PUNSUMI ENGINEERS LTD., Jaipur V. ACIT, Jaipur

ITA 61/JPR/2007

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 54205 (ITAT-JAIPUR)
• Duration Of Justice: 4 year(s) 8 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-10-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 1994-1995
• Appeal Filed On: 22-01-2007
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: T C JAIN
• Keywords: Capital asset; Business income; Depreciation; Bonafide belief; Initiation of penalty proceedings; Wholly owned subsidiary; Wrong claim; Capital receipt; Onus to prove; Revised return; Reason to believe; Unabsorbed depreciation
• Section: 143(3); 147; 131; 148

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL JAIPUR BENCH B JAIPUR (BEFORE SHRI R.K.GUPTA AND SHRI N.L.KALRA) ITA NO. 61,62, 106, 63/ JP/2007 & 96/JP/2009 ASSTT.YRS: 1994-95, 1995-96, 1996-97, 1997-98, 1 998-99 PAN: AACCP 7011 R M/S. PUNSUMI ENGINEERS LTD. VS. THE ACIT D-16, MEERA MARG, BANI PARK CIRCLE- 3 JAIPUR JAIPUR (APPELLANT ) (RESPONDENT) ASSESSEE BY: SHRI T.C. JAIN DEPARTMENT BY : SHRI SUNIL MATHUR DATE OF HEARING: 07-09-2011 DATE OF PRONOUNCEMENT: 07-10-2011 ORDER PER N.L. KALRA, AM:- THE ASSESSEE HAS FILED APPEALS AGAINST RESPECTI VE ORDER OF THE LD. CIT(A), I, JAIPUR. 2.1 IN ALL THE APPEALS, THE ASSESSEE IS AGGRIEVED A GAINST CONFIRMATION OF PENALTY U 271(1)( C) OF THE ACT. THE ISSUE ON WHICH THE PENALTY HAS BEEN IMPOSED WAS NOTICED BY THE AO WHILE MAKING ASSESSME NT FOR THE ASSESSMENT YEAR 1995-96. THE NOTICES U/S 148 OF THE I.T. ACT DATED 31-05-2001 WERE ISSUED FOR THE ASSESSMENT YEAR 1994-95 AND 1996-97. THE ASSESSMENT ORDERS 2 FOR THE ASSESSMENT YEAR 1994-95 AND 1996-97 WAS P ASSED VIDE ORER DATED 28-02-03. THE ASSESSMENTS FOR THE ASSESSMENT YEAR 1 997-97 AND 1998-99 WERE MADE ON 27-03-2000 AND 31-01-01. 2.2 HENCE IT WILL BE USEFUL TO ASCERTAIN THE ISSUE ON WHICH THE AO HAS MADE ADDITION IN THE ASSESSMENT YEAR 1995-96. THE A SSESSEE COMPANY IS 100% SUBSIDIARY OF M/S. PUNSUMI INDIA LTD. THIS CO MPANY WAS FORMED FOR MANUFACTURING OF DISC COVERS WHICH WERE BEING USED IN ALUMINUM ELECTROLYTIC CAPACITORS. THE ASSESSEE COMPANY IMPOR TED PLANT AND MACHINERY FROM GERMANY. SUCH PLANT AND MACHINERY COULD NOT RE ACH FACTORY OF THE ASSESSEE DUE TO FINANCIAL PROBLEMS AND THE AO IN HI S ORDER FOR THE ASSESSMENT YEAR 1995-96 HAS MENTIONED THAT SUCH PLA NT AND MACHINERY ARE STILL LYING WITH CUSTOM DEPARTMENT AT BOMBAY. HOWEV ER, TO JUSTIFY THE CONTINUITY OF BUSINESS, THE ASSESSEE ENTERED INTO A MEMORANDUM OF UNDERSTANDING (MOU) ON 5-10-1992 WITH THE HOLDING C OMPANY AND AS PER THIS AGREEMENT, THE ASSESSEE COMPANY ACQUIRED TECHN ICAL KNOW-HOW FOR MANUFACTURE OF STITCHING AND WINDING MACHINES AND F OR THE MANUFACTURE OF ELECTROLYTES. THE CONSIDERATION FOR ACQUIRING TECHN ICAL KNOW-HOW FOR MANUFACTURE OF STITCHING AND WINDING MACHINE WAS RS . 400 LACS WHILE THE CONSIDERATION FOR ACQUIRING TECHNICAL KNOW-HOW FOR MANUFACTURE OF ELECTROLYTES AMOUNTED TO RS. 250 LACS. SUCH MOU WAS SIGNED BY SHRI V.K. 3 BHARGAVA, CHAIRMAN OF THE ASSESSEE COMPANY AND SHRI H.C. CHOPRA, PRESIDENT OF M/S. PUNSUMI INDIA LTD. BOTH THE PERSO NS ARE ALSO DIRECTORS OF THE ASSESSEE COMPANY. THE ASSESSEE COMPANY CAPITALI ZED THE ENTIRE AMOUNT OF RS. 650 LACS AND CLAIMED DEPRECIATION. NO MACHIN ERIES WERE MANUFACTURED BY THE ASSESSEE COMPANY BY USING THE AFORESAID TECHNICAL KNOW-HOW. THE ASSESSEE AGAIN ENTERED INTO ANOTHER M OU DATED 20 TH APRIL, 1993 SIGNED BY THE SAME PERSONS IN THE SAME CAPACIT Y AND ACCORDING TO WHICH M/S. PUNSUMI INDIA LTD. WAS TO MANUFACTURE TH E MACHINERY BY USING THE AFORESAID TECHNICAL KNOW-HOW OWNED BY THE ASSES SEE COMPANY AND M/S. PUNSUMI INDIA LTD. WILL PAY ROYALTY TO THE ASSESSEE COMPANY ON CERTAIN SPECIFIC RATES. THE AO HAS MENTIONED THAT CERTAIN S TITCHING MACHINES AND WINDING MACHINES AND ELECTROLYTES WERE MANUFACTURED BY M/S. PUNSUMI INDIA LTD. AND PAYMENT OF ROYALTY HAS BEEN SHOWN TO THE ASSESSEE COMPANY. ACCORDING TO THE AO, THE PAPER ARRANGEMENT WAS MADE AND THEREFORE, THE ASSESSEE WAS ASKED AS TO WHY THE DEPRECIATION BE N OT DISALLOWED. THE AO NOTICED THAT THE ASSESSEE HAS SHOWN A MAJOR JOB WOR K OF RS. 6,47,837/- AND ROYALTY OF RS. 7,98,915.0 AGAINST WHICH IT CLAIMED DEPRECIATION OF RS. 1,22,50,341/-. THE AO IN ORDER TO ASCERTAIN THE GEN UINENESS OF THE JOB WORK REQUIRED THE ASSESSEE TO PRODUCE THE PRODUCTION INC HARGE OF THE ASSESSEE COMPANY. THE AO RECORDED THE STATEMENT OF SHRI NARE NDER SINGH NEGI ON 4 19-02-1998 U/S 131 OF THE ACT. SHRI NEGI STATED THA T HE WAS AN EMPLOYEE OF M/S. PUNSUMI INDIA LTD.. BEFORE HE JOINED THE ASSES SEE COMPANY, HIS ANOTHER COLLEAGUE WAS ALSO EMPLOYEE OF M/S. PUNSUMI INDIA L TD. AND THEY WERE DIRECTED TO WORK IN THE ASSESSEE COMPANY BY THE PRO JECT MANAGER OF M/S. PUNSUMI INDIA LTD.. THERE WERE 2/3 EMPLOYEES AND TH EY WERE DOING THE ASSEMBLY WORK IN M/S. PUNSUMI INDIA LTD.. THE SALAR Y WAS ALSO BEING PAID TO THEM BY M/S. PUNSUMI INDIA LTD. THE BOOKS OF ACC OUNTS OF THE ASSESSEE COMPANY ARE ALSO BEING WRITTEN BY SHRI URVESH SINGH AL WHO WAS ON THE PAYROLL OF M/S. PUNSUMI INDIA LTD.. NO BUSINESS ACT IVITY WAS DONE IN THE ASSESSEE COMPANY DURING THE ACCOUNTING PERIOD RELEV ANT TO ASSESSMENT YEAR 1995-96 AND ONLY BOOK ADJUSTMENTS WERE SHOWN. THIS IS EVIDENT FROM THE MONTHLY POWER CONSUMPTION STATEMENT, DEPLOYMENT OF WORKERS AND FINANCE AND OTHER FACTORS. THE AO THEREFORE, HELD THAT THE RE WAS A DEVICE TO EVADE THE TAX AND TO JUSTIFY THE CLAIM OF DEPRECIATION. T HE AO FURTHER HELD THAT THE ASSESSEE IS NOT ENTITLED TO DEPRECIATION ON TECHNIC AL KNOW-HOW BECAUSE NO DEPRECIABLE ASSET WAS ACQUIRED. ALTERNATIVELY IT WA S HELD THAT ASSESSEE THE COULD HAVE CLAIMED 1/6 TH DEDUCTION IN LUMPSUM CONSIDERATION FOR TECHNICAL KNOW-HOW U/S 35AB WHILE THE ASSESSEE CLAIMED DEPREC IATION @ 25% ON WRITTEN DOWN VALUE. THE CLAIM U/S 35AB WOULD HAVE B EEN TO THE EXTENT OF RS. 1,08,33,333/- WHILE THE ASSESSEE HAS MADE A CLA IM OF RS. 1,21,87,500/-. 