These six appeals are filed by assessee against independent orders of CIT(A)-I, Thane. They pertain to asst. yrs. 1996-97 to 2000-01. Appeal in ITA No. 6620/Mum/2003 is appeal against levy of penalty under s. 271(1)(c) of Act and pertains to asst. yr. 2000-01. Since all appeals pertain to same assessee, for sake of convenience, they were consolidated and heard together and are being disposed of by this common order. First we take up quantum appeal for all five assessment years. first issue in appeals pertaining to asst. yrs. 1997-98, 1999-2000 and 2000-01 is with regard to disallowance of technical fees under s. 40(a)(i) of Act. facts are that assessee during year paid technical services fees and deducted tax on this fees so paid in relevant financial years, but has not deposited same into Government account during respective financial years, AO, not being satisfied with explanation offered by assessee, disallowed technical fees paid. On appeal, CIT(A) also concurred with view of action of AO. We have heard Shri F.V. Irani on behalf of assessee, who submitted that issue is covered in favour of assessee by following decisions of Tribunal: (i) Hazira Marine Engineering & Construction Management (P) Ltd. vs. ITO (ITA No. 7512/Mum/2005); (ii) ITO vs. Forasol Ltd. (1976) 1 TTJ 78 (Jp); (iii) Minda HUF Ltd. vs. Addl. CIT (2004) 82 TTJ (Del) 305: (2004) 2 SOT 475 (Del); and (iv) Jt. CIT vs. Modi Olivetti Ltd. (2004) 84 TTJ (Del) 1038. learned Departmental Representative, though not leaving his ground, could not controvert above legal propositions, but maintained that orders of authorities below were still good. We have considered rival submissions and perused material available on record. We find from record produced before us that though assessee has deducted tax at source from technical fees paid, same has not been paid to exchequer in relevant financial year. But since tax deducted has been paid to exchequer in subsequent financial years, technical fees has to be allowed in that subsequent assessment year. Be that as it may, on issue before, we find that, in all decisions of Tribunal relied on by learned counsel for assessee, issue involved was identical to one before us. provisions of s. 40(a)(i) as it stood at relevant time, reads that: "any interest (not being interest on loan issued for public subscription before 1st day of April, 1938), royalty, fees for technical services or other sum chargeable under this Act, which is payable, outside India, on which tax has not been paid or deducted under Chapter XVII-B (emphasis ours)." conjunction "or" gives option to assessee inasmuch that stipulation ascribed to s. 40(a)(i) is either assessee has to pay tax, on fees paid/payable outside India or to deduct tax on same. In instant case, it is not disputed that assessee has in fact deducted tax in relevant previous years. It is only from 1st April, 2004 sub-cl. (i) of s. 40(a) has been amended so as to provide that in respect of any interest, royalty, fees for technical services or other sum, which is payable outside India or in India to non-resident or foreign company, and is chargeable to tax under IT Act, no deduction shall be allowed in computing income under head "Profits and gains of business or profession" unless tax has been deducted from such income or, after deduction paid before expiry of time prescribed under sub-s. (1) of s. 200 and in accordance with other provisions of Chapter XVII-B. It has also been provided that where in respect of any such sum, tax has been deducted under Chapter XVII-B or paid in any subsequent year, such sum shall be allowed, as deduction in computing income of previous year in which tax has been paid. In this view of matter, respectfully following decisions of co-ordinate benches, we have to necessarily hold that CIT(A) was not justified in confirming action of AO in making disallowance under s. 40(a)(i). AO is directed to allow deduction of technical fees paid as claimed by assessee. However, AO may withdraw deduction allowed in subsequent assessment years on payment basis. This ground of assessee succeeds in all three years. next issue for consideration is alternative claim for technical fees disallowed in immediately preceding assessment. This issue is raised for only asst. yr. 1998-99. In view of our decision above on issue disallowance under s. 40(a)(i), this ground of assessee has to fail. next issue pertains to provision for warranty. This issue arises in asst. yrs. 1996-97, 1997-98, 1999-2000 and 2000-01. assessee is engaged in business of supply of paint finish system for automobiles and white goods industry. assessee has provided for warranty @ 2 per cent of value of turnover booked in each year in its books, claiming to be on accrual basis. It was case of assessee that as per contract given to assessee by customers, assessee was required to provide for one year warranty against orders. expenditure within one year that was to be incurred was going to be 2 per cent or more in view of large orders company was faced with. Further said percentage had been arrived at on basis of experience assessee had in past. On this basis assessee contended before AO that deduction sought for provision for warranty may be considered in its favour. AO however did not agree with assessee. According to him claim was merely contingent liability and simply provision and therefore cannot be allowed as revenue deduction. In arriving at this conclusion AO gathered strength from decision of Mumbai Tribunal in case of ITO vs. Emco Transformers Ltd. (1990) 32 ITD 260 (Bom). On appeal, CIT(A) concurred with AO and rejected ground of t h e assessee. Still aggrieved, assessee