New Holland Tractors (India) Pvt. Ltd vs. CIT (Delhi High Court)

DATE: September 25, 2014 (Date of pronouncement)
DATE: October 5, 2014 (Date of publication)
AY: 1996-97
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What is accrual of income. The word "conceal" inherently and per-se refers to an element of mens rea, albeit the expression "furnishing of inaccurate particulars" is much wider in scope

(i) We need not refer to the case law on the subject, what is income or accrual of income, except by referring to the authoritative pronouncement of this Court in Commissioner of Income Tax versus Dinesh Kumar Goel, (2011) 331 ITR 10, wherein earlier judgments of the Supreme Court in E.D. Sassoon and Company Limited versus Commissioner of Income Tax, (1954) 26 ITR 27 and Calcutta Company Limited versus Commissioner of Income Tax, West Bengal (1959) 37 ITR 1 were elucidated and explained.

(ii) Section 5(i) of the Act on the scope of total income of an resident states that it includes income of any previous year of a person, from all sources derived; (a) received or deemed to be received in India, (b) accrues or arises or is due to accrue or arise to the person in India, and (c) accrues or arises to him outside India during such year. In Dinesh Kumar Goel (supra) it was observed that when an assessee was following mercantile system of accountancy, receipt of a particular amount in the relevant year would be relevant at the time of accrual or arisal for the purpose of taxation. This would make the income chargeable to tax in the particular year, and not mere receipt of the amount. Thus, when income accrues or arises, actual receipt of amount may not be there and it would be chargeable to tax in the said year and equally receipt or right to receive a particular sum under an agreement would not be sufficient, unless the right had accrued by rendering of services and not by promising for services. In the latter cases, the income would accrue on rendering of services.

(iii) Contingent liability is not an expenditure and, therefore, even when an assessee is following mercantile system of accounting, it cannot be allowed as a deduction under Section 37 of the Act. Unascertained liability on account of damages cannot be allowed as an expenditure was settled by Madras High Court in Senthikumara Nadar versus C.I.T, (1957) 32 ITR 138. The present case is not of a statutory liability, and even no claim for damages etc. had been made. The submission, therefore, does not have any merit as it relates to unascertained liability, the happening of which was dependent on a doubtful and uncertain contingency in future. It could have never happened. Indeed it never happened.

(iv) The contention that in the books of account the amount so received had been bifurcated and divided into four assessment years does not carry any force. A wrong treatment given in the books of accounts contrary to the accountancy principles could be corrected. Income earned should be taxed in the right year and should not be diverted or treated as income of another years. What the accountants may opine, may not necessarily be a right and good law and in case of a dispute the issue has to be decided on merits and not on the basis of the treatment in the books of accounts. [see Tuticorin Alkali Chemicals and Fertilizers Limited versus Commissioner of Income Tax, (1997) 227 ITR 172 (SC)].

(v) The word “conceal” inherently and per-se refers to an element of mens rea, albeit the expression “furnishing of inaccurate particulars” is much wider in scope. The word “conceal” implies intention to hide an item of income or a portion thereof. It amounts to suppression of truth or a factum so as to cause injury to the other. (See CIT vs. A. Subramania Pillai [1997] 226 ITR 403 (Mad). The word ‘conceal’ means to hide or to keep secret. As held in Law Lexicon, the said word is derived from the latin word ‘concelare’ which implies ‘con’ & ‘celare’ to hide. It means to hide or withdraw from observation; to cover or keep from sight; to prevent discovery of; to withhold knowledge of. The word ‘inaccurate’ in Webster’s Dictionary has been defined as ‘not accurate; not exact or correct; not according to truth; erroneous; as inaccurate statement, copy or transcript’. The word ‘particular’ means detail or details of a claim or separate items of an account [see Commissioner of Income Tax vs. Reliance Petroproducts Pvt. Ltd. [2010] 322 ITR 158(SC)]. Thus the words “furnished inaccurate particulars” is broader and would refer to inaccuracy which would cause under-declaration or escapement of income. It may refer to particulars which should have been furnished or were required to be furnished or recorded in the books of accounts etc. [See CIT vs. Raj Trading Co. (1996) 217 ITR 208 (Raj.)] Inaccuracy or wrong furnishing of income would be covered by the said expression, though there are decisions that adhoc addition per se without other or corroborating circumstances may not reflect “furnished inaccurate particulars”. Lastly, at times and it is fairly common, the charge of concealment and “furnishing of inaccurate particulars” may overlap.

