
(iii) CTT v. W.S. Insulators of India Ltd. (Mad) The assessee entered into an agreement with a Swiss company for the manufacture of insulators, lightning arrestors, coupling capacitors, capacitive voltage transformers and line traps, Under the agreement, know-how was acquired, for the manufacture and which had to be provided by the Swiss company which also granted licence to the assessee to manufacture the products then based on its drawings and market the same in India and in consultation with the Swiss firm also export the products so manufactured. The products were entirely new products. Held : that what was done by the assessee in this case was to acquire information and drawings required for setting up a completely new plant with a completely new process for the manufacture of a completely new product. The payments made in the agreement towards revenue and capital expenditure had been categorised by the parties themselves, the revenue part being characterised as royalty and the capital part being provided for as payment in lumpsum for the know-how and information. Such know-how and information having been provided only after receipt of that payment. Hence, out of the technical know-how fee of Rs. 1,92,145 paid by the assessee to the Swiss company under the agreement dt, 18th Jan., 1973, during the asst. yrs. 1977-78 and 1978-79, twenty per cent of that amount was allowable as revenue expenditure and the balance of 80 per cent of that amount should be disallowed as capital expenditure.
(iv) Eimco KCP Ltd. v. CIT A plain reading of Section 37 of the IT Act, 1961, makes it clear that it is a residuary provision and allows an expenditure, not covered, under Sections 30 to 36 in computing the income chargeable under the head 'Profits and gains of business or profession', on fulfilment of the other requirements, namely, (i) the expenditure should not be in the nature of capital expenditure or personal expenses of the assessee; (ii) it should have been laid out or expended wholly and exclusively for the purposes of the business or profession; (iii) it should have been expended in the previous year. The appellant-assessee was a company registered under the Indian Companies Act. It was incorporated in the year 1965. Two companies, Eimco, an American company, and K.C.P. Ltd., an Indian company, promoted the appellant-company. The authorised capital of the appellant was Rs. 1,00,00,000 consisting of 10,00,000 equity shares of Rs. 10 each. Each of them agreed to subscribe Rs. 4,70,000, out of which each would have to pay initially a sum of Rs. 2,80,000 towards its contribution. Towards its share, Eimco contributed technical know-how. It valued the know-how, etc., at a sum of Rs. 2,35,000 and paid the balance in cash as its contribution. The board of directors of the appellant allotted equity shares of Rs. 2,35,000 being the value of the know-how, to Eimco by resolution passed on 29th April, 1968. In the asst. yr. 1969-70, the appellant claimed deduction of Rs. 2,35,000 as revenue expenditure paid to Eimco towards consideration for supply of technical know-how. The ITO treated that amount as a capital expenditure and allowed l/14th of the said amount as allowable expenditure under Section 35A of the Act. The appellant challenged that order before the AAC on the ground that the whole expenditure ought to have been allowed as revenue expenditure.
What in effect was done by the appellant in allotting equity shares of Rs. 2,80,000 to Eimco, was to reimburse the contribution by Eimco by way of know-how, which could never be treated as expenditure, much less an expenditure laid out wholly and exclusively for purposes of the business of the appellant. It was not a case where after the incorporation, the appellant-company in the course of carrying on its business, spent the said amount for acquiring any asset. The High Court had rightly concluded that allotment of equity shares by the appellant to Eimco, in the circumstances of the case, could not be termed as expenditure, much less revenue expenditure.
20. In all the above cases, the tests, which have been laid down to come to conclusion that an expenditure is capital in nature are :
(i) The expenditure incurred to set up a business or acquiring a new business or another business in the same line.
(ii) To commence a business.
(iii) To acquire a benefit of enduring nature or for perpetuity.
(iv) To acquire an asset.
(v) To acquire a source of generating income.
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 under Section 37(1) for which claim was made. One of the essential conditions for allow ability of the claim under Section 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.
21. Now let us see whether the issue is debatable. As already held above that the decisions in the cases of Alembic Chemical Works Co. Ltd. (supra) and Aquapump Industries (supra) are not even remotely connected with the assessee's case. An issue on which Tribunal have expressed an opinion in favour of the assessee or which has been regarded as debatable by any Court would certainly be a debatable on which there can be another opinion. There cannot, be a second opinion, and has not been, on the facts of the assessee's case, that expenditure incurred on acquiring a new business, a source of income, an asset and benefit of enduring nature could be revenue in nature.
