DCIT, Jaipur V. AGRIBIOTECH INDUSTRIES LIMITED, Jaipur

ITA 272/JPR/2017

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 1975 (ITAT-JAIPUR)
• Duration Of Justice: 3 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-07-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2012-2013
• Appeal Filed On: 10-04-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VARINDER MEHTA
• Assessee Lawyers: HIMANSHU GOYAL CA DHK
• Keywords: Business expenditure; Commercial expediency
• Section: 143(3); 37(1); 54; 37; 15

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES, JAIPUR JH HKKXPAN] YS[KK LNL; ,OA JH DQY HKKJR ] U;KF;D LNL; DS LE{K BEFORE: SHRI BHAGCHAND, AM & SHRI KUL BHARAT, JM VK;DJ VIHY LA-@ ITA NO. 272/JP/2017 FU/KZKJ.K O'K Z@ ASSESSMENT YEAR : 2012-13 DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-4, JAIPUR. CUKE VS. M/S AGRIBIOTECH INDUSTRIES LIMITED, SP-825, ROAD NO. 14, VKI AREA, JAIPUR. PAN/TAN NO.: AAFCA 1695 R VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT JKTLO DH VKSJ LS@ REVENUE BY : SHRI VARINDER MEHTA (CIT DR) FU/KZKFJRH DH VKSJ LS@ ASSESSEE BY : SHRI VED JAIN & SHRI HIMANSHU GOYAL (CA) LQUOKBZ DH RKJH[K@ DATE OF HEARING : 09/06/2017 MN?KKS'K.KK DH RKJH[K @ DATE OF PRONOUNCEMENT : 31/07/2017 VKNS'K@ ORDER PER: BHAGCHAND, A.M. THIS IS THE APPEAL FILED BY THE REVENUE EMANATES FR OM THE ORDER OF THE LD. CIT(A), AJMER DATED 10/01/2017 FOR THE A.Y. 2012-13, WHEREIN THE REVENUE HAS TAKEN ONLY ONE EFFECTIVE GROUND OF APPEAL, WHICH IS AS UNDER: 1. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE OF RS. 3,16,32,000/- MADE BY THE A.O. O N ACCOUNT OF PENAL EXCISE DUTY DEBITED IN P&L ACCOUNT . ITA 272/JP/2017 DCIT VS. M/S AGRIBIOTECH INDUSTRIES LTD. 2 2. THE ONLY ISSUE INVOLVED IN THIS APPEAL IS AGAINST DELETING THE DISALLOWANCE OF RS. 3,16,32,000/- ON ACCOUNT OF PENA L EXCISE DUTY DEBITED IN THE P&L ACCOUNT. IN THIS REGARD, THE BRI EF FACTS OF THE CASE ARE THAT THE ASSESSEE HAD FILED E-RETURN FOR THE FINANC IAL YEAR 2011-12 RELEVANT TO A.Y. 2012-13 ON 26/09/2012 DECLARING TO TAL INCOME OF RS. 1,32,46,790/-. THE CASE WAS SELECTED FOR SCRUTINY AND THE ASSESSMENT WAS COMPLETED ON 17/03/2015 U/S 143(3) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT). THE ASSESSEE COMPANY IS ENGAGED IN MANUFACTURING AND SALE OF ENA, COUNTRY LIQUOR AND IMFL. THE TOTAL SALE OF IMFL WAS RS. 6,62,62,503/- AND THE EXCISE DUTY CLAIMED IN THE P& L ACCOUNT WAS DEBITED TO THE TUNE OF RS. 8,40,12,623/-. THERE WAS A N AUDIT NOTED IN THE ACCOUNT OF THE ASSESSEE, WHICH READ AS UNDER:- 'THE RAJASTHAN STATE EXCISE DEPARTMENT HAS RAISED T HE DEMAND OF RS. 1770.72 LACS VIDE VARIOUS DEMAND RECOVERY NOTICES ON ACCOUN T OF NON VERIFICATION OF SOME OF EXPORT PERMITS (RELATING TO INTERSTATE SALE