Thermax Ltd.(Thermax Culligan water tech. ltd), Pune V. Jt.CIT, SR-1, Pune

ITA 726/PUN/2004

• Counselvise Citation: [2015] 134 COUNSELVISE.COM (IT) 0771 (ITAT-PUNE)
• Duration Of Justice: 11 year(s) 6 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-12-2015
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 22-09-2015
• Assessment Year: 1998-1999
• Appeal Filed On: 10-05-2004
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Business expenditure; Earning of tax free income; Cost of acquisition; Revenue expenditure; Capital expenditure
• Section: 143(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A , PUNE , , BEFORE MS. SUSHMA CHOWLA, JM AND SHRI PRADIP KUMAR KEDIA , AM . / ITA NO. 726 /PN/20 0 4 / ASSESSMENT YEAR : 1998 - 99 THERMAX LIMITED (FOR AND ON BEHALF OF ERSTWHILE THERMAX CULL I GAN WATER TECHNOLOGIES LIMITED) THERMAX HOUSE, 4, BOMBAY PUNE ROAD, SHIVAJI NAGAR, PUNE 411005 . / APPELLANT PAN: AA ACT6850E VS. THE JT. COMMISSIONER OF INCOME TAX, SPECIAL RANGE 1 , PUNE . / RESPONDENT SPECIAL RANGE 1 , PUNE . / RESPONDENT . / ITA NO. 931 /PN/20 0 4 / ASSESSMENT YEAR : 1998 - 99 THE JT. COMMISSIONER OF INCOME TAX, SPECIAL RANGE 1, PUNE . / APPELLANT VS. THERMAX LIMITED (FOR AND ON BEHALF OF ERSTWHILE THERMAX CULLIGAN WATER TECHNOLOGIES LIMITED) THERMAX HOUSE, 4, BOMBAY PUNE ROAD, SHIVAJI NAGAR, PUNE 411005 . / RESPONDENT PAN: AA ACT6850E 2 ITA NO. 726 /PN/20 0 4 ITA NO. 931 /PN/20 0 4 ITA NO.7/PN/2009 M/S. THERMAX LTD . / ITA NO. 07 /PN/20 0 9 / ASSESSMENT YEAR : 200 1 - 02 THE DY . COMMISSIONER OF INCOME TAX, CIRCLE 8 , PUNE . / APPELLANT VS. THERMAX LIMITED (FOR AND ON BEHALF OF ERSTWHILE THERMAX CULLIGAN WATER TECHNOLOGIES LIMITED) THERMAX HOUSE, 4, BOMBAY PUNE ROAD, SHIVAJI NAGAR, PUNE 411005 . / RESPONDENT PAN: AA ACT6850E ASSESSEE BY : SHRI H.P. MAHAJANI DEPARTMENT BY : S/ SHRI S.K. RASTOGI, CIT AND ACHAL SHARMA, JCIT / / / DATE OF HEARING : 22 .0 9 .2015 / DATE OF PRONOUNCEMENT: 09 . 1 2 .2015 / ORDER PER SUSHMA CHOWLA, JM : THE CROSS - APPEALS FILED BY THE ASSESSEE AND THE REVENUE ARE AGAINST THE ORDER OF CIT(A) - I II , PUNE , DATED 29 .0 3 .20 0 4 RELATING TO ASSESSMENT YEAR 1998 - 99 PASSED AGAINST UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT) . THE REVENUE IS ALSO IN APPEAL AGAINST THE ORDER OF CIT(A) - III, PUNE, DATED 15.09.2008 RELATING TO ASSESSMENT YEAR 2001 - 02 AGAINST PENALTY LEVIED UNDER SECTION 271(1)(C) OF THE ACT . 3 ITA NO. 726 /PN/20 0 4 ITA NO. 931 /PN/20 0 4 ITA NO.7/PN/2009 M/S. THERMAX LTD 2. THE CROSS - APPEALS FILED BY THE ASSESSEE AND THE REVENUE WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS CONSOLIDATED ORDER FOR THE SAKE OF TOGETHER AND ARE BEING DISPOSED OF BY THIS CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE. 3 . THE ASSESSEE IN ITA NO. 726 /PN/20 0 4 HAS RAISED THE FOLLOWING GROUNDS OF APPEAL : - 1 . THE LEARNED CIT (APPEALS) ERRED IN CONFIRMING DISALLOWANCE OF PROVISION FOR WARRANTY OF RS.10,00,000/ - . 2. THE LEARNED CIT (APPEALS) FURTHER ERRED IN CONFIRMING DISALLOWANCE OF EXPENSES OF RS.30,72,633/ - . EXPENSES OF RS.30,72,633/ - . 3. THE LEARNED CIT (APPEALS) FURTHER ERRED IN CONF I RMING DISALLOWANCE OF A SUM OF RS . 3 CRORES BEING CONSIDERATION PAID UNDER A NON - COMPETE AGREEMENT . ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(A) OUGHT TO HAVE ACCEPTED THE CONTENTION OF THE APPELLANT THAT THE AMOUNT IN QUESTION WAS ALLOWABLE AS A BUSINESS EXPENDITURE IN COMPUTING THE INCOME OF THE APPELLANT FOR THE YEAR UNDER APPEAL . WITHOUT PREJUDICE TO THE ABOVE, THE LEARNED CIT(A) OUGHT TO HAVE ACCEPTED THE ALTERNATE CONTENTION OF THE APPELLANT THAT IT WAS ENTITLED TO DEDUCT I ON OF THIS AMOUNT OVER THE ENTIRE TENURE OF THE NON - COMPETE AGREEMENT V I Z. 25 YEARS OR SUCH SHORTER PERIOD AS THE CIT(A) CONSIDERED APPROPRIATE . YOUR APPELLANT RESERVES THE RIGHT TO ADD, AMEND OR DELETE ANY GROUNDS OF APPEAL IF CONSIDERED NECESSARY . 4. THE REVENUE IN ITA NO. 931 /PN/20 0 4 HAS RAISED THE FOLLOWING GROUNDS OF APPEAL : - 1. THE CIT(A) WAS NOT JUSTIFIED IN PERMITTING DEDUCTION OF PAYMENT OF RS . 53,99,272/ - MADE ON ACCOUNT OF TRADE ENQUIRIES AS REVENUE EXPENDITURE. 2. THE CIT(A) OUGHT TO HAVE HELD THAT PAYMENT FOR 'TRADE ENQUIRY' MADE TO TRANSFEROR WAS CAPITAL EXPENDITURE, AFTER HAVING TAKEN NOTE OF THE FACT IN PARA 5.3 OF THE APPELLATE ORDER THAT AMOUNT PAID AS TRADE ENQUIRI ES WAS INCLUDED 5.3 OF THE APPELLATE ORDER THAT AMOUNT PAID AS TRADE ENQUIRI ES WAS INCLUDED IN THE COST OF ACQUISITION & FORMED PART OF THE CONSIDERATION PAID FOR TRANSFER OF BUSINESS OF 'WATER TREATMENT PRODUCT'. 3. THE CIT(A) ERRED IN NOT FOLLOWING THE RATIO OF DECISION OF JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. PLASMAC MACHINE MANUFACTURING CO LIMITED (201 ITR 650) THAT CONSIDERATION PAID FOR TRANSFER OF BUSINESS WAS CAPITAL EXPENDITURE. 4. THE CIT(A) ALSO ERRED IN ALLOWING DEDUCTION OF RS . 