Indo Nissin Foods Ltd. v. Joint Commissioner of Income-tax

P. Mohanarajan, J.M. - All these appeals by the assessee are directed against the order of the learned CIT(A)-V, Bangalore dated 29th Nov., 2001. These appeals related to assessment years 1992-93 to 1998-99 arising out of the order passed under section 271C of the Act. The issue being common in all these appeals, they are being disposed of by the single consolidated order.

2. We have heard both the sides and perused the records. The brief facts of the case are as follows:

2.1 The assessee-company, viz., Indo-Nissin Foods Ltd., ("INF") is a joint venture company incorporated in India in the year 1990 and commercial production started in 1991. The shareholders and their respective holding in the previous year relevant to assessment year 1992-93 were:

2.2 Subsequent to the collaboration, M/s. Nissin, Japan has been deputing their personnel (having technical/other expertise) to assessee-company. Accordingly in the previous years relevant to assessment years 1992-93 to 1998-99, certain persons having technical and other expertise ("the expatriate employees") were deputed by M/s. Nissin, Japan to the assessee-company. The expatriate employees had received salary and other allowances from the assessee-company. These were offered to tax and the assessee-company had also deducted TDS at the applicable rates. There is no issue either on the remuneration paid by the assessee-company to the expatriate employees or the tax deducted and remitted to the Government by the assessee-company. This position is also confirmed by the Revenue.

3. During the relevant assessment years, the expatriate employees, while rendering services to and receiving remuneration from the assessee-company in India, also received certain payments in Japan from their Japanese employer, i.e., M/s. Nissin, Japan. This payment was not offered to tax in India by the expatriate employees nor had M/s. Nissin deducted any tax at source and remitted the same to the Government of India. The Asstt. CIT, TDS II vide letter dated 29th Jan., 1999, addressed to the assessee-company, stated as follows:

"Sub: Inquiry under section 133(6) of the IT Act, 1961—Taxability of salary, allowances, perquisites paid abroad to expatriate salaried employees for services rendered in India, reg.

You are required to furnish full and complete details of allowances paid or provided abroad to the expatriate salaried employees of your company for services rendered in India for the period relevant to financial years 1996-97, 1997-98.

Please note that the clause, "not ordinarily resident" or "non-resident" does not preclude a person receiving such amounts abroad for services rendered in India from being taxed in India.

It has been noted that the expatriate salaried employees are declaring only their Indian income for tax purposes, whereas they are to necessarily furnish details of sums received overseas for services rendered in India.

Failure to comply with the above directions will result in an adverse inference being drawn against you. You are therefore, requested to treat this as important. You may furnish the details called for by 15th Feb., 1999, repeat 15th Feb., 1999."

4. The said letter was replied to by the assessee-company giving details of the expatriate employees on their rolls and the remuneration paid to them and further informing that they had not paid any remuneration outside India to the expatriate employees. However, during April, 1999, M/s. Nissin, Japan, on their own, paid taxes and interest under section 201 on the payment made by them in Japan to the expatriate employees relating to assessment years 1992-93 to 1998-99. It will be of significance to mention here that the said tax and interest was paid by M/s. Nissin, Japan, against whom no enquiry or proceedings were initiated by the Depart- ment. Thus payment by M/s. Nissin, Japan is voluntary without any enquiry or investigation by the Department. In fact, from the fact on record it can be easily inferred that, but for the payment by M/s. Nissin, Japan the Department had no knowledge of these payments overseas. Further, the letter seeking information under section 133(6) (extracted supra) was only addressed to the assessee-company. In spite of this, the Department initiated proceedings under section 271C by issuing notices dated 28th Feb., 2000, relevant to the assessment years under appeal against the assessee-company alleging non-deduction of tax at source on the payments made in Japan to the expatriate employees by Nissin, Japan. All the notices are similar and, for the sake of convenience, only one notice for the assessment year 1992-93 is extracted herein :

"Sub : Penalty notice under section 271C of the IT Act, 1961.

It has been observed from the survey conducted by Dy. CIT (TDS)-II that there is a short deduction of tax to the extent of Rs. 52,04,652 in respect of TDS made under section 192 for the assessment year 1992-93.

2. You are hereby requested to appear before me on 21st March, 2000 at 11.30 a.m. and show cause why an order imposing penalty on you should not be made under section 271C of Income-tax Act, 1961. If you do not wish to avail of this opportunity of being heard in person or through an authorised representative you may show cause in writing on or before the said date, which will be considered before any such order is made under section 271C.

