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Issues Involved:
1. Penalty under Section 271(1)(c) of the Income Tax Act. 2. Accrual of Income and its Apportionment. 3. Bona fide belief and disclosure in the books of accounts. 4. Legal precedents and their applicability. 5. Satisfaction of the Assessing Officer (AO) for initiating penalty proceedings. Issue-wise Detailed Analysis: 1. Penalty under Section 271(1)(c) of the Income Tax Act: The primary issue raised by the assessee pertains to the penalty imposed and upheld under Section 271(1)(c) of the Income Tax Act, amounting to Rs. 5,50,18,370. The AO initiated penalty proceedings due to the assessee's action of apportioning the technical know-how fee over three years, which was considered an act of furnishing inaccurate particulars of income. The AO, CIT(A), and Tribunal consistently held that the entire amount received by the assessee accrued in the year under consideration and was not to be apportioned. The penalty was upheld, considering that the assessee had not furnished correct particulars of its income and had adopted a colorable device to postpone tax liability. 2. Accrual of Income and its Apportionment: The assessee received Rs. 15,68,50,000 as a lump sum consideration for technical know-how, which it apportioned over three years. The AO, relying on the Supreme Court decision in E.D. Sassoon & Co. Ltd. vs. CIT, held that the entire amount accrued in the year of receipt. The CIT(A) and Tribunal confirmed this view, stating that the right to receive the entire sum accrued in the year, and there was no clause in the agreement to treat it as an advance. The Tribunal emphasized that accounting entries do not determine the character of the receipt, and taxability cannot be postponed based on book entries. 3. Bona fide belief and disclosure in the books of accounts: The assessee contended that it had a bona fide belief that the license fee accrued over three years, supported by judicial precedents, and had made adequate disclosures in its books and return of income. However, the CIT(A) and Tribunal rejected this contention, stating that the explanation offered by the assessee was not substantiated by any legal position and was a deliberate act to defer tax liability. The Tribunal noted that the agreement did not stipulate any conditions that would support the apportionment of income, and the assessee's belief was not bona fide. 4. Legal precedents and their applicability: The assessee relied on various judicial decisions to support its case, including CIT vs. Anwar Ali, CIT vs. Khoday Eswara and Sons, and Madras Industrial Investment Corp. Ltd. vs. CIT. However, the Tribunal found these cases distinguishable and not applicable to the present issue. The Tribunal held that the decisions cited by the assessee did not support the apportionment of income and that the assessee's reliance on these precedents was misplaced. The Tribunal also considered the principles enunciated in McDowell & Co. Ltd. vs. CTO, which were affirmed in Union of India vs. Playworld Electronics (P) Ltd. & Anr., and concluded that the assessee's actions were a colorable device to postpone tax liability. 5. Satisfaction of the Assessing Officer (AO) for initiating penalty proceedings: The assessee argued that the AO had not recorded his satisfaction for initiating penalty proceedings, which was mandatory. The Tribunal, however, found that the AO had recorded his satisfaction in the assessment order, noting that the assessee had resorted to a device to reduce the incidence of tax. The Tribunal held that the mere recording of satisfaction by the AO in the assessment order was sufficient to initiate penalty proceedings under Section 271(1)(c). Conclusion: The Tribunal upheld the penalty imposed under Section 271(1)(c), rejecting the assessee's contentions regarding the apportionment of income, bona fide belief, and adequacy of disclosure. The Tribunal found that the assessee had furnished inaccurate particulars of income and had adopted a colorable device to postpone tax liability. The appeal filed by the assessee was dismissed.
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