is in further appeal before Tribunal. main contention of learned counsel for assessee that warranty i s integral part of terms and conditions governing contracts for sale of assessee s products and as such, amount in question merits allowance as revenue deduction. It is emphasised that merely because estimate had been made of warranty cost expected to be incurred, provisions cannot be said to have been made based on pure contingencies. It was absolutely necessary that assessee provided for expenses that will have t o be incurred, over warranty period, in order that profit for year is correctly arrived at. learned counsel placed reliance on plethora of decisions of Tribunal, some of which are as under, for proposition that provisions for meeting warranty liability is allowable deduction: (1) Jt. CIT vs. Godrej & Boyce Co. Ltd. (ITA No. 3329/Mum/1999, dt. 31st Dec., 2004); (2) Dy. CIT vs. Godrej & Kis Ltd. (ITA No. 6670/Mum/1998, dt. 31st July, 2003); (3) Wipro Ge Medical Systems Ltd. vs. Dy. CIT (2003) 81 TTJ (Bang) 455; (4) Dy. CIT vs. Motors Industries Co. Ltd. (ITA No. 2473/Bang/1991, dt. 4th Feb., 2004); (5) Modi Olivetti Ltd. s case (supra); (6) Concost (India) (P) Ltd. vs. ITO (ITA No. 1506/Bom/2001, dt. 10th April, 1991); (7) Hindustan Dorr Oliver Ltd. (ITA No. 7255/Bom/1988, dt. 25th May, 1993); (8) Hero Honda Motors Ltd. vs. Jt. CIT (2005) 95 TTJ (Del) 782: (2005) 3 SOT 572 (Del); (9) Bharat Earth Movers vs. CIT (2000) 162 CTR (SC) 325: (2000) 245 ITR 428 (SC); (10) CIT vs. Indian Transformers Ltd. (2004) 192 CTR (Ker) 216: (2004) 270 ITR 259 (Ker); (11) Voltas Ltd. vs. Dy. CIT (1998) 64 ITD 232 (Mumbai); (12) CIT vs. Majestic Auto Ltd. (1993) 204 ITR 14 (Chd)(AT); (13) Jay Bee Industries vs. Dy. CIT (1998) 61 TTJ (Asr) 403: (1998) 66 ITD 530 (Asr); (14) CIR vs. Mitsubishi Motors New Zealand Ltd. (1996) 222 ITR 697 (PC). learned Departmental Representative, on other hand, relied on orders of authorities below and contended that assessee claims for deduction of contingent liability and thus it is not allowable as revenue deduction. We have heard rival submissions and perused material available on record. We find that case laws relied upon by learned counsel for assessee are squarely applicable to facts of case of assessee. accounting principles demand that balance-sheet of company reflects true and correct affairs of company. In instant case, assessee, upon entering into contract with its customers on certain terms and conditions which included after sales warranty for period of one year, has provided for @ 2 per cent of value of turnover booked during year in its books of account for such estimated liability towards warranty. Thus, moment assessee enter into contract, it is tied with liability attached with contract, though it might or might not incur same in year s time. According to assessee, actual cost against this liability stood at more than 2 per cent of total turnover which remains uncontroverted before us. So, it would not be fair to say that basis of valuation or estimated of provision has no scientific or actuarial basis. In case of Bharat Earth Movers (supra) Hon ble apex Court held that if business liability has definitely arisen in accounting year, deduction should be allowed although liability may have to be quantified and discharged at future date. What should be certain is incurring of liability. It should also be capable of being estimated with reasonable certainty though actual quantification may not be possible. If these requirements are satisfied, liability is not contingent one. liability is in praesenti, though it will be discharged at future date. It does not make any difference if future date on which liability shall have to be discharged is not certain. Similar view has been taken by many co-ordinate benches of Tribunal, some of which are Voltas Ltd. s case (supra), Godrej & Boyce Co. Ltd. s case (supra), etc. We respectfully follow these decisions. In this view of matter we have to necessarily accept contention of assessee. orders of authorities below are set aside on this issue and AO is directed to allow deduction claimed by assessee in all assessment years under appeal. next issue for consideration is provision for doubtful debts added back to book profits for calculation of income under s. 115JA. This issue is raised for asst. yr. 1998-99 only. AO in course of assessment proceedings asked assessee why provision for doubtful debt of Rs. 9,03,498 should not be added back for computing book profit under s. 115JA. assessee, relying on judgment of Hon ble apex Court in case of State Bank of Patiala vs. CIT (1996) 132 CTR (SC) 273: (1996) 219 ITR 706 (SC) replied that law did not provide for such adjustment. AO, however, relying on judgment of Hon ble Madras High Court in case of Dy. CIT vs. Beardsell Ltd. (2000) 162 CTR (Mad) 467: (2000) 244 ITR 256 (Mad) added back provision for bad debt while computing book profit. Before CIT(A) assessee contended that provision for doubtful debts has been set apart by company for loan or existing liability. It is not contingent liability but liability that has arisen during year on account of debts. loss on account of debts not being realisable cannot be treated as provision against liability. Reliance was placed on decision of Supreme Court in case of Vazir Sultan Tobacco Co. Ltd. vs. CIT (1981) 25 CTR (SC) 186: (1981) 132 ITR 559 (SC) wherein Hon ble apex Court pointed out difference between provision and reserve and held that if retention or appropriation of sum falls within definition of provision, it can never be reserve. On strength of this judgment assessee contended before CIT(A) that any amount