3. If the opportunity to explain is not availed, it would be presumed that you have nothing to say in this matter and the levy of penalty will be decided on the basis of the information available in this office."

5. Though the notices mention that a survey was conducted by Dy. CIT, TDS-II it was gathered during the hearing that no such survey was conducted and further nowhere in the order of penalty is there a mention of such a survey. The appellant-company filed its objection by its letter dated 6th April, 2000. However, the Jt. CIT, TDS, Bangalore, rejected the objections of the appellant-company and levied the penalty vide his order dated 31st Aug., 2000. This order was confirmed in appeal by the CIT((A) vide his common order dated 29th Nov., 2001. The penalty levied for various years are as under :

The fact emerging from a perusal of the order, which has been termed as undisputed by the CIT(A), is that while deputing the expatriate employees to the assessee-company, the Japanese company, viz., M/s. Nissin had kept a lien on the services of the expatriate employees. The payment made in Japan by the Japanese company was towards retention/continuation pay on account of the said lien. This was treated by the Department as falling within the scope of section 9(1)(ii) of the Act, as stood at the relevant point of time, extracted herein :

"Income which falls under the head ‘Salaries’, if it is earned in India.

Explanation.—For the removal of doubts, it is hereby declared that income of the nature referred to in this clause payable for services rendered in India shall be regarded as income earned in India.

The said section has been amended w.e.f. 1st April, 2000 by the Finance Act, 1999."

6. The Assessing Officer was of the view that the assessee-company did not deduct taxes at source in respect of salary paid abroad to its expatriate employees nor paid the tax under the provision of section 192 of the Act. Therefore, he levied penalty under section 271C of the Act for these assessment years. Aggrieved with the order of the Assessing Officer, the assessee carried the matter before the first appellate authority, wherein the learned CIT(A) upheld the order of the Assessing Officer. Hence the assessee is in appeal before us.

7. The learned authorised representative of the assessee Shri K.R. Pradeep vehemently contended that the authorities below did not consider the facts in proper perspective. He advanced the following arguments.

8. First it was canvassed that the notices issued under section 271C extracted supra are invalid inasmuch as they are addressed to M/s. Indo Nissin Foods, whereas the assessee-company is a limited company. The notices are silent about the status of the assessee-company. Further, the notices are not addressed to the principal officer of the company as required under section 282(2)(b) of the Act. The defect in the notices is not curable under section 292B and further has not been cured till date. In support, he relied on the decision of the Kerala High Court in P.N. Sasikumar v. CIT [1988] 170 ITR 80¹ (Ker.) extracted herein:

"We have already held that the issue and service of a notice under section 148 is a condition precedent or a matter of jurisdiction. In that view, before assessing an ‘AOP’ as enjoined by section 282(2)(c) of the IT Act the notice should be addressed to the principal officer or a member thereof. Admittedly, it has not been done in this case. That means, there was no notice to the ‘AOP’ which was assessed to tax. We are of the view that it is a case where ‘no notice’ was sent to ‘the assessee’, the ‘AOP’ as enjoined by law. The entire proceedings are, in the circumstances, void and illegal and totally without jurisdiction. Such a fundamental infirmity cannot be called a ‘technical objection’ or a mere ‘irregularity’ and such vital infirmity cannot be cured or obliterated by relying on section 292B of the IT Act."

He also relied on the decision of the Tribunal, Bangalore Bench, in [IT(SS)A No. 26 (Bang.) of 1998 dated 11-7-2001] the case of Sri K. Abdul Gafoor. He further relied on the decision of Tribunal Allahabad ‘A’ Bench in V.V.S. Alloys Ltd. v. Asstt. CIT [IT Appeal No. 1376 (All.) of 1997 dated 11-11-1999 in [2000] 68 TTJ (All.) 516.

Relevant portion in para 16.2 summarised as :

"Notice under section 158BC is not merely a procedural requirement but a condition precedent for assuming jurisdiction; notice under section 158BC addressed to assessee-company and not to its principal officer and not mentioning the status in which return was required to be furnished and not specifying exactly the ‘person’ who is required to file the return and the block period was wholly deficient; assessment made on the basis of said notice was bad in law and void ab initio."

On this basis it was submitted that the notices and all subsequent proceedings culminated with order of penalty are invalid and unsustainable.

