TMI Blog2016 (7) TMI 948X X X X Extracts X X X X X X X X Extracts X X X X ..... e the assessee had committed an irregularity while dealing in foreign earnings or expenditure outgoes, then such an action of applicant could be compounded as per Rules and Regulations provided in the said Circular. It is not a case where the assessee has been held to have committed an offence or the amount has been paid for purpose, which was prohibited in law, hence the provisions of Explanation to section 37(1) of the Act are not attracted. In view thereof, we hold that the assessee is entitled to the claim of deduction under section 37(1) of the Act. - Decided in favour of assessee - ITA No.1526/PN/2013 - - - Dated:- 13-5-2016 - MS. SUSHMA CHOWLA, JM AND SHRI R.K. PANDA, AM For The Appellant : Shri Sharad Shah For The Respondent : Shri S.K. Rastogi, CIT ORDER PER SUSHMA CHOWLA, JM: This appeal filed by the assessee is against the order of CIT(A)-Central, Pune, dated 13.06.2013 relating to assessment year 2007-08 against order passed under section 143(3) r.w.s. 153A of the Income-tax Act, 1961 (in short the Act ). 2. The assessee has raised the following grounds of appeal:- 1. The Ld. Assessing Officer erred in disallowing [and CIT(A) erred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cognized lender in terms of guidelines for ECB under the FEMA Act, 1999 . The explanation of the assessee is incorporated in the assessment order and it was claimed by the assessee that it had made the borrowings in good faith for which, the Reserve Bank of India had granted permission. However, on a later date, it was realized that the lender was not recognized for some technical reasons. The Reserve Bank of India had asked the assessee to pay compounding fees of ₹ 45 lakhs as against maximum amount of ₹ 30 crores. The assessee further explained that the said amount of ₹ 45 lakhs was debited to financial expenses bank charges and since it was incurred during regular course of business, hence, the same was to be allowed as deduction. The Assessing Officer after considering the evidences filed by the assessee was of the view that the communication reflects that the assessee was knowing M/s. Porto Limited, Porto Louis, Mauritius, was not a recognized lender and still the assessee company borrowed the loans from the said company. Hence, the claim of assessee that it was a bonafide mistake was found to be not correct. The Assessing Officer thus, disallowed compoundi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g of contravention under FEMA, 1999 issued by Reserve Bank of India, copy of which is placed at pages 7 to 11 of the Paper Book and it was pointed out that the nature of contraventions are recognized by the Reserve Bank of India and where the default is as per clauses (a) and (b) under clause 3.5, then the compounding proceedings are carried out by the Reserve Bank of India and in case, where the contravention prima facie involves money laundering, national and security concerns involving serious infringements of regulatory framework, then the proceedings are before the Enforcement Directorate. Referring to the scope and manner of compounding provided in clause 4 of the said Circular, the learned Authorized Representative for the assessee pointed out that under clause 4.3, it is recognized that the contravention shall be compounded in respect of various factors and the clause attracted in the case of assessee was on account of amount of loss caused to any authority / agency / exchequer as a result of contraventions. Our attention was further drawn to the provisions of FEMA Act, 1999 in this regard. The case of the assessee before us was the payment by the assessee on account of com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt to which, the assessee is entitled to raise ECB loans in foreign currency. The assessee before us is a company which was promoted by Shri Vikas Shah and Smt. Swetha Shah. The assessee had raised ECB loans from M/s. Porto Limited, Porto Louis, Mauritius, which was wholly owned company of Shri Vikas Shaw and Smt. Swetha Shah. The assessee entered into loan agreements and raised ECB loans after receiving the permission from Reserve Bank of India. The first loan agreement was dated 19.11.2004, against LR No.2004846, dated 07.12.2004 was issued by the Reserve Bank of India for grant of loan of US $ 8 lakhs. Further, second loan agreement was dated 09.12.2004, against Reserve Bank of India issued LR No.2004865, dated 17.12.2004 and the assessee raised sum of US $ 10 lakhs on different dates. Further, third loan agreement dated 17.06.2005, against LR number issued by Reserve Bank of India was 2005238, dated 09.06.2005 and the assessee raised US$ 5 lakhs. Total loan raised by the assessee was US$ 23 lakhs equivalent to ₹ 1,00,843 lakhs. The lender company i.e. M/s. Porto Limited, Porto Louis, Mauritius was wholly owned company of promoter directors of assessee company. The lender ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such contravention. The perusal of compounding order passed by the authority reflects that the authority had held the assessee to have contravened regulations 3 and 6 of Notification No.FEMA.3/2000-RB by availing external commercial borrowings amounting to ₹ 10.08 crores without prior approval of the Reserve Bank of India. The duration of contravention was 3 years 7 months approximately. In terms of section 131 of FEMA Act, 1999 , where any person contravened any provisions of the Act shall be liable to penalty up to thrice the sum involved in such contravention. The Competent Authority noted that though in terms of section 131 of FEMA Act, the penalty could be up to ₹ 30,25,29,000/-, but however, after considering the matter and rationale behind the compounding provisions, submissions of assessee and entire facts and circumstances of the case, a lenient view was taken on the amount for which contravention was to be compounded and it was held that the payment of ₹ 45 lakhs would meet the ends of justice. The perusal of the said order passed by Competent Authority reflects that as against the contravention of provisions to the extent of ₹ 30.25 crores, after ..... X X X X Extracts X X X X X X X X Extracts X X X X
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