TMI Blog2006 (11) TMI 240X X X X Extracts X X X X X X X X Extracts X X X X ..... the GS-12 Register under the Gold (Control) Act which was completed up to 26-4-1988. It was further found that the stock of the new gold ornaments excluding that of stones, etc., was 875.500 gms. as against the stock of new gold ornaments in the jewellery shown by the assessee weighed 920.00 grams gross. The assessee also gave the explanation in respect of the difference. It was further found by the search party that there was discrepancy of the stock of old gold ornaments which record was kept in GS-11 register of jewellery. 3.2 The search party found that the total gold which consisted of gold ornaments and melted gold was having the total weight of 1494.350 grams. The value of the said gold was estimated at Rs. 4,57,270. The said gold was the result of the search of four small cardboard boxes and one red paper packet which were found on the top of the plywood partition which was one side of the small room where the steel safe of the jewellery of the assessee was placed. The assessee gave negative reply to the query of the search party whether in his jewellery any unaccounted gold ornaments had been secreted for business transactions. The search party also recorded the statemen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proved that Smt. V.P. Vijayalakshmi gave her ornaments to the assessee. The Collector of Central Excise ordered confiscation of gold and gold ornaments totalling 1494.35 grams under section 71 of the Gold (Control) Act, 1968. However, in respect of the gold ornaments weighing 1379.5 grams, he gave an option to the assessee to redeem the gold ornaments on payment of fine of Rs. 1,50,000. The ld. Collector of Central Excise also imposed a penalty of Rs. 75,000 under section 74 of the Gold (Control) Act, 1968 and also a penalty of Rs. 5,000 on Smt. V.P. Vijayalakshmi. 4. The assessee carried the-matter in appeal before the Customs, Excise and Gold Control Appellate Tribunal at Madras being Appeal No. G/139/89/MAS. In respect of the redemption fine, the same was confirmed in its entirety. In respect of the penalty imposed on the assessee at Rs. 75,000 the same was reduced to Rs. 45,000. 5. While completing the assessment of the assessee, the assessee claimed deduction of amount of redemption fine of Rs. 1,50,000 and also the penalty of Rs. 45,000 and Rs. 10,000 in respect of the expenses incurred by the assessee towards the advocate fees for representing him before the Central Exc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urt was of the view that the Assessing Officer has to consider this matter in the light of the principles laid down in the cases of Swadeshi Cotton Mills Co. Ltd. v. CIT [1998] 233 ITR 199 (SC) and also CIT v. Catholic Syrian Bank Ltd. [1997] 92 Taxman 580 (Ker.) and also the principles laid down by the Hon'ble Supreme Court in the case of CIT v. Jagannath Kissonlal [1961] 41 ITR 360. After exhaustively examining the provisions of the Central Excise Act and the Central Excise Rules, the Hon'ble High Court restored the matter to the Assessing Officer for considering the same afresh. 8. As per the directions of the Hon'ble High Court, the Assessing Officer again framed the assessment vide order dated 24-2-2005. The Assessing Officer was of the opinion that the redemption fine of Rs. 1,50,000 paid to the Central Excise authorities is not in the nature of compensation but in the nature of penalty for contravention of law committed by the assessee for keeping the primary gold and gold ornaments in his licensed premises without forming part of the stock-in-trade in violation of the provisions of the Gold (Control) Act. He, therefore, disallowed the claim in respect of the fine paid by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fore us. 10. We have heard the learned Chartered Accountant Shri R. Krishna Iyer for the assessee and the ld. Sr. Departmental Representative Shri V. Sreekumar for the revenue. We have also carefully considered the precedents relied on by both the parties as well as the facts which are available before us as per record. We have also carefully considered the observations and directions of the Hon'ble High Court. Both the parties have filed their written submissions which are also taken into consideration. The ld. CA has put his main emphasis on the following precedents: (i) N.M. Parthasarathy's case; (ii) Swadeshi Cotton Mills Co. Ltd.'s case; (iii) Rane Brake Linings Ltd.'s case. 11. Per contra, the ld. Sr. DR relied on the order of the CIT(A) and has also filed written submissions. 12. In this case, the assessee is carrying on the business of jewellery. The search was conducted in the business premises of the assessee on 28-4-1988 by the Central Excise authorities who are also the authorities under the Gold (Control) Act, 1968. During the course of search, gold ornaments as well as primary gold weighing totalling 1494.350 grams were seized. The Collector of Central Exc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of penal interest paid to the Reserve Bank of India for non-maintenance of the cash reserve. After examining the provisions of the Reserve Bank of India Act, 1934 and after considering the principles laid down by the Hon'ble Supreme Court in the cases of Prakash Cotton Mills (P.) Ltd., Mahalakshmi Sugar Mills Co. v. CIT [1980] 123 ITR 429 and Hyderabad Allwyn Metal Works Ltd., it was held that payment of the penal nature provided for the first default has to be treated as compensatory even though it is for the non-compliance of the provisions of section 42(1) of the Reserve Bank of India Act or non-compliance of the provisions of section 24(1) of the Banking Regulation Act and such payment cannot be treated as penalty for infraction of law. However, if the payment is by way of penal interest for the second default under the provisions of the aforesaid two enactments, in view of the fact that consequences by way of punishing the director, secretary, etc., are provided, the payment of penal interest for the second default will have to be treated as a penalty for infraction of law. 16.1 In the case of N.M. Parthasarathy, one of the issues before the Madras High Court was whether ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the kind before the court is not sustainable because anything done which is an infraction of law and is visited with a penalty cannot on grounds of public policy be said to be a commercial expense for the purpose of a business or a disbursement made for the purpose of earning the profits of such business. 16.3 The Hon'ble High Court was of the view that the Apex Court has taken a very rigid view on the subject but new dimension and complexion had been given to such a moot and vexed question by the Apex Court in the case of Prakash Cotton Mills (P.) Ltd. wherein Their Lordships laid down the rule that whenever any statutory impost is paid by an assessee by way of damages or penalty or interest is claimed as an allowable expenditure under section 37(1) of the Income-tax Act, the Assessing Authority is required to examine the scheme of the provisions of the relevant statute providing for payment of such impost notwithstanding the nomenclature of the impost as given by the statute to find whether it is compensatory or penal in nature. The Hon'ble High Court also referred to the decision of the Hon'ble Supreme Court in the case of CIT v. Ahmedabad Cotton Mfg. Co. Ltd. [1994] 205 IT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any package, covering or receptacle in which such gold is found, shall be liable to confiscation: Provided that where it is established to the satisfaction of the officer adjudicating the confiscation that such gold or other thing belongs to a person other than the person who has, by any act or omission, rendered it liable to confiscation, and such act or omission was without the knowledge or connivance of the person to whom it belongs, it shall not be ordered to be confiscated but such other action, as is authorised by this Act, may be taken against the person who has, by such act or omission, rendered it liable to confiscation. (2) to (4) ** " 18. Section 73 provides for giving option to pay the fine in lieu of the confiscation which reads as under:- "73. Power to give option to pay fine in lieu of confiscation.- Whenever any confiscation is authorized by this Act, the officer adjudicating it may, subject to such conditions as may be specified in the order adjudging it may, subject to such conditions as may be specified in the order adjudging the confiscation, give to the owner thereof an option to pay in lieu of confiscation such fine, not exceeding the value of the thi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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