5 THE RECEIPT SHOWN AS JOB WORK I.E. ROYALTY WERE ADD ED ON PROTECTIVE BASIS BECAUSE THESE RECEIPTS WERE SHOWN BY THE ASSESSEE. THE ASSESSEE FILED THE APPEAL AGAINST ASSESSMENT ORDER BEFORE THE LD. CIT( A) AND THE LD. CIT(A) UPHELD THE ADDITION MADE BY THE AO. AGAINST THE ORD ER OF THE LD. CIT(A), THE ASSESSEE FILED AN APPEAL BEFORE ITAT. THE TRIBUNAL DECIDED THE QUANTUM APPEAL FOR THE ASSESSMENT YEAR 1995-96 VIDE ORDER D ATED 26 TH MAY, 2005. THE TRIBUNAL HAS HELD THAT THE ASSESSEE HAS ADOPTED A COLOURABLE DEVICE AND THE FINDING OF THE AO WAS CONFIRMED. ASSESSMENT YEAR 1994-95 2.3 THE ASSESSMENT WAS COMPLETED U/S 143(3)/147 VID E ORDER DATED 28-03- 2011 AND THE DEPRECIATION ON TECHNICAL KNOW-HOW WAS DISALLOWED ON THE BASIS OF FINDINGS RECORDED BY THE AO IN THE ASSESSM ENT ORDER FOR THE ASSESSMENT YEAR 1995-96. THE AO ISSUED THE SHOW CAU SE NOTICE AS TO WHY THE PENALTY BE NOT IMPOSED. BEFORE THE AO, THE ASSE SSEE FILED THE WRITTEN SUBMISSION AND THESE HAVE BEEN MENTIONED BY THE AO IN THE PENALTY ORDER AND THESE ARE REPRODUCED AS UNDER:- (I) THE PENALTY PROCEEDINGS INITIATES SEPARATELY AR E NOT SUFFICIENT FOR RECORDING OF SATISFACTION. 6 (II) THE DISALLOWANCE OF DEPRECIATION OF RS. 1,62,50,000/- ON THE COST OF PLANT AND MACHINERY CONSISTING OF TECHNICAL KNOW-HOW ACQUIRED IN EARLIE R YEARS (III) THE PROJECT WAS NOT MADE ANY PROGRESS DUE TO SERVER FINANCIAL PROBLEMS. THE ASSESSEE HAS CLAIMED DEDUCTION OF DEPRECIATION AGAINST THE ROYALTY INCOM E AND EXPLANATION RELATING THERETO ARE ALL BONAFIDE. 2.4 THE ASSESSEE FILED THE APPEAL AGAINST THE PENAL TY ORDER BEFORE THE LD. CIT(A).THE LD. CIT(A) HAS REPRODUCED THE FINDINGS O F THE AO AS MADE IN THE ASSESSMENT ORDER FOR THE ASSESSMENT YEAR 1995- 96 AT PAGES 2 AND 4 OF HIS ORDER. THE LD. CIT(A) HAS REFERRED TO THE FINDINGS OF THE TRIBUNAL IN THE QUANTUM APPEAL OF THE ASSESSMENT YEAR 1995-96 VIDE ORDER DATED 26-05-2005 AND HAS REPRODUCED THE PARA 7 OF THE ORDER OF THE T RIBUNAL AND THE SAME IS REPRODUCED AS UNDER:- WE HAVE HEARD BOTH THE PARTIES AT LENGTH AND GONE THROUGH THE MATERIAL AVAILABLE ON RECORD FROM WHICH IT APPEARS THAT M/S. PUNSUMI INDIA LTD. .HAS TRANSFERRED TECHNICAL KNOW-HOW TO THE ASSESSEE COMPANY. IT DOES NOT MEAN THAT M/S.PUNSUMI INDIA LTD. HAS CEASED THE TECHNICAL KNOW-HOW. IT MIGHT HAVE ALSO POSSESSED THE SAME TECHNICAL KNOW-HOW SO THERE IS NO QUESTION TO ACQUIRE THIS TECHNICAL KNOW-HOW FROM THIS 7 COMPANY BEAUSE THIS TECHNICAL KNOW-HOW WAS ORGANIZED BY M/S.PUNSUMI INDIA LTD. AND THEY WERE HAVING THE MONOPOLY OVER THIS TECHNICAL KNOW-HOW. IT WAS NOT PATENTED TECHNICAL KNOW- HOW. IN OTHER WORDS, M/S.PUNSUMI INDIA LTD. WAS HAVING THAT TECHNICAL KNOW-HOW SO FAR THE BUSINESS INTEREST AND THEY HAVE SOLD IT TO THE ASSESSEE AND MIGHT TO OTHER LEGAL ENTITIES. IT WAS NOT SOLD WITH THE LEGAL RIGHTS. IN FACT, THIS TECHNOLOGY WAS NOT PATENTED AS THE SAME WAS NOT THE TECHNOLOGY WHICH IS VERY COMMON. NO SPECIAL SIGNIFICANCE OR PATENT MATERIAL WAS EVER SUBMITTED OR CLAIMED BY THE ASSESSEE. IN THESE CIRCUMSTANCES, IT IS SURPRISING HOW AND WHY SO CALLED TECHNOLOGY AGAIN WAS TAKEN ON ROYALTY BASIS WHICH WAS EARLIER SOLD. THIS IS NOTHING. THIS IS MERELY A PAPER TRANSACTION. IN FAC T, NO TECHNICAL KNOW-HOW WAS ACQUIRED BY THE ASSESSEE IN THE ABSENCE OF THE PLANT AND MACHINERY. NO RESOLUTION WAS PASSED BY THE BOARD OF DIRECTORS. NO DOCUMENT HAS BEEN EXECUTED EXCEPT THE MEMORANDUM OR UNDERSTANDING. THIS SHOWS THAT THERE WAS COLOURABLE DEVICE. IN PLANT AND MACHINERY, THE TECHNICAL KNOW-HOW WAS OF NO USE. IT MAY BE MENTIONED THAT THE ASSESSEE HAS NOT FULLY COOPERATED WITH THE LOWER AUTHORITIES SO THEY ISSUED SUMMONS U/S 131 OF THE EMPLOYEES OF 8 M/S.PUNSUMI INDIA LTD. WHO WERE ALSO LOOKING THE INTEREST OF BOTH THE COMPANIES. THE BRAINS OF BOTH THE COMPANIES ARE COMMON. IN THESE CIRCUMSTANCES, WE FIND NO MERIT IN THE CLAIM OF THE ASSESSEE. WITHOUT REPEATING, WE UPHOLD THE ORDER OF THE LOWER AUTHORITIES, WHO HAVE RIGHTLY DENIED DEPRECIATION AMOUNTING TO RS. 1,22,50,314/- FOR TECHNICAL KNOW-HOW. THE ORDERS OF THE LOWER AUTHORITIES ARE HEREBY SUSTAINED ALONGWITH THE REASONS MENTIONED THEREIN. 2.5 THE LD. CIT(A) HAS REPRODUCED THE SUBMISSIONS G IVEN BY ASSESSEE BEFORE HIM AND THESE ARE AS UNDER:- IT IS PERTINENT TO NOTE THAT IT IS A TRANSACTION BETWEEN A HOLDING COMPANY AND 100% SUBSIDIARY COMPANY WHICH SHOULD NOT BE SEEN WITH AN EYE OF SUSPICION. DIRECTORS ARE BOUND TO BE COMMON IN SUCH CASE. FURTHER M/S.PUNSUMI INDIA LTD. HAS SHOWN SALE PROCEEDINGS OF RS. 65 CRORES IN RESPECT OF SALE OF TECHNICAL KNOW-HOW AS PART OF ITS INCOME. IT HAS NE ITHER BEEN CLAIMED AS CAPITAL RECEIPT NOR AS CAPITAL GAIN ON TRANSFER OF CAPITAL ASSET WHICH ARE NOT LIABLE TO T AX IN THIS CASE U/S 47(V) OF INCOME TAX ACT BEING THE TRANSFER OF CAPITAL ASSET BY A COMPANY WHO ITS SUBSIDIARY COMPA NY. THUS, TO TREAT THE TRANSACTION AS A MEASURE OF TAX AVOIDANCE IS NOT JUSTIFIABLE IN THE PECULIAR FACTS AND 9 CIRCUMSTANCES OF THE CASE. THERE IS NO ATTEMPT OF A NY TAX AVOIDANCE OR TAX EVASION. THE CONCLUSION OF THE AO IS BASED ON SUSPICION AND SURMISES ONLY. WE HAD ACQUIRED THE TECHNICAL KNOW-HOW FROM M/S.PUNSUMI INDIA LTD. FOR THE MANUFACTURE OF STITC HING AND WINDING THE MACHINERY AS PER THE MEMORANDUM OF UNDERSTANDING DATED 5-10-92 FOR RS. 6.5 CRORES. HOW EVER, THE PROJECT OF OUR COMPANY COULD NOT MAKE ANY PROGR ESS DUE TO SEVERE FINANCIAL PROBLEMS FACED BY THE COMPA NY. WE HAD EVEN PLACED ORDERS FOR IMPORTING SEVERE MACHINES AND THE MACHINE HAD REACHED TO THE MUMBAI PORT BUT WE COULD NOT TAKE DELIVERY OF THE SAME DUE TO FINANCIAL PROBLEMS AND THE SAID MACHINES HAD TO BE SOLD BY THE PORT AUTHORITIES. WE HAD NOT RECEIVED ANY MO NEY FROM THE PORT AUTHORITIES AND SALE PROCEEDS WERE APPRECIATED TOWARDS DEMURRAGE AND PORT CHARGES. TAKING THE FACTS FOR THE ASSESSMENT YEAR 1994-95 AS THE BASE, AS PER THE BALANCE SHEET AS ON 31-03-9 4, THE COST OF PLANT AND MACHINERY IN TRANSIT WAS TO THE E XTENT OF RS. 10093458/- BESIDES THE EXPENDITURE INCURRED IN RESPECT OF DISC COVER PROJECT ETC. RS. 5685156/- I N ALL AGGREGATING TO RS. 15778614/-. THUS THE COMPANY WAS VERY MUCH SERIOUS ABOUT THE COMMENCEMENT OF THAT DI SC COVER PROJECT. TECHNICAL KNOW-HOW OF PRODUCTION OF STITCHING AND WINDING MACHINES WERE ALSO ACQUIRED O NLY BECAUSE THE COMPANY WAS HOPEFUL OF ESTABLISHMENT OF ITS 10 DIC. COVER PROJECT SINCE THE PROJECT WAS DELAYED DU E TO FINANCIAL PROBLEMS, THE TECHNICAL KNOW-HOW WAS LEAS ED BACK TO M/S.PUNSUMI INDIA LTD. VIDE MEMORANDUM OF UNDERSTANDING DATED 20-04-93 FOR WHICH ROYALTY WAS CHARGED FROM THE SAID COMPANY. IN VIEW OF THIS, THE COMPANY HAD RECEIVED THE ROYALTY INCOME FROM M/S.PUNSUMI INDIA LTD.. THE AMOUNT OF ROYALTY INCOME HAS BEEN ASSESSED IN OUR CASE IN ALL THE ABOVE YEARS INCLUDING THE YEAR UNDER CONSIDERATION. THUS WHEN THE ROYALTY INCOME HAS BEE N ASSESSED IN OUR CASE, THE DISALLOWANCE OF DEPRECIAT ION ON TECHNICAL KNOW-HOW ON WHICH THE ROYALTY INCOME HAS BEEN EARNED IS NOT JUSTIFIED. 