(vi) Primary issue which arises for consideration is whether the conduct of the assessee was bonafide. We have used very strong words like erroneous, fallacious, untenable etc. with reference to various contentions and submissions made by the assessee in the quantum appeal, but we do not think we will be contradicting ourselves when we hold that the conduct of the assessee was bonafide and the onus to show and establish bonafides has been discharged. The observations and adjectives used by us in the quantum appeal rejecting the submission of the assessee have been made after having advantage and benefit of the assessment order, appellate orders and hearing arguments of the counsel for the appellant assessee and the Revenue. Hindsight results in greater clarity and wisdom. Test of bona fide has to be applied keeping in mind the position as it existed, when the return of income was filed. The Act, i.e. the Income Tax Act, is a complex legislation involving intricate and often debatable legal positions. The legal issue involved may relate to principles of accountancy. Invariably, on questions of interpretation, the assessees do adopt a legal position which they perceived as most beneficial or suitable. This would not be construed as lack of bona fides as long as the legal position so adopted is not per se contrary to the language of the statute or an undebatable legal position not capable of a different connotation and understanding. When two legal interpretations were plausible and there was a genuine or credible plea, penalty for concealment/furnishing of inaccurate particulars, should not and cannot be imposed. If the view taken by the assessee required consideration and was reasonably arguable, he should not be penalized for taking the position. The tax statutes are convoluted and complex and there can be manifold opinions on interpretation and understanding of a provision or the tax treatment. In such cases, even when the interpretation placed by the Revenue is accepted, penalty should not be imposed if the contention of the assessee was plausible and bona fide. Of course full facts should be disclosed. While applying the test of bonafide, we have to also keep in mind that even best of legal minds can have difference of opinion. It is not uncommon to have dissenting opinion on the question of law, in the courts.

3 comments on “New Holland Tractors (India) Pvt. Ltd vs. CIT (Delhi High Court)
  1. Good pleasant way HC expressed its opinion on sec 271(1)(c) by hon justices in Mr. Khanna and Mr. Kameshwara Rao, but clearly stated bonafide errors are not Mens rea( Guilty Mind) is the substance here.

    It is high time AOs are indeed some accounting type professionals but one cannot expect from them great knowledge of language as every statute is nothing but based on high power legal terminologies.

    Inaccuracy definitely is invariably some kind of perceptional error but certainly always be treated as based on Guilty mind as assesses are not some criminals basically that need to be understood by Revenue collectors as AOs. Earlier the Revenue understands it is better and such understanding would just curtail misreading by Revenue.

    Revenue when reads the Rules and section of the Act, indeed have to be very carefully reading the statute(s) after all their working is basically tied up with Tax Law which is indeed very Act which gets its sections need to be interpreted on tje basis of Finance Acts every year surface during budget when passed by Lok sabha n Rajya sabha;

    young crop of Taxmen have not much command in English language and Literature to help understand the statutes as statutes use a lot of Latin terms as vernacular legislation uses many Pali or Sanskrit terms too .. without reasonable knowledge of any language and literature but simply relying on Accounting knowledge cannot help revenue collecting man;

    why Nani Palkhiwala was great in constitutional law was he was very good professorial stuff in English Language and Literature like professor John Maynard Keynes who could give great economic theory as to how to counter economic mess caused by world war the same idea of derivatives of paper currency could help to meet 2008 economic doldrums world faced and yet not completely solved but his theory only helped governments fund banks about to be decimated over night, after all through language only you can convince people is again proved in the above verdict, after all that way we had to build judicial system but for it there would be chaos and confusions all over world.

    A stitch in times saves nine!

  2. CA KIRAN KANANI says:

    Alas! If every A.O. acts with bona fide & passes orders with courage – purely on the basis of MERIT, lot & lot litigation can be avoided.

  3. Question is whether AOs today work on merits of issues? if works so then CA Kiran is okay1

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