9. Sri K.R. Pradeep contended that the notices and order of penalty are barred by limitation. The notices for all the years, i.e., from assessment years 1992-93 to 1998-99 were mechanically issued on 28th Feb., 2000. Though the Act does not prescribe any limitation for issue of notice, yet notice for penalty or other proceedings cannot be issued beyond a reasonable period of time. It was submitted that the Tribunal, Bombay "D" Bench, in Raymond Woollen Mills Ltd. v. ITO [1997] 57 ITD 536 has held a period of 4 years to constitute a reasonable time for levy of interest under section 201(1A) of the Act. The said period was arrived at after analysing and taking into account various periods of limitation under the Act ranging from 2 to 4 years barring in exceptional circumstances. Recently the Calcutta High Court in Simplex Concrete Piles (India) Ltd. v. Dy. CIT [2003] 262 ITR 605, while dealing with the validity of a notice in the case of reassessment, has also held a period of 4 years should be considered reasonable time for issue of notice. Accordingly, in this case, the notice for assessment years 1992-93 to 1995-96 should be beyond the reasonable period of 4 years and hence barred by limitation.

10. Sri K.R. Pradeep contended that the penalty under section 271C is not automatic. First of all there must be a failure to deduct tax prescribed under the Act. Such a failure must be on account of a pre-existing responsibility for deduction of tax explicitly provided under the Act. It was pleaded that unless there is a liability to tax the question of deduction would not arise. In this case, the payments made in Japan by M/s. Nissin to the expatriate employees was on account of retention/continuation pay arose on account of lien on the services of the expatriate employees by the parent Japanese company. Consequently, these payments made cannot be attributed to the services rendered by the expatriate employees in India nor can it be connected with their employment in India. The source for retention/continuation pay is for their lien on their services in Japan and not their employment in India. Consequently, it was pleaded that section 9(1)(ii) would not be applicable as these payments cannot be related to remuneration earned in India. A perusal of the amended section 9(1)(ii) w.e.f. 1st April, 2000 extracted herein :

"Income which falls under the head ‘Salaries’, if it is earned in India.

Explanation.—For the removal of doubts, it is hereby declared that income of the nature referred to in this clause payable for—

(a)service rendered in India; and

(b)the rest period or leave period which is preceded and succeeded by services rendered in India and forms part of the service contract of employment,

shall be regarded as income earned in India;"

clearly indicates that leave salary or rest salary in connection with employment prior to or after the employment in India has been included by the above amendment. This amendment is prospective in effect as explained in the Finance Act, 1999. Resultantly, prior to the amendment, any payment under the said classification could not be treated as part of the salary earned in India. In the present case the assessment years involved are prior to the amendment and hence the payments made in Japan was not taxable.

11. The authorised representative for the assessee further contended that the present case involves Japanese expatriate employees who were all non-resident and/or not ordinarily residents under section 6 of the Act and consequently any sum earned by them outside India would not be liable for tax in India. The Supreme Court in CIT v. Morgenstern Werner [2003] 259 ITR 486 under similar circumstances as in the present case held that the salary paid to foreign technician in Germany was not liable to tax as per the proviso to section 5(1)(c) of the Act. It was submitted that the decision of the Supreme Court was rendered after the penalty order was passed in the present case and consequently the authorities below had no occasion to hold that neither the assessee-company nor Nissin had any liability towards deduction of tax under the Act in relation to the payments made to the expatriate employees in Japan. The Department had placed reliance on Circular No. 685 dated 17th/20th June, 1994 issued by the CBDT extracted supra. It was pleaded that the said circular was factually not applicable and legally incorrect. Factually, the circular applies only to foreign companies operating in India. In this case, Nissin was not operating in India inasmuch as it is only a shareholder in the assessee-company and had no independent operation. Hence, the circular was not applicable. Legally, the circular is contrary to the decision of the Supreme Court in Morgenstern Werner’s case (supra). Consequently, the circular cannot be treated as valid. Further, the circular granted certain amnesty up to a particular period and such a period has lapsed long ago. As such, the circular is not in existence for period (supra) beyond the period specified in the circular. In the absence of any specific liability under the Act on either the assessee-company or Nissin, it cannot be said that there was any failure to deduct TDS under the Act. Hence, the levy of penalty, without establishing failure to deduct the tax or liability under the Indian IT Act, is bad in law.

12. Sri K.R. Pradeep contended that no order has been passed against the assessee-company or Nissin on the liability under the Act inasmuch as the assessee-company had never been held to be an ‘assessee in default’ under section 201 or under section 221 of the Act. Section 201(1) prescribes liability for failure to deduct tax and declares the assessee as ‘in default’. In cases where good and sufficient reason is found to exist, the action under these sections is mitigated. The cause of action in section 201(1) and section 271C on establishing a reasonable cause whereas under section 201(1) the yardstick is establishing "good and sufficient reason". He relied on the decision of Delhi High Court in Sequoia Construction Co. (P.) Ltd. v. P.P. Suri, ITO [1986] 158 ITR 496¹.

