cross appeals for asst. yr. 2001-02 and assessee s appeal for same year against levy of penalty under s. 271(1)(c), which involved common facts are disposed off by this common order as under: ITA No. 8521 /Mum/2004 ITA No. 715/Mum/2005 common issue in quantum appeals by assessee and Department pertains to allowance of depreciation on windmills acquired by assessee on hire purchase basis. On this issue assessee has raised following grounds: learned Commissioner of Income-tax(A)-XXX [CIT(A)] erred in failing t o properly appreciate terms of hire purchase agreement and transaction of appellant in acquisition of windmills and erred in holding that transactions amounted to sale transactions with deferred payment terms. learned CIT(A) ought to have allowed depreciation on windmills as claimed in view inter alia CBDT s Circular No. 9, dt. 23rd March, 1943. learned CIT(A) erred in directing Assessing Officer(AO) to grant depreciation on 3 windmills based on cost of Rs. 1,75,41,750. He ought to have directed AO to allow said depreciation at rate of 100 per cent based on cost of Rs. 2,85,00,000. learned CIT(A) erred in not correctly interpreting provision of s. 43(1) of IT Act and therefore erred in altering cost to appellant for purpose of depreciation allowance claim. learned CIT(A) erred in making various baseless erroneous and improper remarks to effect that appellant had entered into transactions and/or had inflated certain items to improperly reduce profits and/or claim higher depreciation. Under letter dt. 12th Feb., 2007, assessee has raised following additional ground of appeal: "The learned CIT(A)-XXX(CIT(A)) failed to appreciate that his direction to grant depreciation on three windmills based on cost of Rs. 1,75,41,750 is beyond his jurisdiction and otherwise contrary to law." It is stated that though this dispute is already covered in original grounds raised by assessee, additional ground is being raised as matter of abundant precaution. additional ground arises from same facts and is, therefore, admitted. As matter of fact, issue raised in additional ground is already covered in ground No. 3 of original grounds of appeal. On same issue Department has raised following grounds: On facts and in circumstances of case and in law, learned CIT(A) erred in holding that assessee is entitled for part depreciation on actual cost of Rs. 2,20,00,000 + Rs. 1,75,41,750 of windmills. lb. On facts and in circumstances of case and in law, learned CIT(A) erred in granting part depreciation after concluding that Hire Purchase Agreement under which depreciation at rate of 100 per cent was claimed was non-genuine agreement. We have heard both sides at length and have gone through relevant facts. assessee company derives income from exports and local sales, lease rent and finance charges. During previous year relevant to assessment year under appeal assessee has commenced new activity i.e., generation of power from wind energy by acquiring and operating wind electricity generators, popularly known as windmills. For this purpose assessee acquired 5 windmills as per hire purchase agreement dt. 7th September, 2000 with M/s Subuthi Finance Ltd. (SFL) at total cost of Rs. 5.05 crores. As per terms and conditions of agreement sum of Rs. 85 lakhs was paid by assessee on execution of agreement. further sum of Rs. 8.92 crores was payable in annual instalments over period of 11 years and last instalment was payable on 6th Sep., 2011. Thus total consideration for 5 windmills was Rs. 9.77 crores. Out of this amount sum of Rs. 5.05 crores was allocated to cost of windmills and remaining amount was claimed as revenue expenditure on account of interest/finance charges payable every year for 11 assessment years. assessee claimed 100 per cent depreciation which is prescribed rate for windmills. AO examined assessee s claim for deduction of depreciation and recorded finding that hire purchase agreement cannot be considered genuine agreement and that assessee deliberately resorted to device to avoid tax on capital gain of Rs. 5,17,81,778 earned by assessee during present assessment year by setting off depreciation of Rs. 5.05 crores against aforesaid income. hire-purchase agreement was entered by assessee on 7th Sept., 2000, and on same day, assessee entered into another agreement with S.G.M. Wind Farms (P) Ltd. (SGMW) under which operation and maintenance of 5 