2.6 THE LD. CIT(A) AFTER CONSIDERING THE SUBMISSION S CONFIRMED THE PENALTY ORDER AFTER OBSERVING AS UNDER:- 9 THE SUBMISSION OF THE APPELLANT IS DULY CONSIDERED. AS CAN BE SEEN FROM THE SUBMISSION OF T HE APPELLANT THAT AT PARAS 1 TO 6, WHILE GIVING THE FA CTUAL POSITION OF THE CASE, HAS MAINLY CONTENDED THAT IN VIEW OF THE PECULIAR FACTS AND CIRCUMSTANCES OF THE CASE, T HE AO IS NOT RIGHT IN TREATING THE TRANSACTION AS A MEASU RE OF TAX AVOIDANCE. IT HAS FURTHER CONTENDED THAT THE CONCLU SION OF THE AO IS BASED ON SUSPICION AND SURMISES. IT IS A LSO CONTENDED THAT THE HON'BLE ITAT HAS ALSO DECIDED T HE 11 MATTER ON SUSPICION AND SURMISES. IT WAS ALSO SUBMI TTED THAT, AS PER EXPLANATION 1 OF SECTION 271(1), HE HA S OFFERED FULL EXPLANATION AND BY NO STRETCH OF IMAGI NATION IT CAN BE SAID TO BE FALSE AND FURTHER THE CLAIM OF DEDUCTION OF DEPRECIATION AND EXPLANATION RELATING THERETO ARE BONAFIDE AND THE FACTS RELATING TO THE SAME ARE FULLY DISCLOSED TO THE DEPARTMENT. THEREFORE, NO PE NALTY IS IMPOSABLE. 10. THE ABOVE ARGUMENT OF THE APPELLANT IS DULY CONSIDERED AND I DO NOT FIND FORCE IN IT. THE AO HA S DISCUSSED THE MATTER IN DETAIL, AND THE HON'BLE IT AT HAS ALSO HELD THIS TRANSACTION OF COLOURALE DEVICE. IN VIEW OF THE FINDING OF THE HIGHEST FACTS FINDING AUTHORITY THAT THE PRESENT TRANSACTION IS A COLOURABLE DEVICE, IN MY V IEW, THE ASSERTION OF THE APPELLANT THAT THE CONCLUSION OF THE AO AND ALSO HON'BLE ITAT IS BASED ON SUSPICION AND SURMISES IS BASELESS AND HENCE REJECTED. ASSESSMENT YEAR 1995-96 2.7 THE AO WHILE COMPLETING THE ASSESSMENT INITIATE D THE PENALTY PROCEEDINGS U/S 271(1) OF THE ACT ON THE ISSUE OF CLAIMING OF DEPRECIATION. THE ASSESSEE FILED THE EXPLANATION WHICH WAS SIMILA R TO THE EXPLANATION GIVEN IN THE ASSESSMENT YEAR 1994-95. THE PENALTY W AS IMPOSED VIDE ORDER DATED 30-04-2005 AND THE SAME WAS CONFIRMED BY THE LD. CIT(A) VIDE ORDER 12 DATED 27-10-06. THE LD. CIT(A) HAS CONFIRMED THE PE NALTY ON THE BASIS OF THE FINDING RECORDED FOR THE ASSESSMENT YEAR 1994-95. ASSESSMENT YEAR 1996-97 2.8 THE ASSESSMENT ORDER FOR THE ASSESSMENT YEAR 19 96097 WAS PASSED ON 28-03-2003 U/S 145(3) READ WITH SECTION 147 OF THE ACT. WHILE PASSING THE ASSESSMENT ORDER, THE AO HAS REFERRED TO THE FINDIN G OF THE AO IN THE CASE OF THE ASSESSEE FOR THE ASSESSMENT YEAR 1995-96. THE A O ALSO REFERRED TO THE FINDINGS RECORDED IN THE CASE OF THE ASSESSEE FOR T HE ASSESSMENT YEAR 1997- 98. THE AO IN THE ASSESSMENT ORDER HAS MENTIONED TH AT THE ASSESSEE HAS NOT CLAIMED THE DEPRECIATION IN THE RETURN BUT A NOTE H AS BEEN PUT THAT ELIGIBLE DEPRECIATION SHOULD BE ALLOWED. THE AO ALSO OBSERVE D THAT THE ASSESSEE HAS NOT CLAIMED DEDUCTION U/S 35AB OF THE ACT. IT WAS T HEREFORE, HELD THAT THE ASSESSEE IS NEITHER ENTITLED TO DEPRECIATION NOR TO DEDUCTION U/S 35AB OF THE ACT. HOWEVER, IN THE COMPUTATION OF INCOME , THE D EPRECIATION ON TECHNICAL KNOW-HOW HAS BEEN ADDED BACK. 2.9 BEFORE THE LD. CIT(A), THE ASSESSEE DID NOT PRE SS THE GROUND OF APPEAL ON THE ISSUE OF DISALLOWANCE OF DEPRECIATION ON PLA NT AND MACHINERY AND ALSO NOT ALLOWING DEDUCTION U/S 35AB ON THE GROUND THAT TRIBUNAL VIDE ORDER DATED 26 TH MAY, 2005 FOR THE ASSESSMENT YEAR 1995-96 DECIDE S UCH ISSUE AGAINST THE ASSESSEE. THE AO ISSUED THE SHOW CAUSE NOTICE VIDE LETTER DATED 13 22-01-08. THE ASSESSEE FILED THE WRITTEN SUBMISSION BEFORE THE AO VIDE LETTER DATED 12-02-08. THE SUBMISSIONS OF THE ASSES SEE BEFORE THE IN BRIEF ARE AS UNDER:- 1. NO SATISFACTION HAS BEEN RECORDED IN THE ASSESSM ENT ORDER. 2. THE ASSESSMENT HAS BEEN COMPLETED AS A LOSS AND THEREFORE, PENALTY IS NOT LEVIABLE IN VIEW OF THE D ECISION OF HON'BLE APEX COURT IN THE CASE OF VIRTUAL SOFT SYST EMS LTD. VS. CIT, 289 ITR 83. 3. THE ASSESSEE HAS FURNISHED ALL THE PARTICULARS O F THE TRANSACTIONS RELATING TO PURCHASE OF TECHNICAL KNOW -HOW FROM THE HOLDING COMPANY. HENCE, EXPLANATION 4 TO SECTIO N 271(1) (C ) IS NOT APPLICABLE. 4. M/S.PUNSUMI INDIA LTD. HAS SHOWN SALE PROCEEDING S OF RS. 6.50 CRORES IN RESPECT OF SALE OF TECHNICAL KN OW-HOW AS PART OF ITS INCOME 5. THE ASSESSEE HAS FILED THE LOSS RETURN AND THERE WAS NO ATTEMPT TO EVADE THE TAX. 6. THE ROYALTY INCOME HAS BEEN ASSESSED IN THE CASE OF THE ASSESSEE AND THEN DISALLOWANCE OF DEPRECIATION ON T ECHNICAL KNOW-HOW IS NOT JUSTIFIED. 2.10 THE AO AFTER CONSIDERING THE SUBMISSIONS OF TH E ASSESSEE HELD THAT THERE WAS NO PRODUCTION AND THE FIXED ASSETS WERE N OT PUT TO USE DURING THE YEAR UNDER CONSIDERATION. THE ASSESSEE COMPANY HAS TRIED TO EVADE THE TAX 14 BY MAKING FALSE CLAIM OF THE DEPRECIATION. THE AO A CCORDINGLY IMPOSED THE PENALTY TO THE EXTENT OF RS. 42,09,230/-. 2.11 BEFORE THE LD. CIT(A), IT WAS SUBMITTED THAT T HE COMPANY M/S.PUNSUMI INDIA LTD. SHOWED THE RECEIPTS ON ACCOU NT OF TRANSFER OF TECHNICAL KNOW-HOW AS INCOME AND WAS NOT CLAIMED AS CAPITAL RECEIPTS. DUE TO FINANCIAL PROBLEMS, THE ASSESSEE COMPANY WAS NOT ABLE TO UTILIZE THE TECHNICAL KNOW-HOW AND THEREFORE, PERMITTED M/S.PUN SUMI INDIA LTD. TO USE THIS TECHNICAL KNOW-HOW AND EARN ROYALTY. THUS DEPR ECIATION SHOULD BE ALLOWED. THE LOSS SHOWN IN THE RETURN REPRESENTED O NLY UNABSORBED DEPRECIATION WHICH SHOULD HAVE BEEN SHOWN AS LOSS I N THE RETURN OF INCOME BECAUSE UNABSORBED DEPRECIATION IS TO BE SET OFF AG AINST THE BUSINESS INCOME. 