85,76,631 / - PAID TO THERMAX L TD (TRANSFEROR) AS COMMISSION FOR THE PENDI NG SALE ORDERS & ENQUIRIES OF' WATER TREATMENT PRODUCT' BUSINESS WITHOUT TAKING NOTE OF THE FACT THAT CONSIDERATION PAID (OVER & ABOVE NON COMPETE CONSIDERATION OF 3 CRORES) AS PER ARTICLE 4 OF THE BUSINESS TRANSFER AGREEMENT DT. 29/3/97 WAS ALSO IN RESPECT OF ALL PENDING CUSTOMER ORDERS, CUSTOMER LISTS/ENQUIRIES ETC. ALSO IN RESPECT OF ALL PENDING CUSTOMER ORDERS, CUSTOMER LISTS/ENQUIRIES ETC. TRANSFERRED AS PER ARTICLES 3 & 6 OF THE SAID AGREEMENT. 4 ITA NO. 726 /PN/20 0 4 ITA NO. 931 /PN/20 0 4 ITA NO.7/PN/2009 M/S. THERMAX LTD 5. THE CIT(A) THUS FAILED TO CONSIDER THAT THE COMMISSION WAS NOT PAID TO THE TRANSFEROR FOR ANY BUSINESS EXIGENCIES OR FOR ANY SERVICES RENDERED IN TRANSFEROR FOR ANY BUSINESS EXIGENCIES OR FOR ANY SERVICES RENDERED IN RESPECT OF SALE ORDERS/ENQUIRIES NOT STIPULATED IN ARTICLE 6 OF THE BUSINESS TRANSFER AGREEMENT DT.29/3/97. 6. THE ORDER OF THE CIT(A) BE VACATED AND THAT OF THE AO BE RESTORED. 7. THE APPELLANT CRAVES LEAVE TO ADD, AMEND OR ALTER ANY OF THE ABOVE GROUNDS OF APPEAL. 5 . THE REVENUE IN ITA NO. 07 /PN/200 9 HAS RAISED THE FOLLOWING GROUNDS OF APPEAL : - 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, AND IN LAW THE LD. CIT(A) - III ERRED IN DELETING THE PENALTY U/S 271 (1)(C) OF THE I.T. ACT, 1961 BY HOLDING THAT ASSESSEE HAS NOT WILLFULLY FILED INACCURATE PARTICULARS OF ITS INCOME AND IN FURTHER APPLYING THE RATIO OF DECISION OF HON'BLE RAJASTHAN HIGH COURT IN CIT VS. HARSHWARDHAN CHEMICALS & INDUSTRIES LTD. ( 259 ITR 212) THAT W HERE AN ARGUABLE, CONTROVERSIAL AND DEBATABLE DEDUCTION IS CLAIMED, THE CLAIM COULD NOT BE SAID TO BE FALSE. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, AND IN LAW THE LD. CIT(A) - III ERRED IN IGNORING THE OBSERVATION OF THE HON'BLE SUPREME COURT, IN THE CASE OF UNION OF INDIA VS. D HARMENDRA TEXTILE PROCESSORS 295 ITR 244, THAT PENALTY U/S 271 (1)(C) IS A CIVIL LIABILITY AND ATTRACTING SUCH CIVIL LIABILITY, WILLFUL CONCEALMENT IS NOT AN ESSENTIAL INGREDIENT AS IS THE CASE IN THE MATTER OF PRO SECUTION U/S 276C WHICH IS VERY MUCH APPLICABLE IN THIS CASE. PRO SECUTION U/S 276C WHICH IS VERY MUCH APPLICABLE IN THIS CASE. 3. THE ORDER OF THE CIT(A) MAY PLEASE BE VACATED AND THAT OF THE ASSESSING OFFICER'S ORDER BE RESTORED. 4. THE APPELLANT CRAVES LEAVE TO ADD, AMEND OR ALTER ANY OF THE ABOVE GROUNDS OF APPEA L. 6. THE GROUND OF APPEAL NO.1 RAISED BY THE ASSESSEE IS NOT PRESSED, HENCE, THE SAME IS DISMISSED AS NOT PRESSED. 7. THE ISSUE IN GROUND OF APPEAL NO.2 IS AGAINST THE DISALLOWANCE OF EXPENDITURE OF RS.30,72,633/ - . 8. BRIEFLY, IN THE FACTS OF THE PRESENT CASE, THE ASSESSEE WAS ENGAGED IN THE MANUFACTURE AND SALE OF WATER TREATMENT PLANTS AND PURIFIED WATER. THE ASSESSEE COMPANY WAS INCORPORATED ON 16.01.1997 AND IT WAS A JOINT VENTURE BETWEEN THERMAX LIMITED AND CULLIG AN INTERNATIONAL I NC , USA. WITH EFFECT FROM 01.04.1997, 5 ITA NO. 726 /PN/20 0 4 ITA NO. 931 /PN/20 0 4 ITA NO.7/PN/2009 M/S. THERMAX LTD THE ASSESSEE COMPANY TOOK OVER THE PRODUCTS BUSINESS OF WATER TREATMENT DIVISION OF THERMAX LTD. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE STARTED MANUFACTURING COMMERCIAL, HOUSEHOLD AND IND USTRIAL WATER TREATMENT EQUIPMENT AT BHOSARI AND ITS PLANT FOR MANUFACTURE OF PURIFIED DRINKING WATER AT TAL OJA ALSO COMMENCED COMMERCIAL PRODUCTION IN MARCH, 1998. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HAD CLAIMED MARKET EXPENDITURE OF RS.30,72,6 7 3/ - , WHICH WAS INCURRED AFTER SETTING UP OF THE BUSINESS, BUT BEFORE THE START OF COMMERCIAL PRODUCTION AND HAD BEEN TREATED AS DEFERRED REVENUE EXPENDITURE TO BE WRITTEN OFF OVER A PERIOD OF THREE YEARS. THE ASSESSING OFFICER OBSERVED THAT IT WAS NOT CLEAR AS TO IN WHICH YEAR THE ABOVE EXPENDITURE WAS INCURRED I.E. IN FINANCIAL YEAR 1997 - 98 OR 1996 - 97 AND EVEN OTHERWISE, THE SAID EXPENDITURE WAS INCURRED PRIOR TO COMMENCEMENT OF COMMERCIAL PRODUCTION AND THUS, WAS NOT ALLOWABLE. 9. BEFORE THE CIT(A), THE CONTENTION OF THE ASSESSEE WAS THAT IT TOOK OVER THE BUSINESS OF MANUFACTURING WATER TREATMENT PRODUCTS FROM THEMAX LTD. W.E.F. 01.04.1997 AND SINCE BUSINESS WAS ALREADY SET UP ON 01.04.1997, THE EXPENSES INCURRED WERE ALLOWABLE AS BUSINESS EXPENDITURE. THE ASSESSEE FURTHER CONTENTED THAT IN MARCH, 1998, IT STARTED COMMERCIAL PRODUCTION OF BOTTLE D WATER , WHICH WAS A SPECIE S OF WATER TREATMENT PRODUCT BUSINESS. THE CIT(A) OBSERVED THAT THE EXPENSES WERE IN CURRED DURING THE YEAR, WHICH IN TURN, WERE VERIFIABLE FROM THE BOOKS OF ACCOUNT. HENCE, THE CONTENTION OF THE ASSESSING OFFICER WHEN THIS EXPENDITURE WAS INCURRED, WAS NOT CORRECT. HOWEVER, THE CONTENTION OF THE ASSESSEE THAT THE EXPENSES WERE INCURRED FOR MARKETING OF THE PRODUCTS WAS REJECTED ON THE PREMISE THAT THE ASSESSEE HAD FAILED TO FURNISH THE REASONS FOR HOLDING THE EXPENSES AS PRE - COMMERCIAL PRODUCTION EXPENSES AND ALSO FAILED TO GIVE EXACT DATES OF EXPENSES INCURRED, SINCE MOST OF THE EXPENSE S WERE MADE BY 6 ITA NO. 726 /PN/20 0 4 ITA NO. 931 /PN/20 0 4 ITA NO.7/PN/2009 M/S. THERMAX LTD GENERAL ENTRY ON 31.03.1998. IN THE ABSENCE OF DATE - WISE DETAILS OF ACTUAL INCURRING OF EXPENSES BEING NOT FURNISHED, THE CIT(A) HELD THAT IT WAS NOT VERIFIABLE WHETHER THE EXPENSES WERE INCURRED PRIOR TO SET UP OF BUSINESS AND SINCE THE AS SESSEE ITSELF HAD TAKEN THE SAME AS PRE - PRODUCTION EXPENSES, IN THE ABSENCE OF PROPER DETAILS, THE ORDER OF ASSESSING OFFICER WAS CONFIRMED BY THE CIT(A). 