13. Sri K.R. Pradeep pleaded that there was considerable confusion insofar as the liability to pay tax on the payments made in Japan to the expatriate employees by Nissin. The confusion and doubt about the liability to pay tax was not restricted only to the assessee-company and/or Nissin, Japan. The situation was prevalent among the Japanese multinationals. This can be amply proved by referring to the decision of Delhi High Court in Azadi Bachao Andolan v. Union of India [2001] 252 ITR 471². In this case, the Delhi High Court noticed as many as 93 cases wherein similar delays in payment of taxes had occurred. Further, the Department had dropped penalty proceedings in large number of cases where payment of tax was voluntarily made.

14. The learned authorised representative for the assessee brought to our notice that the Tribunal, Bangalore Bench ‘A’ in the case of Asstt. CIT v. Yokogaawa Electric Corporation ITA Nos. 356 to 360/Bang./2002, Japan had confirmed the penalty under section 271C. Sri K.R. Pradeep submitted that this decision would not be applicable to the present case as the assessee in that case was aware of the liability and there was no doubt on the liability under the IT Act. Further, the payments therein were additional salary for services rendered in India, whereas in the present case the impugned payments were towards retention/continuation pay on account of the lien on the services of the expatriate employees in Japan. As far as the liability for tax is concerned, the circumstances were different. Further the Tribunal had no occasion to refer to the decision of the Supreme Court in Morgenstern Werner’s case (supra) as well as no reference has been made to the decision of the Delhi High Court in Azadi Bachao Andolan’s case (supra). Hence, factually and legally, Yokogaawa order cannot be relied on in deciding the present case.

15. It was contended that there was no application of mind as the delay for the assessment year 1992-93 which is about 6 to 7 years has been treated on par with the delay for the assessment year 1998-99 which is hardly few months. It was submitted that in the present case there was no absolute failure and, by the time of issue of notices, the tax along with the interest and already been remitted voluntarily. Hence, the plea for cancellation of levy of penalty.

16. Sri K.R. Pradeep further submitted that the assessee-company had already deducted tax from the salary paid to expatriate employees in India. It had also periodically filed Form 24, etc., and there was no failure on its part. The assessee-company had no responsibility to deduct tax on the payments made by Nissin in Japan. Invoking section 192(2) to pin the responsibility on the assessee-company is incorrect. The said section uses the word "may" to furnish such particulars in prescribed form and only thereupon the assessee-company had any obligation. The scheme envisaged under section 192(2) was such that first of all the expatriate employees had an option to furnish the details to the assessee-company and furnishing of such details should have been in the prescribed form i.e., Form 12B and it is thereafter that the assessee-company was obliged to deduct the tax. Even in such cases, the deduction cannot be more than the salary paid by the assessee-company. In the present case no such form has been furnished by any of the expatriate employees. In similar circumstances the Tribunal, Bangalore Bench in the case of Blue Star Ltd. India [ITA Nos. 137 to 140 (Bang.) of 2002] has held in favour of the assessee’s contention as found in para 8(v). For the above reasons it was submitted that the order of penalty should be cancelled.

17. The learned Departmental Representative Shri Y. Rajendra vehemently contended that the authorities below were justified in imposing penalty under section 271C. Further he had objection to the contentions of the authorised representative of assessee-company relating to validity of notice limitation and liability to tax, etc. The learned Departmental Representative submitted that the defective notice is not fatal to the proceedings inasmuch as the assessee had participated in the subsequent proceedings. The assessee was never in dark as to the charge against it and reasonable opportunity was also provided. No objection was taken in the initial stages of the proceeding and objection now is only an after thought.

18. On the issue of limitation, he submitted that the law has not placed any time limit for issue of notice. However, the penalty proceedings would be barred by limitation only if the order of penalty is passed after a period of 6 months from the end of the month in which the penalty notice was issued. In this case, the notice was dated 28th Feb., 2000 and the order of penalty was made on 31st Aug., 2000. Consequently the order of penalty is within the limitation. The issue of reasonable time as a yardstick should be applied in rarest of the rare circumstances especially when multinational companies with huge financial resources do not comply with law and the Department has no details or means of knowing the evasion placing restriction not specially provided by the statute would adversely affect the Revenue proceedings. Further, in exceptional cases, even section 148 provides a limitation longer than 4 years and the present case should be construed as an exception.

