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Income Tax Appellate Tribunal - Delhi

New Holland Tractors (India) (P) Ltd. vs Income Tax Officer on 21 March, 2003

Equivalent citations: (2004)83TTJ(DELHI)628

ORDER

Diva Singh, J.M.

1. This is an appeal filed by the assessee against the order dt. 18th Nov., 2002, of CIT(A)-XVI, New Delhi, pertaining to 1996-97 assessment year.

2. The sole issue raised by the assessee in the present appeal pertains to the penalty imposed and upheld under Section 271(1)(c) of the Act, Various grounds have been raised by the assessee praying for the quashing of penalty imposed to the tune of rupees five crores fifty lakhs odd.

2.1 The relevant facts of the case are that the assessee-company was incorporated on 9th May, 1995, and this is the first year of operation of the company. Its return was filed on 30th Nov., 1996, declaring a taxable income of Rs. 2,14,50,340 and assessment under Section 143(3) was completed on a total income of Rs. 14,10,55,490. The total income of the assessee comprised of the business income received as technical fee from Escorts Ltd., and income from other sources as interest income. In the year under consideration, the assessee entered in an agreement on 14th July, 1995, with Escorts Ltd., and as per this agreement, the assessee-company assigned the right to use its technical know-how for a period of three years to Escorts Ltd. for a lump sum consideration of 50 lakhs US $. The same was to be received in Indian rupees under a tripartite agreement dt. 14th July, 1995. The assessee, as such, received an amount of Rs. 15,68,50,000 which was treated by the assessee as advance in its books of accounts and only a sum of Rs. 3,72,44,848 was credited to the P&L a/c as the amount attributable for the period 15th July, 1995 to 31st March, 1996. The balance amount was shown as liability and offered as income in the subsequent assessment years proportionate to the period of user. This action of the assessee in spreading over of the income was not accepted by the AO. Relying upon E.D. Sassoon & Co. Ltd. and Ors. v. CIT (1954) 26 ITR 27 (SC), it was held by the AO that the entire amount received by the assessee-company accrued in the year under consideration. As such, the amount of Rs. 11,96,05,152 shown as liability was added as income. As a result of this, the entire amount received by the assessee-company as technical fee was assessed as its income in the relevant year. This action of the AO was confirmed by the CIT(A) and the Tribunal also dismissed the appeal of the assessee.

2.2 The penalty proceedings under Section 271(1)(c) were initiated in this background. Before the AO, the assessee relied upon the following decisions :

1. CIT v. Anwar Ali (1970) 76 ITR 369 (SC)

2. CIT v. Khoday Eswara and Sons (1972) 83 ITR 369 (SC)

3. CIT v. N.A. Mohammad Haneef (1972) 83 ITR 215 (SC)

4. R. Madhavan Nair v. CIT (1973) 87 ITR 362 (Ker)

5. Hindustan Steel Ltd. v. State of Orissa (1972) 83 ITR 26 (SC)

6. CIT v. Devi Dayal Aluminium Industries (P) Ltd. (1988) ITR 683 (All)

7. CIT v. Santosh Financiers and Ors. (2001) 247 ITR 742 (Ker)

8. Madras Industrial Investment Corp. Ltd. v. CIT (1997) 225 ITR 802 (SC)

9. R.V. Pandit v. Asstt. CIT (1999) 64 TTJ (Mumbai) 529

10. CIT v. Ace Builders (P) Ltd. (1993) 202 ITR 324 (Bom)

11. UP. State Industrial Dev. Corporation Ltd. v. CIT (1981) 130 ITR 835 (All)

12. CIT v. Jagabandhu Prasanna Kumar Rooplal Sen Poddar (1982) 133 ITR 156 (Cal)

13. CIT v. G.D. Naidu & Ors. (1987) 165 ITR 63 (Mad)

14. Dy. CIT v. Nuchem Ltd. (1994) 49 TTJ (Del) 177 : (1993) 47 ITD 487 (Del)

15. Burmah Shell Oil Storage and Distributing Company of India Ltd. v. ITO (1978) 112 ITR 592 (Cal) and (1987) 163 ITR 496 (Cal)

16. McDowell & Co. Ltd. v. CTO (1985) 154 ITR 148 (SC) so as to contend that :

"New Holland Tractors India (P) Ltd. has made full and true disclosure, in its return of income, regarding the receipt of entire technical know-how in the subject assessment year and the period over which it accrued to NHTIPL. Accordingly, NHTIPL has neither concealed any particular of its income nor furnished inaccurate particulars of such income, The issue of period over which income accrues is debatable and is subject to difference of opinion based on the various judicial pronouncements of the Hon'ble Courts. Penalty cannot be levied in such cases where difference of opinion is possible.

NHTIPL extended full cooperation to the Revenue authorities in any inquiry related to the subject assessment. Further, inspite of being under financial hardship, NHTIPL promptly paid up the demand as and when directed by the Revenue."

2.3 Considering the same, the ITO was of the view that penalty under Section 271(1)(c) was attracted. He was of the view that in both the situations contemplated in the relevant section, the result is the same. In the facts of the present case, he was of the view that the assessee-company has furnished inaccurate particulars and carefully postponed the tax liability. The fact that the assessee has declared the know-how receipt in the subsequent assessment years was considered to be of no help as simply because the technical know how has been allowed to be used for a few years does not mean that the income is to be apportioned in those number of years. He was of the view that since the assessee has received the entire fee in a lump sum and noting that there was no clause in the agreement which stipulated that the assessee-company shall be given an advance fee by Escorts Ltd., the ITO was of the view that the income not only has been received in the year but has also accrued in the year. This finding was confirmed by the CIT(A) as well as the Tribunal. In these circumstances, he was of view in the penalty proceedings that the apportioned know-how fee of Rs. 11,96,05,152 represented the income of the assessee for which the assessee has furnished inaccrurate particulars. He was further of the view that the assumption of the assessee that the fee has to be apportioned in the years of use for which licence is to be granted is a colourable devise adopted by the assessee as a part of tax planning postponing thereby the tax liability which had arisen in the subject assessment year. As such, he was of the view that the principles enunciated in McDowell & Co. Ltd. v. CTO (supra) which were affirmed in Union of India v. Playworld Electronics (P) Ltd. and Anr. (1990) 184 ITR 308 (SC) were attracted. Accordingly, on the basis of these reasons, he held that the assessee had furnished inaccurate particulars of income and minimum penalty to the tune of Rs. 5,50,18,370 was imposed.

2.4 Aggrieved by this, the assessee came in appeal before the first appellate authority. Learned CIT(A), taking cognizance of the fact that in the quantum appeal the action of the AO was confirmed by the CIT(A) rejected the assessee's appeal. He was of the view that :

"In this agreement there is no clause for revocation during the period of licence years. Nor is there any provision stating that the fees will extend over the period of license. It is clear from the above that the right to receive the entire sum accrued to the assessee in this year. Once the right accrues it is immaterial that the license period is of three years. For the same reasons a portion of the sum received can not be treated as advance as claimed by the assessee. The case law cited by the assessee is of no assistance to its case. Facts are distinguishable. Here is a case, where a three years license was given for a lump sum payment without any precondition or clause for revocation during the license period in the agreement. Therefore, the addition made by the AO, namely Rs. 11,96,05,152 does not call for any interference and accordingly it is confirmed."

2.5 Further taking into cognizance the fact that the said order was confirmed by he Tribunal, he held as under :

"The perusal of the above covenants clearly shows that the enforceable debt was not only created in favour of the assessee by 16th Aug., 1995, but also was realized by that very date. The agreement specifically provides for down payment through escrow agent after completion of all legal formalities mentioned in Clauses 4.01 and 4.02. Such formalities were required to be completed by 16th Aug., 1995. If such formalities could not be completed then such agreement was to be automatically terminated. In fact, not only all the formalizes were completed but the payment of technical fees was also made through escrow agent by 16th Aug., 1995. Thus, nothing remained to be done on the part of the assessee. There is no clause for revocation or termination of the agreement before the expiry date of the agreement. Further, there is no clause of refund of money if the technology is not used for a part of the three years. Therefore, accrual of income did not depend upon any future event. Hence, in our opinion, the receipt of money could not be treated as advance or contingent receipt. Consequently, the contention of the assessee that money received by the assessee was in the nature of advance, cannot be accepted. It is settled legal position that accounting entries do not determine the character of the receipt. Therefore, if the income has accrued, it has to be taxed and taxability cannot be postponed on the basis of the entries made in the books of accounts. Even the parties to the agreement do not describe the payment in the nature of advance as there is no such covenant in the agreement. According to the commercial practice, the advance is given either to facilitate the recipient to perform his obligation or with a view that obligation shall be performed by the recipient in time in accordance with the agreement. Such advances are, therefore, appropriated towards income as and when the obligation is performed or the work is completed according to the specifications. However, if any part of the obligation is not performed to the satisfaction of the payer then such amount is bound to be returned/refunded. In such case, no enforceable debt is created on the mere receipt of the advance and income, therefore, accrues only on the fulfilment of the obligation wholly or any part, as the case may be. Since in the present case all the obligations on the part of the assessee were fulfilled and nothing remained to be done, we are of the considered opinion that the entire money received by the assessee was taxable in the year under consideration."

2.6 A perusal of the impugned order further shows that the contention of the assessee before the CIT(A) was that based on the interpretation of the agreement which according - to the assessee was supported by judicial precedents, it was a bona fide belief of the assessee that the license fee accrued to the assessee over the period of use of the license i.e., three years and thus was subjected to tax accordingly. It was further contended that the assessee had given adequate disclosures to this effect in its books of accounts and return of income. Therefore, it cannot be said that the assessee has furnished inaccurate particulars of income. The contention, accordingly, was that since the assessee entertained a bona fide belief that the licence fee accrued over the period of the licence on the basis of which, the assessee had appropriately made true and full disclosure with regard to the same and thus, in these facts, the assessee cannot be held to be intending to conceal its particulars of income with the objective to evade tax. It was further brought to the notice of the learned CIT(A) on behalf of the assessee that the assessee has filed an appeal before the High Court against the order of the Tribunal and the appeal has been admitted by the High Court vide its order dt. 24th Sept., 2002, and the following substantial question of law for adjudication had been framed:

"Whether, in the circumstances of the case and on the true and correct interpretation of tripartite agreement dt. 14th July, 1995, the Tribunal was correct in law in concluding that the entire licence fee of Rs. 15,68,50,000, received by the appellant-company, for granting the right to use technical known-how, could be taxed in the asst. yr. 1996-97 ?"

2.7 The contention on behalf of the assessee based on this was that the fact that the High Court is satisfied that the case involved a substantial question of law, accordingly, no penalty could be levied on the basis of such addition. Reliance was placed on the following decisions :

(i) CIT v. Bhoj Raj & Co. (2001) 247 ITR 696 (P&H)

(ii) CIT v. Devi Dayal Aluminium Industries (P) Ltd. (supra)

(iii) CIT v. Santosh Financiers and Ors. (supra)

(iv) CIT v. Ajaib Singh & Co. (2002) 253 ITR 630 (P&H) 2.8 Considering the same, the CIT(A) rejected the contention of the assessee upholding the action of the ITO in the following terms :