10. THE ASSESSEE IS IN APPEAL AGAINST THE ORDER OF CIT(A). 11. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT THE EXPENDITURE WAS INCURRED AFTER SETTING UP OF THE BUSINESS AND WAS ALLOWABLE EVEN IF THE COMMERCIAL PRODUCTION WAS NOT STARTED. HE FURTHER STATED THAT THE DETAILS OF EXPENSES ARE A VAILABLE AT PAGES 1 TO 8 OF THE PAPER BOOK AND THE ASSESSING OFFICER WAS CONFUSED ABOUT SETTING UP OF THE BUSINESS AND COMMENCEMENT OF BUSINESS. THE SAID EXPENDITURE WAS DEBITED TO THE PROFIT & LOSS ACCOUNT AND WAS CLAIMED IN THE RETURN OF INCOME. CLAIMED IN THE RETURN OF INCOME. 12. TH E LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE POINTED OUT THAT THE ONUS WAS UPON THE ASSESSEE TO PROVIDE THE DETAILS AND FURTHER THE ONUS WAS UPON THE ASSESSEE TO EXPLAIN THAT THE EXPENSES WERE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF SET TING UP OF THE BUSINESS. IN THE ABSENCE OF ANY DETAILS BEING FILED BY THE ASSESSEE IN THIS REGARD, THOUGH THERE WAS FIRST ONE ASPECT OF THE BUSINESS BEING THERE, BUT SECOND ASPECT OF THE EXPENSES BEING INCURRED BEFORE COMMENCEMENT OF BUSINESS OR THEREAFTE R, WAS NOT ESTABLISHED. 13. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION HAD STARTED BUSINESS OF WATER TREATMENT PLANT AS ON 01.04.1997. THE ASSESSEE WAS A JOINT VENTURE COMPANY BETWEEN T HERMAX LTD. AND M/S. CULLIGAN INTERNATIONAL INC , AND WAS FOUND IN THE PRECEDING YEAR. THE 7 ITA NO. 726 /PN/20 0 4 ITA NO. 931 /PN/20 0 4 ITA NO.7/PN/2009 M/S. THERMAX LTD BUSINESS OF MANUFACTURE OF WATER TREATMENT PRODUCTS FOR INDUSTRIAL USE WAS ACQUIRED BY IT FROM THERMAX LTD., UNDER BUSINESS TRANSFER AGREEMENT DATED 29.03.1997. THE COPY OF AGREEMENT IS PLACED AT PAGES 34 TO 59 OF THE PAPER BOOK. THE ASSESSEE CLAIMS THAT FOR THE YEAR UNDER CONSIDERATION, IT HAD INCURRED MARKETING EXPENSES OF RS.30,72,663/ - AFTER SETTING UP OF THE BUSINESS, WHICH WAS TREATED AS DEFERRED EXPENDITURE I N ITS BOOKS OF ACCOUNT. THE SAID EXPENDITURE WAS NOT ALLOWED IN THE HANDS OF THE ASSESSEE BY ASSESSING OFFICER ON THE PREMISE THAT THE YEAR IN WHICH THE SAID EXPENDITURE WAS INCURRED WAS NOT CLEAR. THE CIT(A) THOUGH CONFIRMED THAT THE D ATES OF EXPENSES INCURRED, BUT DISALLOWED THE SAME AS IT WAS NOT VERIFIABLE WHETHER THE EXPENSES WERE INCURRED PRIOR TO SETTING UP OF THE BUSINESS AND ALSO SINCE THE ASSESSEE ITSELF HAD TREATED THEM AS PRE - PRODUCTION EXPENSES. THE NOMENCLATURE OF EXPENDITURE DOES NOT DECIDE ITS ALLOWABILITY . IT IS THE NATURE OF EXPENDITURE INCURRED AND WHETHER THE SAME IS RELATABLE TO CARRYING ON OF THE BUSINESS IS THE DECIDING FACTOR FOR ALLOWING THE SAID EXPENDITURE IN THE HANDS OF THE ASSESSEE. THE COURTS HAVE ALSO HELD T HAT EVEN THE ENTRIES IN THE BOOKS OF ACCOUNT ARE NOT DECISIVE OF ITS ALLOWABILITY. THE PERUSAL OF DETAILS FILED BY THE ASSESSEE AT PAGES 1 TO 8 OF THE PAPER BOOK WITH BREAK - UP OF PRE - COMMENCEMENT OF EXPENSES AT PAGE 1 OF THE PAPER BOOK REFLECT THAT SEVERAL EXPENSES BEING DEBITED AS PRE - COMMENCEM ENT EXPENSES. THERE IS ADVERTISEMENT O F RS.6,57, 110 / - , THEREAFTER, THE ASSESSEE HAS DEBITED EXPENSES OF BROKERAGE, COMMUNICATION , CONVEYANCE, FREIGHT INWARD , LEGAL FEES, PROFESSIONAL FEES, REC RUITMENT EXPENSES, SALARIES, SALES CONFERENCE , SALES PROMOTION, TRAVELING, FOREIGN TICKETS, FOREIGN ALLOWANCE AND VEHICLE EXPENSES TOTALING RS.30,72,672/ - AS PRE - COMMENCEMENT EXPENSES. THE BREAK - UP OF THE EXPENSES HAVE ALSO BEEN FURNISHED. THE FIRST EXPENSES IS CORPORATE ADVERTISEMENT OF RS.6,50,845/ - , WHICH IS BOOKED ON 31.03.1998. FURTHER, EVEN THE BROKERAGE EXPENSES ARE BOOKED ON 31.03.1998 . THERE IS BREAK - UP OF OTHER EXPENSES, WHICH WERE INCURRED PRIOR TO 31.03.1998, BUT 8 ITA NO. 726 /PN/20 0 4 ITA NO. 931 /PN/20 0 4 ITA NO.7/PN/2009 M/S. THERMAX LTD THE NATURE OF EXPENSES IS NOT WHOLLY FOR MARKETING. IT IS DIFFICULT TO UNDERSTAND HOW REPAIRS BOOKED BY THE ASSESSEE , T HE PROFESSIONAL FEES BOOKED BY THE ASSESSEE AND EVEN THE SALARIES TO PERSONS AND TO EXECUTIVES OF RS.3,48,542/ - AND RS. 2 , 54,46 5 / - RESPECTIVELY, ARE IN THE NATURE OF MARKETING EXPENSES. THE ASSESSEE HAS FURTHER BOOKED TRAVELLING EXPENSES OF RS.1,50,000/ - , FOREIGN TICKET OF RS.1,83,644/ - AND FOREIGN ALLOWANCE OF RS.72,685/ - . THE TELEPHONE EXPENSES ARE ALSO ADDED. THE TRAVELLING EXP ENSES DETAILS ARE OVER PERIOD OF YEAR. HOWEVER, FOREIGN AIR TICKET IS AT THE CLOSE OF YEAR BY WAY OF GENERAL ENTRY. THE ENTRIES MADE BY THE ASSESSEE DO NOT REFLECT THEIR CONNECTION WITH THE MARKETING EXPENSES AND THE ONUS WAS UPON THE ASSESSEE TO ESTABLI SH THE SAME. THE ASSESSEE HAS FAILED TO ESTABLISH THE NATURE OF THE SAID EXPENSES BOOKED UNDER THE HEAD MARKETING EXPENSES AND ALSO AS PRE - COMMENCEMENT EXPENSES. WE FIND NO MERIT IN THE PLEA OF THE ASSESSEE IN THIS REGARD AND THE ONUS NOT BEING DISCHARGE D BY THE ASSESSEE, THE DISALLOWANCE OF RS.30,7 2 ,633/ - IS UPHELD. 