TMI Blog2014 (11) TMI 345X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee - The assessee was not to be blamed who has not indulged in any offence or incurred any expenditure for the purpose which was prohibited by law. The order of the Tribunal was confirmed holding that the amount paid by the assessee to Customs Authorities was in the nature of redemption fine therefore allowable as business expenditure – thus, the amount paid by the assessee to the Customs Authorities in terms of order dated 27-10-1986 was in the nature of redemption fine and not penalty and it was allowable as business expenditure which enhances the cost of goods - the payment was made by sister concern of the assessee namely M/s Mangla Brothers through Account Payee cheque/DD - The assessee has also furnished GIR No. AV-297-M(2) of M/s Mangla Brothers - there is no reason to doubt the source of payment - the assessee also submitted that after a lapse of 20 years, it is not possible for the assessee to produce the books of account for verifying the relevant entry made regarding payment of ₹ 75 lacs - The fact that the assessee is challenging the disallowance of payment made to Customs Authority clearly establishes that the same was recorded in the books of accoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icence issued as per the order of Hon ble High Court and Supreme Court which could be used for import of various commodities. The assessee entered into agreement with the Export House M/s Rajnikant Bros. on 14th October, 1985 and imported a consignment of Almonds in Shell at Madras Port. This import was actually for one of the nominee of the assessee M/s Peanut Products of India having factory for processing almonds/nuts in Madras. The assessee and the Export House have bonafide belief that almonds in shell was one of the items allowed for import against the said additional licence granted to M/s Rajnikant Bros. It was also a fact that almonds in shell were permissible under OGL of Import Export policy of 1978-79. However, when the goods arrived at Madras Port, M/s The Indo Afghan Chamber of Commerce approached the Hon ble Bombay High Court to block these imports, claiming that such imports would affect their Fundamental rights . The Hon ble Bombay High Court dismissed their Writ Petition vide order dated 31-1-1986 on the ground that the petitioners did not have a fundamental right to have monopoly in the trade and that importers M/s Rajnikant Bros were not in any way bl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Customs Tribunal order was also placed on record. Our attention was further invited to the fact that the Hon ble Supreme Court in the case of another importer too had concluded that all items which were not appearing in Appendix -3 and Appendix 2 Part A were permissible for import under such export licences. In this view of the matter both assessee and import houses as well as all persons in the Government department and in trade at that time were having bona fide belief that such imports were permissible under the licences issued as almonds or dry fruits were neither in Appendix 3 nor Appendix 2 part A of the Import Policy for 1985 to 1988. Accordingly it was argued that import of almond in shell in no way was in contravention of any law in force for time being in India. Our attention was also invited to the definition of prohibited goods under The Customs Act, 1962 which reads as under:- Prohibited goods means any goods the import or export of which is subject to any prohibition under this Act or any other law for the time being in force but does not include any such goods in respect of which the conditions subject to which the goods are permitted to be imported or exported ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aryana High Court in the case of CIT vs. Hero Cycles Ltd., 17 BTR 281 and in the case of CIT vs. Industrial Cables (I) Ltd. 212 CTR 513 wherein penalty levied for drawing extra loading from the grid, in violation of power rules and regulations was held to be allowable as it was not levied for deliberate violation of law. Attention was also invited to the memorandum to the finance Bill 1998 to show that the purpose of introducing explanation to section 37(1) of the Act was to apply the same in the case of unlawful expenditure such as on account of protection money, extortion, hufta, bribes etc. and not to the normal business expenses. 8. Order of the Hon ble Delhi High Court dated 7th August, 2014 in the case of CIT vs. M/s Vikas Chemicals was also placed on record, wherein the issue was with regard to allowability of redemption fine paid to the Customs Authority as business expenditure. After discussing these judicial pronouncements, the Court reached to the conclusion that the assessee had to pay redemption fine in order to save and protect themselves and they had received the balance consideration from the auction proceeds. Accordingly redemption fine was held to be an allow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Court ordered that dry fruits could not be imported against the additional licenses issued to export houses. After the order of the Hon ble Supreme Court, the Collector of Customs, Madras confiscated the goods, imposed redemption fine of ₹ 1,20,00,000/- and a penalty of ₹ 20,00,000/- on M/s Rajnikant Bros. An appeal was filed by M/s Rajnikant Bros. against the order of Customs Authorities and the Customs Tribunal (CEGAT) categorically observed in its order that there was lack of clarity in interpreting the import policy even with Licensing Authorities. An appeal was filed by M/s Rajnikant Bros. against the order of Customs Authorities and the Customs Tribunal (CEGAT) categorically observed in its order that there was lack of clarity in interpreting the import policy even with Licensing Authorities. While framing scrutiny assessment u/s 143(3) of the act, the A.O. disallowed the expenditure of ₹ 75 lacs debited to the P L account on the plea that it was in the nature of fine for infraction of law. It was also noted that the assessee had not explained the source of expenditure, therefore, addition was made y/s 69-C of the Act. As per our considered view, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by law. The assessee had to pay redemption fine in order to save and protect themselves and in terms of the order passed by the Hon ble Supreme Court, they have received the balance consideration from the auction proceeds. Accordingly the order of the Tribunal was confirmed holding that the amount paid by the assessee to Customs Authorities was in the nature of redemption fine therefore allowable as business expenditure. Applying the proposition of law as discussed hereinabove and keeping in view the totality of facts and circumstances of the case, we hold that the amount paid by the assessee to the Customs Authorities in terms of order dated 27-10-1986 was in the nature of redemption fine and not penalty and accordingly the same was allowable as business expenditure which enhances the cost of goods. So far as the explanation of the source of fund is concerned, we found that the payment was made by sister concern of the assessee namely M/s Mangla Brothers through Account Payee cheque/DD. The assessee has also furnished GIR No. AV-297-M(2) of M/s Mangla Brothers before the ld. CIT(A) in the first round of appeal. The certificate/confirmation from M/s Mangla Bros. was also given to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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