2.12 THE LD. CIT(A) OBSERVED THAT INSTEAD OF SHOWIN G NIL INCOME AND FURTHER CLAIMING DEPRECIATION, THE ASSESSEE IS GUIL TY OF MAKING WRONG CLAIM OF ALLOWANCE. THE INTANGIBLE ASSETS HAS NOT BEEN US ED FOR THE PURPOSE OF BUSINESS. THE LD. CIT(A) HAS FURTHER OBSERVED THAT IN VIEW OF THE DECISION OF HON'BLE APEX COURT IN THE CASE OF IN THE CASE OF CI T VS. GOLD COIN HEALTH FOOD (P) LTD., 304 ITR 308 WHEREIN IT HAS BEEN HELD THAT PENALTY IS LEVIABLE IN A CASE WHERE ASSESSED INCOME IS LOSS AND HENCE P ENALTY IS LEVIABLE. IT WAS HELD THAT EXPLANATION 4 TO SECTION 271(1)( C) IS CL ARIFICATORY AND RETROSPECTIVE IN NATURE AND THEREFORE, APPLIED W.E. F. 01-04-1976. 15 ASSESSMENT YEAR 1997-98 2.13 THE ASSESSMENT FOR THE ASSESSMENT YEAR 1997-98 WAS MADE U/S 143(3) VIDE ORDER DATED 27-03-2000. THE ASSESSEE CLAIMED D EPRECIATION ON TECHNICAL KNOW-HOW RECEIVED FROM M/S.PUNSUMI INDIA LTD. THE A O HAS MENTIONED TO THE FACTS AS GIVEN IN THE ASSESSMENT ORDER FOR THE ASSESSMENT YEAR 1995-96 AND HELD THAT DEPRECIATION IS NOT ALLOWABLE. THE AO ALSO REFERRED TO THE DECISION OF HON'BLE APEX COURT IN THE CASE OF MC. D OWELL. THE AO ISSUED THE SHOW CAUSE NOTICE TO THE ASSESSEE ASKING THEREI N AS TO WHY PENALTY U/S 271(1)( C ) BE NOT IMPOSED. IN RESPONSE TO SHOW CAU SE NOTICE, DATED 14-02- 2006, THE ASSESSEE FILED THE REPLY VIDE LETTER DATE D 24-02-2006. IN THE REPLY, IT WAS SUBMITTED THAT ROYALTY RECEIVED FROM M/S.PUN SUMI INDIA LTD. HAS BEEN ASSESSED ON PROTECTIVE BASIS AND HENCE, THE DISALLO WANCE OF DEPRECIATION ON TECHNICAL KNOW-HOW IS NOT JUSTIFIED. THE AO HAS MEN TIONED THAT DISALLOWANCE OF DEPRECIATION HAS BEEN CONFIRMED BY THE TRIBUNAL WHILE DECIDING QUANTUM APPEAL FOR THE ASSESSMENT YEAR 199 5-96. THE AO THEREFORE, IMPOSED PENALTY U/S 271(1)( C) OF THE AC T. 2.14 THE LD. CIT(A) VIDE ORDER DATED 27-10-06 CONFI RMED THE PENALTY BY FOLLOWING HER ORDER FOR THE ASSESSMENT YEAR 1994-95 . ASSESSMENT YEAR 1998-99 16 2.15 THE ASSESSMENT WAS MADE U/S 143(3) OF THE ACT VIDE ORDER DATED 31- 01-2001. THE AO HAS MENTIONED THAT IN THIS YEAR NO DEPRECIATION HAS BEEN CLAIMED IN THE RETURN. A NOTE HAS BEEN PUT THAT ELI GIBLE DEPRECIATION SHOULD BE ALLOWED. THROUGH LETTER DATED 22-01-2001, THE AS SESSEE FILED DEPRECIATION CHART AND CLAIMED DEPRECIATION OF RS. 51,45,273/-. THE AO HAS REFERRED TO THE FINDINGS OF THE AO FOR THE ASSESSMENT YEAR 1995 -96 AND 1997-98 AND HELD THAT DEPRECIATION IS NOT ALLOWABLE. CERTAIN OT HER ADDITIONS WERE ALSO MADE. THE AO IN THE ORDER MENTIONED THAT PENALTY NO TICE U/S 271(1)(C ) IS BEING ISSUED. THE AO ISSUED A SHOW CAUSE NOTICE VID E LETTER DATED 30-01- 2008 AND THE ASSESSEE FILED THE WRITTEN SUBMISSION VIDE LETTER DATED 20-02- 2008. THE AO AFTER CONSIDERING THE WRITTEN SUBMISSI ON IMPOSED THE PENALTY IN RESPECT OF ADDITION OF RS. 21,380/- AND DISALLOW ANCE OF DEPRECIATION TO THE EXTENT OF RS. 51,44,417/-. WHILE IMPOSING THE PENAL TY ON DISALLOWANCE OF DEPRECIATION, THE AO HAS REFERRED TO THE FACTS NOT ICED IN THE ASSESSMENT PROCEEDINGS FOR THE ASSESSMENT YEAR 1995-96 AND ALS O OBSERVED THAT DEPRECIATION WAS NOT ALLOWED IN THE IMMEDIATELY PR ECEDING YEAR. 2.16 THE LD. CIT(A) HAS CONFIRMED THE PENALTY ON TH E DISALLOWANCE OF DEPRECIATION AND THE LD. CIT(A) HAS GIVEN THE SAME REASONS FOR CONFIRMING THE PENALTY AS HAVE BEEN GIVEN FOR THE ASSESSMENT Y EAR 1996-97. THE PENALTY IMPOSED ON ADDITION OF RS. 21,380/- WAS DELETED BY THE LD. CIT(A). 17 2.17 DURING THE COURSE OF PROCEEDING BEFORE US, THE LD. AR HAS FILED THE WRITTEN SUBMISSION CONTAINING 10 PAGES ALONGWITH C OPIES OF CERTAIN DECISIONS. THE WRITTEN SUBMISSION WERE FILED ON 09- 03-2010. THE ASSESSEE'S PAPER BOOK CONTAINING 56 PAGES WAS FILED ON 01-01-2 010. VIDE LETTER DATED 2-01-2010, THE ASSESSEE FILED THE ANNUAL REPORT OF M/S.PUNSUMI INDIA LTD. FOR THE FINANCIAL YEAR 1992-93. ON 5-09-2011, THE ASSESSEE HAS FILED THE PAPER BOOK CONTAINING 29 PAGES IN WHICH COPIES OF 0 4 DECISIONS HAVE BEEN FILED. THE SUBMISSIONS GIVEN BEFORE US ARE SUMMARIZ ED AS UNDER:- 1. THE ASSESSEE COMPANY US A SUBSIDIARY OF M/S.PUNS UMI INDIA LTD. AND THEREFORE, IT WAS NOT UNCOMMON FOR B OTH THE COMPANIES TO HAVE THE SAME DIRECTORS. 2. M/S.PUNSUMI INDIA LTD. HAS SHOWN RECEIPT OF RS. 6.50 CRORES IN RESPECT OF TRANSFER OF TECHNICAL KNOW-HO W AS INCOME AND THE SAME WAS NOT CONSIDERED AS A CAPITAL RECEIP T. IF A CAPITAL ASSET IS TRANSFERRED FROM HOLDING COMPANY TO SUBSID IARY COMPANY THEN NO CAPITAL GAIN IS LEVIABLE U/S 47(IV) OF THE ACT 3. THE PROJECT OF THE ASSESSEE COMPANY COULD NOT MA KE ANY PROGRESS DUE TO SEVERE FINANCIAL PROBLEMS. THE ASSE SSEE COMPANY IMPORTED SEVERAL MACHINES AND THE MACHINES REACHED MUMBAI PORT BUT THE ASSESSEE COMPANY COULD NOT TAKE DELIVERY OF THE SAME DUE TO THE FINANCIAL PROBLEMS AND SUCH MACHINES WERE SOLD BY THE PORT AUTHORITIES. THE SALE PROCEED S WERE APPROPRIATED TOWARDS DEMURRAGE AND PORT CHARGES AND NO 18 CONSIDERATION WAS RECEIVED BY THE COMPANY FROM SALE OF MACHINES. 4. THE ASSESSEE INCURRED EXPENDITURE IN RESPECT OF DISC. COVER PROJECT TO THE EXTENT OF RS. 56,85,156/- BESI DES THE COST OF PLANT AND MACHINERY IMPORTED TO THE EXTENT OF RS . 1,00,93,458/-. SINCE THE PROJECT WAS DELAYED DUE TO FINANCIAL PROBLEMS, THE TECHNICAL KNOW-HOW WAS LEASED BACK TO M/S.PUNSUMI INDIA LTD. VIDE MOU DATED 20-04-1993. T HE ASSESSEE COMPANY RECEIVED ROYALTY INCOME FROM M/S.P UNSUMI INDIA LTD.. 5. THE ROYALTY INCOME HAS BEEN DULY ASSESSED IN THE HANDS OF THE ASSESSEE COMPANY AND THEREFORE, DEPRECIATIO N SHOULD NOT HAVE BEEN DISALLOWED. 6. IT IS TRUE THAT THE TRIBUNAL CONFIRMED THE DISAL LOWANCE OF DEPRECIATION WHILE PASSING THE ORDER IN THE CASE OF THE ASSESSEE FOR THE ASSESSMENT YEAR 1995-96. OUR ATTENTION WAS DRAWN TOWARDS THE OBSERVATION OF THE TRIBUNAL IN WHICH IT HAS BEEN STATED THAT M/S.PUNSUMI INDIA LTD. WAS THE TECHNICA L OWNER OF TECHNICAL KNOW-HOW AND THEY HAVE SOLD IT TO THE ASS ESSEE AND MIGHT BE TO OTHER LEGAL ENTITIES. FROM THESE OBSERV ATIONS, IT WAS SUBMITTED THAT TRIBUNAL HAS DECIDED THE MATTER ON T HE BASIS OF SUSPICION AND SURMISES. 