"6. I have examined the facts of the case carefully and I find that though the whole amount of the license fee was received during this year, the appellant deliberately postponed the liability of taxation by apportionment of this fee on the basis of period of use. The Tribunal has held that accounting entries do not determine the character of the receipt, therefore, if the income has accrued, it has to be taxed and taxability cannot be postponed on the basis of the entries made in the books of accounts. The appellant's submission that it has made adequate disclosure in the return does not mean that it has furnished correct particulars of its income while filing the return. The appellant was required to file accurate particulars of income in accordance with the IT Act and not by artificially postponing the tax liability. As per the Expln. 1 to Section 271(1)(c), where in respect of any facts material to the computation of the total income of any person under this Act such person offers an explanation which he is not able to substantiate and fails to prove that such explanation is bona fide, then, the amount added or disallowed in computing the total income of such person be deemed to represent the income in respect of which particulars have been concealed. In the instant case, the material fact was taxation of the total receipt received by the appellant during the year. The explanation which has been offered by the appellant is not substantiated by any legal position that it was allowed to postpone the tax liability on such receipts on the basis of duration of the use. It was appellant's own deliberate act to defer the tax on full income by making the entries in the books on the basis of period of use of licence. The act of the appellant was not in accordance with any legal provision of IT Act. Hon'ble Tribunal has also confirmed that the whole income was accrued and is assessable during this year. Therefore, the explanation of the appellant is not substantiated by any evidence and it has also failed to prove that such explanation was bona fide. As per Expln. 1 to Section 271(1)(c), the onus was on the appellant to prove that the appellant has not furnished inaccurate particulars of income. It has been held by the jurisdictional High Court of Delhi in the case of CIT v. Gurbachan Lal (2001) 250 ITR 157 (Del), that Tribunal had proceeded to place the onus on the Revenue to prove by some positive material or positive, circumstances that the assessee had concealed his income that was not required to be done by the Revenue in view of the Explanation to Section 271(1)(c). Since the effect of the Explanation added to Section 271(1)(c) has been lost sight of, the Tribunal was not justified in cancelling the penalty. The Delhi High Court followed the judgment of the Supreme Court in the case of CIT v. Jeevan Lal Sah (1994) 205 ITR 244 (SC). As per Explanation to Section 271(1)(c), the assessee should give an explanation which should not be vague or fanciful and without any foundation and basis. It has been held by the Supreme Court in the case of Shadilal Sugar & General Mills Ltd. v. CIT (1987) 168 ITR 705 (SC) that if explanation is vague or fanciful and without any foundation and basis, it is certainly open to Revenue authority to impose penalty. Therefore, it would depend upon the acceptability of the explanation offered by the appellant in the background of the statutory provisions as prevailing at the relevant time [CIT v. Jugal Kishore Hargopal Das (2000) 243 ITR 220 (Ker)]. It was also held by the Madras High Court in the case of A.V. Thomas & Co. v. CIT (1966) 59 ITR 499 (Mad) that penalty proceedings were not criminal proceedings and that the onus of proof of non-concealment lay on the assessee. It was also pointed out by the Hon'ble Supreme Court in the case of CIT v. Mussadi Lal Ram Bharose (1987) 165 ITR 14 (SC) that the burden placed upon the assessee is not discharged by any fantastic explanation. It must be an explanation acceptable to the fact finding body. [CIT v. A. Sreenivasa Pai (2000) 242 ITR 29 (Ker)]. The negative burden which lies on the assessee that there has been no concealment or fraud or negligence on its part so as to take its case out of ambit of the Explanation to Section 271(1)(c) does not stand discharged merely by showing that the income returned was on the basis of books kept in the regular course of business and addition had been made on some other basis. [Addl. CIT v. D.D. Lamba & Co. (1981) 128 ITR 564 (All)]. In the case of Thakur Veerpal Singh v. CIT (1988) 172 ITR 238 (MP), it was found that since assessee was guilty of not returning the correct assessable income the penalty imposed be justified.

7. Keeping in view of aforesaid facts, circumstances and judicial decisions, it is clear that the appellant has not furnished correct particulars of its income because the entire accrued and received income was not offered for taxation by artificially postponing the tax liability and also the appellant has not been in a position, to substantiate the explanation for such action. The explanation offered by the appellant is vague, fanciful and without any legal foundation and basis and, therefore, cannot be accepted. Therefore, the AO was justified in levying the minimum penalty of Rs. 5,50,18,370 under Section 271(1)(c) of the Act upon the appellant, which is hereby confirmed. The appellant fails."

Still aggrieved, the assessee is in appeal before us.

3.1 Mr. C.S. Agarwal, appearing on behalf of the assessee, addressed the Bench at length on the factual aspects of the matter. Reliance was placed upon the synopsis filed before the Bench consisting of 62 pages. It was his contention that as far as the nature of the amount is concerned, there was no dispute. The only dispute was regarding the fact as to which year the receipts are taxable. Referring to the facts of the case, it as contended that the action of the AO was confirmed by the CIT(A) which, in the quantum proceedings was confirmed by the Tribunal. However, it was his contention that the issue is wide open in view of the fact that the High Court has admitted a question of law for which our attention was invited to paper book pp. 113 to 115.

3.2 It was also his contention that in the facts of the case, the AO, while initiating penalty proceedings, has not recorded his satisfaction which was mandatory. As such, in line with the decision of the jurisdictional High Court in the case of CIT v. Ram Commercial Enterprises Ltd. (2000) 246 ITR 568 (Del), the penalty proceedings deserve to be quashed. Our special attention was invited to the decision of the apex Court which had been relied upon by the jurisdictional High Court in the case of DM. Manasvi v. CIT (1972) 86 ITR 557 (SC). Anticipating the reply of the learned Departmental Representative which the learned Departmental Representative had made while arguing the stay petition on an earlier date before this Bench wherein the contention of the learned Departmental Representative was that the entire assessment order clearly speaks of the fact that the AO is satisfied that the assessee has filed inaccurate particulars of his income as a result of which while dealing with the sole addition in the proceedings, the AO observed that the assessee has resorted to a plain and simple devise to reduce the incidence of tax on his income. In response to this stance of the learned Departmental Representative taken in the stay proceedings, Mr. Agarwal referring to the facts of the case vehemently contended that no inaccurate particulars have been filed with regard to the amount of payment received by the assessee. Nothing inaccurate was filed. It was contended that the fact that the assessee has received a certain sum on account of leasing user of the technical know-how for three years was correctly stated. It was also argued that it has not been the case of the Revenue that the period of user was either less than three years or more. It was also contended that the agreement under which the payment had been received had been placed on record by the assessee. The agreement filed has not been found to be wrong in any mariner, i.e., contravening any provision of law. Thus, the contention was in the facts of the case, how can it be argued by the Department that the assessee has resorted to a device so as to reduce his income.

3.3 Our specific attention was invited to paper book p. 56 so as to highlight that the return for 1996-97 assessment year i.e., the year under consideration was filed by the assessee on 30th Nov., 1996, which was processed under Section 143(l}(a) on 26th March, 1999. Thereafter, the case was selected for scrutiny and notice under Section 143(2) was issued subsequently. Inviting our attention to paper book p. 116, it was contended that the notice under Section 143(2) was issued on 30th March, 1999. It was further contended that the returns for 1997-98, 1998-99 and 1999-2000 assessment years were filed on 26th Nov., 1997, 27th Nov., 1998 and 27th Dec., 1999, respectively. Accordingly, the contention was how could it be contemplated by the assessee on 30th Nov., 1996, that in 1997-98 and 1998-99, the assessee was going to suffer a loss and thus, by way of this manipulation, has managed to evade/avoid tax incidence.

3.4 Inviting our attention to the decision of the apex Court in the case of McDowell & Co. Ltd v. CTO (supra), it was contended that any and every method used by the assessee in order to reduce his taxability could not be called a colorable device. In the facts of the case, the Revenue has to first show as to how the assessee has resorted to a "device", let alone a "colorable device". It was vehemently contended that the agreement entered into has not been shown as to how it can be called to be a colourable device. Referring to the facts of the case as appreciated by the Hon'ble Supreme Court, it was contended that there is a material difference in facts and circumstances as appreciated by the Hon'ble Supreme Court vis-a-vis plain and simple facts in the issue at hand. Referring to the decision of the Supreme Court in the case of Union of India v. Playworld Electronics (P) Ltd. and Anr., (1990) 184 ITR 308 (SC), it was contended that their Lordships have therein held that tax planning may be legitimate provided it is within the framework of the law and colorable devices cannot be part of tax planning. Thus, reverting back to his arguments, it was contended that in the facts of the case, it has not been shown as to how the agreement can be considered to be a device which has been found by the Department to be a colorable device. The learned Authorised Representative addressed at length the facts as were before their Lordships in the case of McDowell & Co. (supra) 3.5 Our attention was invited to paper book p. 54 which contains the note attached to the statement of computation of income filed by the assessee in the year under consideration which reads as under:

"Technical know-how fees received during the year accrues over a period of three years (as per technical know-how agreement effective 15th July, 1995). For purpose of recognition of revenue, this amount has been accrued over the period of the agreement and income for the current year has been computed by apportioning the fees for the period 15th July, 1995 to 31st March, 1996,"

3.6 Accordingly, on the basis of this, it was contended that adequate disclosure has been made by the assessee in its computation of income. Accordingly, the contention was that as per the assessee's understanding, in view of the fact that the payment had been received on account of three years, user as per the disengagement agreement, the receipt of the same also had to be apportioned for the said period. It was asserted nothing had been hidden by the assessee and adequate disclosure in the computation of income filed along with the return of income had been shown. Our attention was invited to paper book pp. 23 to 38, wherein it was contended that the remaining portion had been shown by the assessee as liability which has been apportioned and shown as receipt by the assessee in the subsequent assessment years which the Department had itself assessed on a protective basis.

3.7 It was further contended by him that the Tribunal while dealing with the quantum proceeding had not considered since it was not argued on behalf of the assessee that as per the various provisions of the Contract Act, the said receipt could not have accrued to the assessee as various situations which were necessary to be considered were not considered namely Section 39 dealing with "Effect of refusal of party to perform promise wholly", Section 64 dealing with consequences of rescission of avoidable contract, Section 65 dealing with obligation of person who has received advantage under void agreement or contract that becomes void Section 70 dealing with obligation of person enjoying benefit of non-gratuitous act and Section 75 dealing with partly rightfully rescinding contract, entitled to compensation, special attention was invited to pp. 6 to 17 of the synopsis. Reliance was placed upon Muralidhar Chatterjee v. International Firm Co. Ltd AIR 1943 PC 34. Our attention was also invited to Article 2.02 of the disengagement agreement which deals with "product differentiation" on the basis of which it was argued that in case any violation of any stipulation contained in the clause with regard to the colour identification or brand name, etc., then the assessee under the Contract Act could have been made liable to return the money. The eventuality of any damages being claimed by the other party to the contract from the assessee has not been appreciated at all.

3.8 The Bench was also addressed on the aspect of role of equity for which reliance was placed upon CIT v. J.H. Gotia (1985) 156 ITR 323 (SC) at pp. 339-340, CST v. Auraiya Chamber of Commerce (1987) 167 ITR 458 (SC) at p. 464 and CIT v. Madho Prasad Jatia (1976) 105 ITR 179 (SC) at pp. 183-184. On the basis of the said decisions, it was submitted that the assessee was under a bona fide belief that the licence fee accrued to the assessee over the period of use of the licence and was to be subjected to tax accordingly. In view of the fact that the transaction was duly recorded by the assessee in its books of accounts in accordance with the accounting principles postulated by the Institute of Chartered Accountants of India and duly audited by a renowned firm of accountants, the assessee had made adequate disclosures to this effect which had been filed along with his return of income. Accordingly, in these facts, it was argued, it cannot be said that the assessee has furnished inaccurate particulars of income so as to invite levy of penalty under the Act.

3.9 Our attention was also invited to paper book p. 123 which is a letter addressed by the chartered accountant of the assessee to the Dy. CIT on the basis of which, it was contended that the addition to income on account to debatable point of law could not be made, wherein reliance was placed upon :

1. Madras Industrial Investment Corporation Ltd. v. CIT (supra)

2. R.V. Pandit v. Asstt. CIT (supra)

3. CIT v. Ace Builders (P) Ltd. (supra) 3.10 It was further contended that without identifying as to which particular fact is accurate and what fact was not correctly stated, the tax authorities could not levy the penalty upon the assessee.

3.11 It was also his contention that if the agreement provided that a certain amount has to be paid to a user of the right for three years, how could the said agreement be called a colorable and how could the said agreement which, is undisputedly entered into on 14th July, 1995, be considered to be a device so as to reduce the tax incidence in 1996-97, and contemplated that in the subsequent assessment years, the assessee would incur loss. It was also his contention that had any such agreement been entered into wherein the right to user granted is for one year and the assessee had claimed that user had been granted for three years, then without any doubt, the said action of the assessee would lay him open to the charge of filing inaccurate particulars of his income but, on the facts of the present case, the agreement provides that the user had been granted for three years and the same has been apportioned by the assessee for the same period, then how could the assessee be held to be filing inaccurate particulars of his income. Referring to paper book p. 27, it was contended that no adverse observations have been made in the auditor's report. It was also his contention that there is no doubt over the issue that the assessee has disclosed the receipt of income in the subsequent assessment years.

3.12 Our attention was also invited to the decisions in CWT v. Arvind Narottam (1988) 172 ITR 479 (SC), Union of India and Ors. v. Playworld Electronics (P) Ltd. and Anr. (supra) and Banyan & Berry v. CIT (1996) 222 ITR 831 (Guj), wherein the decision .of the apex Court in the case of McDowell (supra) has been analyzed. Accordingly, the contention was that every device cannot be held to be a colorable device and in the penalty order, no reasons have been given by the officer for using the said term.