set apart for diminution in value of assets which is known liability can only be taken to be provision and not reserve. Thus, adding back of provision for doubtful debt of Rs. 9,03,498 for computation of book profit was contended to be wrong. above contentions of assessee did not find favour with CIT(A). According to CIT(A) provision is not ascertained liability. This is more in nature of reserve for future contingency of certain debts not being realised and is against letter and spirit of provisions of s. 115JA of Act. ground of assessee was thus rejected. Still aggrieved, assessee is in appeal before us. learned counsel for assessee contended that issue is covered i n its favour by decision of Tribunal, Mumbai Benches in case of Dresdner Bank AG vs. Addl. CIT (2006) 105 TTJ (Mumbai) 149 (ITA No. 5255/Mum/2001) SR-32 and Ford Credit Kotak Mahindra Ltd. vs. Dy. CIT (ITA No. 5419/Mum/2002). learned Departmental Representative, though fairly agreed with above proposition, still maintained that provision for bad debt is mere provision and assumes character of reserve and therefore, authorities below were justified in their action. We find that this issue is covered in favour of assessee by decisions of co-ordinate benches. In Dresdner Bank AG s case (supra), Mumbai F Bench applied ratio of decisions of other co-ordinate Benches in Asstt. CIT vs. J.G. Vacuum Flasks (P) Ltd. (2002) 83 ITD 242 (Pune) and Maharashtra State Electricity Board vs. Jt. CIT (2002) 77 TTJ (Mumbai) 33: (2002) 82 ITD 422 (Mumbai). As of judgment of Hon ble Madras High Court in Beardsell Ltd. (supra), Bench found that decision was distinguished by co-ordinate Bench in J.G. Vacuum Flasks (P) Ltd. (supra). Special Bench of Tribunal in case of Jt. CIT vs. Usha Martin Industries Ltd. (2006) 105 TTJ (Kol)(SB) 543: (2007) 104 ITD 249 (Kol)(SB). It was held that provision for bad debts so made by assessee is not for meeting any liability but in effect to provide for diminution in cost of assets. Respectfully following decisions of Special Bench, we allow ground raised by assessee for asst. yr. 1998-99. next issue only for asst. yr. 1997-98 pertains to disallowance of business promotion expenses. AO, basing on report of auditors in form 3CD noted that sum of Rs. 1,82,457 was qualified as business development expenses by auditors has not been considered by assessee as entertainment expenditure. lower authorities relying on judgment of jurisdictional High Court in CIT vs. Indian Plastics Ltd. (1999) 240 ITR 528 (Bom) held 50 per cent of above amount as entertainment expenditure. contention of assessee is that authorities below should have excluded amount from purview of disallowance under s. 37(2) in light of judgment of Hon ble Karnataka High Court in CIT vs. Mysore Minerals Ltd. (1986) 57 CTR (Kar) 135: (1986) 162 ITR 562 (Kar). We have considered submissions of rival parties. business development expenses have been stated to have been broadly incurred on employees of assessee. Hon ble jurisdictional High Court has clearly held that in such situations, such expenditure should be considered as entertainment expenditure within meaning of sub-s. (2A) of s. 37 and deductibility thereof has to be decided in light of restrictions contained therein. Respectfully following judgment of Hon ble jurisdictional High Court of Bombay in case of Indian Plastics Ltd. (supra) and as no fresh facts have been brought before us to distinguish assessee s case from principles that have been laid down by Hon ble jurisdictional High Court we dismiss this ground of assessee. next issue pertains to disallowance of travelling expenses of foreign technicians. case of assessee is that travel expenditure on foreign technicians amounting to Rs. 1,56,06,665 raised by debit notes by their foreign collaborators was allowable deduction. This issue is raised for asst. yr. 1996- 97 only. brief facts are that assessee had entered into Licence & Technical Collaboration agreement with Haden Drysys International Ltd. (HDI), UK for spray painting systems and conveyors pursuant to approval of RBI. shareholding pattern between HDI and Josts Engg. Co. Ltd. (on-joint venture known as HJE, i.e., assessee) was in ratio of 51:49. In course of assessment proceedings AO found that assessee in its original return of income had not claimed impugned expenditure of Rs. 1,56,06,665 whereas same has been claimed in revised return of income. On query from AO assessee explained that HDI had raised debit notes against assessee only after filing original return of income and since expenditure was pertaining to impugned assessment year, it was claimed in revised return. With regard to query regarding payments made to p e r s o n s specified under s. 40A(2)(b) assessee filed following explanations: (i) Payments made to HDI (a) Royalty: This payment has claimed to have been made under Licence & Technical Collaboration Agreement as approved by RBI and has not been claimed as deduction in impugned assessment year. (b) Justification for purchases of goods and services from Haden Drysys International Ltd. (HDI, UK): HDI is world leader in supply of paint finishing system and are in business since many years. It also has established purchasing system for goods which are required for such systems. Also, customer General Motors India Ltd. (GMI) being American company wanted imports to be made mainly from HDI, as well as designing work to be carried out only at HDI. Out of total purchases of Rs. 2,16,21,827 major import during year is towards designing drawing to be carried out on work relating to GMI order. (ii) Payments made to Josts Engg. Co. Ltd. (JE), India (a) Salary for staff on