windmills was assigned to SGMW. AO was of view that entire transaction was in nature of dubious or colurable device aimed at avoidance of tax and therefore, Tribunal, Mumbai Special Bench s decision in case of Mid East Port Folio Management Ltd. vs. Dy. CIT (2003) 81 TTJ (Mum)(SB) 37: (2003) 87 ITD 535 (Mum)(SB), was applicable. AO accordingly called upon assessee to explain why depreciation should not be disallowed. assessee contended before AO that facts of Mid East Port Folio Management Ltd. (supra) related to sale and lease back (SLB) transaction whereas facts of its case were totally different. It was submitted that transaction was genuine and depreciation was clearly admissible in light of Board s Circular No. 9, dt. 23rd March, 1943. AO considered submissions made before him and he referred to terms and conditions of hire-purchase agreement at pp. 3 and 4 of his order. relevant part may be reproduced below: "I. equipments given on hire (5 windmills) are absolute property of SFL. Any addition made by assessee at assessee s own expenses shall be deemed to be sole and absolute property of SFL (Cl. 1). II. Contract shall end at end of hire period of 11 years, and equipments at 1 option of assessee shall become its absolute property on payment of option money. option money will be Re. 1 per windmill [cl. 4(b)] III. agreement can only be terminated by SFL. If SFL terminates agreement, any additions and replacements to equipments shall be deemed to be absolute property of SFL (cl. 7a). IV. assessee does not have any right to place credit of SFL for any repairs, replacements, supplies or additions. V. assessee does not have any authority to sale assign, transfer, mortgage, pledge, hypothecate or part with possession of equipments or to create any interest in said property in favour of third party (cl. 7g.) VI. assessee does not have any authority to remove equipments out of declared place without express written prior permission of SFL (cl. 7h). VII. SFL empowers assessee to enter into Operation and Maintenance contract for hired equipments (cl. 7). VIII. assessee holds equipment as hirer and bailee of SFL and does not hold any right, title or interest as purchaser thereof (cl. 8). IX. SFL may terminate Agreement by giving 14 days written notice and forthwith retake and recover possession of hire equipments (cl. 10). X. They shall keep equipment insured during period of hiring against any loss or damage under comprehensive policy with insurance company approved by SFL and policy shall be in name of SFL only (cl. 15). XI. SFL may also get equipment insured and keep insurance policy i n force by getting it renewed from time to time and also to recover from assessee premium and other payment made by them to Insurance Company for said purpose (cl. 15). AO also considered operation and maintenance agreement dt. 7th Sep., 2000, entered by assessee company with SGMW. At p. 4 of his order he has referred to salient features of this agreement as under: "I, SGMW shall operate, run and maintain windmills brought on here on behalf of assessee company. II. assessee would permit SGMW to apply to Electricity Board for transfer of electric meter in their name. On expiry/ termination of this Agreement Operator shall immediately comply to Electricity Board for transfer of electric meter to assessee or its nominee (cl. 5). III. SGMW will undertake to maintain windmills, generate electricity and sell power to Electricity Board or eligible consumers, recovery of sale proceeds and pay same to Company on payment of OMC charges at average Rs. 50,000 per machine per year (cl.7). IV. SGMW shall hold windmills of company and not claim any right, title or interest in said windmills (cl.20). V. SGMW shall not transfer, assign or otherwise dispose of assessee s right or interest in said windmills (cl.21). AO concluded that entire transaction was only for purpose of reducing tax liability by claiming 100 per cent depreciation. assessee was never engaged in business of electricity in past and even during this year there was no intention to carry on business of generation of electricity. AO also held that in terms of hire purchase agreement assessee never became real and absolute owner of windmills and windmills continued to remain under undisputed ownership and control of SFL. Insurance was also taken in name of SFL. AO referred to Supreme Court decision in case of