3.13 It was further contended that on a perusal of the note given by the assessee can anyone come to the conclusion that there has been any concealment. It was argued that the amount received has been correctly disclosed. All facts are on record. Thus, on the facts, it was contended, it cannot be argued that this is a concealment. Thus, how the action of apportionment could result in a situation that the assessee can be considered to have filed inaccurate particulars of his income.

3.14 Our attention was invited to CIT v. Indian Metals & Ferro Alloys Ltd. (1994) 211 ITR 35 (Ori), wherein it was held that any inaccuracy made in such books of account or otherwise which results in keeping off or hiding portion of its income is punishable as furnishing inaccurate particulars of its income. On the basis of this, it was contended that the inaccuracy made in the books of accounts of the assessee or otherwise has not be pointed out by the tax authorities. On the other hand, it was argued that the assessee has made a full and fair disclosure in the computation of income filed by it. In the circumstances, it was contended, it cannot be said that the assessee has sought to keep away or hide any portion of income.

3.15 It was further contended that even looking at the dimensions of this phrase as appreciated by the Hon'ble High Court of Gujarat in the case of A.M. Shah & Co. v. CIT (1999) 238 ITR 415 (Guj), the assessee does not fall under the ambit as all that the assessee was required to do was done. Referring to the said judgment, it was contended that their Lordships had held therein that the only inaccuracy in the particulars of income which aims at evading tax, i.e., which is deliberate or mala fide could be brought within the purview of this phrase and in the present facts of the case, it was contended that where the assessee has relied upon, a disengagement agreement, mala fides cannot be read into the said action where the assessee as per his understanding apportions the receipts of income for the period of user for which the said receipts had been received.

3.16 It was further contended by him that bona fides of the assessee is a valid defence to any inaccuracy, for which contention, reliance is placed upon Alpha Associates v. Dy. CIT (2000) 66 TTJ (Mumbai) 758.

3.17 Learned Authorised Representative further addressed the Bench on the meaning of 'deliberately' and special reference was. made to the judgment of the Patna High Court in the case of CIT v. Patna Timber Works (1977) 106 ITR 452 (Pat) at pp. 458 and 459. The same decision was relied upon for the meaning and effect of the word "furnishing".

3.18 Inviting our attention to p. 41 of the synopsis where the assessee's version of the interpretation of the disengagement agreement is contained, it was contended that the agreement clearly stipulates that the appellant is obliged to provide escorts with the license to exploit the know-how for the entire period of three years. Therefore, the on going duty of the licensor (i.e., the appellant) was to suffer use and make it possible for the licensee (i.e., Escorts) to use the. same, over a specified period, failing which, the appellant would have breached the terms of the agreement.

3.19 Apart from this it was also contended that Clause 4.04 of the agreement referred to the termination of all the earlier agreements entered into between the New Holland group companies and Escorts group during subsistence of the joint venture relationship. It was stated that this clause states "the releases do not include any claim that may be brought as a result of failure of the party to comply with the terms of this agreement". Thus, the contention was that the obligation of the appellant to make available technical know-how to Escorts continued over the period of license of technical know-how and did not get discharged in the previous year relevant to subject year itself.

3.20 Thus, in these facts, it was contended that the mere fact that there was no clause for revocation of the agreement during the period of three years does not imply that the appellant could not be sued for breach of contract in the event the appellant revoked the license to use technical know-how. It was also argued that Section 39 of the Indian Contract Act, 1872, provides that "when a party to the contract has refused to perform, or disabled itself from performing his promise in its entirety, the promisse may put an end to the contract, unless he has signified, by words or conduct, his acquiescence in its continuance.

3.21 It was further contended that mode of payment can neither override the underlying substance and principles of the contract nor can it be said to express the true intention of the contracting parties.

3.22 Accordingly, it was contended that in this background, the reliance placed by the Tribunal on E.D. Sassoon & Co. Ltd. v. CIT (supra) in order to decide the issue of accrual was misplaced.

3.23 The argument was also raised that the technical know-how provided by the assessee to Escorts is in the nature of intellectual property which is protected by patent and copyright laws and the ownership in the same vests with the creator of such property. Accordingly, the use or exploitation of the know-how in the absence of an express permission would tantamount to violation of intellectual property rights and the third party would be liable to be prosecuted. Accordingly, it was stated that it is legally possible for a third party to exploit/use know-how only based on an express permission/grant of right to use the same. It was further contended that in pure technical know-how licence arrangement, the grantor/licensor is obliged to make available proprietary knowledge (design engineering in the instant case). Therefore, the on-going duty of the licensor (i.e., the assessee was to suffer use and make it possible for the licensee (i.e., Escorts) to use the same, over a specified period of three years. It was further contended by him that the Tribunal misdirected when it did not consider these facts while deciding the quantum proceedings.

3.24 With respect to the disclosure of the fact of receipt by the assessee, attention was invited to Note 3 of notes of accounts placed at p. 36, Schedule 9 to the audited financial statements, wherein the said amount is reflected as advanced receipt classified as a current liability at p. 33 in Schedule 5. Apart from this, the disclosure of the apportionment licence fee is made in the computation of income for which attention was invited to p. 54 of the paper book.

3.25 The learned Authorised Representative contended that the assessment proceedings are separate from the penalty proceedings and thus, the fact that the addition had been made in the assessment cannot automatically justify the imposition of penalty under Section 271(1)(c). Reliance was placed upon :

1. CIT v. Bhoj Raj & Co. (supra)

2. CIT v. Devi Dayal Aluminium Industries (P) Ltd. (supra)

3. CIT v. Santosh Financiers and Ors. (supra)

4. CIT v. Ajaib Singh & Co. (supra)

5. Vidyut Metallics Ltd. v. Dy. CIT (2001) 116 Taxman 273 (Mumbai)(Mag).

3.26 It was also contended by the learned Authorised Representative that the timing of accrual of income is not a settled issue and is subject to difference of opinion, Reliance was placed upon :

1. CIT v. Jagabandhu Prasanna Kumar Rooplal Sen Poddar (supra);

2. CIT v. Late G.D. Naidu and Ors. (1987) 165 ITR 63 (Mad);

3. Dy. CIT v. Nuchem Ltd. (supra);

4. Burmah Shell Oil Storage and Distributing Company of India Ltd. v. ITO (supra) [affirmed by the Division Bench of the same Court in ITO v. Burmah Shell Oil Storage and Distribution Company of India Ltd. (supra)].

3.27 It was also contended that where the question had been admitted by the High Court, i.e., substantial question of law for adjudication, as such, no penalty could be levied on the basis of such addition. Reliance was placed upon :

1. N.S. Narula v. Asstt. CIT (1999) 106 Taxman 123 (Del)(Mag)

2. K.G. Nariman Alias N.K. Gajwani v. ITO (1989) 33 TTJ(Bom) 565 3.28 With respect to the submission that the word "device" vis-a-vis the decisions of the Supreme Court in McDowell and Co. Ltd. (supra) and Playworld Electronics (P) Ltd. (supra), our attention was invited to the meaning of term "device" given in Chamber's Dictionary, Black's Law Dictionary and, The Law Lexicon and it was argued that the disengagement agreement cannot be called a colourable device.

3.29 On the basis of these submissions, the following facts were adverted to :

"1. The agreement was between independent parties and was duly filed with the Company Law Board (hereinafter referred to as "CLB") as a statement of all their outstanding disputes.

2. The agreement was registered with the CLB, which approved the entire disengagement arrangement.

3. Consideration under the agreement was actually received by the appellant.

4. The transaction was duly recorded by the appellant in its books of account in accordance with the accounting principles postulated by the Institute of Chartered Accountants of India and duly audited by a renowned firm of chartered accountants.

5. Adequate disclosures were made by the appellant in respect of the. tax position being adopted in the return of income."

Reliance was also placed upon commentary on Income-tax Law by Chaturvedi & Pithisaria for the following :

"The principles enunciated in McDowell's case (supra) has not affected the freedom of a citizen to act in a manner according to his requirements, his wishes in the manner of doing any trade activity or planning his affairs, with circumspection, within the framework of law, unless the same falls within the category of colorable device which may properly be called a device or a dubious method or a subterfuge clothed with apparent dignity."

Attention was also invited to by the learned Authorised Representative to the following decisions :

1. CWT v. Arvind Narrottam (supra).

2. M.V. Valliappan v. ITO (1988) 170 ITR 238 (Mad).

3. Swastik Gear Ltd. v. ITO (1989) 175 ITR 384 (All).

3.30 Reliance was also placed upon the decisions of the Supreme Court in the case of Madras Industrial Investment Corporation Ltd. (supra) and CIT v. Jai Prakash Om Prakash Co. Ltd. (1964) 52 3TR 23 (SC).

3.31 It was further contended that the CIT(A) on the facts of the case was not correct in relying upon the decision of the Allahabad High Court in Addl. CIT v. D.D. Lamba & Co. (supra).

4.1 Learned Departmental Representative, apart from relying upon the orders of the tax authorities vehemently contended that there is no dispute over the fact that the assessment order has been confirmed by the CIT(A) which has been confirmed by the Tribunal in the quantum proceedings. Thus, it was contended, on merits, the arguments of the assessee vis-a-vis the addition has been already decided in the quantum proceedings. It was further contended by him that the joint venture agreement entered into by the assessee has not been placed before the Bench by the assessee and only disengagement agreement had been relied upon.

4.2 Referring to the said disengagement agreement, it was contended that no string has been attached in the said disengagement agreement which operates against the assessee in any manner and whatever strings are attached are vis-a-vis the Escorts group and thus, if any terms of agreement in the disengagement agreement are violated as contemplated in the disengagement agreement, it would be the Excorts group who can be made to pay damages to the assessee and not vice versa. It was argued by him that nowhere in the said agreement, the possibility of assessee paying damages to the Escorts group has been contemplated. Accordingly, the contention was that the eventuality that the assessee will be called upon to refund the said amount to the Escorts group has not been contemplated in the said agreement. Thus, any violation of the agreement would operate against the Escorts group and not against the assessee.

4.3 With regard to the submissions of the assessee that where two opinions are possible then the one in favour of the assessee shall operate, reliance was placed upon the decision of the jurisdictional Court, in the case of CIT v. Kelvinator of India Ltd. (2002) 256 ITR 1 (Del)(FB).

4.4 Referring to Article 2.02 of the disengagement agreement, it was also contended that three years have passed and the assessee has not been called upon to refund any amount received by it for any alleged violation of any nonexistent condition in the contract. Accordingly, the arguments advanced are hypothetical questions.

4.5 With regard to the decision of the jurisdictional High Court in (2000) 246 ITR 568 (Del) (supra), it was his contention that this was a reference filed by the Revenue and any remarks which are made therein do not effect the present case. Reliance was placed upon CIT v. Gurbachan Lal (supra) and Electrical Agencies Corporation v. CIT (2002) 253 ITR 619 (Del) for the contention that the jurisdictional High Court in subsequent cases has not commented upon the said decision. Reliance was also placed upon K.P. Madhusudhanan v. CIT (2001) 251 ITR 99 (SC) at p. 103. Referring to the assessment order, it was contended that right from pp. 1 to 21, the AO has dealt with only one issue, i.e., the fee received from Escorts group and after considering the various arguments of the assessee, he has initiated penalty proceedings. Thus, relying upon K.K. Madhusudanan (supra), the explanation filed by the assessee has been found to be false by the AO. The notices have been issued to the assessee since the AO is satisfied that true income has not been disclosed and, in fact, the assessee has not disclosed true income in the computation of income. Reliance was placed upon CIT v. Sree Krishna Trading Co. (2002) 253 ITR 645 (Ker) and CIT v. K.R. Sadayappan (1990) 185 ITR 49 (SC). Reliance was also placed upon the decisions relied upon by the AO and the CIT(A).

4.6 Reliance was placed upon (1987) 165 ITR 14 (SC) (supra) and (2002) 253 ITR 619 (Del) (supra) for the contention that the onus is on the assessee.