19. Insofar as the liability to tax in the hands of Nissin, Japan or the assessee-company is concerned, the same is beyond question as the TDS and interest on the payments made in Japan has already been remitted. The payment/remittance of tax and interest establishes the fact that there is no income of the assessee of doubt on the existence of liability in India. The argument of liability at this stage serves no purpose after effecting the payment.

20. The learned Departmental Representative contended that the decision of the Supreme Court in Morgenstern Werner’s case (supra) was rendered on facts typical to the case under consideration and is not applicable to the present circumstances. In reply Sri K.R. Pradeep, the authorised representative of the assessee-company submitted that the defect in the notice is not curable and participation does not render proceeding valid which is in law invalid. Insofar as the objection on limitation is concerned, the decision in Raymond Woollen Mills Ltd.’s case (supra) and Simplex Concrete Piles (India) Ltd.’s case (supra ) clinches the issue in favour of the assessee-company. He further submitted that mere payment of tax cannot lead to a presumption that there was a liability under the the Act. In fact, the law itself does not preclude from claiming refund of taxes paid in excess of liability. The refund can also be claimed even if the TDS has been paid in excess by mistake. Section 246 of the Act provides right of appeal for any liability of TDS. Further section 248 provides specific appeal even without an order merely on payment of TDS. Hence, the law does not support a presumption that mere payment of tax would necessarily imply existence of a liability.

21. We have considered the arguments advanced by both the sides and perused the records and the citations relied on by both of them. It is an admitted fact that the notices in the case are not addressed to the assessee-company. The word "limited" in the notice is conspicuously absent. Further, the notices are also not addressed to the principal officer as required under section 282(2)(b) of the IT Act. In similar circumstance, various Courts and Tribunals mentioned in the argument of the assessee-company have held that the notice cannot be cured under section 292B and consequently have held it to be invalid. The Hon’ble Karnataka (sic-Kerala) High Court considered the issue relating to issuance of notice under section 282(2)(c) on the appropriate person and came to the conclusion that "We are of the view that it is a case where ‘no notice’ was sent to the assessee, the ‘AOP’ as enjoined by law. The entire proceedings are, in the circumstances, void and illegal and totally without jurisdiction. Such a fundamental infirmity cannot be called a ‘technical objection’ or a mere ‘irregularity’ and such vital infirmity cannot be cured or obliterated by relying on section 292B of the IT Act". Accordingly, we hold the notices to be invalid. On this ground itself the assessee-company is entitled to succeed. However, since arguments were advanced at length on all issues, we feel that our findings are required on all aspects of the case.

22. We are not impressed with the stand taken by the assessee in relation to the matter of limitation, while initiating penalty proceedings. It is true that there was a delay in initiating the proceedings. However, it has to be seen as to what are the reasons for such delay. It is an admitted position that only after the Japanese company deposited the TDS amount for the salaries paid in Japan to the expatriate employees, the Revenue has become aware of the payments of salary at Japan by the Japanese company. From these facts, it is clear that the Revenue was prevented from gaining knowledge about the so-called salary paid in Japan. Therefore, in view of the factual position, we feel that the delay in initiating proceedings cannot be treated as an inordinate delay. This ground raised by the assessee fails.

23. In this issue relating to the liability for tax on the payment of remuneration by Nissin in Japan to its employees towards retention/continuation pay it has to be examined from the point of view of section 9(1)(ii). The amendment by insertion of sub-section (b) by the Finance Act, 1999 has been brought into statute from 1st April, 2000. Further, a perusal of the note relating to clause 5 in Notes on Clauses of Finance Bill, 1999 extracted herein :

"Clause 5 seeks to amend section 9 relating to income deemed to accrue or arise in India. Under the existing provisions contained in clause (ii) of sub-section (1), the income, which falls under the head ‘salaries’ if it is earned in India, is deemed to accrue or arise in India. The Explanation in this clause clarifies that salary payable for services rendered in India shall be regarded as income earned in India. It is proposed to amend the Explanation to clarify that any income under the head ‘salaries’ payable for rest periods or leave periods which is preceded and succeeded by services rendered in India and forms part of the service contract of employment shall be regarded as income earned in India. This amendment will take effect from 1st April, 2000 and will accordingly, apply in relation to the assessment year 2000-2001 and subsequent years."