7. THE FINANCE MINISTER DR.MANMOHAN SINGH AT THAT T IME WHILE PRESENTING THE UNION BUDGE FOR 1991-92 HAD DE CLARED THE BOLD AND INNOVATIVE POLICY OF GLOBALIZATION AND LIB ERALIZATION. THIS EFFECTED THE INDIAN INDUSTRIES AND ALL THE IND USTRIES WHICH 19 WERE MANUFACTURING TV SETS IN INDIA COULD NOT SURVI VE DUE TO MNC INDUSTRIES. THE PLANS OF M/S.PUNSUMI INDIA LTD. GOT SMASHED AND THEREFORE, THE BUSINESS PLANS WERE ABAN DONED. THE COMPANY HAS BEEN REFERRED TO BIFR IN 1997 AND PRES ENTLY IN THE PROCESS OF WINDING AS PER HIGH COURT ORDER. 8. TILL THE FINALIZATION OF THE ASSESSMENT FOR THE ASSESSMENT YEAR 2005-05 ON 23-02-1998, THE ASSESSEE WAS UNDER BONAFIDE BELIEF THAT IT CLAIMED FOR DEPRECIATION ON TECHNICA L KNOW-HOW OR ALTERNATE CLAIM FOR DEDUCTION U/S 35AB SHOULD BE AL LOWED. BY THAT TIME, RETURNS FOR THE ASSESSMENT YEAR 1994-95 TO 1997-98 HAD ALREADY BEEN FILED. THE ASSESSEE HAS NOT CLAIME D DEPRECIATION ON TECHNICAL KNOW-HOW IN THE RETURN O F INCOME FOR THE ASSESSMENT YEAR 1998-99 BUT HAD APPENDED A NO TE THAT DEPRECIATION MAY BE ALLOWED AFTER TAKING CORRECT WR ITTEN DOWN VALUE AS PER LAW. THERE WAS A TECHNICAL MISTAKE IN CLAIMING DEPRECIATION AND THEREFORE, PENALTY IS NOT IMPOSABL E IN VIEW OF DECISION OF HON'BLE APEX COURT IN THE CASE OF HINDU STAN STEEL LTD. VS. STATE OF ORISSA, 83 ITR 26. 2.18 THE LD. AR RELIED UPON THE FOLLOWING DECISIONS 1. CIT VS. ANWAR ALI, 76 ITR 696 (SC) 2. MATHURA PRASAD AGRWAL VS. CIT, 108 ITR 370 (SC) 3. HINDUSTAN STEEL LTD. VS. STATE OF ORISSA, 83 ITR 26 (SC) 4. T. ASHOK PAY. VS. CIT, 292 ITR 11 (SC) 20 5. DILIP N SHROFF VS. CIT, 291 ITR 519 (SC) 6. UNION OF INDIA VS. DHARMENDRA TEXTILE PROCESSORS, 295 ITR 244 (SC) 7. UNION OF INDIA VS. RAJASTHAN SPG. & WVG. MILLS, 224 CTR 1 (SC) 8. CIT VS. SIDHARTHA ENTERPRISE, 184 TAXMAN 460 (TAXMAN) 9 KANBAY SOFTWARE INDIA (P) LTD. VS. DCIT, 122 TTJ 721 (PUNE) 10. BHAGYODAYA GROUP CO-OP COTTON SALE GINNING & PRESSING SOCIETY LTD., VS. ACIT, (2010) 127 TTJ (AHD.) (U.O.) 2.19 ON THE OTHER HAND, THE LD. DR HAS FILED THE WR ITTEN SUBMISSION CONTAINING 14 PAGES. IN THE WRITTEN SUBMISSION, THE LD. DR HAS REFERRED TO THE FACTS OF THE AO. DURING THE COURSE OF ASSESSMENT PR OCEEDINGS, THE AO HAS HELD THE TRANSACTION AS A COLOURABLE TRANSACTION WI TH THE MALAFIDE INTENTION OF DEFRAUDING REVENUE BY CLAIMING FALSE DEPRECIATION. OUR ATTENTION WAS DRAWN TOWARDS THE ORDER OF THE TRIBUNAL DATED 26-05-2005 (ITA NO.270/ JP/1999) IN THE CASE OF THE ASSESSEE. THE TRIBUNAL WHILE DEC IDING THE QUANTUM APPEAL OBSERVED THAT THERE WAS A COLOURABLE DEVICE. THE LD . DR HAS REFERRED TO VARIOUS DECISIONS TO SHOW THAT OMISSION OF THE WORD DELIBERATELY IN THE 21 PROVISIONS OF SECTION 271(1)(C ) DILUTED THE DEPAR TMENTS ONUS TO PROVE MENS REA. THE DECISION IN THE CASE OF DILIP N SHROF F (SC) WAS NOT APPROVED BY THE LARGER BENCH OF THE HON'BLE SUPREME COURT O F INDIA. THE DECISION OF T.A. ASHOK PAI WAS BASED ON THE DECISION IN THE CAS E OF DILIP N SHROFF AND THEREFORE, THAT DECISION ALSO STANDS IMPLIEDLY DISA PPROVED. THE PENALTY CAN BE IMPOSED EVEN IF THE ASSESSED INCOME IS A LOSS IN VIEW OF DECISION OF HON'BLE APEX COURT IN THE CASE OF CIT VS. GOLD COIN HEALTH FOOD (P) LTD., 304 ITR 308. IF THE ASSESSEE IS ABLE TO ESTABLISH H IS INNOCENCE THEN PENALTY U/S 271(1) OF THE ACT IS NOT LEVAIBALE. THE DECISI ON IN KANBAY SOFTWARE INDIA (P) LTD. (SUPRA) IS NOT APPLICABLE. THE LD. D R RELIED ON THE DECISION OF HON'BLE KARNATAKA HIGH COURT IN THE CASE OF CIT VS . SREE VALLIAPPA TEXTILES 294 ITR 322 IN WHICH HON'BLE HIGH COURT H ELD THAT ANY COMMISSION OR OMISSION ON THE PART OF THE COUNSEL/ AGENT IS CERTAINLY BINDING ON THE ASSESSEE. IN THAT CASE, THE ASSESSEE CLAIMED BENEFIT OF DEPRECIATION, EXTRA SHIFT ALLOWANCE AND INVESTMENT ALLOWANCE FOR MACHINERY ON THE GROUND THAT IT WAS PUT TO USE BEFORE 30-06-1984. BY THAT T IME, THE MACHINERIES WERE NOT DISPATCHED BY THE SELLER. UNDER THESE CIRCUMSTA NCES, PENALTY WAS CONFIRMED. OUR ATTENTION WAS DRAWN TOWARDS THE DECI SION OF THE HON'BLE MADRAS HIGH COURT IN THE CASE OF CRN INVESTMENTS ( P) LTD. VS. CIT, 300 ITR 342 IN WHICH PENALTY U/S 271(1)( C) WAS CONFIR MED. IN THIS CASE, THE 22 ASSESSEE CLAIMED 100% DEPRECIATION ON STEEL ROLLS S O AS TO LEASE OUT TO BSAL. THE ENQUIRY REVEALED THAT THE SUPPLIERS NEVER SUPPLIED ANY STEEL ROLL TO BSA AND IT WAS CONCLUDED THAT THE ALLEGED LEASE INSTRUCTION WAS FALSE. THE CLAIM FOR DEPRECIATION WAS HELD AS BOGUS AND PENALT Y U/S 271(1) STOOD CONFIRMED BY THE HON'BLE HIGH COURT. THE LD. DR ALS O RELIED UPON THE DECISION OF HON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS. ZOOM COMMUNICATION LTD. (P) LTD. 327 ITR 510. IN THIS CA SE, THE ASSESSEE CLAIMED DEDUCTION OF INCOME TAX AND EQUIPMENT WRITTEN OFF. THESE DEDUCTIONS WERE NOT ALLOWABLE AND THE ASSESSEE WAS HAVING ASSISTANC E OF PROFESSIONAL AND HENCE, IT WAS HELD THAT THE ASSESSEE HAS CONCEALED ITS INCOME. 2.20 WE HAVE HEARD BOTH THE PARTIES. THE MOU DATED 5-10-1992 IS AVAILABLE AT PAGEES 35 TO 36 OF THE PAPER BOOK FILE D BY THE LD. . AR. IN THIS MOU, IT IS MENTIONED THAT M/S.PUNSUMI INDIA LTD. IS A LEADING MANUFACTURER OF ALUMINIUM ELECTROLYTIC CAPACITORS (ELCOS) AND HA S SUCCESSFULLY DESIGNED AND DEVELOPED / STITCHING AND WINDING MACH INE USED FOR MANUFACTURE OF ELCOS. THE ASSESSEE COMPANY WAS INTE RESTED IN ACQUIRING THE TECHNICAL KNOW-HOW FROM M/S.PUNSUMI INDIA LTD. FOR COMMERCIAL FABRICATION OF THE SAID STITCHING AND WINDING MACHI NES. THE CLAUSE (1) OF THE MOU IS REPRODUCED AS UNDER:- 23 1 PIL AGREES TO TRANSFER THE COMPLETE TECHNICAL K NOW-HOW TO PEL FOR FABRICATION OF STITCHING AND WINDING MAC HINE. THE SERVICES FORMING A PART OF THE TRANSFER OF TECH NICAL KNOW-HOW WILL INCLUDE, INTERALIA, THE FOLLOWING:- (A) SUPPLY OF COMPLETE ENGINEERING DESIGNS, DRAWING S, LAYOUTS OF MACHINE, NUBANNAMBLIN ,ELECTRONIC CIRCUITS ETC. THE STITCHING AND WINDING MACHINES WITHIN 30 DAYS F ROM THE DATE THEREOF. (B) SUPPLY OF COMPLETE PROJECT REPORT BY 31 MARCH, 1993 GIVING DETAILS OF BUILDINGS, PLANT, LAYOUT, EL ECTRIC/ WATER INSTALLATIONS, DETAILS OF EQUIPMENT/ UTILITIES AND OTHER SERVICES REQUIRED FOR ESTABLISHMENT OF MANUFACTURING FACILIT IES. TRAINING OF PEL ENGINEERS/ TECHNICIANS IN THE FABRICATION PROCESS OF MACHINES TO OBTAIN THE SPECI FIED QUALITY, RELIABILITY AND PRODUCTIVITY STANDARDS. (D) CONDUCTING TRIAL RUNS. (E) HELPING TO START COMMERCIAL PRODUCTION OF MACHINES OF THE DESIRED