S) ISSUED BY THE EXCISE AUTHORITY OF IMPORTING STATES. THE SAID DEMAND HAS BEEN CHALLENGED BY THE COMPANY AND HONORABLE SUPREME COURT OF INDIA VIDE I TS ORDER DATED 15.12.2011 HAS STAYED THE DEMAND. HOWEVER BEFORE TH E STAY BEING GRANTED BY APEX COURT , THE COMPANY HAS DEPOSITED UP TO 31.3.2012 RS. 630.5 6 LACS (UP TO 31.3.2011 RS. 314.24 LACS) WITH STATE GOVERNMENT TO WARDS THESE DEMANDS UNDER PROTEST AS THE MATTER IS SUB- JUDICE. THE PAY MENT TO/FROM GOVERNMENT AUTHORITIES ON THIS ACCOUNT ARE BEING ACCOUNTED FOR AS EXPENDITURES/INCOME IN RESPECTIVE YEARS ON PAYMENT/REFUND BASIS, AS THE AC CRUAL OF THE DEMAND IS NOT CERTAIN AND PAYMENT TO GOVT. IN RESPECT EXCISE/CESS ETC. BEING AN EXPENSE ALLOWABLE IN THE YEAR OF PAYMENT.' ITA 272/JP/2017 DCIT VS. M/S AGRIBIOTECH INDUSTRIES LTD. 3 THE ASSESSEE HAS DEBITED IN THE P&L ACCOUNT BY AMOUN T OF RS. 3,16,32,000/- ON ACCOUNT OF DEMAND RAISED BY THE ST ATE EXCISE OF RAJASTHAN DUE TO NON VERIFICATION OF SOME OF EXPORT PERMITS. THE ASSESSEE COMPANY HAD MADE UNDER BOND INTERSTATE SAL E (EXPORT) OF EXTRA NEUTRAL ALCOHOL (ENA) TO THE FOLLOWING PARTIES: LETTER NO. DATE PARTY NAME QU ANTITY OF ENA EXPORTED DEMAND AMOUNT 5758 22/10/2010 PREMIER DISTILLERY, PUDUCHERY 40000 11424000 5778 23/12/2010 MAUFLANG BOTTLING RI - BHOI, MEGHALAYA 120000 68544000 RENAISSANCE BOTTLING, SHILLONG 120000 304 20/04/2011 MAUFLANG BOTTLING RI - BHOI, MEGHALAYA 40000 74256000 RENAISSANCE BOTTLING, SHILLONG 220000 1050 02/06/2011 BLUE OCEAN BEVERAGES P. LTD., GOA 20000 5712000 1049 02/06/2011 DEEKAY EXPORT LTD., PUDUCHERY 40000 11424000 1051 02/06/2011 DEEKAY EXPORT LTD., PUDUCHERY 2000 5172000 TOTAL 582000 177072000 AS PER THE EXCISE RULES OF RAJASTHAN, THE ASSESSEE HAS TO OBTAIN IMPORT PERMIT ISSUED BY THE STATE EXCISE AUTHORITY OF THE BUYERS STATE TO MAKE EXPORT OF ENA. THE SAID IMPORT PERMIT IS THEN SUBMI TTED TO THE RAJASTHAN STATE EXCISE DEPARTMENT AND THEREAFTER EXPORT PERMI T FOR SALE OF A CERTAIN QUANTITY OF ENA IS ISSUED. ON THE BASIS OF THIS EXPORT PERMIT, THE ENA IS SOLD AND DISPATCHED TO THE BUYER. FOR THIS P URPOSE, THE ASSESSEE ITA 272/JP/2017 DCIT VS. M/S AGRIBIOTECH INDUSTRIES LTD. 4 (SELLER) HAS TO EXECUTE A BOND STATING THAT EXCISE VERIFICATION (OF STOCK RECEIVED BY IMPORTING STATE) ISSUED BY THE EXCISE A UTHORITY OF THE IMPORTING STATE SHALL BE SUBMITTED WITHIN 90 DAYS OF EXPORTING ENA. IF THE SELLER (ASSESSEE) FAILED TO DO SO THEN SHALL BE LIABLE FOR EXCISE DUTY LEVIABLE AT RAJASTHAN. IN THE CASE UNDER CONSIDERAT ION, THE ASSESSEE SOLD AND DISPATCHED APPROXIMATELY 582000 BL OF ENA TO VA RIOUS STATES VIZ. MEGHALAYA, SHILLONG, GOA AND PUDDUCHERY. THE ASSESSE E PAID PRESCRIBED SENT OUT PERMIT FEE OF RS. 2/- PER BULK LINTER ON T HE GOODS EXPORT OUT OF RAJASTHAN. THE