14. NOW, COMING TO THE GROUND OF APPEAL NO.3 RAISED BY THE ASSESSEE, WHICH IS AGAINST THE DISALLOWANCE OF EXPENDITURE OF RS.3 CRORES PAID UNDER 25 YEARS NON - COMPETE AGREEMENT. THE ALTERNA TE PLEA OF THE ASSESSEE IN THIS REGARD IS ITS CLAIM OF AMORTIZATION OF EXPENSES. 15. BRIEFLY, IN THE FACTS RELATING TO THE ISSUE , THE ASSESSEE COMPANY HAD ENTERED INTO A NON - COMPETE AGREEMENT WITH THERMAX LTD. AT THE TIME OF TAKING OVER THE INDUSTRIAL PRO DUCTS MARKET SEGMENT. THE SAID EXPENDITURE OF RS.300 LAKHS WAS AMORTIZED OVER A PERIOD OF AGREEMENT I.E. 25 YEARS. THE ASSESSEE CLAIMED THAT THE SAID EXPENDITURE WAS INCURRED AFTER SE TTING UP OF THE BUSINESS AND IN THE ROUTINE COURSE OF CARRYING ON OF TH E BUSINESS AND THAT EITHER RS.300 LAKHS SHOULD BE ALLOWED OR PRORATA AMOUNT WRITTEN OFF OF RS.12 LAKHS MAY BE ALLOWED. THE ASSESSING OFFICER WAS OF THE VIEW THAT THE OBJECT OF SAID PAYMENT WAS TO DERIVE A N 9 ITA NO. 726 /PN/20 0 4 ITA NO. 931 /PN/20 0 4 ITA NO.7/PN/2009 M/S. THERMAX LTD ADVANTAGE BY ELIMINATING COMPETITION FOR OVER A LENGTH OF 25 YEARS AND RELYING ON THE RATIO LAID DOWN BY THE HONBLE SUPREME COURT IN CIT VS. COAL SHIPMENT P. LTD. REPORTED IN 82 ITR 902 (SC) AND 84 ITR 277 (SC), HELD THAT THE ABOVE EXPENDITURE WAS OF CAPITAL NATURE . S INCE THE SAID EXPENDITURE WAS CLAI MED BY THE ASSESSEE BY WAY OF COVERING LETTER, IN WHICH NO SEPARATE ADDITION WAS MADE IN THIS REGARD. 16. THE CIT(A) NOTED THAT THE NON - COMPETE AGREEMENT FOR CONTINUATION OF BUSINESS AND ELIMINAT ING COMPETITION FOR LENGTH OF PERIOD WAS ESSENTIALLY A CAP ITAL EXPENDITURE AS THE ASSESSEE HAD DERIVED BENEFIT OF ENDURING NATURE AND THE ORDER OF ASSESSING OFFICER IN THIS REGARD, WAS UPHELD. 17. THE ASSESSEE IS IN APPEAL AGAINST THE ORDER OF CIT(A). 18. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE P OINTED OUT THAT THE ASSESSEE HAD ENTERED INTO THE AFORESAID AGREEMENT FOR ACQUISITION OF BUSINESS I.E. ASSESSEE HAD ENTERED INTO THE AFORESAID AGREEMENT FOR ACQUISITION OF BUSINESS I.E. ONE SEGMENT OF INDUSTRIAL WATER TREATMENT PRODUCTS. OUR ATTENTION WAS DRAWN TO THE NON - COMPETE AGREEMENT PLACED AT PAGES 60 TO 62 OF THE PAPER BOOK. 1 9. THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE POINTED OUT THAT THE ISSUE IS SQUARELY COVERED AGAINST THE ASSESSEE, IN VIEW OF THE RATIO LAID DOWN BY SPECIAL BENCH OF DELHI TRIBUNAL IN TECUMSEH INDIA PVT. LTD. VS. ADDL.CIT IN ITA NO.3759/DEL/20 03 , ORDER DATED 30.07.2010 , WHEREIN THERE WAS AN AGREEMENT FOR 5 YEARS AND THE PAYMENT MADE IN PURSUANCE OF NON - COMPETE AGREEMENT WAS HELD TO BE CAPITAL EXPENDITURE. HE FURTHER POINTED OUT THAT IN THE CASE OF ASSESSEE, THE BENEFIT IS OF FURTHER ENDURING N ATURE AS THE NON - COMPETE AGREEMENT IS FOR PERIOD OF 25 YEARS. 10 ITA NO. 726 /PN/20 0 4 ITA NO. 931 /PN/20 0 4 ITA NO.7/PN/2009 M/S. THERMAX LTD 20. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE ASSESSEE IN THE YEAR UNDER CONSIDERATION HAD CLAIMED EXPENDITURE OF RS.3 CRORES ON ACCOUNT OF NON - COMPETE FEES PAID. THERMAX LTD. AND THERMAX CULLIGAN WATER TECHNOLOGIES LTD. HAD ENTERED INTO AN AGREEMENT DATED 29.03.1997 I.E. NON COMPETITION AGREEMENT. UNDER THE TERMS OF SAID AGREEMENT, IT WAS RECOGNIZED THAT THE ASSESSEE BEFORE US WAS A COMPANY INCORPORATED AS A JOINT VENTURE COMPANY WITH EQUAL EQUITY PARTICIPATION BY THERMAX AND M/S. CULLIGAN INTERNATIONAL INC. IT WAS FURTHER AGREED UPON THAT THERMAX LTD., WHICH HAD ACQUIRED CONSIDERABLE KNOW - HOW, TECHNOLOGY AND REPUTATION IN WATER TREATMENT , TO TRANSFER ENTIRE BUSIN ESS UNDERTAKING OF THE WATER TREATMENT PRODUCTS DIVISION, COMPRISING BOTH TANGIBLE AND INTANGIBLE ASSETS TO THE ASSESSEE, OTHER THAN THOSE RELATED TO PROJECT BUSINESS. AS PER THE SAID AGREEMENT, THERMAX LTD. AGREED TO GIVE UP, PART WITH, CEASE AND DESIST FROM CARRYING ON THE WATER TREATMENT PRODUCT BUSINESS ANYWHERE IN INDIA. THERE WERE OTHER TERMS INTER - CONNECTED TO THE SAID TAKEOVER OF THE WATER TREATMENT PRODUCT BUSINESS . IT WAS CLEARLY AGREED THAT THERMAX LTD. SHALL NOT PROVIDE ANY PERSON, OTHER THAN ASSESSEE AND / OR ITS AFFILIATES, WITH ANY INFORMATION, KNOW - HOW OR OTHER ASSISTANCE IN RELATION TO THE PRODUCTS BUSINESS EITHER ON ITS OWN ACCOUNT OR FOR ANY OTHER PERSON. IN CONSIDERATIO N TO THE AFORESAID NON COMPETITION RESTRICTIONS AND OBLIGATIONS, THE ASSESSEE AGREED TO PAY SUM OF RS.3 CRORES TO M/S. THERMAX LTD. THE SAID AGREEMENT WAS TO BE IN FORCE FROM THE DATE OF AGREEMENT FOR A PERIOD OF 25 YEARS AND SHAL L NOT BE SUBJECT TO TERMINATION, EXCEPT IN ACCORDANCE WITH PROVISIONS OF THE SAID AGREEMENT. 