IN INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES : HYDERABAD BEFORE SHRI D. MANMOHAN, VICE PRESIDENT AND SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER ITA.No.1444/Hyd/2015 Assessment Year 2011-2012 Income Tax Officer, M/s. Patil Rail Infrastructure Ward-16(1), vs. Pvt. Ltd., Hyderabad 500 082. Hyderabad. PAN ADCP8340E (Appellant) (Respondent) For Revenue : Mr. A. Sitarama Rao For Assessee : Mr. B. Suryanarayana Murthy Date of Hearing : 28.09.2016 Date of Pronouncement : 28.09.2016 ORDER PER D. MANMOHAN, V.P. This appeal by Revenue is directed against order passed by CIT(A)-IV, Hyderabad and it pertains to A.Y. 2011-2012. Penalty levied under section 271(1)(c) of Act having been cancelled by Ld. CIT(A), Revenue is in appeal before us. 2. Facts necessary for disposal of appeal are stated in brief. assessee-company is engaged in business of manufacturing of concrete sleepers. For year under consideration, assessee declared NIL income, both under regular provisions as well as under section S.115JB of Act. Assessment was processed under section 143(1) of Act. Thereafter, it was taken-up for scrutiny. During course of scrutiny proceedings, Assessing Officer noticed that 2 ITA.No.1444/Hyd/2015 M/s. Patil Rail Infrastructure Pvt. Ltd., Hyderabad. assessee debited amount of Rs.55,15,000 referrable to amount paid to M/s. Italian Thai Development Public Company Ltd., under head Legal Expenses . On verification of agreement, Assessing Officer was of opinion that amount was payable for providing technical knowhow such as drawing typical designs etc., and said agreement was entered into for period of 10 years. Therefore, Assessing Officer called-upon assessee to show cause as to why said expenditure should not be treated as capital expenditure and allow depreciation accordingly. In response thereto, assessee submitted that payment was made for seeking technical service advise and data related to design, manufacturing, marketing and installation of precast concrete track plinths suitable for railways. Having not been satisfied with explanation of assessee, Assessing Officer observed that it was expenditure incurred for entering into agreement which has enduring benefit for period of 10 years and same is expended for acquiring technical know-how. Hence, by applying provisions of section 32 of Act, depreciation was allowed on said expenditure. 3. It may be noticed that total income returned being NIL, upon partly disallowing technical know-how expenditure total income assessed was Rs.46,34,207 which was set-off against brought forward losses and thus tax thereon was NIL. Since assessee is running in losses, it did not choose to prefer any appeal. Thereafter, consequent to disallowance of claim of deduction, Assessing Officer initiated penalty proceedings on ground that assessee made wrong claim. Since none appeared for assessee, Assessing Officer levied penalty of Rs.15,39,368 under section 271(1)(c) of Act. 3 ITA.No.1444/Hyd/2015 M/s. Patil Rail Infrastructure Pvt. Ltd., Hyderabad. 4. Aggrieved, assessee preferred appeal before CIT(A) wherein it was contended that subsequent to merger of other companies, company filed revised return declaring NIL income and amount of expenditure was capitalised in books of account and it was not claimed as revenue expenditure. But without appreciating this fact Assessing Officer made addition of Rs.55,15,000 on alleged ground that expenditure has to be capitalised. It was also submitted that Assessing Officer ignored statement of assessee company that it had already capitalised expenditure and proceeded to levy penalty under section 271(1)(c) of Act. However, since assessee company was reeling in losses, it did not prefer to file appeal against assessment order but challenged order passed under section 271(1)(c) of Act. 5. Ld. CIT(A) verified ledger account and noticed that assessee has not claimed technical know-how fees in view of huge carried forward losses and therefore, even disallowance itself is not in accordance with law. He also observed that assessee did not have any malafide intention, as was pointed out by Assessing Officer in penalty order under section 271(1)(c) of Act, and accordingly deleted penalty levied by Assessing Officer. Aggrieved by order of Ld. CIT(A), Revenue is in appeal before us by raising following grounds which were duly authorised by Pr. CIT : 1. That Ld. CIT(A) erred in cancelling penalty of Rs.15,39,368 levied under section 271(1)(c) of I.T. Act, 1961. 2. That Ld. CIT(A) erred in cancelling penalty adjudicating on merit of addition made which is subject matter of penalty when assessee had not 4 ITA.No.1444/Hyd/2015 M/s. Patil Rail Infrastructure Pvt. Ltd., Hyderabad. contested assessment in appeal which had become final. 6. main ground urged by Revenue is that when assessee had not contested assessment and had become final, levy of penalty is valid. During course of hearing, Learned Counsel for assessee placed before us copy of computation of total income for assessment year under consideration and submitted that assessee in fact did not claim deduction of entire expenditure in year under consideration and it was taken as pre-paid expenses out of which only 11/120th was claimed as deduction. Agreement was entered into on 10th May and total amount has to be amortized in 120 months and hence, amount of Rs.5,06,291 only was claimed as expenditure deductible in return of income for A.Y. 2011-2012. Thus assessment of Assessing Officer on presumption that entire expenditure is claimed as deduction is baseless. In fact, Assessing Officer allowed depreciation of Rs.13,78,750 which is much more than what was claimed as deduction. It was therefore, contended that Assessing Officer, while levying penalty, did not properly go through claim made by assessee and proceeded on assumptions to hold that assessee concealed particulars of income. It was further contended that all facts being available on record, it cannot be said to be either furnishing of inaccurate particulars of income or concealment of income. 7. Ld. D.R. on other hand, merely relied upon order passed by Assessing Officer and could not place any material to contradict claim made by assessee or conclusions reached by Ld. CIT(A). 5 ITA.No.1444/Hyd/2015 M/s. Patil Rail Infrastructure Pvt. Ltd., Hyderabad. 8. Under these circumstances, we do not find any merit in appeal filed by Revenue and therefore, same is dismissed in limine. Order pronounced in open Court on 28.09.2016. Sd/- Sd/- (B. Ramakotaiah) (D.Manmohan) Accountant Member. Vice President Hyderabad, Dated 28th September, 2016 VBP/- Copy to: 1. Income Tax Officer, Ward-16(1), Room No.7, Block-A, 7th Floor, Aayakar Bhavan, Basherbagh, Hyderabad 500 004. 2. M/s. Patil Rail Infrastructure Pvt. Ltd., 6-3-1239/B/111, Renuka Enclave, Raj Bhavan Road, Somajiguda, Hyderabad-500 082. 3. CIT(A)-4, 3rd Floor Annexe, Aayakar Bhavan, Basheerbagh, Hyderabad. 4. Commissioner of Income Tax-4, Hyderabad 5. Departmental Representative ITAT, Bench, Hyderabad 6. Guard File. Income-tax Officer, Ward-16(1), Hyderabad v. M/s. Patil Rail Infrastructure Pvt. Ltd