SPECIFICATIONS, QUALITY AND RELIABILITY (F) PIL WILL BUY BACK THE ENTIRE PRODUCTION OF FIRS T 5 YEARS. (G) TILL CREATION OF MUTABLE PRODUCTION/ FABRICATI ON FACILITIES OF PEL, M/S.PUNSUMI INDIA LTD. WILL ALLO W PEL USE OF ITS OWN FABRICATION FACILITIES FOR PRODUCTION OF MA CHINES. THE ACTUAL COT OF SUCH FACILITIES WILL BE CHARGED BY M/ S.PUNSUMI INDIA LTD. 24 2.21 AS PER THIS MOU, THE TECHNICAL KNOW-HOW FEE OF RS. 400 LACS HAS BEEN DETERMINED TO BE PAID BY THE ASSESSEE COMPANY. THE FEE WILL DUE ON SUPPLY OF COMPLETE ENGINEERING DESIGNS, DRAWINGS ET C. OF MACHINES, COMPLETE PROJECT REPORT AND TRAINING OF ENGINEERS/ TECHNICIANS OF THE ASSESSEE COMPANY. THE SECOND MOU IS ALSO OF THE SAM E DATE. AS PER THIS MOU, , THE ASSESSEE COMPANY SHOWED ITS INTEREST IN ACQUIRING THE TECHNICAL KNOW-HOW FROM M/S.PUNSUMI INDIA LTD. FOR MANUFACTUR E OF ELECTROLYTES. THE CLAUSE 1 OF MOU IS AS UNDER:- 1. PIL AGREES FOR TRANSFER THE COMPLETE TECHNICAL K NOW-HOW TO PEL FOR MANUFACTURE OF LOW VOLTAGE ELECTROLYTES. THE SERVICES FORMING A PART OF THE TRANSFER OF TECH NICAL KNOW-HOW WILL INCLUDE, INTERALIA, THE FOLLOWING:- (A) SUPPLY OF CHEMICAL FORMULA OF VARIOUS TYPES OF ELECTROLYTES WITHIN 30 DAYS FROM THE DATE THEREOF. (B) SUPPLY OF COMPLETE PROJECT REPORT BY 31 MARCH, 1993 GIVING DETAILS OF BUILDINGS, PLANT LAYOUT, ELE CTRIC/ WATER INSTALLATIONS, DETAILS OF EQUIPMENTS/ UTILITIES AND OTHER SERVICES REQUIRED FOR ESTABLISHMENT OF MANUFACTURING FACILIT IES. TRAINING OF PEL ENGINEERS/ TECHNICIANS/CHEMISTS IN THE PROCESS OF MANUFACTURE OF ELECTROLYTES TO OB TAIN THE SPECIFIED QUALITY, RELIABILITY AND PRODUCTIVITY STA NDARDS. (D) CONDUCTING TRIAL RUNS. 25 (E) HELPING TO START COMMERCIAL PRODUCTION OF ELECTROLYTES OF THE DESIRED SPECIFICATIONS, QUALITY AND RELIABILITY. 2.22 THE KNOW-HOW FEE OF RS. 250 LACS WAS DETERMINE D TO BE PAID BY THE ASSESSEE COMPANY. THE KNOW-FEE WILL FALL DUE ON SUP PLY OF CHEMICAL FORMULAE OF ELECTROLYTES, COMPLETE PROJECT REPORT A ND TRAINING OF ENGINEERS/ TECHNICIANS/ CHEMISTS OF THE ASSESSEE COMPANY. FROM THESE DOCUMENTS, IT IS CLEAR THAT TECHNICAL KNOW-HOW FEE WILL INCLUDE CERT AIN SERVICES AS PER CLAUSE 1 OF BOTH THE MOUS. THE TECHNICAL KNOW-HOW FEE WILL FALL DUE ON FULFILLING CERTAIN CONDITIONS. THESE INCLUDED THE TRAINING OF THE ENGINEERS AND EMPLOYEES OF THE ASSESSEE COMPANY. THE CONDITION WA S ALSO THAT M/S.PUNSUMI INDIA LTD. WILL CONDUCT TRIAL RUNS. IT IS UNDISPUTED FACT THAT PLANT AND MACHINERY IMPORTED BY THE ASSESSEE COULD NOT BE RECEIVED FROM THE PORT ON ACCOUNT OF THE FINANCIAL PROBLEMS. THE TECHNICAL KNOW-HOW FEE SHOULD NOT BE CONSIDERED AS DUE AS PER MOU. 2.23 ANOTHER MOU WAS MADE ON 20-04-1993. IN THIS MO U, IT HAS BEEN MENTIONED THAT M/S.PUNSUMI INDIA LTD. HAS TRANSFERR ED THE TECHNICAL KNOW- HOW TO M/S. PEL I.E. ASSESSEE AND SINCE NOW THE M/S .PUNSUMI INDIA LTD. HAS USED THE TECHNICAL KNOW-HOW FOR MANUFACTURE OF ELECTROLYTES AND STITCHING WINDING MACHINES, THEREFORE, M/S.PUNSUMI INDIA LTD. WILL PAY THE 26 ROYALTY. THE CLAUSE MENTIONED FOR PAYMENT OF ROYALT Y IN THE MOU IS REPRODUCED AS UNDER:- NOW THEREFORE, THE PARTIES BY THIS MEMORANDUM OF UNDERSTANDING AGREE AS FOLLOWS:- (I) PIL AGREES TO PAY ROYALTY TO PEL FOR USE OF TECHNICAL KNOW-HOW FOR MANUFACTURE OF STITCHING AND WINDING MACHINES @ RS. 2,00,000/- (RS. TWO LACS ONLY) PER M ACHINE (II) PIL AGREES TO PAY ROYALTY TO PEL ON USE OF TECHNICAL KNOW-HOW FOR MANUFACTURE OF ELECTROLYTES @ RS. 15,000/- (RS. FIFTEEN THOUSAND ONLY) PER TON. (III) AND WHEREAS IT IS ALSO AGREED THAT IN THE EVE NT OF PUNSUMI ENGINEERS LTD., NOT DEVELOPING FACILITIE S FOR THE MANUFACTURE OF ELECTROLYTE AND FOR THE MANUFACTURE OF STITCHING AND WINDING MACHINES FOR TWO YEARS FROM THE DATE OF THIS UNDERSTANDING, NO ROYALTY WILL THEN BE PAYABLE IN A CCORDANCE WITH THIS MEMORANDUM OF UNDERSTANDING. 2.24 IN THE MOU DATED 5-10-1992, IT IS NO WHERE MEN TIONED THAT M/S.PUNSUMI INDIA LTD. HAS SOLD THE TECHNICAL KNOW- HOW. THE ASSESSEE COMPANY WAS INTERESTED IN ACQUIRING THE TECHNICAL K NOW-HOW FOR COMMERCIAL PURPOSES. IT IS NOWHERE MENTIONED THAT T HIS MOU WILL RESTRICT M/S.PUNSUMI INDIA LTD. NOT TO MANUFACTURE STITCHING AND WINDING MACHINES AND MANUFACTURE OF ALUMINIUM ELECTROLYTES CAPACITOR S. THE MOU DATED 20- 04-1993 WAS MADE SO AS TO ENABLE THE ASSESSEE TO CL AIM DEPRECIATION IN TECHNICAL KNOW-HOW. IF AN ASSET HAS BEEN USED FOR T HE PURPOSE OF BUSINESS 27 THEN DEPRECIATION IS ALLOWABLE. THE MATTER REGARDI NG DISALLOWANCE OF DEPRECIATION HAS BEEN DECIDED BY THE TRIBUNAL IN TH E CASE OF THE ASSESSEE FOR THE ASSESSMENT YEAR 1995-96 VIDE ORDER DATED 26-05- 2005 IN ITA NO.270 JP/1999. IT WILL BE USEFUL TO PRODUCE THE FINDINGS OF THE TRIBUNAL. 7. WE HAVE HEARD BOTH THE PARTIES AT LENGTH AND G ONE THROUGH THE MATERIAL AVAILABLE ON RECORD FROM WHICH IT APPEARS THAT M/S.PUNSUMI INDIA LTD. HAS TRANSFERRED TECHNIC AL KNOW- HOW TO THE ASSESSEE COMPANY. IT DOES NOT MEAN THAT .PUNSUMI INDIA LTD. HAS CEASED THE TECHNICAL KNOW-HOW. IT MI GHT HAVE ALSO POSSESSED THE SAME TECHNICAL KNOW-HOW SO THERE IS NO QUESTION TO ACQUIRE THIS TECHNICAL KNOW-HOW FROM TH IS COMPANY BECAUSE THIS TECHNICAL KNOW-HOW WAS ORIGINATED BY M/S.PUNSUMI INDIA LTD. AND THEY WERE HAVING THE MON OPOLY OVER THIS TECHNICAL KNOW-HOW. IT WAS NOT PATENTED T ECHNICAL KNOW-HOW. IN OTHER WORDS, PUNSUMI INDIA LTD. WAS HA VING THAT TECHNICAL KNOW-HOW SO FAR THE BUSINESS INTEREST AND THEY HAVE SOLD IT TO THE ASSESSEE AND MIGHT BE TO OTHER LEGAL ENTITIES. IT WAS NOT SOLD WITH THE PATENT RIGHTS. IN FACT, THIS TECH NOLOGY WAS NOT PATENTED AS THE SAME SIMPLE TECHNOLOGY WHICH IS VER Y COMMON. NO SPECIAL SIGNIFICANCE OR PATENT MATERIAL WAS EVER SUBMITTED OR CLAIMED BY THE ASSESSEE. IN THESE CIRCUMSTANCES, IT IS SURPRISING HOW AND WHY SO CALLED TECHNOLOGY AGAIN WAS TAKEN ON ROYALTY BASIS WHICH EARLIER SOLD. THIS IS NOTHING. THIS IS MERELY A PAPER TRANSACTION. IN FACT, NO TECHNICAL KNOW-HOW WAS ACQ UIRED BY THE ASSESSEE IN THE ABSENCE OF THE PLANT AND MACHINERY . NO 28 RESOLUTION WAS PASSED BY THE BOARD OF DIRECTORS. NO DISCOUNT HAS BEEN EXECUTED EXCEPT THE MEMORANDUM OF UNDERSTA NDING. THIS SHOWS THAT THERE WAS COLOURABLE DEVICE. IN PLA NT AND MACHINERY, THE TECHNICAL KNOW-HOW WAS OF NO USE. IT MAY BE MENTIONED THAT THE ASSESSEE HAS NOT FULLY COOPERAT ED WITH THE LOWER AUTHORITIES SO THEY ISSUED THE SUMMONS U/S 13 1 OF THE EMPLOYEES OF M/S.PUNSUMI INDIA LTD. WHO ARE ALSO LO OKING THE INTEREST OF BOTH THE COMPANIES. THE BRAINS OF BOTH THE COMPANIES ARE COMMON. IN THESE CIRCUMSTANCES, WE FI ND NO MERIT IN THE CLAIM OF THE ASSESSEE. WITHOUT REPEATI NG, WE UPHOLD THE ORDER OF THE LOWER AUTHORITIES WHO HAVE RIGHTLY DENIED DEPRECIATION AMOUNTING TO RS. 1,22,50,341/- FOR TEC HNICAL KNOW-HOW. THE ORDERS OF THE LOWER AUTHORITIES ARE H EREBY SUSTAINED ALONGWITH THE REASONS MENTIONED THEREIN. 