And relevant portion of the memorandum explaining the provisions in the Finance Bill, 1999 extracted herein :

"Modification in respect of provisions regarding non-residents section 9 of the IT Act details the income which is deemed to accrue or arise in India. Under the existing provisions, it is stated that income which falls under the head ‘salaries’, if it is earned in India will be deemed to accrue or arise in India. It is proposed to expand the existing explanation which states that salary paid for services rendered in India shall be regarded as income earned in India, so as to physically provide that any salary payable for rest period or leave period which is both preceded and succeeded by service in India, will also be regarded as salary earned in India.

The proposed amendment will take effect from 1st April, 2000 and will accordingly, apply in relation to assessment year 2000-2001 and subsequent years."

Clarify that the amended provision was effective from assessment year 2001-2002. Further, the memorandum explains that the amendment intends to expand the existing explanation. From this, it is clear that prior to amendment, remuneration paid preceding and succeeding the service in India was not regarded as salary earned in India. This amendment though not addressed the issue of retention/continuation pay, it clearly brings about a principle that all remuneration earned from a source of employment in India would be taxable in India. Such a comprehensive definition was not available prior to the amendment. Inversely if the source of salary was not the employment in India or services in India, then in the case of non-resident and not ordinarily residents, it cannot be taxed in India. Only in the case of residents that the world wide income is liable to tax in India. In this case, retention pay is linked to the employment in Japan and not in India. Further, the pay is on account of the lien of employment in Japan and not for services rendered in India. Accordingly, we are of the opinion that such payment cannot be brought to tax in India at least prior to the amendment made by the Finance Act, 1999. We refrain from expressing any opinion on the applicability of amended provisions from assessment year 2000-2001 as such an issue is not before us. Further, the decision of the Supreme Court in Morgenstern Werner’s case (supra) also clinches the issue in favour of the proposition that there was no liability to pay tax in India under the circumstances in this case. Consequently Circular No. 685, being contrary to the law explained by the Supreme Court, does not help the Department. Further, mere payment of tax cannot lead to any conclusion or presumption about the existence of liability under the Act. Tax liability under the Act should be with reference to the explicit provisions and should be arrived at on the basis of charge and computation provisions. There is no scope for presumption or surmise in this regard. Argument of the Department that voluntary deposit of advance tax, TDS or 140A, would necessarily mean existence of liability cannot be upheld as it would lead to disastrous consequences as conversely in every case of non-deposit of tax the assessee may argue that there is no liability. Deposit of tax cannot be a conclusion on lability. Hence, we hold that there was no liability for tax in India on the remuneration paid in Japan by Nissin.

24. On the issue of not passing order under section 201(1) before initiation of proceedings under section 271C, we are inclined to agree with the assessee’s contention and rely on the decision of the Tribunal Delhi ‘C’ Bench in Marubeni Corpn. (Liaison Office) v. Joint CIT [2002] 83 ITD 577 (Del.) and the decision of Tribunal Bangalore Bench in ITA Nos. 137 to 140/Bang./2002, on this ground also, the order of penalty stands vacated.

25. The issue relating to existence of reasonable cause, we hold in favour of the assessee by relying on the decision of the Delhi High Court in Azadi Bachao Andolan’s case (supra), Tribunal Delhi Bench in Marubeni Corpn.’s case (supra) and Tribunal Bangalore Bench in ITA Nos. 833 & 834/Bang./2001. We find that the taxes were paid voluntarily before any detection by the Department. Even the so-called notice under section 133(6) is only for a period of two years, i.e., financial years 1996-97 and 1997-98 and does not cover all the years. Issue of such notice clearly establishes that the Department had no prior knowledge of the payment of remuneration in Japan. The voluntary payment of tax and interest, albeit with delay, cannot be construed as an act of mala fide or a proof of conduct contumacious or dishonest in nature. We are inclined to hold that there was a bona fide belief in this case by M/s. Nissin similar to other Japanese companies in whose cases the penalty had been dropped by the Department as found in the decision of the Delhi High Court in Azadi Bachao Andolan’s case (supra). On this ground also, the penalty has to go.

26. Insofar as the applicability of section 192(2) to the assessee in this case, we find the issue is covered by the decision of the Tribunal Bangalore in the case of Blue Star Ltd. [IT Appeal Nos. 137 to 140 (Bang. of 2002)]. Accordingly, we cancel the penalty on the grounds of defective notice, liability to tax, existence of reasonable cause as well as non-applicability of section 192(2) of the Act. Hence, the order of the penalty stands cancelled.

27. In the result, all the appeals are allowed.