22. In one of the cases relied upon by the assessee i.e., Rupam Mercantile Ltd. v. Dy. CIT (supra) decided by Third Member, the question involved was whether penalty under Section 271(l)(c) can be imposed where assessee had claimed entire interest expenditure in one year on issue of debentures whereas such expenditure was held to be deferred and allowable in six years, on the basis of decision of Hon'ble Supreme Court in Madras Industrial Investment Corpn. Ltd. v. CIT . The assessee contested the case and lost in Tribunal. Penalty was levied for wrong claim for filing inaccurate particulars of income. Hon'ble JM confirmed the penalty but Hon'ble Vice President/AM cancelled the penalty and Hon'ble President as Third Member concurred with Hon'ble Vice President. The penalty was finally cancelled on the basis of facts of that case. The assessee-company in that case had agreed as per contract to give upfront discount of Rs. 62 per debenture and secondly, Hon'ble Gujarat High Court had admitted the appeal of the assessee under Section 260A on quantum that substantial question of law arises in this case. Hon'ble President, Tribunal as Third Member, held that the contractual agreement entered before the decision of Hon'ble Supreme Court in the case of Madias Industrial Investment Corpn. Ltd (supra) was to be acted upon and a contractual liability can be always be claimed in the return of income. The para 35 of this order is as under :
35. A plea or claim which is held by the Hon'ble High Court to give rise to a substantial question of law, cannot, be treated to be frivolous or mala fide as to attract levy of penalty under Section 271(1)(c) of the IT Act. What has the assessee concealed. The assessee agreed to pay Rs. 62, i.e., entire interest on debenture of face value of Rs. 100 on the date of issue of debentures. The interest paid, is supported by the agreement and there is no dispute on this. The interest paid was subjected to deduction of tax at source and tax deducted was duly deposited in the Treasury as required by the statutory provision. Thus agreement was carried in letter and in spirit and there is no avoidance of payment of tax as far as assessee is concerned. Information about the interest paid is duly disclosed in return of income and in the statement of account, appropriate note was made to draw the attention of the Revenue authorities to the deduction claimed. Evidently no attempt was made by the assessee to conceal any income or furnish inaccurate particulars of income. It is nobody's case that deduction of interest was not supported by contract or such contract was not filed during the course of assessment proceedings. It is, therefore, difficult to conclude that the assessee failed to substantiate its claim during the course of assessment proceedings and, therefore, Expln. 1 to Section 271(l)(c) of the IT Act was attracted in this case. The said Explanation had no application for the above short reasons apart from elaborated reasons given by the learned Vice President in his proposed order.
23. Thus, in Rupam Mercantile Ltd.'s case (supra) that assessee had a case at the time of filing of return that entire expenditure on discount can be claimed in one year, by virtue of contractual agreement to pay upfront discount of Rs. 62 per issue. This fact was also recognized by the Hon'ble Gujarat High Court by admitting the appeal on substantial question of law. However, in the present case there is no scope of any debate. The assessee did not consider that it has any case for even not filing an appeal before the CIT(A). Merely because an assessee holds a view contrary to establish legal views and decisions, would not lead to the belief that there is also a second opinion possible and assessee had acted bona fide thereon. An opinion based on incorrect application of provisions of the Act or of judicial pronouncements cannot become the basis of claim and deduction and computation of income. If that is so, then correct computation of income and allowance of claims/deduction in accordance with law can only be done when an assessment is undertaken by issue of notice under Section 143(2). The taxpayer will, before that, be at liberty to make claims of allowance and deduction as they think on the basis of opinion they form by incorrect appreciation and application of law and decisions. Such attempts will, if become common, have serious repercussions on the revenue administration. In an environment where legislature has bestowed a faith on the taxpayer by enacting provisions of Section 143(1) and revenue administration has declared a policy to accept 100 per cent returns and scrutinise only 2 per cent thereafter, a duty is cast on the taxpayers to claim deduction/allowances in accordance with the provisions of law and on the basis of pronounced judgments fitting on the facts of the case. It will not be proper rf claims are made by distorting/or not disclosing full facts and on the basis of incorrect application of Court decisions. Where assessments are likely to be accepted under Section 143(1), 98 per cent probability is that such wrong claim will be accepted. And only if by chance, fall in 2 per cent category of scrutiny, they will surrender or not contest the claim. It has to be necessarily examined whether the claim was bona fide so as not to attract the charge of concealment.
