TMI Blog1998 (6) TMI 116X X X X Extracts X X X X X X X X Extracts X X X X ..... on. The A.O. failed to examine the aforesaid claim of the assessee. These findings given by the CIT have been challenged in ground Nos. 4 to 7. 2.3. In ground Nos. 8 and 9, the assessee has submitted that the CIT has erred in arriving at the conclusion that the order passed by the D CIT, Special Range-3 is without application of mind and further finding that the claim of deduction of expenses have not been examined at all in respect of :--- (i) Sundry debtors of Rs. 9,99,786 written off as bad debts have been allowed without any verification. No details are available on record. (ii) Excess provision of income of Rs. 3,94,113 of earlier years written off and charged to profit and loss account has been allowed without verifying whether these incomes were fully brought to tax. (iii) A sum of Rs. 17,752 paid by way of employees contribution to provident fund was as per auditors report in Form 3CD was to be paid on or before 15-4-1994 but was paid on 16-4-1994 and should have, therefore, been disallowed under section 43B. (iv) Redemption fine of Rs. 10 lakhs and penalty of Rs. 1 lakh imposed by Customs authority in import of stainless steel being contested by the company at va ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 82 respectively. 4.1. The assessee has challenged the aforesaid orders by way of writ petitions before the Hon'ble High Court of,Delhiin W.P. Nos. 4037 and 4038 of 1982. The Full Bench of Hon'ble Delhi High Court by a majority decision dismissed the writ petitions and permitted the assessee (importers) to approach the Central Excise Gold Control Tribunal (Tribunal by way of appeals insofar as the order in regard to the redemption fine was concerned. The judgment of the Hon'ble High Court in [1987] 29 ELT 753. 4.2. Against the said judgment of the Hon'ble High Court, the importers approached the Hon'ble SC by way of a Special Leave. The Hon'ble SC by a common judgment on5th May, 1988in Civil Appeal Nos. 2705 and 5383 of 1985 disposed of the aforesaid petitions, which is reported as Jain Exports (P.) Ltd v.UnionofIndia[1988] 3 SCR 953/41 Taxman 117. 4.3. The assessee importer had preferred two appeals before the Tribunal being Appeal Nos. 863 and 864 of 1985. The appeals relating to the question of quantum of redemption fine was heard by a Two-Member Bench of the Tribunal. The technical member by his order dated4-4-1986took the view that the appeals deserved to be dismissed b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to be operative. The aforesaid review petition was finally decided by the Hon'ble SC on14-7-1993. 4.6. The Hon'ble Supreme Court in the aforesaid judgment dated14-7-1993dismissed both the appeals as well as writ petitions filed by the assessee importer. The Hon'ble Apex court observed that the importers despite the opportunity given to them to place on record the material as is relevant to the question of bona fide such as details regarding transactions for appreciating why the sales was effected on high seas and the profit if any derived from sale, etc., did not furnish the required information before the Tribunal or before the High Court. The Hon'ble SC at page 16 of the said judgment observed as under: "It is thus obvious that the failure to produce such vital and material evidence impinges on the claim that the importers had acted in good faith. This single fact in our view is sufficient to non-suit the importers." The Hon'ble SC in the concluding para of the said judgment dated14-7-1993at pages, 20 and 21 observed as under: 'For the foregoing reasons we are satisfied that the importers' contention that the redemption fine should be wholly waived or substantially redu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e submitted letters dated20-2-1997and10-3-1997before the ld. CIT in response to his notice under section 263. The entire relevant facts, details and documents were furnished before him. The assessee also brought to the notice of the ld. CIT a judgment of the Hon'ble Madras High Court in the case of CIT v. NM. Parthasarathy [1995] 212 ITR 105. That case also relate to allowability of redemption fine paid under section 125 of the Customs Act. It has been held by the Hon'ble Madras High Court that such a payment was compensatory in nature and is deductible under section 37 of the Act. Reliance was also placed on various other judgments in the written submissions submitted before the CIT. The ld. counsel also invited our attention towards letter dated 17-3-1997 submitted to the CIT in which detailed explanations were submitted before him to prove the non-applicability of the case of CIT v. Piara Singh [1980] 124 ITR 40/3 Taxman 67 (SC). The attention of the ld. CIT was also specifically invited towards the judgment in N.M. Parthasarathy's case, judgment of Hon'ble SC in the case of CIT v. Ahmedabad Cotton Mfg. Co. Ltd. [1994] 205 ITR 163/[1993] 71 Taxman 56. The ld. counsel also placed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e interest of the revenue. 