2.25 ONCE THERE IS A FINDING BY THE TRIBUNAL THEN O NUS WAS ON THE ASSESSEE TO HAVE ESTABLISHED IN THE PENALTY PROCEEDINGS THAT THE ASSESSEE HAS NOT ADOPTED THE COLOURABLE DEVICE. IN EARLIER PARAGRAPH , WE HAVE REFERRED TO THE EXPLANATION GIVEN BY THE ASSESSEE BEFORE THE AO. TH E ITAT MUMBAI BENCH IN THE CASE OF CLASSIC CREDIT LIMITS VS. DCIT, 126 ITD 469 HELD THAT PENALTY IS LEVIABLE IN CASE THERE IS A FINDING IN QUANTUM A PPEAL THAT THE ASSESSEE HAS SUPPRESSED THE INCOME TO REDUCE THE TAX LIABILITY. THE TRIBUNAL IS NOT ACCEPTED TO TAKE DIAMETRICALLY OPPOSITE VIEW IN QUA NTUM AND PENALTY APPEAL IF THE FINDING IN QUANTUM APPEAL SHOWS THAT THE ASS ESSEE HAS MADE A FALSE 29 CLAIM. THERE IS A DIFFERENCE BETWEEN WRONG CLAIM AN D FALSE CLAIM. IF THERE IS A WRONG CLAIM ON THE BASIS OF THE BONA FIDE OPINION THEN PENALTY PERHAPS IS NOT IMPOSABLE. IF THE CLAIM IS DEBATABLE AS PER DEC ISION OF DIFFERENT APPELLATE AUTHORITIES THEN ALSO PENALTY IS NOT LEVIABLE. HOWE VER, IF CLAIM IS FALSE AND THE ASSESSEE HAS MADE EFFORTS TO EVADE THE TAX THEN PENALTY IS DEFINITELY LEVIABLE. THE ITAT DELHI BENCH IN THE CASE OF TINI TY TOUCH (P) LTD. VS. ITO, 140 TTJ 309 HAD AN OCCASION TO CONSIDER AS TO WHETHER PENALTY IS IMPOSABLE IN RESPECT OF THE CLAIM MADE BY THE ASSE SSEE RELATING TO THE FEES PAID TO THE REGISTRAR OF COMPANIES FOR THE INCREASE IN SHARE CAPITAL. SUCH ISSUE STOOD DECIDED BY THE HON'BLE APEX COURT AND S UCH EXPENDITURE IS NOT ALLOWABLE. BEFORE THE TRIBUNAL, IT WAS POINTED OUT THAT CLAIM WAS MADE ON ACCOUNT OF MISTAKE ON THE PART OF THE AUDITOR. THE MISTAKE BY THE AUDITOR DOES NOT ABSOLVE THE ASSESSEE AND THERE CANNOT BE A GENERAL PROPOSITION OF LAW THAT PENALTY IS NOT LEVIABLE DUE TO THE MISTAKE OF THE AUDITOR. THE PENALTY IN THAT CASE WAS UPHELD IN VIEW OF THE DECISION OF HON'BLE APEX COURT IN THE CASE OF UNION OF INDIA VS. DHARMENDRA TEXTILE PROCE SSORS, 305 ITR 277. REVENUE IS NOT TO PROVE MENS REA. THE ASSESSEE HAS TO FILE AN EXPLANATION AND IF THE EXPLANATION IS NEITHER FALSE OR THE ASSE SSEE IS ABLE TO SUBSTANTIATE THE EXPLANATION THEN PENALTY IS NOT LEVIABLE. HOWEV ER, IN THE INSTANT CASE, THE ASSESSEE HAS NOT BEEN ABLE TO SUBSTANTIATE THE EXPL ANATION FILED BEFORE THE 30 AO. THE HON'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF AGARWAL OIL & GENERAL MILLS LTD. VS. CIT, 2010-TIOL-717-P&H HAS HELD THAT IF THE ADDITION HAS BECOME FINAL ON THE BASIS OF THE CONCE ALMENT OF PARTICULARS OF INCOME AND NOT ON A DEBATABLE ISSUE THEN PENALTY HA S BEEN JUSTIFIABLY IMPOSED. THE ASSESSEE HAS RELIED UPON THE DECISION OF HON'BLE APEX COURT IN THE CASE OF IN THE CASE OF RAJASTHAN SPG. & WVG. MILLS LTD. (SURPA). IN THIS CASE, THE HON'BLE APEX COURT HELD THAT THE DEC ISION IN THE CASE OF UNION OF INDIA VS. DHARMENDRA TEXTILE PROCESSORS (SUPRA) CANNOT BE SAID TO HOLD THAT SECTION 11AC OF CENTRAL EXCISE ACT WOULD APPL Y TO EVERY CASE OF NON- PAYMENT OR SHORT PAYMENT OF DUTY REGARDLESS OF THE CONDITIONS EXPRESSLY MENTIONED IN THE SECTION FOR ITS APPLICATION THIS D ECISION IS OF NO HELP TO THE ASSESSEE FOR IMPOSING PENALTY U/S 271(1)( C) OF THE ACT. THE AO HAS TO CONSIDER THE EXPLANATION FILED BY THE ASSESSEE. ONC E THERE IS A FINDING IN QUANTUM APPEAL AND THAT FINDING STANDS CONFIRMED BY THE TRIBUNAL THEN ONUS WAS HEAVILY ON THE ASSESSEE TO HAVE BEEN ABLE TO EX PLAIN THAT CLAIM MADE WAS BONA FIDE. THERE IS NOTHING ON RECORD TO SUGGES T THAT CLAIM OF DEPRECIATION MADE BY THE ASSESSEE WAS BONA FIDE. RE LIANCE HAS BEEN PLACED ON THE DECISION OF THE HON'BLE PUNJAB & HARYANA HIG H COURT IN THE CASE OF CIT VS. SIDHARTHA ENTERPRISE (SUPRA). THE TRIBUNAL RECORDED THE FINDINGS OF FACT THAT FURNISHING OF INACCURATE PARTICULARS OF I NCOME WAS A SIMPLE MISTAKE 31 AND NOT A DELIBERATE ATTEMPT TO EVADE THE TAX. HENC E, THIS DECISION IS OF NO HELP TO THE ASSESSEE. THE ASSESSEE HAS PLACED RELIA NCE ON THE DECISION OF ITAT PUNE BENCH IN THE CASE OF KANBAY SOPFTWARE IND IA (P) LTD. VS. DCIT (SUPRA). IN THIS CASE, THE ASSESSEE MADE A LEGAL CL AIM THOUGH ULTIMATELY IT WAS FOUND TO BE LEGALLY UNACCEPTABLE. IN THIS CASE, THE EXPLANATION FILED BY THE ASSESSEE WAS NOT FOUND TO BE FALSE. THE ASSESSEE CO NTENDED THAT IT HAS BONA FIDE OPINION OF MAKING CLAIM BASED ON THE CIRCULAR OF CBDT AND THE RULES PRESCRIBED IN INCOME TAX RULES. ON THESE FACTS, THE TRIBUNAL HAS DELETED THE PENALTY. THIS CASE IS ALSO OF NO HELP TO THE ASSESS EE. 2.26 WE HAVE ALSO CONSIDERED THE CASE LAW ON WHICH REVENUE HAS PLACED RELIANCE. WE HAVE ALSO CONSIDERED THE DECISIONS REL IED UPON BY THE LD. AR VIDE PHOTOSTAT COPY OF DECISION FIELD ON 5-09-2011. THE HON'BLE APEX COURT IN THE CASE OF CIT VS. RELIANCE PETROPRODUCTS (P) L TD., 322 ITR 158 HELD THAT MERE MAKING OF CLAIM WHICH IS NOT SUSTAINABLE IN LAW BY ITSELF WILL NOT AMOUNT TO FURNISHING INACCURATE PARTICULARS. THIS I S NOT A CASE WHERE THE CLAIM HAS NOT BEEN ALLOWED ON THE BASIS OF THE LEGA L INTERPRETATION OF CERTAIN PROVISIONS. IT HAS BEEN FACTUALLY FOUND THAT THE TR ANSACTIONS SHOWN BY THE ASSESSEE WITH M/S.PUNSUMI INDIA LTD. ARE PAPER TRAN SACTIONS IN ORDER TO EVADE TAX. THE DECISION OF HON'BLE APEX COURT IN TH E CASE OF SANJEEV FABRICS REPORTED AT 2010-TIOL-71-SC-CST IS NOT APPL ICABLE TO THE PRESENT 32 CASE. THIS DECISION IS OF NO HELP BECAUSE THE PENA LTY PROVISIONS UNDER U.P. SALES TAX ACT MENTIONS THAT PENALTY IS IMPOSABLE IF THE DECLARATION FILED IS FALSE OR DECLARENT HAS REASON TO BELIEVE THAT THE D ECLARATION IS