CIT vs. Podar Cement (P) Ltd. Etc. (1997) 141 CTR (SC) 67: (1997) 226 ITR 625 (SC). However, AO held that assessee entered into hire- purchase agreement and therefore, transaction cannot be termed as mere finance transaction. AO, therefore, held that even though depreciation is to be disallowed hiring income earned by assessee and shown in P&L a/c is to be assessed as income from other sources (sic). When matter came up before learned CIT(A) he examined facts When matter came up before learned CIT(A) he examined facts i n great detail. assessee also made elaborate submissions before learned CIT(A) in support of claim for depreciation and relied on Board s Circular No. 9, dt. 23rd March, 1943 which was duly considered by Tribunal Calcutta Bench in case of Tirrihannah Co. Ltd. vs. Dy. CIT (2002) 253 ITR (AT) 56. It was contended that assessee s case was fully covered by Board s Circular and above mentioned Tribunal s order. assessee further contended that there is no merit in AO s objection that assessee was not absolute owner of windmills. It was pointed out that in hire- purchase agreement assessee can never be owner and depreciation has been claimed and is allowable in view of Board s circular. It was also pointed out that SFL never claimed any depreciation. Regarding genuineness of agreement assessee made following submissions before learned CIT(A). (a) That existence and/or running and operation of windmills are not in doubt; it is not claim of AO that windmills do not exist; he has made inquiries during course of hearing, with his counterparts in Tamilnadu and confirmed then-existence and operation; (b) That even today, they are existing, they are producing power and they are being distributed; it is yielding revenue; in subject year in appeal, power was supplied to Ganapathy & Co. Ltd. and later it is supplied to Tamilnadu Power Corporation also; (c) Regular bills are raised in name of company; revenue is to coffers of appellant company; (d) Since company lacked initial expertise and recognition with State Power Corporations, it engaged services of operator who is maintaining and operating units; copy of Operation and Management agreement has been placed on your records. Outsourcing is order of day. Department cannot shut its eyes to such facts, it cannot be gainsaid that all operations of plant shall be conducted by owner to claim expenses and allowances and that no activity could be outsourced. Concept of outsourcing is triggering wide expansions of business all over world and bringing about economic growth and expansions; (e) Company had initially paid Rs. 85 lakhs and balance was structured to pay out of Revenue over period of 11 years-the hire-purchase tenure; (f) Neither owner Subuthi Finance Limited nor Operator has claimed any depreciation on assets. Documents relating thereto are placed on records; (g) legal documents are also made which are valid and subsisting. Regarding allegation that hire-purchase agreement was entered by assessee to off set depreciation against capital gain, it was brought to notice of learned CIT(A) that flat was sold on 28th March, 2001 whereas hire-purchase agreement was dt. 9th Sept., 2000. It was also contended that even if it is assumed that assessee company entered into transaction to reduce tax payable, it was legally permissible to do so within four corners of law as observed by Tribunal, Mumbai Bench in case of Bombay Burmah Trading Corpn. Ltd. vs. Asst. CIT (2002) 76 TTJ (Mum) 983: (2002) 82 ITD 531 (Mum). It was also pointed out that cost of windmills was adopted as estimated by registered valuers. It was also submitted that windmills were insured at Rs. 4.8 crores which is also supportive of cost price of Rs. 5.05 crores. assessee further brought to notice of learned CIT(A) that SFL, its directors or shareholders are not in any way related to assessee company, its directors or shareholders and therefore, entire transaction was at arm s length. learned CIT(A) called for assessment records to ascertain relevant facts. He has observed that M/s SFL vide its letter dt. 10th Feb., 2004 informed AO that 3 windmills were sold by M/s Indowind Energy Limited (IWEL) to M/s Karimjee (P) Ltd. and remaining two windmills were bought by M/s SFL on 18th May, 2000 for Rs. 1.80 crores and thereafter sold to M/s Karimjee (P) Ltd. by way of hire-purchase for consideration of Rs. 2.2 crores. S F L