5.1 In reply, the learned Authorised Representative submitted that since the birth of the assessee-company took place in 1995, i.e., 9th May, 1995, no joint venture agreement had been entered into, thus any joint venture agreement entered into with the predecessor of the assessee is not relevant. The only agreement entered, into after the inception of the assessee-company was the disengagement agreement entered on 14th July, 1995, which has been placed on record. Accordingly, the arguments of the learned Departmental Representative on this aspect deserve to be rejected.

5.2 It was also contended by him that the reliance placed upon (2001) 250 ITR 157 (Del) (supra) and (2000) 246 ITR 568 (Del) (supra) does not advance the case of the Revenue and does -not rebut the submissions on behalf of the assessee.

5.3 Our attention was also invited to the computation of income filed by the assessee and note appended thereto. Referring to the same, it was contended that all the facts were truly disclosed and nothing there was found to be false. In the later years, the assessee has itself shown the accrual of the said income, on the basis of which, the Revenue has made the assessments protectively.

5.4 Referring to Roshan Lal Madan v. Asstt. CPT (1998) 62 TTJ (Chd)(TM) 1 : (2000) 245 ITR 36 (Chd)(TM), it was contended that which is the negative fact or portion of income which the assessee has not disclosed. It was reiterated that on the issue of amount of receipt as well as the period for which it was made, there is no dispute. The dispute is on the issue whether it is treated to be accrued in one year or to be apportioned for the period of user and this was the question of law which was before the jurisdictional High Court.

5.5 It was contended that the explanation made by the assessee could not be said to be not bona fide. It was reiterated that the assessment proceedings and penalty proceedings are separate proceedings. Our attention was invited to CIT v. Suresh Chandra Mittal (2001) 251 ITR 9 (SC).

6.1 We have heard the rival submissions and perused the material placed on our files. The judgments relied upon before us have also been taken into consideration. It is seen that the first argument of the assessee for quashing the penalty proceedings has been that no satisfaction according to learned Authorised Representative has been recorded in the assessment order. As such, relying upon CIT v. Ram Commercial Enterprises Ltd. (supra), it was contended that the penalty proceedings deserve to be quashed.

6.2 Learned Departmental Representative on the other hand, has relied upon (2001) 250 ITR 157 (Del) (supra) and (2002) 253 ITR 619 (Del) (supra) and contended that the jurisdictional High Court in later decisions has not struck the penalty proceedings on the fact that satisfaction is not recorded in the penalty order.

6.3 A perusal of this decision shows that the facts were materially different. The starting premise of the said decision was the finding given by the Tribunal that satisfaction has not been recorded by the AO which was confirmed by the Hon'ble High Court. Their Lordships therein in the decision of the apex Court in the case of DM. Manasvi v. CIT (supra), wherein on the facts before their Lordships, it was held that :

"Held, (i) that the penalty proceedings were validly initiated;

(ii) that, on the facts, there was relevant material before the Tribunal to hold that the assessee had deliberately concealed the particulars of his income; this was not a case of inference from mere falsity of the explanation given by the assessee in the assessment proceedings, but a case where there were definite findings that a device had been deliberately created by the assessee for the purpose of concealing his income."

6.4 The facts before their Lordships in brief were that in the appeal relating to the refusal of registration of firm constituting of four major partners including the assessee and three minors who were his grand children, the Tribunal had found that the three other major partners were dummies and the only and real partner was the assessee and that the accumulative profits of the business run in the guise of the firm were taken over by the assessee for use according to his own sweet will. The AO had held that the business of the firm was a proprietary concern of the assessee and its income was his income and directed issue of notice under Section 271(1)(c) for concealment of income, Notices were issued subsequently to the making of the assessment orders and penalty was imposed.

6.5 Their Lordships of the apex Court relying upon the dictum laid down in CIT v. Anwar All (supra) held that the inference that the assessee has consciously concealed the particulars of his income and deliberately furnished inaccurate particulars is based not merely upon the falsity of the explanation given by the assessee. On the contrary, it is made amply clear by the order of the Tribunal that there was positive material to indicate that the business of Kohinoor Mills belonged to the assessee and the whole scheme was to disguise the profits of the assessee as those of a firm of four partners. Their Lordships were of the view that the present is not a case of inference from mere falsity of explanation given by the assessee but a case wherein there are definite findings that a device had been deliberately created by the assesses for the purpose of concealing his income. As such the benefit of answer Anwar Ali's case (supra) could not be made available.

6.6 Accordingly, it is seen that the decision of the jurisdictional High Court relied upon by the learned Authorised Representative is distinguishable on facts as therein the Tribunal had proceeded on a footing that no satisfaction was recorded in the assessment order. The decision of the Supreme Court is based on the fact that notices under Section 271(1)(c) were issued prior to the making of the assessment order. Even then, on the facts of that case, their Lordships held that a device had been created by the assessee for concealing his income. In the facts of the present case, it is seen that the AO in the assessment order under Section 143(3) of the Act has only dealt with one addition made by him and at p. 8, para 3.4(vi), and observed as under :

"(vi) The company has apportioned the receipt from the Escorts in four assessment years under a broad and comprehensive device to avoid the incidence of tax because in the subsequent assessment year following the asst. yr. 1996-97 the company has huge losses and it could very well set off the income from the Escorts against the losses. Therefore, it was a plain and simple device with an obvious purpose to reduce the incidence of tax on the income in the asst. yr. 1996-97."

6.7 On the basis of this, ultimately at p. 21 of his order, he further observed "Penalty proceedings under Section 271(1)(c) for concealing the particulars of income has been initiated separately" which finding has come after considering replies of the assessee and the specific facts of the case at a later point of time. Accordingly, we are of the view that at the assessment stage, the mere recording by the AO is enough. If anything is found in the assessment orders which shows that the AO was satisfied with regard to the concealment or furnishing of inaccurate particulars of income by the assessee, the requirement of the section in this regard gets satisfied. The above extracted paragraph of the assessment order is a clear pointer towards the recording of satisfaction. Accordingly, in the peculiar facts of the case at hand, we are not inclined to agree with this argument raised on behalf of the assessee.

7.1 It may be relevant at this juncture to consider the relevant provisions of the disengagement agreement heavily relied upon by the assessee in order to see whether the relevant provisions relied upon by the learned Authorised Representative of the Contract Act have any play in the peculiar facts of the case as far as the assessee is concerned :

"Article 1. Disengagement 1.01 Sale of the Shares New Holland hereby agrees to transfer and sell to Escorts or its nominee(s), and Escorts (hereinafter "the Shares") as described in Exhibit "C" free and clear of all charges, liens, claims or other encumbrances of whatever nature for a price aggregate to US$ 9,800,000 (hereinafter "the Purchase Price") equivalent to approximately Rs. 30,60,00,000 as provided herein.

1.02 Assignment of Design Engineering Services and Payment. Therefor.

As of the binding date (defined in 4.01) NH India hereby assigns to Escorts for a period of three years the right to use the technology used in the tractor model 3610 provided to ETL by New Holland U.K. Ltd. (formerly New Holland Ford Ltd. between 1991 and 1994 subject to 2.02(b)(i), (ii), (iii) and (iv). In consideration of the foregoing, Escorts agrees to pay a technical fee in Indian rupees equivalent to US$ 5,000,000 at the date of deposit in the Escrow Account as provided in 1.04(d) below ("technical fee"), currently equivalent to approximately Rs. 15,30,00,000, after deducting TDS, on a non-repatriable basis to NH India.

1.03 Regulatory Approvals.

As soon as possible, but not later than 7 days from the signing of this agreement Escorts shall make applications, and cause ETL to make (if any), to RBI, SEBI and/or to any other Governmental Agency that may be required to obtain necessary approvals for this agreement and for effecting the transfer of the Shares and the payments of the Purchase Price and technical fee in accordance with this agreement. Escorts shall promptly provide New Holland with a copy of all applications Escorts has filed with the competent authorities and certify through an expert of its own choice to New Holland that no other approvals will be required. The parties to this agreement shall co-operate to obtain necessary approvals.

1.04 Escrow Arrangements.

The transactions mentioned in 1.01 and 1.02 above, shall be carried out as follows :

(a) Escorts, New Holland and New Holland India hereby agree to appoint for escrow/custodial services The Citibank NA, Jeevan Bharati, 124 Connaught Circus, New Delhi 110001, India (hereafter "escrow agent") with which the escrow account is hereby agreed to be opened in accordance with the instructions referred to in (e) hereinbelow/hereinafter "Escrow Account").

(b) New Holland will deliver all the share certificates of the shares along with duly executed transfer deeds and the registration letters of the New Holland nominated three (3) directors on the Board of ETL, to be effective from the date of their release from the escrow account if any, to the escrow agent into the escrow account within 7 days of binding date.

(c) Escorts will pay the purchase price into the escrow account with the escrow agent within 7 days of the binding date.

(d) Escorts will pay the technical fee into the escrow account with the escrow agent within 24 hours of the binding date. '

(e) New Holland, NH India and Escorts shall give irrevocable instructions to the escrow agent to release the said share certificates of the shares, transfer deeds and resignation letters to Escorts or its nominee(s) and the purchase price to New Holland and technical fee to NH India upon given conditions being satisfied, all of which as set forthin the document entitled escrow agent instructions, a copy of which is attached hereto as Exhibit "D".

1.05 Ownership of Shares Pending Release and Remittance of Dividend/Other Distribution.

Prior to the release of the share certificates of the shares, New Holland shall continue as the legal, equitable and beneficial owner of the Shares Although such release may occur prior to the maturity date of the dividend/other distribution, whether in cash or in kind, attached to the shares for the financial year 1994-95, nonetheless New Holland shall be entitled to receive any such dividend/other distribution forthwith when due, Likewise, the New Holland nominated directors shall continue in the capacity as directors of ETL until the letters of resignation become effective. This agreement shall not be construed as creating a trust in favour of Escorts with respect to the shares.

Article II Technical and Product Information 2.01 Production and distribution of Ford Tractors Escorts on its own and on behalf of ETL agrees not to dispute the right of New Holland and its associated companies to produce, distribute and sell in India the 'Ford' brand tractors.

2.02 Product differentiation It is a basic concept of this agreement that Escorts and its associated companies including ETL will not manufacture tractors which will be confused with Ford tractors. Confusion can be caused only by four factors : use of the same brand name; colour; series identification; and styling (hereinafter 'Confusion factors').

2.02(a) Until 31 Dec., 1996, New Holland will not object to ETL continuing to produce-Ford tractors under the following conditions :

(i) product quality be maintained to Ford standards by the retention by ETL of a resident engineer appointed by New Holland;

(ii) the present styling, paint, colour, brand name and series identification to be maintained as they, are at the date of this agreement and to be utilized only together in combination.

(iii) If before 31st Dec., 1996, ETL is required to, or choose to, drop the use of the Ford brand name, the conditions of para. 2.02(b) will apply.

2.02(b) After 31st Dec., 1996, or at such earlier date as provided in 2.02(a)(iii), the confusion factors will be handled as follows :

(i) Brand Name : Escorts, ETL and their affiliated companies shall not use the brand name Ford and in any case shall comply with the limitations contained in Article 10.3 of the registered user agreement dt. 14th Dec., 1990, between Ford Motor Company of Canada Ltd. and Escorts Tractors Ltd.

(ii) Colour : In order to distinguish the colour of products manufactured by EL, ETL or any affiliated company from those to be manufactured by New Holland and its affiliates, EL, ETL and its affiliated companies shall only use colours which are not blue; or Bureau of Indian Standards (September, 1994) blue colours with a Munsell value between 0 and 2.5 or with a Munsell value between 7.5 and 10 (including within these two preceding ranges of blue shades are Bureau of Indian Standards (September, 1994) ISC Nos. 105, 106, 108 and 177 which are permitted). In the preceding specifications of blue colours, they are mutually exclusive; id est, the permitted shades of blue cannot be mixed with any other colour or shade of blue to form a colour which would fall within the range of colours defined by Bureau of Indian Standards (September, 1994) as a blue colour with a Munsell value of greater than 2.5 and less than 7.5.

(iii) Series Identification : Neither Escorts nor ETL nor any of their affiliated companies shall use the same series identification as those used on Ford tractors.

(iv) Sytling, i.e., Grill : The tractors produced by ETL/Escorts and/or any of their affiliated companies shall use front grills which are different from the ones presently used on Ford tractors manufactured by ETL.