21. THE ISSUE ARISING BEFORE US IS WHETHER THE SAID EXPENDITURE INCURRED BY THE ASSESSEE ON ACQUISITION OF ITS BUSINESS AND OTHER RELATED TERMS AND CONDITIONS FOR CARRYING ON OF THE BUSINESS INCLUDING KNOW - HOW, ETC. IS TO BE ALLOWED A S REVENUE EXPENDITURE IN ITS HANDS OR HAS TO BE CAPITALIZED AS CAPITAL EXPENDITURE. WE FIND 11 ITA NO. 726 /PN/20 0 4 ITA NO. 931 /PN/20 0 4 ITA NO.7/PN/2009 M/S. THERMAX LTD THAT THE ISSUE IS SQUARELY COVERED AGAINST THE ASSESSEE BY THE ORDER OF SPECIAL BENCH OF DELHI TRIBUNAL IN TECUMSEH INDIA PVT. LTD. VS . ADDL.CIT (SUPRA) , WHEREIN, IT WAS HELD THAT WHERE THE ASSESSEE ENTERS INTO A NON COMPETITION AGREEMENT AND WHERE THE BENEFITS ACQUIRED ARE OF ENDURING NATURE, THE SAME IS TO BE TREATED AS CAPITAL EXPENDITURE. IN THE AFORESAID CASE, THE AGREEMENT WAS FOR A PERIOD OF 5 YEARS. ON THE OTHER HAND, THE AGREEMENT BETWEEN THE PARTIES BEFORE US IS FOR A TERM OF 25 YEARS AND HENCE, THE BENEFIT ACQUIRED BEING ENDURING IN NATURE STANDS ESTABLISHED. RESPECTFULLY, FOLL OWING THE RATIO LAID DOWN BY THE SPECIAL BENCH OF DELHI TRIBUNAL IN TECUMSEH INDIA PVT. LTD. VS . ADDL.CIT (SUPRA), WE HOLD THAT THE EXPENDITURE OF RS.3 CRORES INCURRED BY THE ASSESSEE IS IN THE NATURE OF CAPITAL EXPENDITURE AND THE SAME IS NOT TO BE ALLOWED AS DEDUCTION IN THE HANDS OF ASSESSEE. THE GROUND OF APPEAL NO.3 RAISED BY THE ASSESSEE IS THUS, DISMISSED. THE ALTERNATE PLEA OF THE ASSESSEE THAT IT IS ENTITLED TO PRORATA DEDUCTION OF AMOUNT OF RS.300 LAKHS, IS NOT ALLOWABLE, IN VIEW OF OUR HOLDING THAT THE SAID EXPENDITURE IS CAPITAL EXPENDITURE. THE APPEAL OF THE ASSESSEE IS THUS, DISMISSED. 22. NOW, COMING TO THE APPEAL FILED BY THE REVENUE . 23. THE GROUNDS OF APPEAL NO.1 TO 3 RAISED BY THE REVENUE ARE AGAINST THE ORDER OF CIT(A) IN ALLOWING THE EXPENDITURE ON TRADE ENQUIRIES OF RS.53,99,272/ - AS REVENUE EXPENDITURE. 24. BRIEFLY, THE FACTS OF THE CASE ARE THAT THE ASSESSEE HAD INCURRED AN EXPENDITURE OF RS. 80,98,908/ - , WHICH WAS PAID FOR ACQUIRING TRADE ENQUIRIES FROM THERMAX LTD. THE ASSESSEE HAD CHARGED 1/3 RD OF THE SAID AMOUNT I.E. RS.26,99,636/ - TO THE PROFIT & L OSS ACCOUNT. THE ASSESSEE HAD AMORTIZED THE SAID AMOUNT OVER A PERIOD OF THREE YEARS. HOWEVER, IN THE COMPUTATION OF INCOME, THE ASSESSEE HAD CLAIMED THE EXPENDITURE AT RS.80,98,908/ - . THE ASSESSING OFFICER 12 ITA NO. 726 /PN/20 0 4 ITA NO. 931 /PN/20 0 4 ITA NO.7/PN/2009 M/S. THERMAX LTD ALLOWED THE EXPENDITURE OF RS.26,99,636/ - BEIN G DEBITED TO PROFIT & LOSS ACCOUNT. THE ASSESSING OFFICER OBSERVED THAT SINCE THE TRADE ENQUIRIES IN RESPECT OF COST INCURRED OF RS. 53,99,272/ - HAD NOT FRUCTIFIED DURING THE RELEVANT YEAR, HENCE THE SAME WAS NOT ALLOWABLE IN THE HANDS OF ASSESSEE. 25. THE CIT(A) ALLOWED THE ENTIRE EXPENDITURE OF RS. 80,98,908/ - AS THE SAME WAS INCURRED IN THE YEAR UNDER CONSIDERATION. THE CIT(A) HELD THAT THE ASSESSEE WAS ENTITLED TO THE SAID DEDUCTION IRRESPECTIVE OF ACCOUNTING TREATMENT GIVEN TO IT. THE MATCHING CONC EPT WHICH WAS INVOKED BY THE ASSESSING OFFICER WAS HELD TO BE NOT APPLICABLE IN THE YEAR UNDER CONSIDERATION. THE TRADE ENQUIRIES WHICH WERE TAKEN OVER AS PART OF THE BUSINESS AGREEMENT DID NOT HAVE ANY FIXED PERIOD OF TIME , FURTHER THESE TRADE ENQUIRIES MAY OR MAY NOT HAVE F INALIZED IN CONFIRMED ORDER UNLIKE IN THE CASE OF DEBENTURES WHICH HAD A PRE - DETERMINED LIABILITY IN RE SPECT OF PREMIUM AND INTEREST. 26. THE REVENUE IS IN APPEAL AGAINST THE ORDER OF CIT(A). 27. THE LEARNED DEPARTMENTAL REPRESENTATI VE FOR THE REVENUE I N THIS REGARD POINTED OUT THAT WHERE THE ASSESSEE HAD ACQUIRED THE WATER TREATMENT BUSINESS FROM THERMAX LTD., THE EXPENDITURE INCURRED FOR ACQUIRING THE BUSINESS INCLUDING THE PENDING TRADE ENQUIRIES WAS PART OF CAPITAL COST AND HENCE, WAS NOT ALLOWABLE AS AN EXPENDITURE. 28. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE ON THE OTHER HAND, POINTED OUT THAT IRRESPECTIVE OF ENTRIES IN THE BOOKS OF ACCOUNT, WHERE THE ASSESSEE HAD ACQUIRED TRADE ENQUIRIES WORTH RS.4264.27 LAKHS, WHICH IN TURN WERE TRANSFERRED BY THERMAX LTD. TO THE ASSESSEE AND CONSIDERATION PAID FOR SUCH 13 ITA NO. 726 /PN/20 0 4 ITA NO. 931 /PN/20 0 4 ITA NO.7/PN/2009 M/S. THERMAX LTD ENQUIRIES AT RS.80.98 LAKHS, THOUGH AMORTIZED IN THE BOOKS OF ACCOUNT OVER A PERIOD OF THREE YEARS, WAS ALLOWABLE AS DEDUCTION IN THE HAN DS OF ASSESSEE. 29. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. ADMITTEDLY, THE ASSESSEE IN LINE WITH THE ACQUISITION OF WATER TREATMENT BUSINESS FROM THERMAX LTD. HAD ALSO RECEIVED LIST OF TRADE ENQUIRIES, WHICH WERE PENDING FOR EXECUTIO N FROM THERMAX LTD. THE WORTH OF TRADE ENQUIRIES WERE ABOUT RS. 4264.27 LAKHS . OUT OF CONSIDERATION PAID UNDER BUSINESS AGREEMENT BETWEEN THE PARTIES, THE CONSIDERATION FOR SUCH ENQUIRIES WAS ASCERTAINED AT RS.80.98 LAKHS AND IN THE BOOKS OF ACCOUNT, THE ASSESSEE AMORTIZED THE SAME OVER A PERIOD OF THREE YEARS AND ACCORDINGLY, SUM OF RS.26,99,636/ - WAS CHARGED TO THE PROFIT & LOSS ACCOUNT. HOWEVER, IN THE COMPUTATION OF INCOME ATTACHED ALONG WITH RETURN OF INCOME, THE ASSESSEE CLAIMED AN EXPENDITURE OF RS .80,98,908/ - . THE SAID EXPENDITURE IS ALLOWABLE IN THE HANDS OF THE ASSESSEE IN ENTIRETY AS THE SAME HAS BEEN INCURRED FOR SMOOTH AND EFFICIENT CARRYING ON OF THE BUSINESS BY THE ASSESSEE . AS REFERRED TO BY US IN THE PARAS HEREINABOVE AND ALSO I N THE AGR EEMENT ENTERED INTO BETWEEN THE PARTIES, THERMAX LTD. WAS IN THE BUSINESS OF WATER TREATMENT FOR SEVERAL YEARS AND THE ASSESSEE HAD AGREED TO PAY NON - COMPETE FEES OF RS.300 LAKHS WHILE ACQUIRING THE SAID BUSINESS . I N ADDITION AS PER THE BUSINESS AGREEMENT ENTERED INTO BETWEEN THE PARTIES, THE ASSESSEE ALSO AGREED TO PAY SUM OF RS.80,98,908/ - FOR TRANSFERRING THE TRADE ENQUIRIES WORTH RS. 4264.27 LAKHS BY THERMAX TO THE ASSESSEE. THE EXPENDITURE HAVING BEEN INCURRED IN THE COURSE OF CARRYING ON OF THE BUSINESS IS DULY ALLOWABLE AS BUSINESS EXPENDITURE IN THE HANDS OF THE ASSESSEE, IN TOTALITY. WE FIND NO MERIT IN THE ORDER OF ASSESSING OFFICER IN RESTRICTING THE DEDUCTION TO SUM OF RS. 26,99,636/ - BEING THE AMOUNT DEBITED TO PROFIT & LOSS ACCOUNT AS AGAINST THE CLAIM OF THE ASSESSEE IN THE COMPUTATION OF INCOME AT RS. 80,98,908/ - . THE GROUNDS OF APPEAL NO.1 TO 3 RAISED BY THE REVENUE ARE THUS, DISMISSED. 