disclosed profit of Rs. 40 lakhs in their return of income as "other income". learned CIT(A) recorded following findings: (a) Two windmills were sold to assessee by SFL under hire-purchase agreement and this transaction was fully covered by Board s Circular No. 9. (b) IWEL directly sold 3 windmills to assessee company by raising invoices in name of assessee company on A/c. M/s S.G.M. Windfarms (P) Ltd. and M/s SFL has only financed this direct purchase of windmills by assessee. (c) Only such assets can be given under hire-purchase agreement which are owned by seller. On contrary 3 windmills were not owned by SFL. (d) As per Board s circular hire-purchase should be spread over evenly during period of hire purchase, whereas in present case there is upward increase in these charges. (e) By entering into hire purchase agreement, assessee is paying interest rate of 1796 to SFL. Further SFL purchased two windmills at Rs. 1.8 crores and sold to assessee at Rs. 2.2 crores thereby already earning profit of Rs. 40 lakhs. If this is also considered interest rate would increase to 2196 whereas assessee could have easily raised loans at interest rates ranging between 12.5 to 14.596. (f) purchase cost of windmills is inflated with view to claim more depreciation. On basis of these findings learned CIT(A) held that assessee would be entitled to depreciation on full cost of two windmills being Rs. 2.2 crores. In respect of other 3 windmills purchased from M/s IWEL, he held that cost price of Rs. 2.85 crores was inflated as these windmills were old and already put to use for 5 years. learned CIT(A) held that Expln. 3 and 44 of s. 43(1) would be applicable in this case. He referred to Appendix 1A of IT Rules wherein depreciation rate on windmills is 7.6996 per annum of original cost. learned CIT(A) calculated wear and tear at this rate for period during which 3 windmills were already put to use and on this basis he estimated fair market value at Rs. 1,75,41,750. He held that depreciation at 10096 would be admissible on this cost only. learned counsel appearing for assessee reiterated arguments already raised before Revenue authorities. He contended that depreciation under s. 43(1) is admissible on actual cost. He argued that Expln. 3 and 4 are not at all applicable in present case and CIT(A) has no power to determine fair market value as against actual cost to assessee. It is submitted that entire transaction is perfectly genuine as same is being actually acted upon by concerned parties. assessee is paying regularly annual instalments to SFL and income earned by operating windmills is also being regular offered for tax. At end of period of hire-purchase, assessee has option to acquire windmills. It is argued that case is fully covered by Board s Circular. learned counsel also contended that Tribunal Special Bench decision in case of Mid East Portfolio (supra) is not applicable at all as this is not case of sale and lease back. Even in that case Tribunal observed that genuineness is to be determined after considering facts and circumstances of each case. learned Departmental Representative kly supported order of AO contended that having recorded finding that hire purchase agreement was not genuine, learned CIT(A) was not justified in allowing depreciation. We have carefully gone through material facts having bearing on this issue. In our view there is no basis whatsoever for doubting genuineness of hire purchase agreement. AO has merely assumed that hire purchase agreement has been entered into by assessee to set off depreciation against capital gain. As matter of fact, assessee did acquire 5 windmills under hire purchase agreement. These 5 windmills were leased to SGMW under another agreement for operation and maintenance. These agreements have been actually acted upon by concerned parties during preceding several years. assessee is regularly paying hire- purchase charges as per terms and conditions of agreement and is also receiving income from generation of power. income is being regularly assessed in hands of assessee and assessee is getting deduction for hire charges paid. determination of cost at Rs. 5.05 crores is duly supported by valuation reports of Government registered valuer and these reports are placed at pp. 32 and 33 of Paper Book. In our view there is hardly any basis for assumption that this cost has been inflated. As already