2.02(c) Until 31 Dec., 1996, or such earlier date as provided for in 2.02(a)(iii) above, New Holland will not interfere with, object to, or take any action that could lead to, an early termination of the registered user agreement referred to in 2.02(b)(i). New Holland will instead co-operate with ETL in seeking termination of the registered user agreement as from 31st Dec., 1996. Notwithstanding the above, ETL shall always be free to manufacture tractors under any other brand name provided the tractors produced by ETL conform to the conditions of 2.02(b).

Article III Termination of other agreement 3.01 Termination of subsisting agreement(s) Upon the release of the New Holland shares certificates of the shares to Escorts or its nominee(s) and of the purchase price to New Holland and technical fee to NH India, all the subsisting agreement(s) between Escorts, ETL and New Holland will stand terminated and no provision shall survive termination.

Article IV Miscellaneous 4.01 binding date Within two working days of the signing of this agreement, the parties will jointly file this agreement with the Company Law Board and request that it enter an order making this agreement a Court ordered settlement. The date when the Company Law Board enters the above order shall be the "binding date". As from the binding date the parties shall carry out the Escrow arrangements as set forth in 1.04. The parties agree that time is of the essence in carrying out the terms of this agreement and, therefore, should either party fail to perform any of its obligations within the terms of this agreement the other party shall be relieved of its duty to perform and this agreement shall be null and void.

4.02 Effective date/Termination This agreement will become effective upon all necessary regulatory approvals referred to in 1.03 above being obtained and copies provided to New Holland and the certification by Escorts through an expert of its own choosing that no other approval is required being notified to New Holland and a copy provided to the escrow Agent.

If by 16th Aug., 1995, or by such subsequent date as may be mutually agreed to in writing by both parties, all conditions referred to herein shall not have been satisfied or should the escrow agent be unable for any reason to release all of the documents or all of the sums in accordance with the escrow agent instructions, then this agreement shall be automatically terminated.

4.03 Entire agreement This agreement represents the entire understandings of the parties with regard to the subject-matter hereof. Any prior agreements or understandings, whether written or oral are superseded. This agreement shall not be amended except in a writing signed by both parties hereto.

4.04 Release and hold harmless As from the date the transfer of shares and the payments of money to New Holland and/or NH India have been effected, Escorts for itself and in the name of and on behalf of ETL shall release any and all claims they have or may ever have against New Holland, NH India or any of their related companies arising out of or in connection with New Holland's investment in ETL and any other agreement entered into between or among New Holland or any of its related companies and Escorts, ETL or any of its related companies. Similarly, as from the date the transfer of shares and the payments of money to New Holland and/or NH India have been effected, New Holland shall release any and all claims it has or may ever have against ETL, Escorts and its related companies arising out of or in connection with its investment in ETL and any other agreement entered into between or among New Holland or any of its related companies and Escorts, ETL and any of its related companies. These releases do not include any claims that may be brought as a result of the failure of a party to comply with the terms of this agreement. Each party agrees that it will obtain the required corporate approval to enter this agreement and will hold the other parties harmless for any consequences related to failure to obtain the required approval."

7.2 A perusal of the various clauses of the agreement shows that various limitations are read into it with respect to the conduct of the Escorts group, e.g., Clause 2.01. The Escorts group on its own behalf and on behalf of Escorts Tractors as per this agreement has agreed not to dispute the rights of the New Holland or its associated companies to produce, distribute and sell in India the "Ford" brand tractors. A perusal of this clearly shows that the limitation is put on the conduct of the Escorts group and in case the said stipulation is violated, then the damages for breach of the contract would be claimed by the assessee.

7.3 A perusal of Clause 2.02 of Article 2 of the said agreement shows that a limitation is put again on the Escorts group and its associated companies, namely, Escorts Tractors that they will not manufacture tractors which will be confused with Ford tractors. The said clause further makes clear various factors which it has classified as "confusion factors", namely, brand name, colour, series identification and styling. After a careful analysis of all these conditions, it is seen that the Escorts group has been precluded from manufacturing tractors which ultimately may be manufactured by the assessee. Thus, it is not contemplated in atleast this clause that any stipulation or limitation has been put on the future conduct of New Holland. The position is otherwise. Thus, in case the Escorts group manufactures any tractors which could be confused with the Ford tractors, then, no limitations have been put upon the assessee and the assessee is free to take whatever remedy is available to it, under law if the Escorts group violates the conditions which have been specifically brought out in Clause 2.02 of the said agreement.

7.4 Clause 3.01 deals with termination of agreement upon the fulfilment of the requirements under the said agreement which as far as New Holland group is concerned is the release of New Holland share certificates to Escorts or its nominee(s) and where the assessee is concerned, it is on receiving the purchase price and the payment of the technical fee from the Escorts group on receiving the technical know-how. As such, there is nothing in Clause 3.01 which supports the alleged bona fide belief of the assessee that the receipt was contingent.

7.5 Clause 4.01 of the said agreement lays down the binding date. The parties signing this agreement were required to file within two working days this agreement with the Company Law Board and request that it enter an order making this agreement a Court ordered settlement. The date on which the Company Law Board entered the above order was to be taken as the binding date. From this binding date, the parties were required to carry out the escrow arrangements as set forth in para 1.04. Both the parties agreeing that the time is of the essence in carrying out the terms of the agreement further agreed that should either party fail to perform any of its obligations within the terms of the agreement the order party shall be relieved of its duty to perform and the agreement would become null and void.

7.6 Clause 4.02 of this agreement further stipulated that the agreement would become effective upon all necessary regulatory approvals referred to in Clause 1.03 having been obtained and copies provided to New Holland and the certification by Escorts through an expert of its own choosing that no other approval is required being notified to New Holland and a copy provided to the escrow agent. The said clause further stipulated that in case by 16th Aug., 1995, or by subsequent date as may be mutually agreed to in writing by both parties, all conditions referred to in this agreement have not been satisfied or should the escrow agent be unable to release all of the documents or all of the sums in accordance with escrow agent instructions, then this agreement shall be automatically terminated.

7.7 A perusal of this clause also shows that the eventuality of non-performance of the contract or non-fulfilment of any of the conditions unless it is mutually agreed to in writing by both the parties, then the agreement was to be automatically terminated. As far as the issue at hand is concerned, we are of the view that the arguments advanced by the assessee that non-performance of a condition in the contract will give rise to a situation that damages for breach can be claimed from the assessee are not supported.

7.8 In the course of the hearing, we have also been addressed by the learned Authorised Representative on the "Released and Hold Harmless" clause of the agreement which is dealt with in Clause 4.04 of the said agreement. A perusal of this clause shows that the Escorts group undertook on behalf of itself or of ETL that as from the date the transfer of shares and the payments of money to New Holland and/or New Holland India have been effected, Escorts for itself and in the name of and on behalf of ETL shall release any and all claims they have or may ever have against New Holland, New Holland India or any of their related companies arising out of or in connection with New Holland's investment in ETL and any other agreement entered into between or among New Holland or any of its related companies and Escorts, ETL or any of its related companies.

7.9 Similarly, the said clause further states that New Holland from the date of transfer of shares and payments of money to New Holland and/or New Holland India, i.e., the assessee has been effected, the New Holland group shall release any and all claims it has or may ever have against Escorts group and its related companies arising out of or in connection with its investment in ETL and entered into between or among New Holland or any of its related companies.

7.10 This clause further clearly states that these releases do not include any claims that may be brought as a result of the failure of a party to comply with the terms of the agreement. Each party agrees that it will obtain the required corporate approval to enter the agreement and will hold the order parties harmless for any consequences related to failure to obtain the required approval.

7.11 A careful analysis of the above clause read with the analysis of the entire disengagement agreement shows that nowhere beyond the date the agreement on which it comes into effect any limitations have been contemplated whereby the assessee has undertaken either to do or not to do something. On the contrary, in the said agreement, after it comes into effect various stipulations/limitations have been put upon the Escorts group not to manufacture tractors which are identical or confused with the Ford brand of tractors. In fact, Article 4.04 has even carefully contemplated the situation that after the date of transfer of shares and payment of money to New Holland or New Holland India all claims which have or may ever have been by either side against each other shall be mutually released, but, these releases do not include any claims that may be brought as a result of the failure of a party to comply with this agreement which, in fact, constraints the future conduct of Escorts group and not the assessee as per Clause 2.02. Thus, after a careful analysis of the relevant clauses of the disengagement agreement, we are unable to agree with the submissions of the learned Authorised Representative that the various possibilities contemplated in the Contract Act for rescission, breach on account-of non-performance or impossibility of performance can arise in the eventuality where either the assessee is not capable of performing the task undertaken or not perform it in the manner agreed as once the agreement came into effect, nothing further was required from the assessee.

8.1 It may be pertinent to refer to the decisions relied upon before us.

8.2 The learned Authorised Representative has placed reliance on Alpha Associates v. Dy. CIT (supra) for the proposition that the bona fide of an assessee is a valid defence to any inaccuracy. On the basis of this order, it has been contended that bona fide inaccuracy in furnishing of income cannot be penalized for invoking the provisions of this section. A perusal of this order shows that at para. 20, the Tribunal observed :

"On the basis of the material supplied by the assessee if there are two opinions possible and if the assessee computes the income on the one which is beneficial to do, it cannot be charged as an act of furnishing inaccurate particulars. There is no ban under the Income-tax law to say that the assessee should recourse to the interpretation, which entails a higher levy of taxes. Having furnished all the relevant details and having furnished computation in accordance with the provisions of IT Act, assessee has to invoke some interpretation, its account books, the state of affairs as it believes to be and the expert guidance........"

8.3 The Tribunal in para. 26 of the said order observed that when different interpretation exists in the hierarchy of the assessing machinery, it would be unreasonable to hold that the assessee's interpretation and choice about taxability of income under particular head carries an element of falsehood or intention of deliberately furnishing inaccurate particulars. On applying the proposition laid in the said order to the facts of the present case, it is seen that the consistent view of the tax authorities which has been upheld by the Tribunal in the quantum proceedings is that the apportionment made by the assessee was neither justified by facts, circumstances nor position of law. As such, there are no contradictory findings by different authorities in the case of the assessee. Thus, this order does not help the assessee to establish its bona fides as the material facts of the two cases are distinguishable. On the other hand, after a careful perusal of various clauses of the disengagement agreement and the case law relied upon by the assessee as well as its submissions, it is impossible to come to the conclusion that the assessee could harbour a genuine and bona fide belief that the income received could be apportioned. No reasonable person reasonably instructed in law in the peculiar facts of the case could entertain such a bona fide belief. Having gone through the disengagement agreement at length and given our utmost consideration to all submissions made either before us or before the tax authorities, we are unable to see the rationale/basis which can form the belief that the sum received by the assessee had to be apportioned. The decisions which the assessee has relied upon in the quantum proceedings and before us have been rendered in different circumstances and after having been considered have been held to be not applicable to the issue at hand. Even after analyzing the agreement with the relevant provisions of the Contract Act, we are fully in agreement with the finding of the Tribunal in the quantum proceedings and are unable to come to the conclusion that an assessee receiving the best possible advice could have harboured the belief that the payments received were contingent upon some happening or non-happending in future and in the event of such non-performance, the assessee could be called upon to refund a part of the same. Thus, keeping in mind the arguments advanced so as to contend that the provisions of the Contract Act have not been kept in mind by the Tribunal as they were not argued before it and closely examining the disengagement agreement, we are unable to see as to which condition and in which clause the assessee would like to emphasize could lead to a bona fide belief that any limitations have been placed upon the assessee.

8.4 In the course of the hearing as we have already observed, submissions were addressed on the confusing factors enumerated in Clause 2.02, a careful perusal of which already done in the earlier part of this order has shown that all the stipulations contemplated therein in fact operate against the Escorts group and as far as the assessee is concerned, there is no clause or even any whisper of any situation where the assessee could be called upon to refund any amount. It is also noted that nowhere in the said agreement has either the word "advance" been used or any indication that the same was to be treated as an advance payment could be gleaned. The conditions, in fact, operate against the Escorts group who can be taken to Court to compensate the assessee in case of conditions enumerated in Clause 2.02. Thus, if any breach of the contract is contemplated, it is a breach which can be occasioned only by Escorts group not adhering to Clause 2.02 which would result to the material advantage in favour of the assessee. Clause 4.01 holding and disclosure clause in fact clearly entitles the assessee to seek remedy in accordance with law in the eventuality of the breach of this contract and, as such, in these facts, how the assessee could have entertained a bona fide belief that the amounts so received were to be apportioned has not been demonstrated and only general arguments have been advanced that under Sections 39, 64, 65, 70 and 75 of the Contract Act have not been considered. Merely relying upon various decisions for various propositions with which there is no quarrel the case of the assessee is not strengthened at all. On analysis of the applicability of the said sections to the facts of the case, it is seen that the possibility of breach on account of non-performance of any condition in contract does not arise as the contract came into effect only when all the requirements enumerated therein were complete as far as the assessee was concerned.