24. In this background, it has to be seen whether assessee has disclosed all the material facts relating to the claim. We have already reproduced, the note '5' given in the computation sheet of income. Audit report was also annexed with the return. The facts missing from the return filed are :
(i) To whom the payment of Rs. 2.15 crores was made, when and how ?
(ii) Copies of agreements with PMM (which were given at the time of scrutiny assessment under Section 143(3) only).
(iii) That assessee is purchasing a new business.
(iv) The names of the journals and me fact that the titles were purchased an exclusive ownership for all the time to come along with all the paraphernalia of employees and space on rent.
25. Now it has to be seen as to whether the claim of the assessee is bona fide. We feel it is not. The reasons are as under :
(a) 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.
(b) The claim was against the explicit opinion of the auditors according to which only l/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 piima facie disallowable.
(c) Even on the basis of the facts declared by the assessee, the expenditure would only be capital as the note below "computation sheet of income" does not, show the period and nature and does not indicate that there was an acquisition of absolute rights and not merely use of the right.
(d) Facts were shown half and distorted so as to make them appear that they fit into the decisions in Alembic Chemical Works Co. Ltd.'s case (supra) and Aquapump Industries' case (supra). Had the note mentioned in the return that it is purchasing a new running business, above decision would not have any application and it could not have been claimed as a revenue expenditure.
(e) There is a fair probability that the return would pass through summary assessment.
26. Now let us see, whether the case of the assessee is covered under Explanation to Section 271(1)(c). The section and Explanation read as under:
271. (1) If the Assessing Officer or the CIT(A) in the course of any proceedings under this Act is satisfied that any person-
(a) and (b)**
(c) has concealed the particulars of his income or furnished inaccurate particulars of such income, he may direct that such person shall pay by way of penalty,-
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 explanation or offers an explanation which is found by the Assessing Officer or the CIT(A) to be false, or (B) such person offers an explanation which he is not able to substantiate and fails to prove that such explanation is bona fide and that all the facts relating to the same and material to the computation of his total income have been disclosed by him, then, the amount added or disallowed in computing the total income of such person as a result thereof shall, for the purposes of Clause (c) of this sub-section, be deemed to represent the income in respect of which particulars have been concealed.
27. Thus, it has to be seen as to whether assessee has furnished (i) inaccurate particulars and submitted an explanation and (ii) whether such explanation is bona fide and (iii) all the facts relating to computation of income have been disclosed by the assessee. The facts, which are not accurate, will be inaccurate, Accurate facts are those to which if further facts are supplemented would not alter the decision. Facts disclosed would be inaccurate if on further supplementing the facts, the decision would be reversed. Accurate facts also mean full and true facts, which have a material bearing on making computation of income. According to us, the facts disclosed by the assessee were half truth and hence not accurate i.e., inaccurate. It is already held that the claim is not bona fide.
28. On the basis of facts disclosed in the return, the claim was not tenable unless it is assumed by the AO on the basis of note appended to the computation sheet that titles were purchased for a limited period and would revert back to the owner after the lapse of that period. The assessee made the Revenue to believe that purchase of titles was for limited period and not in perpetuity. This is a conscious act because the assessee made the Revenue to believe that by relying on Alembic Chemical Works Co. Ltd. 's case (supra), the titles in journals were acquired for use only for limited period and would revert back to the original owner as the facts were in Alembic Chemical Works Co. Ltd.'s case (supra), Had the assessee disclosed that the rights in journal were purchased in perpetuity as absolute owner to the exclusion of previous owner, ratio of Alembic Chemical Works Co. Ltd. 's case (supra) could not have been applied. The claim is made on the basis of filing inaccurate particulars and against the advice of the auditors. When full particulars of the claim are brought on record, no debatable issue would arise. No two views were possible and, hence the assessee chose not to contest the treatment that it is a capital expenditure.
