TMI Blog1995 (5) TMI 72X X X X Extracts X X X X X X X X Extracts X X X X ..... ne register excess stock of 723 pieces of china and porcelain-wares (sanitarywares) valued at Rs. 35,015 was there while in another variety shortage of 1,509 pieces valued at Rs. 89,385 was found. Accordingly, these goods were seized by the excise authorities on which a penalty of Rs. 12,000 was levied. This sum has been debited by the assessee-company to the P L account." Since the assessee did not give any satisfactory explanation, the Assessing Officer made the impugned disallowance, against which the assessee appealed but was unsuccessful. Hence, the assessee is before us by way of second appeal. 4. Shri Sodani, the learned counsel for the assessee, invited our attention to the order dt. 17th Feb., 1983, passed by the Addl. Collector of Central Excise, copy of which appears at pp 5-13 of the compilation, whereby the Addl. Collector of Central Excise imposed a penalty of Rs. 2,000 on the assessee and gave an option to redeem the confiscated goods on payment of redemption fine of Rs. 10,000. Shri Sodani argued that the penalty and redemption fine aggregating Rs. 12,000 is an allowable expenditure. He pointed out that the penalty has been imposed, as the assessee was found to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dered to be confiscated under r. 173Q of the Central Excise Rules, 1944. The Addl. Collector, Central Excise, however, gave an option to the assessee to redeem the same on payment of redemption fine of Rs. 10,000. In similar circumstances, their Lordships of Madras High Court have held in the case of CIT vs. N.M. Parthesarathy (1995) 125 CTR (Mad) 174 : (1995) 212 ITR 105 (Mad) that redemption fine was compensatory in nature and as such deductible under s. 37 of the Act. In that case also, the goods belonging to the assessee had been confiscated under s. 111(d) of the Customs Act, 1962, r/w s. 3 of the Imports Exports (Control) Act, 1947. However, under s. 125 of the Customs Act, 1962, an option had been given to the assessee to pay, in lieu of confiscation a fine of Rs. 1,84,000, which has been reduced on appeal and the goods had been cleared exercising the option. Relying on the ratio of decision of Hon'ble Supreme Court in the case of CIT vs. Ahmedabad Cotton Mfg. Co. Ltd. (1993) 115 CTR (SC) 401 : (1994) 205 ITR 163 (SC), their Lordships of Madras High Court held that redemption fine was compensatory in nature and, hence, allowable as deduction. Following the decision we hold ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r. 6DD(b) whereas the payments made to other contractors are covered by r. 6DD(j). The submissions of the assessee did not find favour with the CIT(A). According to him, payment made to the railway agent cannot be considered as payment made to the railways and, therefore, r. 6DD(b) was inapplicable to the payment made to M/s Mahajan Mahajan. As regards the payments made to other parties, the CIT(A) recorded, inter alia, the following findings: "It does not appear to be rational that the payments should have been made to the contractors only for distribution of wages to labour. Apparently, the payment has been made to contractors for supply of labour and as such it cannot be said that the payments have been made to only workers and such amount being less than Rs. 2,500 each, does not fall within the purview of s. 40A(3). The provisions of r. 6DD(j) also do not apply as has been clearly brought out by the Assessing Officer that these are periodical payments to be made and no case for exceptional circumstances has been made out. Therefore, the disallowance is fully justified and the same is hereby upheld." The above findings have been challenged by the assessee before the Tribu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enue authorities were perfectly justified in disallowing the impugned payment in cash in contravention of the provisions of s. 40A(3) of the Act. According to him, the assessee had not established that there were unavoidable or exceptional circumstances enumerated under r. 6DD(j) so as to bring its case out of the mandatory provisions of s. 40A(3). He highlighted the point that the assessee had made cash payments to the labour contractors and not to the workers and, therefore, such payments were clearly hit by the provisions of s. 40A(3) of the Act. 9. We have given a careful thought to the rival submissions. So far as the payment of freight charges to M/s Mahajan Mahajan, who are railway clearing agents, is concerned, it has been clarified in Board's Circular No. 34, dt. 5th March, 1970, that cl. (b) of r. 6DD specifically exempts such payments from the purview of s. 40A(3). Therefore, cash payment to M/s Mahajan Mahajan for being paid to the railways being freight charges is allowable deduction under s. 40A(3). As regards the remaining payments, it is not in dispute that the payments have been made to the labour contractors in cash who had arranged labour to the assessee. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s appeal is partly allowed. 11. In Revenue's appeal in ITA No. 918/Ind/90, only one substantive ground has been taken, which reads as under: "On the facts and in the circumstances of the case, the learned CIT(A) erred in holding that the growth incentive paid at Rs. 2,68,141 does not fall within the purview of s. 37(3A) and thereby directing the Assessing Officer to exclude the amount for working out the disallowance under s. 37(3A)." 12. The Assessing Officer found that the assessee had worked out disallowance under s. 37(3A) of the Act at Rs. 82,012. The Assessing Officer, however, noted that the assessee had allowed discount towards growth incentive to the stockists, who purchased goods beyond the target fixed individually. He treated the same as sales promotion expenses and included it for calculating disallowance under s. 37(3A) of the Act. This was challenged in appeal. 13. Before the CIT(A), it was contended that growth incentive of Rs. 2,68,141 did not fall within the purview of s. 37(3A) of the Act. Reliance was placed on the Tribunal, Hyderabad Bench 'B' decision in the case of Moped India Ltd. vs. IAC (1984) 7 ITD 324 (Hyd), wherein it was held that the incentive ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isement and publicity. By these rewards given to the selling agents the assessee cannot be said to have taken a drive to draw the attention of the consumers. The entire effect of the expenditure is consumer-neutral. It may have an indirect effect on the market in the sense this will instil in the selling agents a greater fervour in pushing up sales. But we cannot distinguish any activity as sales promotion by the mere affect of the activity on the saleability. It is only such expenditure in the nature of advertisement and publicity which creates a stir amongst the consumers directly by means of exhibitions, shows and other methods of popularising the assessee's commodity, that can be said to be activity similar to or of like nature as advertisement and publicity. By giving rewards to the selling agents to motivate them for performance is not anything that publicises the assessee's commodity." 16. It may be stated that the decision in the case of Smith Kline French (India) Ltd. vs. CIT relied on by the learned Departmental Representative is distinguishable on facts. In that case, the assessee was manufacturer of drugs. It had incurred expenditure on physicians' samples. It was h ..... X X X X Extracts X X X X X X X X Extracts X X X X
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