4. 10 The ld. counsel submitted that the assumption of jurisdiction by the CIT under section 263 is entirely invalid in view of the judgments in Venkatakrishna Rice Co. v. CIT[1987] 163 ITR 129/30 Taxman 528 (Mad.), Malabar Industrial Co. Ltd v. CIT[1992] 198 ITR 611 (Ker.) and CIT v. O.P. Seth [1993] 201 ITR 635/68 Taxman 14 (Delhi).The ld. counsel also placed reliance on the judgment of Hon'ble SC in CIT v. S.C.Kothari [1971] 82 ITR 794 and judgment of Hon'ble Bombay High Court in CIT v. Gabriel India Ltd. [1993] 203 ITR 108 to support his contention that the order passed by the CIT under section 263 in relation to the aforesaid point is patently wrong. 5. As regards various other issues, the ld. counsel submitted that the CIT has directed the A.O. to re-examine all those points after providing reasonable opportunity to the assessee. The assessee had submitted elaborate facts and submissions before the CIT in the various letters submitted before him. For instances, he submitted that as regards the mistake pointed out in relation to redemption fine of Rs. 10 lakhs and penalty of Rs. 1 lakh imposed by the Customs authority in import of stainless steel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed our attention towards the provisions of section 183 of the Sea Customs Act. A photo-copy of pages 349 and 350 of some commentary was also submitted in which it has been observed that section 183 of Sea Customs Act of 1878 is similar to the provisions of section 125 of the Customs Act, 1962. These provisions show that the only penalty which, in law, the Officer can impose is one of confiscation. Having done that he gives an option to the owners to pay a fine in lieu of confiscation. The redemption fine cannot therefore be treated as a penalty for infraction of the provisions of law but it is a payment of a compensatory nature. 6.1 The ld.counsel further submitted that the Hon'ble SC in the judgment in Ahmedabad Cotton Mfg. Co. Ltd.'s case has approved the judgment of Hon'ble Gujarat High Court in Addl. CIT v. Rustam Jehangir Vakil Mills Ltd [1976] 103 ITR 298 and CIT v. Tarun Commercial Mills Co. Ltd. [1977] 107 ITR 172. He particularly invited our attention towards the Hon'ble Gujarat High Court judgment in Rustam Jehangir Vakil Mills Ltd s case at page 309 wherein it has been observed that where the claim is that the law itself gives an option to the producer concern to adopt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... velling expenses as per rule 6D, etc. This clearly shows that the order was passed without application of mind by the A.O. The audited statement contained a specific note relating to the said sum of Rs. 5 crores representing redemption fine which was included in the purchases debited in the P L Account. In spite of such a specific note, the A.O. did not make any enquiries in relation to the allowability of such a deduction. He submitted that an order made without conducting necessary enquiries and investigations is an order which can be regarded as erroneous and prejudicial to the interest of the revenue. He placed reliance on judgment in Gee Vee Enterprises v. Addl CIT [1975] 99 ITR 375 (Delhi), Malabar Industrial Co. Ltd.'s case, CIT v. Emery Stone Mfg. Co. [1995] 213 ITR 843 / 83 Taxman 643 (Raj.) and CIT v. M.M. Khambhatwala [1992] 198 ITR 144 (Guj.). The ld. DR submitted that the CIT was right in assuming jurisdiction under section 263 on the facts of the present case. 8. On merits relating to the assessee's claim for deduction of redemption fine of Rs. 5 crores, the ld. DR submitted that the amount in question was paid in the year 1982-83. A fine or penalty paid for violati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not a bona fide act and therefore the guilty intention on the part of the assessee stands established as a result of the final verdict given by the Hon'ble SC. The redemption fine paid by the assessee for violation of the relevant provisions of the Customs Act, 1962 is therefore clearly in the nature of penalty which has been confirmed by the Hon'ble SC on account of non- bona fide conduct of the assessee. 8.2 The ld. DR submitted that the facts of the judgment of Hon'ble Madras High Court N.M. Parthasarathy's case are clearly distinguishable. In that case, the redemption fine levied by the adjudicating authorities was substantially waived by the higher authorities in view of the bona fide action on the part of the importer. In the present case, the Hon'ble SC has given a firm finding that the import of the goods in question by the assessee under OGL was not a bona fide Act. This vital distinguishing feature clearly shows that the judgment of Hon'ble Madras High Court cannot be applied to the facts of the present case. 8.3 The ld. DR further contended that the judgment of the Hon'ble SC in the case of Ahmedabad Cotton Mfg. Co. Ltd is also not applicable to the facts of the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rnment's due for which any compensation was required to be paid by him. It is a case where the goods illegally imported by the assessee were confiscated under the provisions of the Customs Act and an option was given under section 125 of the Act for payment of redemption fine in lieu of such confiscation. It is therefore clearly a payment in the nature of penalty for violation of the provisions of the Customs Act, 1962. 