deputation: During year 1995-96 Haden Josts Engg. India Ltd. (HJE) had no employees on its roll. More than 70 people who were working for HJE were employees of JE. Actual salaries and other benefits have been reimbursed by HJE to JE. (b) Other services: During impugned assessment year, HJE had been using various services rendered by JE, like office premises, cars, telephones, fans, security, EDP Management, Personnel Management, Canteen, etc. Also JE is having established offices in various places in India. These offices also were being used for HJE work. HJE has reimbursed such expenses to JE to extent of Rs. 24,81,405. (c) Purchase of Goods: Here assessee enclosed statement of purchases made from JE and contended that JE is one of leading fabricators of quality goods which were being supplied in paint finishing system. During year assessee purchased goods for such supply towards order from DCM Daewoo Motors and other customers including prejudicial to interest of company. Copies of bills were also enclosed. (d) Other reimbursements: During initial period HJE did not have bank account in Thane, till middle of year, as main operations of company were from Thane wherein JE was having account. day-to-day expenses were being made by JE and which were being reimbursed by HJE. Also, preliminary expenses which were shown separately in computation were met with by JE, and are forming part of these other reimbursements. major other expenses forming part of this amount of Rs. 19 lakhs is travel expenses incurred by company for General Motors India Ltd. order. All these expenses were initially borne by JE and were reimbursed by HJE. Travel Expenditure on HDI Engineers towards General Motors India Order As per shareholders agreement entered into between joint venture partners all expenditure towards travel and stay of HDI officials was required to be made by HJE. HJE management tried to convince HDI management that on particular order, expenditure incurred on such stay and travel was substantially higher. In this particular order, HJE was lagging behind from delivery schedule which was originally agreed upon. HDI insisted upon terms as agreed in shareholders agreement and hence assessee was compelled to absorb this cost which in normal course of business also would have been assessee s expenses. total expenses which was originally debited by HDI has been reversed in books of account of HJE subsequently for accounting year 1996-97, and has been claimed as deduction by way of filing revised return. AO, however, concluded that said agreement entered into appeared to be collusive document and inescapable inference was there was no business expediency present for assessee to suffer payment of travelling expenses, which was in real terms, responsibility was of HDI, for they held majority of shares in assessee company. On analysis of details furnished by assessee, AO found that assessee company was paying royalty and reimbursements were also being made on account of goods and services. Further that foreign company HDI was charging for design and engineering charges to tune of Rs. 1,62,80,000 whereas it was incumbent upon HDI to provide such services being 51 per cent partner. Thus, according to AO, HDI by contributing only sum of Rs. 51 lakhs by way of share capital has taken back sum of Rs. 1,62,80,000 by way of design charges only. It was noted down by AO that even though Indian company was having only 49 per cent shareholding, everything was charged to P&L a/c of assessee company. AO then looked into approval letter of RBI dt. 30th April, 1994 and found that paras 5 and 6 of said approval letter did not contain anything about travelling expenses to be borne by assessee company. Further assessee had entered into technical agreement on 28th July, 1995 and incorporated such clauses, where entire burden had been shifted on to shoulders of joint venture. terms and conditions were not inspiring any confidence particularly when joint venture directors are common. According to AO, in name of equity participation entire capital has been taken away by way of royalty, design charges and reimbursement of expenses. In this background, AO held that entire affair appeared to be sort of collusive arrangement simply to pay less taxes. Thus he came to conclusion that expenditure shown in original return was correct expenditure and deduction claimed in revised return to tune of Rs. 1,56,06,665 on account of travelling expenditure raised by debit notes only and not paid by assessee is not legally allowable. He also concluded that there was no express approval of RBI for reimbursement of such expenses. Accordingly, AO disallowed entire expenditure of Rs. 1,56,06,665 claimed by assessee in revised return of income. On appeal, assessee contended before CIT(A) that AO has not appreciated factual as well as legal position objectively and dispassionately. AO failed to appreciate that liability to pay for expenditure was clearly on assessee company in terms of licence and technical collaboration agreement entered into with foreign collaborator which was approved by RBI. assessee contended that art. 7 of said agreement amply provided that expenditure was to be borne by assessee. contention of AO that foreign collaborator being partner in joint venture was duty bound to bear expenditure was rubbished saying that it was not relevant to take adverse inference. Narrating factual position in accounts, assessee contended that expenditure of Rs. 156.07 lakhs had been incurred towards travelling, stay etc. for foreign technicians visiting India during year under consideration and said expenditure was not debited in accounts for year