29. The assessee had offered an explanation that his claim is covered by decisions of Alembic Chemical Works Co. Ltd. 's case (supra) and Aquapump Industries' case (supra). Such explanation is not substantiated during scrutiny assessment inasmuch as he could not prove that the facts of Alembic Chemical Works Co. Ltd. 's case (supra) and Aquapump Industries' case (supra) are similar to his own case. Secondly, the claim was not found bona fide as mentioned in preceding paras. Further, it is also mentioned earlier that all the facts relating to the claim were not disclosed with the return. In this regard, our view is that it is not sufficient that all the facts are disclosed only when called for to do so when notice is issued under Section 143(2). In fact the assessee is duty bound to disclose relevant facts with the return. In the present case, the assessee had withheld vital facts, which had a bearing on taking the decision that the entire claim was capital in nature and was not allowable in one year. The claim in the return would have been bona fide, had the additional facts discovered on scrutiny were not in knowledge of the assessee. This is however not so.
30. In CIT v. Chemiequip Ltd. a claim of deduction under Section 80HHC was withdrawn when assessee was asked to file return under Section 148. It was held to be case of filing inaccurate particulars. Though in the final analysis loss was reduced from the loss declared in the original return, the Hon'ble Bombay High Court confirmed the penalty.
31. It is held in KC Builders v. Asstt. CIT that the word 'concealment' carries the element of mens rea. Therefore, the mere fact that figure of some particulars have been disclosed, even if it takes out the case from the purview of non-disclosure, it may not by itself take out the case from the purview by furnishing the inaccurate particulars. It is in the same manner that mere mention of an item of receipt neither amounts to concealment nor deliberate furnishing of inaccurate particulars of income unless and until, there is some evidence to show or some circumstances found from which, it can be gathered that non-disclosure was attributable to him to an intentional desire on the part of the assessee to hide or conceal the income so as the imposition of tax thereon. In the instant case, it is prima facie, clear that in order to avoid the treatment of the expenses as capital, the assessee withheld from the Department from its return of income that it is purchasing entire business and rights in the title in perpetuity to the exclusion of previous owner.
32. In Electrical Agencies Corpn v. CAT the Hon'ble Delhi High Court held that Tribunal had taken note of the factual aspects and noted that the claim for deduction was not tenable and genuine. Therefore, the assessee could not be said to have reverted the presumption, which arose against it in the light of the Explanation to Section 271(l)(c) of the IT Act, 1961. The penalty for concealment was held to be valid.
33. In CIT v. Coromandel Indag Products (P) Ltd. the claim under Section 35(lj(iv) was made which was found to be incorrect, hence, the levy of penalty was justified.
34. In Addl. CIT v. Jeevan Lal Sah on which Revenue has relied in the grounds of appeal, it has been held that burden of proof has been shifted on the assessee to prove that failure to return correct income did not arise from fraud or gross or wilful neglect. In the present case, it cannot be said that the burden is discharged.
35. In CIT v. Smt. Vilasben Hasmukhlal Shah it has been held that where an income is shown in Part IV of the return and claimed to be exempt as prize money in cross-word competition, it does not amount to rebutting presumption that assessee furnished inaccurate particulars of income.
36. Now coming to point that AO has allowed l/14th of expenditure under Section 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 under Section 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 tide. 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.
37. Explanation used in Clause (c) of Section 271(1) is 'has concealed the particulars of his income' or furnished 'inaccurate particulars of such income'. Thus, both in case of concealment and inaccuracy, the phrase 'particulars of income' has been used. The legislature has not used the words 'concealed his income'. From this it would be apparent that penal provision would operate when there is a failure to disclose fully or truly all the particulars. The words 'particulars of income' refer to the facts which lead to the correct computation of income in accordance with the Act. So when any fact material to the determination of an item as income or material to the correct computation is not filed or that which is filed is not accurate then the assessee would be liable to penalty under Section 271(l)(c). 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 (supra). 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 Clause (c) of Section 271(1) his case would certainly fall within the domain of 'actus rea' as he has filed 'inaccurate and incomplete particulars'.
38. 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).
39. In the result, the appeal of the Revenue is allowed.