14 ITA NO. 726 /PN/20 0 4 ITA NO. 931 /PN/20 0 4 ITA NO.7/PN/2009 M/S. THERMAX LTD 30. THE GROUNDS OF APPEAL NO.4 AND 5 ARE ON ACCOUNT OF COMMIS SION PAID AGAINST PENDING SALES ORDE RS TOTALING RS. 85,76,631/ - . 31. SIMILAR TO THE EARLIER GROUNDS OF APPEAL RAISED BY THE REVENUE , THE ASSESSEE WHILE ACQUIRING THE BUSINESS FROM THERMAX LTD. HAD ALSO PAID COMMISSION AGAINST THE PENDING SALES ORDERS, WHICH WAS TO BE EXECUTED BY THE ASSESSEE , SINCE THE BUSINESS IN ENTIRETY WAS ACQUIRED BY THE ASSESSEE. THE ASSESSING OFFICER DID NOT ALLOW THE CLAIM OF ASSESSEE AS NO EVIDENCE WAS FILED TO PROVE THAT THE SERVICES HAVE ACTUALLY BEEN INCURRED. AS PER THE ASSESSING OFFICER, THE COMMISSION WAS NOT PAID IN ANY BUSINESS OR ANY SERVICES RENDERED IN RESPECT OF SALES ORDERS / ENQUIRIES NOT STIPULATED IN THE BUSINESS TRANSFER AGREEMENT. ACCO RDINGLY, THE SAID EXPENDITURE OF RS. 85,76,631/ - WAS DISALLOWED IN THE HANDS OF ASSESSEE. 32. THE CIT(A) ACKNOWLED GED THAT THE BASIC DETAILS WERE FILED BY THE ASSESSEE AND THE MAIN COMMISSION WAS PAID TO THERMAX LTD. WHILE ACQUIRING BUSINESS AS PER AND THE MAIN COMMISSION WAS PAID TO THERMAX LTD. WHILE ACQUIRING BUSINESS AS PER TERMS OF THE BUSINESS AGREEMENT. 33. THE REVENUE IS IN APPEAL AGAINST THE ORDER OF CIT(A). 34. THE LEARNED DEPARTMENT AL REPRESENTATIVE FOR THE REVENUE BEFORE US STRESSED THAT IN THE ABSENCE OF ANY DETAILS, THE SAID EXPENDITURE IS NOT ALLOWABLE. 35. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE PLACED RELIANCE ON THE ORDER OF CIT(A). 36. WE FIND NO MERIT IN THE CLAIM OF THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE IN THIS REGARD, WHEREIN THE PAYMENT HAS BEEN MADE AS PER THE TERMS OF THE BUSINESS TRANSFER AGREEMENT AGREED UPON BETWEEN THE PARTIES, UNDER WHICH THE CONFIRMED SALES ORDERS WERE TRANSFERRED BY THERMAX LTD. TO THE ASSESSEE AND 15 ITA NO. 726 /PN/20 0 4 ITA NO. 931 /PN/20 0 4 ITA NO.7/PN/2009 M/S. THERMAX LTD OUT OF THE TOTAL CONSIDERATION PAYABLE TO THERMAX LTD., IN TERMS OF BUSINESS TRANSFER AGREEMENT, SUM OF RS.67.77 LAKHS WAS ATTRIBUTED AS COMMISSION FOR ACQUIRING ORDERS FOR IN DUSTRIAL PRODUCTS AND FURTHER, SUM OF RS.18 LAKHS WAS PAID FOR ACQUIRING COMMERCIAL PRODUCTS. LOOKING AT THE TOTALITY OF THE ABOVE SAID FACTS AND CIRCUMSTANCES AND IN VIEW OF THE TERMS OF AGREEMENT AND ALSO IN VIEW OF BUSINESS HAVING BEEN ACQUIRED BY THE ASSESSEE AS A GOING CONCERN, WE FIND MERIT IN THE ORDER OF CIT(A) AND CONSEQUENTLY, ALLOW THE CLAIM OF ASSESSEE IN ENTIRETY. UPHOLDING THE ORDER OF CIT(A), WE DISMISS THE GROUNDS OF APPEAL NO.4 AND 5 RAISED BY THE REVENUE. THE APPEAL OF THE REVENUE IS TH US, DISMISSED. ITA NO.07/PN/2009 (REVENUE) 37. THE ISSUE RAISED IN THE PRESENT APPEAL IS AGAINST THE DELETION OF PENALTY LEVIED UNDER SECTION 271(1)(C) OF THE ACT. 38. BRIEFLY, IN THE FACTS OF THE PRESENT CASE, THE ASSESSEE HAD FURNISHED RETURN OF INCOME DECLARING TOTAL INCOME OF RS.8 ,20,84,180/ - FOR THE YEAR UNDER CONSIDERATION. THE ASSESSING OFFICER AFTER VERIFICATION OF VARIOUS ISSUES COMPLETED ASSESSMENT AT AN AMOUNT OF RS.16,38,67,730/ - AND ALSO INITIATED PENALTY PROCEEDINGS UNDER SECTION 271(1)(C) OF THE ACT. 39. THE CIT(A) CONSIDERED THE SUBMISSIONS OF ASSESSEE AND GRANTED PARTIAL RELIEF TO THE ASSESSEE , S INCE THE PENALTY PROCEEDINGS WERE GETTING TIME BARRED, NOTICE UNDER SECTION 271( 1)(C) OF THE ACT WAS ISSUED TO THE ASSESSEE. AFTER GIVING APPEAL EFFECT TO THE ORDER OF CIT(A), THE ASSESSING OFFICER NOTED THAT THE FOLLOWING ADDITIONS WERE SUSTAINED BY THE CIT(A): - 1. DISALLOWANCE U/S 14A RS.15,00,000/ - 2. PROVISION FOR WARRANTY RS. 1,59,50,143/ - 3. AMORTIZATION OF LEASEHOLD LAND RS. 2,41,534/ - 4. SOFTWARE EXPENSES RS.74,78,685/ - 16 ITA NO. 726 /PN/20 0 4 ITA NO. 931 /PN/20 0 4 ITA NO.7/PN/2009 M/S. THERMAX LTD 40. THE CLAIM OF THE ASSESSEE DURING THE COURSE OF PENALTY PROCEEDINGS WAS THAT THE ISSUES ON WHICH ADDITIONS / DISALLOWANCES HAVE BEEN CONFIRMED BY THE CIT(A) ARE DEBATABLE IN NATURE. FIRST REFERENCE WAS MADE TO THE DISALLOWANCE UNDER SECTION 14A OF THE ACT, WHICH WAS AN ESTIMATED DISALLOWANCE. FURTHER, THE DISALLOWANCE MADE ON ACCOUNT OF PROVISION FO R WARRANTY, WAS CLAIMED TO BE DEBATABLE ISSUE, IN VIEW OF CONFLICTING DECISION ON THE POINT. THE ISSUE OF PREMIUM ON LEASEHOLD LAND WAS COVERED AGAINST THE ASSESSEE ONLY BY RECENT DECISION AND BEFORE THAT, IT WAS A DEBATABLE ISSUE. THE ALLOWABILITY OF SO FTWARE EXPENSES WAS ALSO A DEBATABLE ISSUE. THE ASSESSING OFFICER REJECTING THE CONTENTION OF ASSESSEE OBSERVED THAT THE DISALLOWANCE WAS MADE ONLY AFTER EFFORTS MADE BY THE ASSESSING OFFICER IN BRINGING RELEVANT FACTS ON RECORD. IT WAS FURTHER OBSERVED BY THE ASSESSING OFFICER THAT WHERE THE SIMILAR DISALLOWANCE WAS MADE IN EARLIER YEARS, WHICH WERE CONFIRMED BY THE CIT(A) CLEARLY SHOWS THAT BY CLAIMING THE SAID EXPENDITURE, THE ASSESSEE HAD WILLFULLY FILED INACCURATE PARTICULARS OF INCOME. CONSEQUENTLY , THE ASSESSEE WAS HELD TO BE EXIGIBLE TO LEVY OF PENALTY UNDER SECTION 271(1)(C) OF THE ACT AND PENALTY OF RS.1 CRORE WAS LEVIED UPON THE ASSESSEE. 