8.5 It may also be relevant to note that the bona fide belief entertained by the assessee was sought to be supported by the decision of the Supreme Court in the case of Madras Industrial Investment Corporation Ltd. (supra). The said decision has been taken into consideration in the quantum proceedings by the Tribunal and even after considering the same in the penalty proceedings, we are unable to agree that the assessee could have entertained a bona fide belief that the amounts received by it could be apportioned. The facts of the said case are entirely distinguishable and could have led an average assessee reasonably instructed in law to form a bona fide belief that the amount received was required to be apportioned.

8.6 The reliance placed upon the judgment of the Punjab and Haryana High Court in the case of Punjab Tractors Ltd. v. Jt. CIT has also been considered by the Tribunal. It has been noted that therein there was some requirement, which the assessee was required to perform and only after that event the sum advance could be considered to have accrued to the assessee. In the present proceedings as has been observed by the Tribunal in the quantum proceedings, all the requirements which the assessee was required to perform or meet had to be prior to the date when the agreement came into effect. The agreement for the purposes of the issue at hand was to come into effect when the assessee put the technical know-how in the hands of the escrow agent who on receipt of the payment from Escorts group of the stipulated amount was to transfer the same to the Escorts group. Thereafter, there is no condition in this agreement which the assessee was required to perform and there is (sic no) duty, obligation or service cast upon the assessee. It may be pertinent to observe here that the very same technology was available to the Escorts group from the New Holland group/Ford group of companies which was transferred to the assessee who leased the same technology for a period of three years. A perusal of the material on record shows that no obligation, duty or service was required from the assessee and the assessee, in fact, on the date the agreement came into effect the directors appointed by New Holland USA in the Escorts group were to resign and hand over who had been appointed at an earlier date to ensure product quality. Thus, whatever services were performed by New Holland USA for making the technology available to the Escorts group in the earlier years on the handing over of the technical know-how to New Holland India who leased the same on the receipt of payment of the stipulated amount to Escorts group, nothing more was required to be done by the assessee on account of non-performance of which the Escorts group could take the assessee to Court. Thus, in these peculiar and specific facts, the assessee has not been able to establish how the assessee could entertain a bona fide belief that the apportionment made by it was supported by any fact or law.

9.1 In the course of the hearing, we have also been addressed at length by the learned Authorised Representative on the principle laid down by the Supreme Court in the case of McDowell & Co. Ltd. v. CTO (supra) on the basis of which it has been argued at length as to how the disengagement agreement entered into by the assessee, with the Escorts group and the New Holland USA a colorable device. We have also been addressed at length on the meanings of the words "colorable" and "device". Reliance has been placed upon another Supreme Court's decision in the case of Union of India v. Playworld Electronics (P) Ltd. and Anr.. (supra) so as to contend that tax planning may be legitimate provided it is within the framework of law. Our attention has also been invited to the decision of the Gujarat High Court in the case of Banyan & Berry v. CIT (supra), wherein the proposition laid down in McDowell & Co. Ltd. case (supra) has been discussed by their Lordships of the Gujarat High Court. The learned Authorised Representative himself, in fact, had no quarrel with the proposition laid down in the case of McDowell & Co. Ltd. (supra) but his submissions were as to how the disengagement agreement entered into by the three concerned parties could be called a "device", let alone a "colorable device".

9.2 Having given our utmost consideration to the submissions made and perusing the orders of the tax authorities, it is seen that it is not the case of the Revenue that the disengagement agreement entered into by the assessee is a device. The case of the Revenue is that the act of apportioning the receipts which have accrued to the assessee is a device and in that context, reliance has been placed upon the decision of the apex Court in the case of McDowell & Co. Ltd. (supra). A perusal of pp. 8 and 12 of the assessment order shows that the wordings have been :

Page 8 ".......Therefore, it was a plain and simple device with obvious purpose to reduce the incidence of tax on the income in the asst. yr. 1996-97."

(Emphasis by underlining, italicised in print, provided by us).

Page 12 "..........Lastly, whether the method adopted by the assessee-company is not a sophisticated legal device to avoid tax."

(Emphasis by underlining, italicised in print, provided by us).

9.3 Similarly, in the Section 271(1)(c) proceedings, the AO at p. 4 has also used the words "colorable device" in the context of apportionment. Accordingly, in the light of these facts and circumstances, the submissions of the learned Authorised Representative that the Revenue authorities were proceeding on a footing of high suspicion, conjectures and surmises by stating that the disengagement agreement was a colorable device entered into by the assessee in order to reduce his income is not correct on facts.

9.4 Coming to the findings of the AO in the assessment proceedings and the penalty proceedings on the facts of the case, we are of the view that the arguments of the assessee that on the facts of the case the assessee could have a bona fide belief that apportionment was in order is not acceptable. The act of apportionment in the absence of any clause stating the same to be an advance or by conduct shown it to be an advance or necessitating the same to be a contingent payment is not borne out. In these specific facts and circumstances, the decision of the apex Court in the case of McDowell & Co. Ltd (supra) analyzed by their Lordships of the Gujarat High Court in the case of Banyan and Berry (supra) also does not help the case of the assessee. The facts before their Lordships of the Gujarat High Court and the facts of the present case are entirely distinguishable. We are fully in agreement with the observation of their Lordships that the principle enunciated in McDowell & Co. Ltd.'s case (supra) has not effected the freedom of the citizen to act in a manner according to his requirements, his wishes in the manner of doing any trade, activity or planning his affairs with circumspection, within the framework of law, unless the same falls in the category of colorable device which has been expounded in the said decision. Their Lordships in the same decision were called upon to decide the following question :

"(ii) Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the case would be governed by the Supreme Court decision in the case of McDowell & Co. Ltd. v. CTO (1985) 154 ITR 148 (SC) and not by the Supreme Court decision in CWT v. Arvind Narottam (1988) 173 ITR 479 (SC) and by the Madras High Court decision in the case of M.V. Valliappan v. ITO (1988) 170 ITR 238 (Mad) ?"

Their Lordships' answer to the said question was :

"We answer the aforesaid question in the negative in favour of the assessee and against the Revenue by holding that the Tribunal was in error in applying the principle enunciated in McDowell & Co. Ltd. v. CTO (1985) 154 ITR 148 (SC)."

9.5 Thus, this decision rendered in the context of that decision does not help the assessee as the facts are materially different.

9.6 It may be pertinent to point out that their Lordships of the Gujarat High Court in the case of Banyan and Berry (supra) considered the decision of the Madras High Court in the case of M.V. Valliappan and Ors. v. ITO (supra) which has been reversed by the apex Court in Union of India and Ors. v. M.V. Valliappan and Ors., Etc. (1999) 238 ITR 1027 (SC). The decision in the case of CWT v. Arvind Narottam (supra) which has been relied upon by the assessee before us will be considered at a later point of time. Their Lordships in Playworld Electronics (supra) have laid down the principle that tax planning may be legitimate provided it is within the framework of law. A colorable device cannot be part of tax planning. In the facts of the present case, the device for apportionment is not supported, as we have already observed, by any fact or by any legal principle and, as such, it cannot be part of tax planning. As a result of this conclusion, the rationale on the basis of which the assessee could have entertained a bona fide belief to come to the conclusion that the receipts had to be apportioned for the period of lease is untenable.

9.7 Our attention has also been invited to CIT v. Jai Parkash Om Parkash Company Ltd. (1961) 41 ITR 718 (Punjab). The facts therein were that the assessee who kept its accounts on the mercantile basis, entered into a forward contract on 5th Feb., 1952, for the sale of certain quantity of mustard at Rs. 27-8-0 per maund, the due date being 7th June. The price fell soon thereafter and the purchaser purported to cancel the contract before the due date but the assessee refused to accept the cancellation. On 28th February, the assessee sent a telegram to the purchaser to the effect that if the purchaser did not inform it within 4 hours acceptance of settlement of the contract at Rs. 16-14-6 per maund it would presume that the purchaser had accepted a settlement at that rate. There was no response to the telegram. On the basis of this settlement the assessee instituted a suit for the recovery of Rs. 74,253 after giving credit for Rs. 20,000 due from the assessee. The trial Court decreed the amount and at the date of the assessment order, an appeal was pending before the High Court. The ITO included the sum of Rs. 94,253 in the total income of the assessee for the accounting year 1952-53, but the Tribunal excluded that amount from the assessment on the ground that the liability of the other party still being in dispute, the sum of Rs. 94,253 could not be said then to have accrued. On these facts, the Tribunal having been declined to state a case before the High Court and the High Court refusing to direct a case, the Supreme Court held that the question whether on the facts as ascertained, certain income could be said to be accrued to the assessee was a question of law and, accordingly, the question referred by the CIT ought to have been referred.

9.8 A perusal of the facts of this case shows that there was a dispute on the issue whether the amount had accrued to the assessee on account of the fact that the purchaser purported to cancel the contract before the due date and the assessee refused to accept the cancellation and sued the purchaser for the recovery of the amount. In the issue at hand, the facts as we have already observed are distinguishable. In fact, here not only there is no situation contemplated where the assessee can be called upon to refund part of the amount, it is also a peculiar case where the eventuality of such a happening is not remote but also impossible. The amounts received by the assessee under the agreement for all intents and purposes have come to the assessee without any possibility of having to refund the same.

9.9 Before us, reliance has been placed upon CIT v. K.R. Sadayappan (supra). Their Lordships of the Supreme Court therein held while allowing the appeal of the Revenue that the moment it is found that the income returned is less than 80 per cent of the income assessed, the onus to prove that it was not the failure of the assessee that caused the difference shifted to the assessee. But the onus was rebuttable. The presumption of concealment was rebuttable by cogent, reliable and relevant material. The judgment and order of the High Court was set aside and the Tribunal was directed to make a statement of the case and refer the same to the High Court who was to dispose the reference as quickly as possible. A perusal of the facts and circumstances of this case shows that the same are distinguishable and does not advance the case of the assessee in any manner.

9.10 Reliance has been placed upon K.P. Madhusudhanan v. CIT (supra). It may be pertinent to point out that herein, the decision of the Kerala High Court was affirmed and, in fact, CIT v. Suresh Chandra Mittal (supra) rendered on 26th July, 2001, the judgment and order of the High Court of Madhya Pradesh was affirmed. It is seen that the two decisions operate in the peculiar facts of their own and are entirely different from the issue at hand.

9.11 Reliance has been placed upon the decision and order of the Madhya Pradesh High Court in the case of M.V. Valliappan v. ITO (supra), a perusal of which shows that it operates in the peculiar facts, of its own in the context of which the principles laid down in the case of McDowell and Co. Ltd. (supra) have been analysed. It may be noted that the said judgment of the Madras High Court has been reversed by the Supreme Court in (1999) 238 ITR 1027 (SC) (supra) and, thus, apart from the fact that the facts are distinguishable, the decision also stands reversed. As such, the assessee does not derive any support therefrom.

10.1 It may be pertinent to state that we have taken into consideration the disclosure made in its audited accounts and the computation filed along with the return. The fact of filing returns in the subsequent assessment year before the notice under Section 142 in the present year has also been noted. We have also seen that the dates on which the subsequent return disclosing the remaining balance have been filed which has been taxed by the Revenue on a positive basis. The fact that when the apportionment was done for the year under consideration and return was filed, the assessee could not have contemplated that it would suffer losses subsequently could not have been contemplated has also been noted. However, after a careful analysis of all this, in the facts of the case, the rationale for entertaining a bona fide belief that apportionment of the receipt was supported by law is not acceptable. Hence, the disclosure of these facts does not exonerate the assessee from the penal consequences of this section as the assessee has not succeeded in demonstrating its bona fides.

10.2 Reliance has also been placed upon N.S. Narula v. Asstt. CIT (supra) for the, proposition that where the High Court has granted reference under Section 256(2), the question of addition was wide open and the case would not be brought within the mischief of Clause (b) of Expln. 1 to Section 271(1)(c).