under consideration but was carried forward and shown in balance-sheet. Consequently, no claim had been made in respect of expenditure of foreign technicians in original return of income. According to assessee in accounts for asst. yr. 1997-98 assessee had debited sum of Rs. 156.07 lakhs as extraordinary item/prior period expenditure. No deduction for same had been claimed in computation of income in asst. yr. 1997-98. It has been argued that assessee had subsequently filed return of income on account of fact that assessee was liable to incur said expenditure during year. AO denied deduction to assessee on erroneous presumptions and without any basis. On basis of above submissions, CIT(A) required assessee to furnish following details: "(a) Whether joint venture agreement entered into originally as well as supplementary were approved by RBI? If so, copies of RBI s approval may please be furnished. (b) Please get me copy of application dt. 12th April, 1994 filed before RBI for foreign collaboration. Also clarify whether yours is foreign collaboration or joint venture? (c) Could you please make me available copy of shareholders agreement dt. 24th Sept., 1995 and copy of supplementary agreement dt. 11th Sept., 1995. (d) Please make me available copy of correspondence to indicate that assessee company tried to din into HBI Gears that expenditure incurred on such side was higher and should not be borne by assessee company. Also let me know details such as name of technicians, amounts etc. in respect of so-called travel expenses aggregating to Rs. 1.56 crores." above queries were replied by assessee in following manner: "1. in-principle approval had been obtained from RBI on 30th April, 1994. final approval was subsequently received from RBI vide their letter 1994. final approval was subsequently received from RBI vide their letter dt. 23rd Sept., 1995, which is enclosed herewith. (Annex. 1) Copy of application dt. 12th April, 1994 made to RBI for approval of foreign collaboration agreement is enclosed (Annex. 2) assessee company has been set up as joint venture between Indian promoters, M/s Josts Engineering Co. Ltd. and U.K. promoter, M/s Haden Drysys International Ltd. (HDIL). assessee company entered into financial-cum-technical collaboration agreement with HDIL. copy of which has already been submitted in paper-book filed with you. copy of shareholder s agreements dt. 24th April, 1995 together with supplementary agreement dt. 11th Sept., 1995 is enclosed herewith (Annexs. 3 and 4). details of travelling expenses incurred by foreign technicians are enclosed herewith (Annex. 5). With regard to correspondence with HDI to bear travel expenditure o f technicians, we have to state that no written communication was exchanged between two parties. However, managing director of assessee company had personally requested HDI, in course of his various discussions/meetings with HDI officials, to bear travel expense of technicians. However, in his meeting on 2nd Oct., 1996 held in U.K., HDI had declined to bear expenditure of Rs. 1.56 crores. Accordingly, assessee company had charged off expenses to P&L a/c for asst. yr. 1997-98, i.e. subsequent year which had been shown as recoverable in previous year ended on 31st March, 1996. This fact has been confirmed in writing to auditors by managing director for purposes of audit. It is therefore submitted that travel expenditure of foreign technicians being clearly assessee company s liability in terms of collaboration agreement, absence of accounting entry to that effect in relevant year cannot determine allowability of same in computing total income. Since liability is contractual, it relates to year under assessment and same has also been discharged, expenditure would be eligible for deduction under s. 37(1) of Act." learned CIT(A) analysed shareholders agreement, and in that he found that assessee company is not supposed to incur any material expenditure or liability of capital nature without any resolution having been passed by Board of Directors. To cap it all, assessee was also not supposed to enter into any material contract or arrangement outside country in ordinary course of its business or whereby any person would or might receive remuneration calculated by reference to its income or profits. In instant case, facts bear out that no such resolution was ever passed by Board of Directors permitting assessee to bear any expenditure in respect of so-called travelling expenses of foreign technicians deputed by HDI. Further close look into conditions delineated in shareholders agreement approved by RBI made abundantly clear to CIT(A) that as per terms of collaboration, royalty @ 5 per cent of domestic sales and 8 per cent of exports, inclusive of taxes was to be paid to HDL as per technical collaboration entered into. CIT(A) extracted entire terms and conditions approved by RBI which are as under: "(a) Royalty: 5 per cent on domestic sales and 8 per cent on exports, inclusive of taxes, for period of 7 years. (b) total payment should not exceed 8 per cent of sales over period o f 10 years from date of agreement or 7 years from date of commencement of commercial production. (c) Duration of agreement will be ten years from date of agreement or 7 years from date of commencement of commercial production. This letter of approval should form part of collaboration agreement. Any other amendment to agreement should also form part of original agreement by way of execution of supplementary agreement which should be file d with concerned authorised dealer. Only those provisions of agreement which are covered by our letter of approval or which are not at