mentioned by us above, total payment to be made by assessee for 5 windmills stands at Rs. 9.77 crores. Out of this Rs. 5.05 crores has been allocated towards cost and remaining amount has been treated as finance charges and spread over period of 11 years. assessee would be entitled to depreciation on cost and finance charges would be allowable as revenue expenditure. If cost is reduced, as done by learned CIT(A), finance charges will have to be correspondingly increased and will have to be allowed as revenue expenditure. Interestingly learned CIT(A) has already recorded finding that finance cost is much higher than prevailing interest rates which means that cost of windmills has been reasonably estimated. If cost is reduced and finance charges are increased correspondingly, interest rate would further go up. It is also notable that windmills have been insured at Rs. 4.8 crores which is about 95 per cent of cost of Rs. 5.05 crores. Further in our view Expln., 3 and 4A are not applicable at all in present case. As per s. 43(1) "actual cost" means actual cost of assets to assessee. In present case actual cost to assessee as mentioned above is Rs. 5.05 crores. This actual cost can be varied if permissible under any of Explanations under s. 43(1). learned CIT(A) has invoked Expln. 3 and Expln. 4A which may be reproduced below: "Explanation 3. Where, before date of acquisition by assessee, assets were at any time used by any other person for purposes of his business or profession and AO is satisfied that main purpose of transfer of such assets, directly or indirectly to assessee, was reduction of liability to IT (by claiming depreciation with reference to enhanced cost), actual cost to assessee shall be such amount as AO may, with previous approval of Joint CIT, determine having regard to all circumstances of case. Explanation 4A. Where before date of acquisition by assessee (hereinafter referred to as first mentioned person), assets were at any (hereinafter referred to as first mentioned person), assets were at any time used by any other person (hereinafter referred to as second mentioned person) for purposes of his business or profession and depreciation allowance has been claimed in respect of such assets in case of second mentioned person and such person acquires on lease, hire or otherwise assets from first mentioned person, then, notwithstanding anything contained in Expln. 3, actual cost of transferred assets, in case of first mentioned person, shall be same as written down value of said assets at time of transfer thereof by second mentioned person." AO has never invoked Expln. 3. Actually this explanation can be invoked with previous approval of Jt. CIT. Expln. 4A is applicable only in case of sale and lease back transactions. In our view, learned CIT(A) has exceeded his jurisdiction in scaling down cost of 3 windmills. We, therefore, hold that actual cost has to be taken at Rs. 5.05 crores. Coming to assessee s claim for depreciation on aforesaid cost of windmills, we have already observed above that hire-purchase agreement cannot be treated as not genuine. Under hire-purchase agreement person who hires is never vested with ownership rights till stipulated period is over and he exercises option to acquire assets. Therefore, we see no merit in AO s observation that depreciation is not admissible to assessee because assessee is not owner of assets. As matter of fact, assessee claimed depreciation by virtue of Board s Circular No. 9, dt. 23rd March, 1943. This Circular may be reproduced below: "The following instructions are issued for dealing with cases in which asset is being acquired under on what is known as, hire-purchase agreement: (i) In every case of payment purporting to be for hire-purchase, production of agreement under which payment is made should be insisted on. (ii) Where effect of agreement is that ownership of subject is at once transferred to lessee (e.g. where lessor obtains right to sue for arrear instalments but no right to recovery of asset), transaction should be regarded as one of purchase by instalments and no deduction in respect of hire should be made. Depreciation should be allowed to lessee on entire purchase price as per agreement. (iii) Where terms of agreement provide that equipment shall eventually become property of hirer or confer on hirer option to purchase equipment, transaction should be regarded