10.3 A perusal of this order shows that the Tribunal therein noting the fact that the addition was sustained upto the Tribunal stage but on the facts of that case observing that there was a bona Me belief which would not call for giving rise to concealment as contemplated under Section 271(1)(c). The Tribunal therein had relied upon the order of the Bombay Bench of the Tribunal in the case of K.G. Nariman Alias N.K. Ajwani v. ITO (supra). A perusal of the order of the Bombay Bench further shows that the addition of Rs. 2,64,000 odd which was made by the AO was deleted by the CIT(A) and although the Tribunal restored the said addition, the High Court had allowed the reference under Section 256(2). On an analysis of entire facts and circumstances of the case, the Tribunal had come to the conclusion in Section 271(1) proceedings that the explanation offered by the assessee regarding the nature and source of Rs. 2,64,000 offered could, not be held to be not bona fide. Thus, on these facts, the penalty was quashed. In the case at hand, we have already come to the conclusion that the explanation offered by the assessee after a careful examination of the disengagement agreement and the case law relied upon could not be said to be a bona fide explanation. As such, the fact that the High Court had admitted reference on account of the fact that the various provisions of the Contract Act have not been considered by the Tribunal in view of the fact that the same were not argued before it in the fact of the present case cannot lead to the conclusion that the explanation offered by the assessee is bona fide. We have already examined the provisions of the Contract Act and the disengagement agreement and unhesitantly thereafter come to the conclusion that there was nothing in the disengagement agreement by way of which any limitation was either placed upon the assessee or the assessee could entertain a genuine/bona fide belief that that it was required to adhere to any condition or perform any service, etc. in future. Nowhere is any situation contemplated or for that matter is there any possibility to suffer the benefit that any such condition is there. There is not scope to entertain the belief that as per the disengagement agreement, the assessee could be required to refund any amount received by it. The possibility of non-user at all or user for a later period of the know-how rights obtained by Escorts group has also not been considered relevant and the payment has been made simply for allowing the user for a stipulated period of the knew-how rights regardless of the fact whether it is used or not used. In fact, various clauses in the said agreement very categorically contemplate various situations where violation of various conditions by the Escorts group would entitle the assessee to seek remedy by way of breach of contract/damages which, in effect, would result in a situation where the assessee stands to receive more funds under the provisions of law in the eventuality of any violation by the Escorts group. Thus, in the peculiar facts of the present case, the order of the Tribunal in the case of N.S. Narula (supra) does not advance the case of the assessee. Moreover, there the Tribunal had come to the finding that the explanation offered by the assessee was a bona fide explanation. Similarly, the order of the Bombay Bench of the Tribunal also does not help the assessee as therein, on the documentary evidence that the assessee had received a gift of Rs. 2,64,000 odd from his sister, the addition was made by the AO which was deleted by the CIT{A) and upheld by the Tribunal against which, the High Court granted reference under Section 256(2) and in the Section 271(1)(c) proceedings, the explanation offered by the assessee was found to be bona fide by the Tribunal. Thus, the facts of these two cases are entirely distinguishable from the issue at hand and do not lend any support to the case of the assessee.

11.1 In the course of the hearing in order to establish that the assessment proceedings and penalty proceedings are separate proceedings and simply because the addition has been confirmed, the penalty need not necessarily be imposed, our attention has been invited to the decisions of Punjab and Haryana High Court in the cases of CIT v. Bhoj Raj & Co. (supra), CIT v. Devi Dayal Aluminimum Industries (P) Ltd. (p. 47 synopsis) (supra), CIT v. Santosh Finances (supra), CIT v. Ajab Singh & Co. (supra) and Vidyut v. Dy. CIT (supra). It may be pertinent to examine the principles laid down in these decisions and see their applicability to the issue at hand.

11.2 Their Lordships of the Punjab and Haryana High Court in the case of CIT v. Bhoj Raj (supra) held that the CIT(A) has given cogent reasons for holding that the non-acceptance of the method of accounting adopted by the assessee cannot lead to a conclusion that it had deliberately suppressed the income from the Department and, thus, on these facts, they were of the view that no interference was called for. A perusal of the decision shows that therein on the facts of the case their Lordships declined to interfere with the finding of the Tribunal which confirmed the order of the first appellate authority. The CIT(A) had granted relief noting that where the method of accounting commission was on receipt basis, then, there could always be some dispute or difference regarding the actual amount receivable as commission and dispute can arise subsequently because of sales return, quality difference, complaint from customers and expenditure incurred by the assessee. Thus, only when the credit note is sent only then it could be said that there is no further dispute on account of commission receivable. Thus, where the commissions on receipt basis are shown, their addition on basis of rejection of method of accounting does not invite the penal consequences on account of inaccurate particulars of income, as no deliberate separation of income is made out in such case.

11.3 In the issue at hand, the entire process-started from the disengagement agreement and as we have already analysed the various clauses of the said agreement and come to the conclusion that as far as the assessee was concerned, the same received by it had also accrued in the year under consideration. We have also examined the bona fides of the assessee. Thus, on account of apportioning the same for the period of lease a case of deliberate suppression of income is squarely made out. As such, the decision of CIT v. Bhoj Raj & Co. (supra) does not support the case at hand.

11.4 The decision of Allahabad High Court in the case of CIT v. Devi Dayal Aluminimum Industries (P) Ltd. (supra) revolved around the fact that the additions made by the AO with respect to the melting loss in the manufacture of stainless steel was deleted by the CIT(A). Similarly, the additions made on account of stock discrepancy accepting the explanation of the assessee was also deleted. The Tribunal reversed the order of the CIT{A) and confirmed the assessment order, In the penalty proceedings, the Tribunal quashed the penalty on the ground that although the explanation of the assessee is not acceptable, there was no material, on the basis of which, it could be held that it was not bona fide. On a reference to the High Court it was held that the rejection of the explanation of the assessee did not render it false so as to attract Section 271(1)(c). The Lordships observed that the assessee failed to substantiate its loss or wastage but so long as the claim was bona fide, it could not be held to be false. As such, on these facts, the proviso of Section 271(1)(c) was squarely applicable and it was held that the Tribunal was justified in the circumstances in cancelling the penalty. Accordingly, it is seen that the said decision revolved on the peculiar facts of its own, We have already examined the explanation of the assessee at length and gone through not only the disengagement but also the disclosure made in the computation at length. The decision relied upon so as to justify the stand taken by the assessee, namely, Punjab and Haryana Tractor case (supra) has also been examined and both in the assessment proceeding and in the penal proceedings, the orders of the tax authorities have consistently not accepted the bona fides of the assessee. Having given our utmost to the entire facts and circumstances we are unable to see the basis for the assessee that apportionment was justified. In the ultimate analysis, we are in the complete agreement with the tax authorities inasmuch as the act of apportionment has been used by the assessee as a device to suppress its income and accordingly by not offering the entire sum, the assessee has consciously and deliberately filed inaccurate particulars of its income.

11.5 Before us reliance has also been pressed upon CIT v. Santosh Finances (supra). Their Lordships of the Kerala High Court have held therein that penalty proceedings are distinct and different from assessment proceedings and findings in the assessment proceedings are not conclusive but are relevant. They have also laid down the principle that the entire material available should be considered afresh by the authorities before imposing penalty and thus even after the addition of the Explanation to Section 271(1)(c) of the IT Act, 1961, conscious concealment is necessary. The Explanation provides only a rule of evidence raising a rebuttable presumption in such circumstances. No substantive right is created or annulled thereby. The initial burden of proof is cast on the assessee to displace the presumption arising in certain cases. The assessee can discharge the onus either by direct evidence or circumstantial evidence or both. The cumulative effect of all facts should be taken into consideration. It may be stated at the outset that there is no quarrel with these accepted principles and they have to be applied to the facts and circumstances of each and every case where penal proceedings are contemplated. It is worth mentioning that the facts of that case were that different assessees were engaged in the business of money lending where certain documents were found in the course of search, whereby it is observed that the assessees were charging interest on loans and advances at 30 per cent against 18 per cent accounted for in their books. The assessees therein appended a note with the extra amount of interest, calculated by them would not constitute income in view of the provisions Section 18D of the Kerala Money Lending Act, 1958. Therein the Tribunal found that the assessee had not concealed any particulars of income which was confirmed by the High Court in a reference filed at the instance of the Revenue. In the issue at hand, the consistent finding of the tax authorities has been that the explanation offered by the assessee cannot be accepted. After a careful perusal of the agreement upon which the assessee has relied and the decisions relied upon by it before the tax authorities, Tribunal in the quantum proceedings as well as the explanation of the assessee and submissions of the assessee in the penalty proceedings, we are of the view that there was no reason or basis for the assessee to form the belief that apportionment was justified. As such, the explanation offered by the assessee cannot be accepted that the assessee entertained a bona fide belief as nothing has been found either in the agreement or the conduct of the parties or for that matter position of law to support the case of the assessee. After a careful examination, we are of the view that there is no basis to form a bona fide belief that the amount was to be apportioned. No one averagely instructed in law could form such a belief and thus, by apportioning, the assessee has consciously resorted to a device to suppress its income.

11.6 Our attention has also been invited to another decision of Punjab and Haryana High Court, namely, CIT v. Ajyab Singh and Company (supra). A perusal of this decision shows that their Lordships held that the concealment must be a deliberate act and disallowance of expenditure does not mean inaccurate particulars of income have been furnished. It may be noted that we are fully in agreement with this settled principle. It is worth observing that in each case whether the conduct of the assessee was deliberate has to be analyzed on the facts of that case taking into account not only the facts but also the nature of the addition, conduct of the assessee and settled principles of law. In the present facts of the case, it is seen that it is not a case of disallowance of expenditure but a case of withholding substantial income allegedly on the plea that it was understood to be apportioned for the period of lease. The basis of the said plea has not been substantiated by the assessee either through the disengagement agreement on which heavy reliance has been placed on nor on any judgment wherein such a view has been approved. Provisions of the Contract Act had been referred to which have been considered and the explanation of the assessee that the eventuality of refunding a portion of the sum has been considered and found not tenable on the peculiar facts of the case. Thus, where income has not only been received but has accrued in the year under consideration, the action of not offering the entire sum is a device used consciously by the assessee to suppress its income in the year under consideration. As such, penal consequences are justified. The reason for not offering the entire sum in its assessable income in the year under consideration has not been substantiated either by facts or circumstances. Accordingly, by this act of not offering the entire sum, the assessee has acted deliberately, and consciously filed inaccurate particulars of its income inasmuch as it apportioned the same for the period of lease and not offered the entire sum for taxation.

11.7 Reliance has also been placed upon the order of Mumbai Bench of the Tribunal in the case of Vidyut Metalic Ltd. v. Dy. CIT (supra) therein it was held on the facts of that case that the additions as a result of disallowances made under Sections 40B, 40A(3) and 37 by their nature did not constitute concealment of income or furnishing of inaccurate particulars of income, the disallowances were made either on technical, academic or other reasons, As such, the assessee was not liable to be penalize with penalty qua the additions. A perusal of this order shows' that the facts are distinguishable. As such, it renders no material help to the issue at hand.

11.8 Before us various decisions have been relied upon so as to contend that there is a difference of opinion on the issue at hand and, as such, it is debatable. The decisions to which our attention has been invited are CIT v. Jagat Bandhu and Parsanna Kumar Roop Lal Sain Poodar (supra), CIT v. G.T. Naidu and Ors. (supra), Nuchem Ltd. v. Dy. CIT (supra) and Burma Shell Oil Storage and Distribution Company of India Ltd. v. ITO (supra) which is affirmed by Their Lordships of the same Court by their Division Bench order in the case of ITO v. Burma Shell Oil Storage and Distribution Company of India Ltd. (supra).

11.9 The facts before Their Lordships of the Calcutta High Court in the case of CIT v. Jagat Bandhu Parsanna Kumar Roop Lal Sain Podar (supra) were as under :

"The Tribunal found that the cash deposits were deleted from the assessee's total income by the AAC and even if the addition on account of the deposits was restored by the Tribunal in quantum appeal, it was at best an item in respect of which two opinions were possible and there could be no concealment or furnishing of inaccurate particulars or fraud or gross or willful neglect on the part of the assessee, that, apart from the absence or inadequacy of the explanation regarding the nature and source of the cash deposits which were treated as the assessee's income, there were no other materials to show that the amount represented by the cash deposits was the assessee's income of the relevant year, that the only other items which accounted for the difference between the returned income and the assessed income were expenses which were claimed as deduction in computing the income but were disallowed in the assessment which, as laid down by the Explanation to Section 271(1)(c) of the IT Act, 1961, had to be excluded for the purpose of determining whether the Explanation was applicable, that the estimated income of Rs. 8,000 in Pakistan was subject to rectification on the production of the Pakistan assessment order, which was not liable to tax in India in view of the Indo-Pakistan DTAA, and that, therefore, there could not be any charge of concealment of income or furnishing of inaccurate particulars thereof or fraud or gross or willful neglect and that the levy of penalty under Section 271(1)(c) was not valid." .