41. THE CIT(A) AFTER CONSIDERING THE SUBMISSIONS MADE BY THE ASSESSEE NOTED THAT NO NEW FACTS RELATING TO THE CLAIM OF ASSESSEE WERE DISCOVERED BY THE ASSESSING OFFICER BEFORE MAKING THE SAID DISALLOWANCE AND WHERE COMPLETE PARTICULARS WERE DISCLOSED IN THE RETURN OF INCOME, THERE WAS NO MERIT IN THE OBSERVATIONS OF ASSESSIN G OFFICER IN THIS REGARD. THE SECOND OBSERVATION OF THE ASSESSING OFFICER THAT THE ASSESSEE HAD WILLFULLY FILED INACCURATE PARTICULARS OF INCOME IN VIEW OF THE FACT THAT THE ASSESSEE HAD CLAIMED THE DEDUCTION DURING THE YEAR ALSO EVEN THOUGH SIMILAR DISAL LOWANCE WAS CONFIRMED IN THE EARLIER YEARS BY THE CIT(A), WAS ALSO REJECTED BY THE CIT(A) OBSERVING THAT THE DISALLOWANCE OF AN 17 ITA NO. 726 /PN/20 0 4 ITA NO. 931 /PN/20 0 4 ITA NO.7/PN/2009 M/S. THERMAX LTD EXPENDITURE PERSE CANNOT MEAN THAT THE ASSESSEE HAD FURNISHED INACCURATE PARTICULARS OF INCOME. ACCORDINGLY, THE CIT(A) HELD TH AT THE ASSESSING OFFICER WAS NOT JUSTIFIED IN LEVYING THE PENALTY UNDER SECTION 271(1)(C) OF THE ACT AND THE SAME WAS CANCELLED. 42. THE REVENUE IS IN APPEAL AGAINST THE ORDER OF CIT(A)/ 43. THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE POINTED OUT THAT THE TRIBUNAL WHILE DECIDING THE APPEAL FILED BY THE ASSESSEE AGAINST QUANTUM ADDITION HAD DISMISSED THE GROUNDS OF APPEAL RAISED AGAINST THE DISALLOWANCE MADE UNDER SECTION 14A OF THE ACT , AS NOT PRESSED . FURTHER, IT WAS ADMITTED BY THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE THAT THE ISSUE OF ADDITION ON ACCOUNT OF PROVISION FOR WARRANTY WAS DECIDED IN FAVOUR OF THE ASSESSEE. THE NEXT ADDITION ON ACCOUNT OF AMORTIZATION OF LEASEHOLD LAND WAS DECIDED AGAINST THE ASSESSEE AND THE DISA LLOWANCE MADE ON ACCOUNT OF SOFTWARE EXPENSES WAS TREATED AS CAPITAL EXPENDITURE. THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE PLACING RELIANCE ON THE RATIO LAID DOWN BY THE HONBLE DELHI HIGH COURT IN CIT VS. NG TECHNOLOGIES LTD. (2015) 370 IT R 7 (DEL) I.E. AMOUNT ON SALE OF ASSETS BEING CAPITAL LOSS, POINTED OUT THAT PENALTY UNDER SECTION 271(1)(C) OF THE ACT WAS TO BE LEVIED AND UPHELD IN THE HANDS OF ASSESSEE. 44. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE ON THE OTHER HAND, POINTED OUT THAT THE ISSUES RAISED IN THE PRESENT APPEAL WERE DEBATABLE, ON WHICH NO PENALTY UNDER SECTION 271(1)(C) OF THE ACT WAS LEVIABLE. RELIANCE IN THIS REGARD WAS PLACED ON T HE RATIO LAID DOWN BY THE HONBLE DELHI HIGH COURT IN KRISHAK BHARATI COOPERATIVE LTD. VS. DCIT (2013) 350 ITR 24 (DEL) , IN ADDITION TO RELIANCE ON THE DECISION OF HONBLE SUPREME COURT IN CIT VS. RELIANCE PETROPRODUCTS PVT. 18 ITA NO. 726 /PN/20 0 4 ITA NO. 931 /PN/20 0 4 ITA NO.7/PN/2009 M/S. THERMAX LTD LTD. (2010) 322 ITR 158 (SC) AN D ALSO THE DECISION OF HONBLE BOMBAY HIGH COURT IN CIT VS. S M CONSTRUCTION (ITA NO.412 OF 2013), WHEREIN THE AMOUNT RECEIVED ON RELINQUISHMENT OF RIGHTS TO IMMOVABLE PROPERTY WAS ADDED IN THE HANDS OF ASSESSEE AND NO PENALTY WAS LEVIED AS COMPLETE DISCLO SURE OF ALL FACTS WERE MADE , THOUGH THE CLAIM MADE WAS NOT FOUND ACCEPTABLE. 45. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE ISSUE ARISING IN THE PRESENT APPEAL IS AGAINST THE LEVY OF PENALTY UNDER SECTION 271(1)(C) OF THE ACT . THE SAID PROVISIONS OF THE ACT ARE ATTRACTED WHERE THE ASSESSEE HAS EITHER CONCEALED ITS INCOME OR FURNISHED INACCURATE PARTICULARS OF INCOME , MAKING IT EXIGIBLE TO LEVY OF PENALTY UNDER SECTION 271(1)(C) OF THE ACT . EITHER OF THE CONDITIONS ARE TO BE FULFIL LED BEFORE THE ASSESSEE CAN BE SAID TO HAVE CONCEALED ITS INCOME OR FURNISHED INACCURATE PARTICULARS OF INCOME AND PENALTY UNDER SECTION 271(1)(C) OF THE ACT COULD BE LEVIED. HOWEVER, THERE ARE VARIOUS IMMUNITIES PROVIDED UNDER THE ACT AND ALSO BY WAY OF JUDICIAL PRECEDENTS, WHEREIN IT IS HELD THAT NO PENALTY UNDER SECTION 271(1)(C) OF THE ACT IS TO BE LEVIED EVEN THOUGH ADDITION ON ACCOUNT OF CERTAIN ITEMS IS MADE IN THE HANDS OF ASSESSEE. THE LEVY OF PENALTY UNDER SECTION 271(1)(C) OF THE ACT IS NOT AUT OMATIC AND WHERE THE ASSESSEE HAS DISCLOSED COMPLETE AND TRUE FACTS AND MERELY BECAUSE ADDITION IS MADE IN THE HANDS OF ASSESSEE, IT CANNOT BE SAID THAT THE ASSESSEE IS EXIGIBLE TO LEVY OF PENALTY FOR CONCEALMENT UNDER SECTION 271(1)(C) OF THE ACT. MERELY BECAUSE THE CLAIM OF THE ASSESSEE WAS FOUND TO BE INCORRECT, THE SAME DOES NOT TANTAMOUNT TO FURNISHING OF INACCURATE PARTICULARS OF INCOME AS HELD BY THE HONBLE APEX COURT IN CIT VS. RELIANCE PETROPRODUCTS PVT. LTD. (SUPRA). THE SAID PROPOSITION LAID D OWN BY THE HONBLE SUPREME COURT HAS BEEN APPLIED BY VARIOUS COURTS. THE HONBLE BOMBAY HIGH COURT IN CIT