as one of hire- purchase. In such cases periodical payments made by hirer should for tax purposes be regarded as made up of: (A) consideration for hire, to be allowed as deduction in assessment; and (B) payment on account of purchase to be treated as capital outlay, depreciation being allowed to lease on initial value (i.e. amount for which hired subject would have been sold for cash at date of agreement). allowance to be made in respect of hire should be difference between aggregate amount of periodical payments under agreement and initial value (as described above), amount of this allowance being spread evenly over term of agreement. If, however, agreement was terminated either by outright purchase of equipment or of its return to owner deduction should cease as from date of termination. assessee claiming this deduction should be asked to furnish certificate from vendor or other satisfactory evidence, of initial value (as described above). Where no certificate or satisfactory evidence is forthcoming, initial value should be arrived at by computing present value of amount payable under agreement at appropriate rate percentum; in doubtful cases, facts should be reported to Board." case of assessee would fall under para (iii) of aforesaid circular as under agreement assessee has option to purchase assets. This circular has been explained in detail by Tribunal Calcutta Bench in case of Tirrihanah Co. Ltd. (supra) and it would be appropriate to reproduce below facts and ratio of this case from head-note: "A plain reading of Circular No. 9, dt. 23rd March, 1943, shows that it visualises two situations. first situation is when ownership is transferred at once and lessor has right to sue for arrears of instalments but no for recovery of leased asset and second situation is when terms of agreement provide that equipment shall eventually become property of hirer or confer on hirer option to purchase equipment. These conditions mentioned at para (ii) and para (iii) of circular are mutually exclusive and they envisage different treatments for purpose of depreciation. In first case, according to CBDT circular, transaction is required to be treated as that of purchase by instalments and depreciation is to be computed on entire purchase price as per agreement. In second case, transaction is required to be treated as one of hire-purchase and periodical payment made by hirer is regarded as made up of consideration for hire, to be allowed as deduction in assessment, and payment on account of purchase, to be treated as capital outlay, depreciation being allowed to lessee on initial value. Further, allowance to be made in respect of hire should be difference between agreement amount of periodic payments under agreement and initial value, amount of this allowance being spread evenly over terms of agreement. Depreciation is to be allowed on assets purchased on hire-purchase basis. Addl. CIT vs. General Industries Corporation (1986) 50 CTR (Del) 87: (1985) 155 ITR 430 (Del) followed: claim of assessee for depreciation on plant and machinery acquired on hire-purchase from Tea Board in previous years relevant to asst. yrs. 1991-92, 1992-93 and 1993-94 was allowed in assessments under s. 143(3) of Act and assessment for 1994-95 was completed under s. 143(1)(a) of IT Act, 1961. On these facts, CIT assumed jurisdiction under s. 263 on ground that orders passed by AO allowing depreciation on plant and machinery acquired on hire-purchase basis from Tea Board were erroneous and prejudicial to interests of Revenue. In response to notice, assessee submitted that in view of Circular No. 9, he was entitled to depreciation and terms of agreement provided that equipment shall become property of hirer or conferred on hirer option to purchase equipment but CIT disagreeing with this view held that hire-purchase agreement with Tea Board clearly provided that actual and absolute ownership of machinery would remain with Tea Board and concluded that assessee, not being owner of plant and machinery, was not entitled to depreciation. On appeal: Held, that since two situations mentioned in Circular No. 9 were mutually exclusive and depreciation on assets purchased under hire- purchase agreement with Tea Board was clearly covered by para (iii) of circular, there was no legal infirmity in orders of AO granting depreciation on assets which were neither erroneous nor prejudicial