variance with provisions of this letter shall be binding on RBI/authorised dealer. Please note that remittance of fees/royalty under collaboration should b e made through Oman International Bank SAOG, 72/73, Mittal Court, Nariman Point, Bombay to whom application may be made in form 6-2. In case, Indian IT is paid at flat rate of 30 per cent, request in writing may be made to receiving bank branch to forward copy of receipted certificate regarding payment of tax, direct to above authorised dealer to enable it to remit proposed payment. Please also note that as and when you make payment towards transfer of technology, you should submit to Industrial Development Bank of India information/documents as per enclosed proforma. This letter of approval is valid for period of two years and all formalities as regards filing collaboration agreement with AD/Regional Office may be completed within this period failing which fresh application will have to be submitted to RBI, Exchange Control Department, Foreign Investment Technology Transfer (FITT) Section, Central Office, Bombay. above collaboration has been allotted registration No. FCT 94 BYR 0176 which should invariably be quoted in all your future references to Reserve Bank of India. You may submit undernoted documents to Bombay Regional Office of exchange control Department: (a) Foreign Inward Remittance Certificate issued by authorised dealer in foreign exchange evidencing receipt of share subscription from collaborator. (b) Chartered Accountants Certificate indicating latest pattern of shareholding of your company. (c) certified copy of collaboration agreement. (d) copy of industrial licence wherever applicable. (e) Certified copy of Memorandum and Articles of Association of company. Please also ensure that particulars as per enclosed Questionnaire are sent direct to S.I.A., G.O.I., New Delhi on half-yearly basis as indicated in Questionnaire." On basis of above terms and conditions, according to CIT(A), it was evidently clear that assessee was not burdened with responsibility or obligation of meeting so-called travelling expenses to tune of Rs. 1,56,06,665. facts further revealed to CIT(A) that assessee drew up another supplementary agreement dt. 11th Sept., 1995 wherein also no such clause is mentioned requiring assessee to meet so-called travelling expenses of so-called technicians. supplementary shareholders agreement has also been approved by RBI as per letter dt. 23rd Sept., 1995 and look into said approval of RBI dt. 23rd Sept., 1995 also did not throw any light on fact that it was assessee who was legally obliged to meet travelling expenses of foreign technicians. Further intriguing factor that floated to surface was that assessee drew up another technical collaboration agreement dt. 28th July, 1995 between HDI, U.K. and assessee wherein as per cl. (vii), such expenditures have been stated to be borne by HJE. Unfortunately, this technical collaboration agreement has not been approved by RBI and as such, same cannot inspire any credence. It is well-settled by Supreme Court in case of Nonsuch Tea Estate Ltd. vs. CIT 1975 CTR (SC) 20: (1975) 98 ITR 189 (SC) that where accrual of liability is dependent upon some approval and/or sanction of statutory authority, it will accrue and/or arise only on such approval. Similar is view of Bombay High Court also in case of CIT vs. Kirloskar Tractors Ltd. (1998) 148 CTR (Bom) 121: (1998) 231 ITR 849 (Bom). Since approval of RBI in respect of so-called technical collaboration agreement dt. 28th July, 1995 is not available, as is evident from terms delineated in approval of RBI, assessee, in opinion of CIT(A), cannot merit allowance of deduction in respect of said expenditure on account of travelling of foreign technicians. Further expenditure in question has not at all been incurred by assessee and it has been raised only by way of debit notes by HDI. Besides, assessee and it has been raised only by way of debit notes by HDI. Besides, assessee has not been able to produce any written communication exchanged between two parties to establish fact that said expenditure was later on decided to be borne by assessee. It has simply been stated that in meeting on 2nd Oct., 1996 held in U.K., HDI had declined to bear expenditure of Rs. 1.56 crores. Unfortunately, no copy of resolution of said meeting has also been adduced before CIT(A) in course of appellate proceedings. It is thus clear that said expenditure is not allowable under s. 37(1) of Act. To be more explicit, s. 37 of Act provides that any expenditure, not being in nature of capital expenditure, laid out wholly and exclusively for purpose of assessee s business shall be allowed in computing income chargeable under head Profits and gains of business or profession . Thus, in order to be deductible as business expenditure, amount in question must fulfil that (i) expenditure in question must be laid out wholly and exclusively for purpose of assessee s business; and (ii) it should not be expenditure of capital nature. Fulfilling of these conditions is sine qua non for qualifying for deduction under s. 37 of Act. In instant case, it has not been clearly established that said expenditure has been laid out wholly and exclusively for purpose of business of assessee. On other hand, AO has clearly established that foreign collaborator had already extracted maximum benefit from assessee in sense that foreign collaborator had taken back sum of Rs. 1,63,80,000 by way of royalty etc. Considering above facts, CIT(A) was of opinion that claim of so called deduction on account of travelling expenses in revised computation of income is out and out afterthought to