TMI Blog2003 (2) TMI 165X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 1,30,000 along with personal penalty of Rs. 13,000 to the Asstt. Collector of Customs, Group I, New Customs House,Bombay, in respect of dry dates it had imported fromPakistan. 3. The Addl. Collector of Customs vide his order dt. 23rd Jan., 1992, imposed a total redemption fine of Rs. 1,30,000 in respect of three Bills of Entry, i.e., No. 6938, dt.25th Nov., 1991, 1118, dt.4th Dec., 1991, and 6689, dt.25th Nov., 1991. Apart from this, the Addl. Collector of Customs imposed a personal penalty of Rs. 13,000 on the firm in respect of these Bills of Entry. 4. It is the case of the Revenue that the firm had imported dry dates fromPakistanthrough the three Bills of Entry, as mentioned above. In each of the invoice of the sender of the goods is M/s Sind Punjab Traders. The weight of the dry dates imported has been mentioned as 125 MT in each of the consignment of the three Bills of Entry and the number of bags mentioned for each of the consignment was 1,984 bags. The weight of each of the bag with the contents of the goods was 63 kg. and the gross weight was 65 kg. However, according to the customs authority, against the declared net weight of 375 MT of the entire consignment of g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .4th Dec., 1991, and, 6689 dt.25th Nov., 1991. The clearance of the goods was sought by the firm under OGL (i.e., Open General Licence). It was observed by the customs authority in its order that the dry and wet dates were shifted from OGL w.e.f.5th Sept., 1991. The firm had imported the dry dates covered under the Bills of Entry mentioned in the customs order under the LC dt.3rd Sept., 1991, which was opened through Oriental Bank of Commerce,Amritsar. The Customs Department picked up these Bills of Entry on the assumption that the LC against which the import was made might have been manipulated by the firm so as to make the import eligible under OGL. However, it was noticed by the Customs Department in its order that the LC for the import of goods was in fact opened on3rd Sept., 1991, for an amount of Rs. 30 lacs by the firm. In view of the explanation given by the firm about the opening of LC, the doubt which was lurking in the mind of the customs authority about the import being made as OGL stood clarified. The learned CIT(A), therefore, analysed the entire order of the Addl. Collector of Customs and was of the opinion that the firm was imposed the redemption fine on the followi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o be made as penalty or as some thing akin to the penalty which is imposed by way of punishment for breach in infraction of law or the statutory scheme. If the amount so paid is found to be not a penalty or something akin to the penalty due to the fact that the amount paid by the assessee was in exercise of the option conferred upon him under the very law or scheme, then one has to refer such a payment as business expenditure of the assessee and consequently allowable under s. 37 of the IT Act as an incidence of business laid out and expended wholly and exclusively for the purposes of business. 9. The CIT(A) relying on the above referred judgement and quoting from Madras High Court in (1995) 212 ITR 105 (Mad), came to the conclusion that the disallowance of Rs. 1,43,000, consisting of Rs. 1,30,000 and Rs. 13,000 paid to the customs authority is an allowable expenditure while computing the income of the firm and consequently, deleted the addition made on this account. 10. The learned Departmental Representative argued that an Explanation has retrospectively been inserted w.e.f.1st April, 1962, after s. 37(1). This Explanation was added by the Finance (No. 2) Act, 1998. The Expla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l to the facts of the case of Jain Exports (P) Ltd., therefore, the disallowance of the expenses claimed by the firm at Rs. 1,43,000 should be sustained. The order of AO, therefore, should be restored. 12. The learned counsel for the assessee in reply pleaded that though there is a retrospective amendment made by insertion of Explanation to s. 37, prohibiting the claim of expenditure, which is in the nature of an offence or which is prohibited by the Act, yet, the payment of redemption fine by the firm cannot fall into the category either of an offence or an act prohibited by the law. The learned counsel referred to cl. 17 of the Finance Bill which introduced the Explanation after sub-s. (1) of s. 37. This cl. 17 of the Finance Bill was explained in memo explaining provision in Finance (No. 2) Bill 1998 and it is printed at (1998) 148 CTR (St) 5 : (1998) 231 ITR (St) 84. The memo explaining the disallowance of illegal expenses is reproduced as under: "Disallowance of illegal expenses It is proposed to insert an Explanation after sub-s. (1) of s. 37 to clarify that no allowance shall be made in respect of expenditure incurred by an assessee for any purpose which is an offence or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to create the impression that they were innocent victims of the subsequent interpretation put on the relevant entry, ignoring the fact that the licences were revalidated on certain terms and conditions which did not permit except through the STC. We are, therefore, satisfied that the import under OGL was not a bona fide Act. We, therefore, dismiss both the appeals as well as the writ petition with costs. Hearing cost quantified at Rs. 10,000." The learned counsel referred to the decision of Madras High Court in the case of CIT vs. Chemical Construction (2000) 162 CTR (Mad) 15 : (2000) 243 ITR 858 (Mad). In this decision, the Madras High Court had considered the observation of Hon ble Supreme Court of India in the case of Maddi Venketaraman Co. (P) Ltd. vs. CIT (1998) 144 CTR (SC) 214 : (1998) 229 ITR 534 (SC). However, Madras High Court has distinguished that in the case before Hon ble Supreme Court where penalty was levied under the provisions of Foreign Exchange Regulation Act for the violation of the relevant provision of the Act and there was no question of compensatory element being part of such penalty. In the case before the Madras High Court, it was held that the amoun ..... X X X X Extracts X X X X X X X X Extracts X X X X
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