VS. S M CONSTRUCTION (SUPRA) HAS HELD THAT WHERE THE ASSESSEE HAD MADE C OMPLETE DISCLOSURE OF ALL FACTS, MERELY BECAUSE THE 19 ITA NO. 726 /PN/20 0 4 ITA NO. 931 /PN/20 0 4 ITA NO.7/PN/2009 M/S. THERMAX LTD EXPLANATION OF THE ASSESS EE WAS NOT ACCEPTED IN QUANTUM PROCEEDINGS WOULD NOT IPSO FACTO VISIT THE ASSESSEE WITH PENALTY IN THE ABSENCE OF THE CLAIM BEING HELD TO BE NOT BONAFIDE. THE HONBLE BOMBAY HIGH COURT FURTHER HELD THAT THE DECISION OF HONBLE DELHI HIGH COURT IN CIT VS. Z OO M COMMUNICATION P. LTD. (2010) 327 ITR 510 (DEL) WAS NOT APPLICABLE IN THE SAID CASE FOR THE REASON T HAT IN THE CASE OF CIT VS. ZOOM COMMUNICATION P. LTD. (SUPRA) , THE STAND TAKEN BY THE RESPONDENT COULD BE S AID TO BE IN DEFIANCE OF LAW AND THUS NOT BONAFIDE. WHERE IT IS NOT THE CASE OF REVENUE THAT THE CLAIM MADE BY THE ASSESSEE WAS NOT ON THE BASIS OF BONAFIDE VIEW, THERE WAS NO MERIT IN HOLDING THAT THE ASSESSEE WAS EXIGIBLE TO LEVY OF PENALTY UNDER SECTION 271(1)(C) OF THE ACT . APPL YING THE ABOVE SAID PROPOSITION LAID DOWN BY THE HONBLE APEX COURT (SUPRA) AND THE JURISDICTIONAL HIGH COURT (SUPRA) TO THE FACTS OF THE PRESENT CASE, WE FIND THAT THE FIRST DISALLOWANCE MADE IN THE HANDS OF ASSESSEE WAS INITIALLY 5% OF THE EXEMPT INCOME AND 2.5% AS HELD BY THE TRIBUNAL IN OTHER YEARS. HOWEVER, THE DISALLOWANCE MADE IN THE INSTANT ASSESSMENT YEAR WAS ON ADHOC BASIS, AGAINST WHICH THE ASSESSEE DID NOT PRESS THE GROUND OF APPEAL BEFORE THE TRIBUNAL. MERELY BECAUSE AN ADHOC DISALLOWANCE WAS MADE IN THE HANDS OF ASSESSEE, WE HOLD THAT IN SUCH FACTS, THE ASSESSEE CANNOT BE VISITED WITH LEVY OF PENALTY UNDER SECTION 271(1)(C) OF THE ACT. 46. NOW, COMING TO THE SECOND ADDITION MADE IN THE HANDS OF ASSESSEE ON ACCOUNT OF PROVISION FOR WARRANTY AT RS. 1,59,50,143/ - . THE TRIBUNAL VIDE ORDER DATED 30.06.2015 WHILE DECIDING THE QUANTUM APPEAL HAD ALLOWED THE CLAIM OF THE ASSESSEE IN ENTIRETY AND THE SAID ADDITION HAS BEEN ALLOWED IN THE HANDS OF ASSESSEE A ND THERE IS NO WARRANT FOR LEVY OF PENALTY UNDER SECTION 271(1)(C) OF THE ACT . ACCORDINGLY, WE UPHOLD THE ORDER OF CIT(A) IN DELETING THE PENALTY ON ACCOUNT OF WARRANT Y ADDITIONS IN THE HANDS OF ASSESSEE . O N ACCOUNT OF PRORATA PREMIUM ON LEASEHOLD LAND AMORTIZATION AT RS. 2,25,020/ - , T HE CLAIM OF THE ASSESSEE BEFORE US IN 20 ITA NO. 726 /PN/20 0 4 ITA NO. 931 /PN/20 0 4 ITA NO.7/PN/2009 M/S. THERMAX LTD THIS REGARD WAS THAT IT WAS A DEBATABLE ISSUE AND WHERE THE ISSUE IS DEBATABLE, THERE IS NO WARRANT FOR LEVY OF PENALTY UNDER SECTION 271(1)(C) OF THE ACT. RELIANCE IN THIS REGARD WAS PLACED ON T HE DECISION OF SPECIAL BENCH CONST ITUTED ON THE SAID ISSUE IN J CIT VS. MUKUND LTD. (2007) 291 ITR ( AT ) 249 (BOM) AND THE ISSUE WAS DECIDED AGAINST THE ASSESSEE. WHERE THE ISSUE IS DEBATABLE, IT CANNOT BE HELD THAT THE ASSESSEE HAS FURNISHED INACCURATE PARTICULARS OF INCOME WHILE CLAIMING THE AFORESAID DEDUCTION OF RS. 2,25,020/ - , WHERE THE ASSESSEE HAD FURNISHED COMPLETE PARTICULARS . IN THE TOTALITY OF THE ABO VE SAID FACTS AND CIRCUMSTANCES, WE UPHOLD THE ORDER OF CIT(A) IN DELETING THE PENALTY UNDER SECTION 271(1)(C) OF THE ACT ON THIS CO UNT. 47. ANOTHER ADDITION MADE IN THE HANDS OF ASSESSEE IS ON ACCOUNT OF EXPENDITURE ON COMPUTER SOFTWARE OF RS. 74,78,682/ - . THE ISSUE BEFORE THE AUTHORITIES BELOW WAS THAT WHERE THE EXPENDITURE INCURRED BY THE ASSESSEE WAS REVENUE IN NATURE OR CAPITAL IN NATURE. THE ASSESSING OFFICER AND THE CIT(A) HAD DISALLOWED THE EXPENDITURE TO BE CAPITAL IN NATURE. THE TRIBUNAL ALSO CONFIRMED THE ORDERS OF AUTHORITIES BELOW AND TREATED THE EXPENDITURE TO BE CAPITAL IN NATURE. THERE ARE VARIOUS CASES INCLUDING T HE DECISION OF MUMBAI BENCH OF TRIBUNAL IN MAHINDRA & MAHINDRA LTD. VS. DCIT IN ITA NOS.3659, 3660 & 3661/MUM/2012 AND DCIT VS. MAHINDRA & MAHINDRA LTD. IN ITA NOS.3577, 3578 & 3579/MUM/2012 , RELATING TO ASSESSMENT YEARS 1996 - 97, 1997 - 98 & 1998 - 99 , ORDER DATED 31.07.2015 , WHEREIN THE EXPENDITURE ON ERP SOFTWARE WAS HELD TO BE REVENUE IN NATURE. IN VIEW OF VARYING DECISION ON THE ISSUE AND SINCE THE ASSESSEE HAD FURNISHED COMPLETE PARTICULARS OF EXPENDITURE IN THIS REGARD, WE FIND NO MERIT IN THE L EVY OF PENALTY UNDER SECTION 271(1)(C) OF THE ACT IN THIS REGARD. ACCORDINGLY, WE UPHOLD THE ORDER OF CIT(A) IN DELET ING PENALTY LEVIED UNDER SECTION 271(1)(C) OF THE ACT FOR 21 ITA NO. 726 /PN/20 0 4 ITA NO. 931 /PN/20 0 4 ITA NO.7/PN/2009 M/S. THERMAX LTD FURNISHING OF INACCURATE PARTICULARS OF INCOME. THE GROUNDS OF APPEAL RAISED BY THE REVENUE ARE DISMISSED. 48 . IN THE RESULT, ALL THE APPEALS OF THE ASSESSEE AND THE REVENUE ARE DISMISSED. ORDER PRONOUNCED ON THIS 9 TH DAY OF DECEMBER , 2015. SD/ - SD/ - (PRADIP KUMAR KEDIA) (SUSHMA CHOWLA) / ACCOUNTANT MEMBER / JUDICIAL MEMBER / PUNE ; DATED : 9 TH DECEMBER , 2015 . GCVSR / COPY OF THE ORDER IS FORWARDED TO : / COPY OF THE ORDER IS FORWARDED TO : 1. / THE APPELLANT ; 2. / THE RESPONDENT; 3. ( ) / THE CIT(A) - I II , PUNE ; 4. / THE CIT - V /IV , PUNE ; 5. , , / DR A , ITAT, PUNE; 6. / GUARD FILE . / BY ORDER , // TRUE COPY // / SR. PRIVATE SECRETARY , / ITAT, PUNE