get tax liability reduced. Further, entire transaction appears to be collusive transaction and colourable device entered into by assessee with HDI to reduce tax liability. In this context learned CIT(A) extracted following observations of Hon ble apex Court given in case of McDowell & Co. Ltd. vs. CTO (1985) 47 CTR (SC) 126: (1985) 22 TAXMAN 11 (SC): "The evil consequences of tax avoidance are manifold. First, there is substantial loss of much needed public revenue, particularly, in welfare state like ours. Next, there is serious disturbance caused to economy of country by piling up of mountains of black money directly causing inflation. Then there is large hidden loss to community by some of best brains in country being involved in perpetual war waged between tax avoider and his expert team of advisers, lawyers and accountants on one side and tax gatherer and his, perhaps not so skillful, advisers, on other side. Then again there is sense of injustice and inequality which tax avoidance arouses in breasts of those who are unwilling or unable to profit by it . Last, but not least, is ethics of transferring burden of tax liability to shoulders of guileless; good citizens from those of artful dodgers." In view of aforesaid findings, learned CIT(A) conferred disallowance made by AO. Aggrieved, assessee is before Tribunal. We have heard Shri F.V. Irani, learned counsel for assessee and S h r i N.N. Mishra learned Departmental Representative. On careful consideration of facts and circumstances of case and on perusal of papers on record, we are of considered opinion that order of first appellate authority has to be upheld on this issue. fundamental thing that strikes us is that assessee submits that there is no written communication exchanged between both parties in respect to travel expenditure of technicians. In its reply assessee states that managing director of assessee company had personally requested HDI in course of various discussion/meetings that HDI officials to bear travel expenses of technicians. It appears that at personal level top management of company of both companies have decided that assessee company, which is obviously not in position to assert itself, was burdened with these travelling expenditure which does not pertain to it. Expenditure of one company has been accepted as expenditure and liability of another company due to fiduciary relationship that existing between them. Such expenditure cannot be held to be for purpose of business of assessee company. As rightly pointed out by first appellate authority there is no statutory approval by RBI for incurring of this expenditure. Had this been original terms of agreement, then same would have been part of terms furnished to RBI. expenditure cannot be allowed in hands of assessee company on reason that top management of foreign company which is majority holder of shares had directed that this expenditure be borne by assessee company. Though had directed that this expenditure be borne by assessee company. Though term, "for purpose of business" is wide and has to be viewed from point of view of business man, expenditure which rightly belongs to one company cannot be transferred to other company and claim it as expenditure in hands of that company, when such expenditure is not bona fide expenditure of that company. assessee has admittedly in its reply to AO stated that HJE management had tried to convince DBI that on that particular order expenditure incurred in such stay and travel was substantially higher. Thus even as per provisions of s. 40A(2), as per own submissions of assessee, as this payment was in excessive and unjustified. We fully-agree with finding of learned CIT(A) that approval of RBI for incurring of this particular expenses was not obtained and thus no expenses can be allowed in such situation by applying judgments of Hon ble Supreme Court and Hon ble Bombay High Court cited by him. In our considered opinion, we fully agree with findings of first appellate authority and hold that debit note in question transferring expenditure is not bona fide expenses of assessee and thus rightly disallowed by Revenue authorities. We also agree with other findings of first appellate authority and for purpose of brevity we do not repeat same. Suffice to say we concur with findings. In result, this ground of assessee is rejected. Coming to alternative claim of assessee for deduction to be allowed for premium for warranties of earlier years, we have already decided issue in favour of assessee in regard to provision for warranty, ground relating to alternative claim for deduction in asst. yr. 2000-01 has no leg to stand and ground is dismissed. next ground pertains to non-grant of TDS credit. learned counsel for assessee submitted that full credit for tax deducted has not been allowed in course of assessment proceedings. learned Departmental Representative was fair enough to concede that issue can be sent back to AO for fresh adjudication. Thus, this ground of assessee is set aside to file of AO. last ground in assessee s appeal for asst. yr. 1998-99 is that CIT(A) erred in not giving specific directions to AO to pass speaking order indicating basis of grant of interest and recalculate correct amount of interest payable under s. 244A to assessee. We find justification in this ground. AO is directed to give basis of grant of interest to assessee, and to pass fresh orders in this regard. Thus, this issue is set aside to file of AO. Penalty appeal Asst. yr. 1999-2000 This appeal filed by assessee challenges confirmation of penalty levied under s. 271(1)(c) of Act at Rs. 11,50,659. facts leading to levy of penalty are that