11.10 Their Lordships, on the abovementioned facts, observed that since findings recorded by the Tribunal were findings of fact which had not been challenged as perverse or based on no evidence, the levy of penalty under Section 271(1)(c) was not valid.

11.11 Thus, it is seen that the facts of the present case are entirely distinguishable and it is not a case wherein different opinions were taken by the tax authorities and the Tribunal has gone along with one opinion. On this basis, it is held that at best it is in respect of the addition two opinions were possible. In the issue at hand, the only consistent view has been that the addition has consistently been affirmed by the tax authorities which has been upheld by the Tribunal.

11.12 In CIT v. G.D. Naidu and Ors. (supra), the compensation received by the assessee and son for not carrying on business for 5 years was treated to be revenue in character by the AO. The Tribunal held that the compensation paid by the firms should be for the 3 components :

(a) Share in the assets;

(b) Share in the goodwill and

(c) Share in the restricted covenant of the payments in respect of (a) and (b) would not be deductible in the hands of the firm because these were only payments to retiring partners but the contribution attributable to item (c) was deductible deed. The Lordships of the High Court have held that the Tribunal was right in its view that the amount received by the recipients was not liable to tax either as income or capital gains and as such there was no liability to tax on any part of the amounts received by the recipients as income or capital gains. Accordingly, no question of any liability of any penalty would also arise, in such a case because the assessee were merely contending for a particular position contrary to the view taken by the ITO which would not call for any penalty. Accordingly, it is seen that the said decision is on the peculiar facts of its own and does not advance the case of the assessee in any manner.

11.13 In Nuchem Ltd. v. Dy. CIT (supra), the principle laid down there in is that where the assessee has disclosed all material facts pertaining to the computation of income and the same were not found false but the additions/disallowances were made on account of difference of opinion, it could not be said that either the assessee has concealed the particulars of income or furnished inaccurate particulars thereof. A perusal of the order shows that the assessee claimed expenditure on account of purchase of generator set, on the purchase of NPC capital twin screw machine and purchase of transformers as revenue in nature which were treated to be expenditure in the nature of capital by the Revenue authorities as well as by the Tribunal. Accordingly, it is seen that the decision is distinguishable on facts and as we have carefully analyzed the entire conspectus of the facts and circumstances of the case the said decision lends no support to the assessee.

11.14 The facts in the case of Burma Shell & Ors. (supra), were that therein discrepancy arose between the income assessed by the ITO and the income returned by the assessee because the contention of the assessee regarding the claim for devaluation loss, increased depreciation and development rebate was rejected by the ITO. The Hon'ble High Court in the facts of that case held that legal contention bona fidely raised whether it is ultimately accepted or rejected will not generally be fraud or gross or willful negligence. As there is no fraud or gross or willful negligence on the part of the petitioner, the provisions contained in Section 271(1)(c) of the Act cannot be attracted even if it can be otherwise said that the said explanation applies because of the discrepancy between the income returned by the assessee and the income assessed by the ITO.

11.15 A perusal of this decision shows that on the facts before it, the Hon'ble High Court was of the view that the legal contentions raised by the assessee were bona fide. Thus, whether it is ultimately accepted or rejected, it could not be considered generally to be an act of fraud or gross or willful negligence. In the facts of the present case, the bona fide of the assessee after appreciation of the agreement and the case law relied upon by the assessee for justifying the belief that apportioning the receipt has not been accepted. We have noted that in the absence of any clause to the contrary in the said agreement which neither treats the sum received as advance nor is there any clause to show that receipt was contingent on any performance as such there was no possibility where the assessee could have been called upon to refund a portion thereof the explanation of the assessee to justify the rationale for its belief cannot be accepted. As such, the assessee has not been able to establish its bone fides. As such, the general principle laid down in the case of Burma Shell (supra) does not advance the case of the assessee at hand as it has no play in the matrix of the facts of the present case.

11.16 Our attention has also been invited to the fact that the said order of the Hon'ble High Court in the writ petition was affirmed by the Division Bench in (1987) 163 ITR 496 (Cal) (supra). As we have already observed that that case proceeded on the peculiar facts of its own and since the claim of the assessee was considered to be a bona fide belief. Accordingly, in the said circumstances, the appeal of the Revenue was dismissed.

11.17 In the course of the hearing and in the written submissions, the principles enunciated in CWT v. Arvind Narottam (supra); M.V. Valliplian v. ITO (supra) and Swastic Gear Ltd. v. ITO (supra) have also been relied upon by the assessee. A perusal of CWT v. Arvind Narottam shows that the Lordships of the Supreme Court while deciding the appeal filed by the Revenue where three trust deeds were executed for the benefit of his son, the recipient and his wife and children and his grant children. All the three deeds were couched in identical term except in regard to the minimum amount payable to the beneficiary out of the income of every year. As per these differences, the minimum annual payments were to be made to A of stipulated amounts. While assessing A in relation to the trust the WTO brought the entire value of the assets of the trust to tax for those assessment years. On appeal, the AAC confined the liability of A to wealth-tax to the capitalized value of the minimum amounts payable under the trust deeds for his maintenance. The Tribunal affirmed the view of the AAC which was on a reference confirmed by the High Court; the Lordships on the facts of this case confirming the decision of the High Court held that the respondent was entitled only to the minimum guaranteed to him. The Lordships therein relied upon the principle that where the language of the deed of settlement is plain and admits of no ambiguity there is no scope for consideration of tax avoidance. A perusal of this decision shows that the facts were entirely distinguishable inasmuch as that the deeds of settlement clearly and plainly enunciated that 'A' would receive maintenance of a certain amount and there was no ambiguity of the same. At the cost of reiteration, in the present facts of this case not only the money has been received by the assessee in lump sum, it has also accrued to it in the year under consideration and there is nothing in the entire agreement to suggest any ambiguity or any possibility of even the other view being possible as the agreement in plain and simple words enunciates that a specific sum has been paid to the assessee for user of technical know-how for a certain period, As we have already observed nowhere in the said agreement is there any whisper or any indication that the said sum was an advance. It may be worth noting that advance presupposes a possibility that in the eventuality the contract is not performed on account of either side the sum advanced may be required to be partially refunded. We have taken ourselves to the entire recitals in the agreement and observed that whatever limitation exists therein operates against the Escorts group and does not contemplate any situation where the assessee can be called to refund the amount received by it. The said agreement has nowhere even bothered to consider the situation that in the eventuality the purchaser of technical know-how decides not to use the technology then amount may be refunded and the assessee can be put to notice for refunding, The payment has been paid and received irrespective of the fact that the Escorts group manufacturers or does not manufacture the commodity. On the other hand, it is noted that care has been taken to ensure that the assessee cannot be restrained if it so decides to manufacture the commodity. No restraint has been put on the assessee's manufacturing and selling activities which have not been curbed, curtailed or suppressed in any manner. The Escorts group, on the other hand, has been restrained from using specific colour, brand, name, series and grill, etc. of the assessee. Thus, in the eventuality of any violation in the agreement is made out then fact which emerges is that the Escorts group would face the consequences of being subjected to litigation and the claim for damages, etc. by the assessee which would, in fact, result in a situation that the assessee would be in a position to receive much more than it has already received as against the possibility of refunding. All these facts cannot be ignored and simply taking note of the note in the computation of its income, the assessee cannot use the same as a device to suppress its taxable income for which penalty has been levied. Thus, it is seen that the principle laid down in CWT v. Narottam (supra) in fact, operates against the assessee.

11.18 In M.V. Valliapan, the assessment year under consideration was 1980-81. In April, 1979, a particular burden of the assessee (HUF) was affected. The ITO accepted the partial burden of 28th Dec., 1979, in the assessment for 1979-80. In the reassessment for the asst. yr. 1980-81; the ITO included the income relating to assets which were partitioned in the hands of HUF in view of Section 171A of the Act. The assessee filed a writ petition on the ground that the income of the property which was the subject-matter of partial partition could not be treated as the income of the HUF. It was contended that Section 171A was violative of Articles 14 and 265 of the Constitution. The case of the Revenue before the Madras High Court was that the dis-recognition of part and partial burden contemplated by Section 171A was only for the limited purpose of levy and collection of income-tax and that the said section was enacted as a measure to prevent the tax evasion and must, therefore, be upheld considering the decision of the Supreme Court in the case of McDowell (supra). Their Lordships therein held that Section 171A suffers from legislative incompetence and also violates the Constitution since it violated Art. 14. It may be noted that the said decision was reversed by their Lordships of the Supreme Court in the principle enunciated in Swastic Gear Ltd. (supra) where search was conducted by the IT Department upon the group companies of the assessee. Various account books were seized for which seizure memo was prepared and issued to the assessee. It was an admitted fact that the Department retained the books beyond 180 days, i.e., beyond the statutory period allowed under law without obtaining the approval of the CIT for such retention within the meaning of Sub-section (8) of Section 132 of the IT Act. The assessee filed a writ petition praying that the retention of the books beyond the statutory period is illegal and the respondents be directed to return the account books forthwith. Thereafter, an application was further made on behalf of the assessee that the respondents have taken photostat copies from the account books illegally detained by them. As such, direction was sought that the respondents be made to return the photostat copies of the extracts, etc. Their Lordships of the Allahabad High Court on these facts held that the retention of the seized books beyond 180 days may be illegal but that fact does not render the retention of the copies illegal unless it is established that the Department withheld the books of account under evil design or any violation of any direction of the Court with a view to collect the evidence against the assessee which they were not otherwise entitled to procure. The Lordships held that the Department could have made copies from the seized books before they were returned. It would be too technical a view of the matter to state that since the seized books cannot be retained beyond 180 days without the approval of the CIT under Section 132(8), no copies also can be made or retained thereafter. Thus, in these facts, their Lordships observed that a technical or narrow construction of a statute should be avoided unless it becomes necessary in the context of the provisions or the scheme of the Act.

11.19 Their Lordships therein went on to observe that even if there is an ambiguity, it has to be interpreted in a way which will not lead to absurdity. A perusal of this principle it is seen does not in any manner help the assessee. As in the case at hand, there is no ambiguity worth its name which has been pointed out in the taxing statute which is required to be interpreted. In fact, there is no ambiguity even in the agreement upon which the assessee has placed immense reliance which would require any interpretation to resolve any ambiguity. The issue at hand on the basis of the agreement relied upon by the assessee and the decisions to justify its stand of apportionment could have easily been decided on these limited facts itself. We have taken recourse to the lengthy order not because there was any ambiguity worth its name in the agreement but because the learned Authorised Representative has contended that the issues pertaining to the Contract Act have not been addressed by the Tribunal in the quantum proceedings as these arguments were not argued or considered by it. Thus, after analysis in greater detail, we are still unable to see how the assessee could entertain a bona fide belief that the amount so received was required to be apportioned as nothing in the agreement supports such a belief. Thus, merely relying on the note in the computation sheet in the absence of any reason to support such an act or a rational/bona fide belief for such reliance clearly brings the assessee within the ambit of the penal consequences of such a section and a device to suppress its income on account of the detailed reasons given cannot be encouraged. Apart from that we have gone in great detail so as to ensure that each and every decision which has been relied upon before us by the assessee either by way of a lengthy synopsis numbering 62 pages or arguments advanced in the course of hearing should be considered at length keeping in mind the stakes involved for the assessee in the present appeal Thus, the entire matter could have been summed up briefly on the facts of the case and the bona fide of the assessee in the facts of the case and nothing further was required to be looked into but since the learned Authorised Representative has taken pains to specifically bring to the notice of the Bench, the various decisions as a result solely on account of these facts the order has acquired length, which in no circumstances could suggest even remotely that there was any ambiguity in the issue at hand.

12. Accordingly, on account of the abovementioned detailed reasons, the grounds of the assessee and arguments advanced by the assessee in support thereof are rejected and the impugned order is upheld.

13. In the result, the appeal filed by the assessee is dismissed.