9. The ld. DR placed reliance on the Hon'ble High Court of Bombay's judgment in the case of T. Khemchand, Tejoomal v. CIT [1986] 161 ITR 492/27 Taxman 72 in which the penalty paid to the Customs Authorities in respect of goods imported by the assessee was disallowed. 10. The ld. DR also placed reliance on the judgment of the Hon'ble SC in the case of Piara Singh. He submitted that the Hon'ble SC relied upon the judgment of the Hon'ble Apex Court in the case of Haji Aziz Abdul Shakoor Bros v. CIT [1961] 41 ITR 350. The judgment in the case of Haji Aziz clearly supports the view taken by the CIT in the impugned order. 11. The ld. DR submitted that the assessee has raised an alternative plea before the CIT which has been discussed at page 7 of the order passed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the issue against the assessee on5-12-1986. The Hon'ble SC set aside the order of the Tribunal vide judgment dated23-1-1990. It was only after a review petition was filed by the Excise department that the SC finally passed an order on14-7-1993against the assessee. The assessee was under a bona fide belief that the import of the goods under OGL was rightly made. Such a bona fide belief of the assessee is further fortified by the different view taken by the Members of the Excise Tribunal and the two separate and contrary judgments given by the Hon'ble SC, as referred to above. 15.1 The ld. counsel further submitted that there are only two direct judgments in relation to allowability of redemption fine paid under section 125 of the Customs Act. The Hon'ble Madras High Court has held that it is compensatory in nature and is allowable as a deduction as for judgment in NM. Parthasarathy's case. The Hon'ble Bombay High Court has taken a contrary view in the case of Rohit Pulp Paper Mills Ltd. Even if two views are possible, the CIT could not finally conclude that the order of the A.O. allowing such deduction of Rs. 5 crores was erroneous and prejudicial to the interest of the revenue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nfiscation of goods is imposed under sub-section (1), the owner of such goods or the person referred to in sub-section (1) shall, in addition, be liable to any duty and charges payable in respect of such goods." The Hon'ble Madras High Court in the case of N.M. Parthasarathy has held as under : "In view of the decisions in the cases of Prakash Cotton Mills (P.) Ltd v. CIT [1993] 201 ITR 684 (SC) and CIT v. Ahmedabad Cotton Mfg. Co. Ltd [1994] 205 ITR 163 (SC), the rule laid down in the case of Haji Aziz and Abdul Shakoor Bros. v. CIT [1961] 41 ITR 350 (SC) cannot be stated to have laid down an inflexible rule of law to be followed in all eventualities and situations with regard to deductibility of fines and penalties. In the case of CIT v. Ahmedabad Cotton Mfg. Co. Ltd [1993] 205 ITR 163. The Supreme Court held that what needs to be done by an assessing authority under the Income-tax Act, 1961, in examining the claim of the assessee that the payment made by such assessee was a deductible expenditure under section 37 although called a penalty is to see whether the law or scheme under which the amount was paid required such payment to be made, as penalty or as something akin to p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to find whether it is compensatory or penal in nature. Similar view was expressed by the Hon'ble SC in the case of Standard Batteries v. CIT[1995] 211 ITR 444/75 Taxman 333. 18.1 The judgment of Hon'ble SC in the case of Ahmedabad Cotton Mfg. Co. Ltd. relied upon by the ld. counsel for the assessee related to deduction of payment made by the assessee to the Textiles Commissioner in exercise of its option available under the terms of the Bond and in accordance with the directions issued under the Cotton Textiles (Control) Order, 1948. The nature of payment in that case cannot automatically be considered as similar to that of redemption fine paid by the assessee under the provisions of Customs Act. 18.2 We therefore have to examine the nature and scope of the redemption fine paid in accordance with section 125 of the Customs Act, 1962. Section 125 of the Customs Act empower the Adjudicating Officer to give, to the owner of the goods an option to pay in lieu of confiscation such fine "as the said officer thinks fit. The expression used in the said section is not as the said officer likes'. It is therefore clear from the aforesaid provisions that the amount of fine to be levied in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... words "without reasonable cause" in the said section and even if there is "reasonable cause", the loss or deprivation will still be there. Interest by way of compensation would be payable irrespective of any cause, because, whatever be the cause, in such cases, the assessee retains the amount which he ought to have paid to the State and, thus, the State is deprived of the use of that money. Therefore, making payment depending upon reasonable cause and giving power to the Commissioner to remit whole or any part of penalty are clearly indicative of the true nature of payment contemplated by that section. Considering the scheme of the provisions, it becomes clear that payment intended under that subsection is really by way of penalty and not by way of interest of compensatory nature. The deduction claimed by the assessee was denied as being a payment made for infraction of law and was not allowed. 18.4 The redemption fine levied under section 125 in lieu of confiscation of goods illegally imported by the assessee is also punitive or penal in nature. It cannot be treated as compensatory in nature on account of the fact that the State does not recover the said amount by way of any co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... penal in nature. With our utmost respects for the Hon'ble Madras High Court, we prefer to follow the view taken by the Hon'ble Bombay High Court in the case of Rohit Pulp Paper Mills Ltd. 18.7 The reason for our preferring to follow the judgment of Hon'ble Bombay High Court is that the said judgment is in conformity with the view taken by the Hon'ble SC in the case of Haji Aziz Abdul Shakoor Bros. The facts of the said judgment delivered by the Hon'ble SC are briefly as under. The appellant-firm in that case was doing the business of importing dates from abroad and selling them inIndia. During the accounting year relevant to A.Y. 1949-50, the appellant imported dates fromIraq. At the relevant time, the import of dates by steamers was prohibited by two notifications dated12-12-46and4-6-47, but they were permitted to be brought by Country Craft. Goods which have been ordered by the appellant were received partly by steamer and partly by Country Craft. Consignments which were imported by steamer and were valued at Rs. 5 lakhs were confiscated by the Customs authorities under section 167, item 8 of the Sea Customs Act, but under section 183 of Sea Customs Act, the appellant was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... High Court. 20. It may be imperative to make a useful reference to the recent judgment of the Hon'ble SC in the case of Maddi Venkataraman Co. (P.) Ltd. v. CIT[1998] 96 Taxman 643 wherein the ratio or the earlier judgment of the Hon'ble SC in the case of Haji Aziz Abdul Shakoor Bros. has once again been applied by the Hon'ble SC. It may be worthwhile to reproduce the para 4 of the said judgements :--- The High Court referred to a large number of decisions where it has been held that payments tainted with illegality cannot be claimed as deduction under the IT Act. Moreover if an assessee is penalised under one Act, he cannot claim that amount to be set off against his income under another Act because that will be frustrating the entire object of imposition of penalty. One exception to this Rule which has been recognised by the Courts is where the entire business of the assessee is illegal and that income is sought to be taxed by the ITO then the expenditure incurred in the illegal activities will also have to be allowed as deduction. But if the business is otherwise lawful and the assessee resorts to unlawful means to augment his profits or reduce his loss, then the expendi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wed the said sum of Rs. 5 crores being the amount of redemption fine claimed as deduction by the assessee. The view taken by the CIT is confirmed. 22. Since we have confirmed the disallowance of the said redemption fine of Rs. 5 crores, as held by the CIT, we do not consider it necessary to go into the question of applicability of section 43B of IT Act, 1961 and also the powers of the Tribunal to sustain the findings given by the CIT on a ground different than on which the CIT had taken such a view. 23. It is apparent from the facts and discussions made in relation to disallowance of Rs. 5 crores that the order passed by the Assessing Officer, without making any enquiry in relation to the aforesaid point was clearly an order which was erroneous and prejudicial to the interest of the revenue. As regards the other items mentioned in para 2.3 of the order which have been restored by the CIT for fresh consideration by the A.O., the ld. counsel did not seriously contest those points. We are therefore of the view that the assessment order passed by the Assessing Officer without making proper enquiries was an order which was erroneous and prejudicial to the interest of the revenue. ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