amount of Rs. 32,87,596 was added during year, besides other additions, by AO on account of reversal of provision for bad debts. assessee had filed details of other income which included, right back of provision for doubtful debts at Rs. 32,87,596. assessee contended that impugned amount had been disallowed in earlier asst. yr. 1997-98 and thus reduced from computation. However, from record it transpired that no such disallowance was made in asst. yr. 1997-98. Thus, it was held that as n o disallowance made in earlier assessment year, no allowance can be giving in this year. Thus, amount of Rs. 32,87,596 was added to total income and AO initiated penalty proceedings. In course of penalty proceedings assessee contended that they were under bona fide impression that impugned amount was offered for tax in earlier year and hence they claimed deduction in this year. Being not satisfied with reply AO levied penalty of Rs. 11,40,659 under s. 271(1)(c). In appellate proceedings assessee contended that disallowance in question could not have been made in impugned assessment year for assessee bona fidely believed that same had to be disallowed in asst. yr. 1997-98. Since provision is disallowable in year in which it is made, reversal of provision is not assessable to tax in year of reversal. assessee relied on judgment of Hon ble Supreme Court in case of Hindustan Steel Ltd. vs. State of Orissa (1972) 83 ITR 26 (SC) for proposition that penalty will not ordinarily be imposed unless party obliged, either acted deliberately in defiance of law or was guilty of conduct contumacious or dishonest, or acted in conscious disregard of its obligation. Further reliance was placed on another decision of Supreme Court in case of CIT vs. Anwar Ali (1970) 76 ITR 696 (SC). (SC). learned CIT(A) also agreed with AO holding that there is deliberate concealment of fact regarding provision for bad debts during asst. yr. 1997-98 and on top of it, assessee had claimed deduction for this amount in return for current year. Various Explanations have been added to provisions of s. 271(1)(c) after judgments in case of Hindustan Steel Ltd. (supra) and Anwar Ali s case (supra). learned CIT(A), on other hand, placed reliance on decision of Supreme Court in K.P. Madhusudan vs. CIT (2001) AIR SCW 3057. basis of above finding was that (i) Even though provision for doubtful debts claimed earlier in asst. yr. 1997-98 was not added to total income of that year, assessee when realised same in impugned assessment year has sought to exclude same. (ii) CIT(A) in quantum proceedings had confirmed addition made in impugned assessment year which has not been contested in Tribunal. (iii) contention of assessee that if at all any addition was to be made, that would have been made in asst. yr. 1997-98 and such omission on part of Revenue authorities cannot make assessee responsible and addition made on reversal of entries, learned CIT(A) opined that, in fact, provision created was hidden in grouping of raw material cost and assessee did not disallow same of his own. It is only in course of assessment for impugned assessment year, and that too, on basis of contention of assessee that provision was disallowed in asst. yr. 1997- 98, AO found out from assessment order of that asst. yr. 1997-98 that no such disallowance was made in that assessment year. Thus, assessee has deliberately made wrong claim of Rs. 32,87,596 on reversal of provision for bad debt during impugned assessment year. Aggrieved, assessee is in further appeal before us. We have heard rival contentions on issue. On careful consideration of facts and circumstances of case and perusal of papers on record we are of considered opinion that penalty in question has been rightly levied by Revenue authorities. assessee is well established company, having professional support and experienced and professionally qualified employees. While so, making of claim which was admittedly wrong cannot be said to be not deliberate. facts of case show that provision for bad debts had been wrongly claimed as deduction in earlier year though it is settled law that no such claim on provision could be made. It is not case where claim has been made out of ignorance or inadvertence. company of stature of assessee company has made many legal claims over years, while filing its return of income. While so, simple straight forward issue which is admittedly not allowable under IT Act has been claimed as deduction in earlier year. During this year, further claim is made, which amounts to double deduction. This claim was hidden, and AO had to investigate to discover it. explanation of assessee company, that it was under bona fide belief that its claim for deduction in earlier year, was rejected and addition made by Revenue authorities, is false. Such explanation was rightly held to be unsatisfactory and ex facie false by AO. Thus, on these facts and circumstances we believe that this claim is not made on bona fide basis, as it can be reasonably expected that company would definitely be in know of fact that provision for bad debt is not allowable expenditure and that such claim has been made and allowed in earlier year. theory of bona fide impression and inadvertence is just after thought. Under these circumstances we uphold order of first appellate authority confirming penalty levied. Thus this appeal of assessee is dismissed. In result, appeals for asst. yrs. 1996-97, 1997-98 and 2000-01 are partly allowed and appeals for asst. yrs. 1998-99 and 1999-2000 are allowed whereas penalty appeal for asst. yr. 1999-2000 is dismissed *** HADEN INTERNATIONAL GROUP INDIA (P) LTD. v. ASSISTANT COMMISSIONER OF INCOME TAX