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2022 (6) TMI 122 - AT - Income TaxAllowability of fine and penalty as per section 37 - whether the Assessee as per Explanation 1 to section 37(1) of the Act, is entitled to claim expenditure incurred in respect of fine and penalty as imposed u/s 125(1) and 112(a) of the Customs Act 1962 respectively? - HELD THAT:- The goods i.e. ‘used digital multifunction printer and copying machines’ were imported by the Assessee without getting license from the DGFT and therefore, the same were confiscated by the Custom Authorities{we are referring only one order in original passed by the Ld. Joint Commissioner of Custom, Group-V, Nhava, Sheva-I, Maharashtra u/s 111(d) of the Custom Act, 1962} and consequently, determined the value of the goods imported at Rs. 13,48,479/- and gave an option to the Assessee to redeem the goods on payment of fine of Rs. 2,15,000/- u/s 125(1) of the Custom Act, 1962 on the condition that option to redeem the goods shall be exercised within 15 days on receipt of the order and on payment of appropriate duty as other dues as applicable. Section 125 of the Custom Act, 1962 prescribes the imposition of fine and option to pay fine in lieu of confiscation - The provisions speaks clearly that whenever confiscation of the goods is authorized by the Customs Act, the Custom Authority/Officer Adjudgingis empowered to give an option to the owner of the goods [or, where such owner is not known, the person from whose possession or custody such goods have been seized] to pay in lieu of confiscation ‘such fine’ as the said officer thinks fit. From the order passed by the Custom Authority it is clear that the said authority while exercising powers entrusted u/s 125 of the Act, imposed the ‘FINE’ under challenge to redeem the goods and therefore, the said fine amounts to compensatory in nature and is an allowable expenditure u/s 37(1) of the Act, as also held by the Hon’ble Delhi High Court in the case of Usha Micro Process Control Ltd (supra) and Hon’ble Madras high Court in the case of CIT Vs. Parthasmarathy (supra) in the identical facts. Consequently the ‘FINE’paid by the Assessee is allowed as expenditure u/s 37(1) of the Act and resultantly the addition made and sustained on account of fine paid by the Assessee to the Custom Authorities, stands deleted. Penalty imposed by the Ld. JCIT (Customs)and paid by the Assessee, can be claimed as admissible expenditure under section 37(1) - In the instant case, the imposition for penalty u/s 112(a) of the Custom Act is prescribed in order to avoid doing or omit to do and abetting the doing or omission of such an act which causes violation of prohibited acts under the Custom Act and therefore in our considered opinion, imposition of ‘Penality’ is penal in nature and the payment made for discharge of punishment for violation of prohibited acts and/or restriction(s) imposed under the provisions of law, cannot be considered as compensatory in nature. Hence on the the facts and circumstances of this case, conclusions drawn by the authorities below and analyzations made above,, the amount paid as ‘penalty’is an inadmissible expenditure and not allowable under the provisions of section 37(1) of the Act. Consequently the addition made and affirmed on account of ‘Penalty’is sustained. - Decided partly in favour of assessee.
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