FALSE. THE HON'BLE APEX COURT HELD THAT FINDINGS OF MENS REA IS A CONDITION PRECEDENT FOR LEVYING U/S 10(B) READ WITH SECTION 10A OF U.P. SALES TAX ACT. IT IS MENTIONED IN SECTION 10(B) THAT PENALTY IS TO BE IM POSED IF THERE IS A FALSE REPRESENTATION. THE HON'BLE APEX COURT HAS INTERPRE TED THE MEANING OF THE WORD FALSELY REPRESENTS. THIS DECISION IS OF NO HELP TO THE ASSESSEE. SIMILARLY, THE DECISION OF HON'BLE APEX COURT IN TH E CASE OF CCE, CHANDIGARH VS. PEPSI FOOD LTD., 2010(260) ELT 481 (SC) IS IN RESPECT OF PENALTY U/S 11AC OF CENTRAL EXCISE ACT. .IN SECTION 11 AC, IT IS MENTIONED THAT IF THE DUTY IS LEVIED BY THE REASONS OF FRAUD, COLLUSION OR ANY WILLFUL MISSTATEMENT OR SUPPRESSION OF FACTS, SECTION 271(1 )(C) IS NOT SIMILARLY WORDED AND THEREFORE, THIS DECISION IS OF NO HELP T O THE ASSESSEE. WE HAVE MENTIONED THE DECISIONS WHICH HAVE BEEN RELIED UPON BY THE LD. DR. WE HAVE PERUSED THE DECISIONS AND WE FEEL THAT THESE D ECISIONS ARE APPLICABLE IN THE INSTANT CASE. ON THE BASIS OF THESE DECISIONS, WE CAN CONCLUDE THAT PENALTY IS LEVIABLE IN THESE CASES. 2.27 THE DEPRECIATION ON TECHNICAL KNOW-HOW IS ALLO WABLE W.E.F. 1-04- 1998. BEFORE THAT PERIOD, DEPRECIATION WAS NOT ALLO WABLE ON KNOW-HOW. 33 ONLY DRAWINGS AND DESIGNS OBTAINED FOR INSTALLATION OF PLANT AND MACHINERY COULD HAVE BEEN CONSIDERED FOR THE PURPOSE OF DEPRE CIATION . WHILE CONSIDERING HE COST OF PLANT AND MACHINERY AND BUIL DING, THE KNOW-HOW WAS TO BE ALLOWED AS DEDUCTION U/S 35AB OF THE ACT. SUC H DEDUCTION COULD HAVE BEEN ALLOWABLE IN CASE THE KNOW-HOW HAS BEEN ACQUIR ED FOR THE PURPOSE OF BUSINESS. THE ASSESSEE WAS NOT ABLE TO START ITS PR ODUCT AND WAS FULLY AWARE OF THE FACT THAT DEDUCTION U/S 35AB WILL NOT BE ALL OWABLE. THEREFORE, PAPER TRANSACTIONS WERE MANAGED TO GET THE RECEIPT OF ROY ALTY FROM M/S.PUNSUMI INDIA LTD. SO AS TO MAKE THE CLAIM OF DEPRECIATION ON TECHNICAL KNOW-HOW. 2.28 NOW WE WILL RECORD THE FINDINGS FOR DIFFERENT ASSESSMENT YEARS AS UNDER:- ASSESSMENT YEAR 1994-95 2.29 WE HAD POINTED OUT THAT THE ASSESSMENT HAS BEE N MADE U/S 143(3) RED WITH SECTION 147. NOTICE U/S 147 WAS ISSUED ON 31 ST MAY, 2001. THE ASSESSMENT FOR ASSESSMENT YEAR 1995-96 STOOD ALREAD Y FINALIZED IN WHICH FINDING WAS RECORDED THAT THE ASSESSEE HAS MADE THE DEVICE TO EVADE THE TAX. THE ORDER OF THE LD. CIT(A) FOR THE ASSESSMENT YEAR 1995-96 WAS DECIDED ON 26-02-1999. THE ASSESSEE MADE THE CLAIM FOR DEPRECI ATION EVEN IN THE RETURN FILED IN RESPONSE TO NOTICE U/S 148 OF THE ACT. LOO KING TO THE FACTUAL FINDINGS 34 RECORDED IN RESPECT OF THE CLAIM OF DEPRECIATION, WE FEEL THAT THE LD. CIT(A) WAS JUSTIFIED IN IMPOSING THE PENALTY. ASSESSMENT YEAR 1995-96 2.30 IN THIS CASE, THE AO MADE THE INVESTIGATION AN D RECORDED THE FINDINGS THAT THE ASSESSEE HAS ADOPTED THE COLOURABE DEVICE TO EVADE THE TAX. THE FINDINGS OF THE AO WAS CONFIRMED BY THE TRIBUNAL. WE FEEL THAT THE LD. CIT(A) WAS JUSTIFIED IN CONFIRMING THE PENALTY. ASSESSMENT YEAR 1996-97 2.31 THE ASSESSMENT IN THIS CASE HAS BEEN MADE U/S 143(3) READ WITH SECTION 147 VIDE ORDER DATED 28-03-2003. THE FACTS FOR ASSESSMENT YEAR 1996-97 ARE SIMILAR TO THE FACTS FOR THE ASSESSMENT YEAR 1994-95. WE THEREFORE, FEEL THAT LD. CIT(A) WAS JUSTIFIED IN CO NFIRMING THE PENALTY. ASSESSMENT YEAR 1997-98 2.32 THE ASSESSMENT IN THIS CASE WAS COMPLETED VIDE ORDER DATD 27-03- 2000. THE ASSESSEE CLAIMED DEPRECIATION AND THE SAM E WAS NOT ALLOWED. CONSIDERING THE FACTUAL FINDINGS RECORDED IN THIS Y EAR, WE FEEL THAT THE LD. CIT(A) WAS JUSTIFIED IN CONFIRMING THE PENALTY. ASSESSMENT YEAR 1998-99 2.33 THE AO HAS MENTIONED IN HIS ORDER THAT THE ASS ESSEE HAS NOT CLAIMED DEPRECIATION. THE ASSESSEE THROUGH LETTER ATED 22-0 1-2001 MADE CLAIM FOR 35 DEDUCTION OF DEPRECIATION. IN THE ORDER, THE AO HAS MENTIONED THAT PENALTY NOTICE U/S 271(1)( C) OF THE ACT WAS ISSUED. THERE IS NO SPECIFIC MENTION AS TO THE SATISFACTION FOR IMPOSITION OF THE PENALTY I N RESPECT OF VARIOUS ADDITIONS MADE BY THE AO. AS PER SECTION 271(1B), I T IS MENTIONED THAT THE DIRECTION FOR INITIATION OF PENALTY PROCEEDINGS IN THE ORDER OF ASSESSMENT WILL BE DEEMED TO CONSTITUTE SATISFACTION FOR ANY AMOUNT ADDED OR DISALLOWED IN COMPUTING THE TOTAL INCOME OR LOSS. IN THE RETURN O F INCOME, THE ASSESSEE HAS NOT CLAIMED DEPRECIATION. HENCE, THERE IS NO DISALL OWANCE OF DEPRECIATION IN THE COMPUTATION OF INCOME. THE HON'BLE APEX COURT I N THE CASE OF IN THE GOETZE (INDIA ) LTD. VS. CIT, 284 ITR 323 HELD THAT THE AO CANNOT ENTERTAIN THE CLAIM FOR DEDUCTION OTHERWISE THAN BY A REVISED RETURN. SINCE THERE HAS BEEN NO REVISED RETURN FOR THE CLAIM OF DEPRECIATIO N, THEREFORE, PENALTY U/S 271(1)( C) IS NOT IMPOSEALE FOR THE ASSESSMENT YEA R 1998-99. HENCE, THE FINDINGS OF THE LD. CIT(A) RELATING TO IMPOSITION O F PENALTY FOR THE ASSESSMENT YEAR 1998-99 IS REVERSED. 2.34 WE HAVE UPHELD THE FINDINGS OF THE LD. CIT(A) IN RESPECT OF IMPOSITION OF PENALTY ON THE DISALLOWANCE OF DEPREC IATION FOR THE ASSESSMENT YEARS 1994-95 TO 1997-98. THE MOUS THROUGH WHICH T HE ASSESSEE WAS REQUIRED TO RECEIVE THE ROYALTY WAS ALSO PAPER TRAN SACTION. THIS ROYALTY AMOUNT, IF ANY, RECEIVED FROM M/S.PUNSUMI INDIA LTD . IS CREDITED IN THE P & 36 L A/C, WILL BE DEDUCTED FROM THE QUANTUM OF DISALLO WANCE OF DEPRECIATION FOR THE PURPOSE OF DETERMINING THE QUANTUM OF PENAL TY. THE AO WILL PROVIDE THE OPPORTUNITY TO THE ASSESSEE TO GIVE DETAILS OF ROYALTY RECEIVED FROM M/S.PUNSUMI INDIA LTD. FOR THE ASSESSMENT YEAR 1994 -95 TO 1997-98 AND AFTER CONSIDERING THESE DETAILS, THE AO WILL QUANT IFY THE MINIMUM PENALTY TO BE IMPOSABLE. 3. IN THE RESULT, THE APPEALS OF THE ASSESSEE FOR T HE ASSESSMENT YEAR 1994- 95 TO 1997-98 ARE PARTLY ALLOWED AND THE APPEAL FOR THE ASSESSMENT YEAR 1998-99 IS ALLOWED. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 07-10 -2011 SD/- SD/- (R.K. GUPTA) (N.L. KALRA) JUDICIAL MEMBER ACCOUNTANT MEMBER JAIPUR DATED; 07 /10/2011 *MISHRA COPY FORWARDED TO :- 1. M/S. PUNSUMI ENGINEERS LTD. JAIPUR 2. THE ACIT , CIRCLE- 3, JAIPUR 3. THE LD. CIT BY ORDER 4. THE LD. CIT(A) 5. THE LD.DR 6. THE GUARD FILE (ITA NO.61/JP /07) A.R, ITAT, JAIPUR 37 38 39