to interests of Revenue." In our view, assessee s case is fully covered by aforesaid decision of Tribunal. We do not see any merit in observations made by learned CIT(A) that Board s circular will not apply in case of assessee s hire-purchase/finance charges payable annually have not been evenly spread over. In our view such spreading over depends upon mutual convenience and agreement between parties and there cannot be any mandatory condition that such charges should be evenly spread. Considering entire facts and circumstances and legal position, we hold that assessee is entitled to depreciation at rate of 10096 on cost of windmills being Rs. 5.05 crores. AO is accordingly directed to allow depreciation. This disposes of Departmental appeal and various grounds of appeal raised by assessee in appeal filed by it. We. now take up remaining grounds of assessee s appeal. Ground No. 6 is as under: "The learned CIT(A) erred in disallowing hire charges incurred or suffered by appellant on acquisition of windmills." This ground has not been pressed by learned counsel for assessee and therefore, same stands rejected as not pressed. Ground No. 7 is as under: "The learned CIT(A) erred in holding that carried forward depreciation of earlier years could not be set off against long-term capital gains of current year." We have heard both sides and we find that AO has already set off brought forward depreciation against business income during this year. This is in consonance with provisions of s. 32(2) as applicable to present assessment year. We, therefore, confirm order of learned CIT(A) on this issue. Ground No. 8 is as under: "The learned CIT(A) erred in upholding working of book profits by AO of Rs. 5,21,82,642 under s. 115JB of IT Act, 1961." only grievance of assessee is addition of capital gain to book profit for purpose of s. 115JB. learned counsel submitted that this issue is squarely covered in assessee s favour by following decisions rendered by various Benches of Tribunal: (1) M/s Sanatan Textile (P) Ltd. asst. yr. 1998-99, ITA No. 1510/Mum./2002. (2) Swadee Chemicals (P) Ltd., asst. yr. 1998-99, ITA No. 1446/Mum./2002. (3) Shrusti Trading (P) Ltd., asst. yr. 1998-99, ITA No. 1511/ Mum./2002. (4) M/s Ranjana, Traders (P) Ltd., asst. yr. 1998-99, ITA No. 4749/Mum./2003. (5) M/s Dainty Investments & Leasing (P) Ltd., asst. yr. 1998-99, ITA No. 1793/Mum./2002. (6) M/s Vasishtha Tradecom (P) Ltd., asst. yr. 1998-99, ITA No. 1449/Mum./2002. (7) M/s Rachana Merchandise (P) Ltd., asst. yr. 1998-99, ITA No. 1114/Mum./2002. (8) M/s Orson Trading (P) Ltd., asst. yr. 1998-99, ITA No. 1389/Mum./2002. (9) M/s Maxwell Dyes & Chemicals (P) Ltd., asst. yr. 1998-99, ITA No. 1390/Mum./2002. (10) M/s Agni Investment & Trading (P) Ltd., asst. yr. 1998-99, ITA No. 1822/Mum./2002. (11) M/s Rhino Bags Ltd., asst. yr. 1998-99, ITA No. 1047/ Mum./2002. (12) M/s Guruvas Textiles (P) Ltd., asst. yr. 1998-99, ITA No. 1789/Mum./2002. (13) M/s Lazor Syntex Ltd., asst. yr. 1998-99, ITA No. 1809/ Mum./2002. (14) M/s Kunjvan Texfab (P) Ltd., asst. yr. 1998-99, ITA No. 1112/Mum./2002. Copies of these orders have been compiled at pp. 1 to 58 of Paper Book. We find that in these orders various High Courts and Supreme Court decisions have been duly considered including Supreme Court decision in case of Apollo Tyres Ltd. vs. CIT (2002) 174 CTR (SC) 521: (2002) 255 ITR 273 (SC) and Bombay High Court decision in case of CIT vs. Veekaylal Investment Co. (P) Ltd. (2001) 166 CTR (Bom) 96: (2001) 249 ITR 597 (Bom). It has been consistently held by various Benches of Tribunal that book profit cannot be increased by adding capital gain. Since issue is squarely covered as mentioned above, we direct AO to exclude capital gain from book profit for purpose of s. 115JB. IT.A. No. 7147/Mum/2006 This is assessee s appeal against levy of penalty of Rs. 1,08,21,394 under s. 271(l)(c) which has been confirmed by learned CIT(A). We have heard both sides. penalty is entirely based upon additions made by AO on account of disallowance of depreciation on windmills and addition of capital gain to book profit. These additions have already been deleted by us and, therefore, levy of penalty does not survive. Accordingly, we direct AO to delete penalty. In result, ITA No. 8521 is partly allowed, ITA No. 715 is dismissed and ITA No. 7147 is allowed. *** KARIMJEE (P) LTD. v. INCOME TAX OFFICER