GOODS (ENA) DID NOT REACH THE DESTINA TIONS MENTIONED IN THE EXPORT PERMITS. THE STATE EXCISE AUTHORITIES OF BUYER STATES INFORMED THE RAJASTHAN STATE EXCISE DEPARTMENT THAT THE IMPO RT PERMITS SHOWN TO HAVE BEEN ISSUED BY THEM, WERE FAKE. IN PURSUANCE OF THE BOND EXECUTED BY THE ASSESSEE, THE DISTRICT EXCISE OFFIC ER, SIKAR HAD ISSUED DEMAND RECOVERY NOTICES. OUT OF THE TOTAL DEMAND OF RS. 177072000/-, THE ASSESSEE HAD MADE PAYMENT OF RS. 3,16,32,000/- AGAINST THE ABOVE DEMAND, WHICH HAS BEEN DISALLOWED BY THE A.O. IN THE INCOME OF THE ASSESSEE. 3. BEING AGGRIEVED BY THE ORDER OF THE ASSESSING OF FICER, THE ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT(A), W HO AFTER CONSIDERING THE SUBMISSIONS, HAS DELETED THE DISALLOWANCE BY OBS ERVING AS UNDER:- ITA 272/JP/2017 DCIT VS. M/S AGRIBIOTECH INDUSTRIES LTD. 5 5.4 I AM OF THE CONSIDERED VIEW THAT I. THE PENALTY BY ANY STATUTORY AUTHORITY CAN BE LE VIED ONLY FOR VIOLATION OF THE PROVISIONS OF THE LAW OF THE LAND. IN THE APPEAL UNDER CONSIDERATION THE RELEVANT LAW IS THE RAJASTH AN EXCISE ACT, 1950 AND RAJASTHAN EXCISE RULE, 1956. II. PENALTY CAN BE LEVIED ONLY UNDER THE SPECIFIC S ECTION OF THE ACT OR THE RULES. IN THE APPEAL UNDER CONSIDERATION THE RE LEVANT ACT IS RAJASTHAN EXCISE ACT, 1950 AND THE RAJASTHAN EXCISE RULES, 1956. THE APPELLANT HAS FILED THE COPY OF THE RAJASTHAN EXCISE ACT, 1950. UNDER SECTION 54 OF THE ACT, PENALTY FOR UNLAWFUL I MPORT, EXPORT, TRANSPORT, POSSESSION, ETC HAS BEEN PROVIDED. THE A O HAS ALSO QUOTED THE PROVISIONS OF SECTION 54 IN THE ASSESSME NT ORDER. THE PROVISIONS OF SECTION 54 OF THE RAJASTHAN EXCISE AC T, 1950 ARE REPRODUCED HEREUNDER: 54. PENALTY FOR UNLAWFUL IMPORT, EXPORT, TRANSPORT , MANUFACTURE, POSSESSION ETC. - WHOEVER IN CONTRAVENTION OF THIS ACT OR OF ANY R ULE OR ORDER MADE OR OF ANY LICENCE, PERMIT OR PASS GRANTED, THEREUNDER (A) IMPORTS, EXPORTS, TRANSPORTS, MANUFACTURES, COLLEC TS, SELLS OR POSSESSES ANY EXCISABLE ARTICLE; OR (B) CULTIVATES ANY HEMP PLANT (CANNABIS SATIVA); OR (C) CONSTRUCTS OR WORKS ANY DISTILLERY, POT-STILL OR B REWERY; OR (D) USES, KEEPS OR HAS IN HIS POSSESSION ANY MATERIALS , STILLS, UTENSIL, IMPLEMENTS OR APPARATUS WHATSOEVER FOR THE PURPOSE OF MANUFACTURI NG ANY EXCISABLE ARTICLE OTHER THAN TARI; OR (E) REMOVES ANY EXCISABLE ARTICLE FROM ANY DISTILLERY, POT-STILL BREWERY OR WAREHOUSE ESTABLISHED OR LICENSED UNDER THIS ACT; OR (F) BOTTLES ANY LIQUOR FOR THE PURPOSES OF SALE; OR (G) TAPS OR DRAWS TARI FROM ANY TARI PRODUCING TREE; SHALL BE PUNISHABLE WITH IMPRISONMENT FOR A TERM WH ICH MAY EXTEND TO THREE YEARS AND WITH FINE WHICH MAY EXTEND TO TWENTY THOU SAND RUPEES; PROVIDED THAT IF A PERSON IS SO FOUND IN POSSESSIO N OF A WORKABLE STILL FOR THE MANUFACTURE OF ANY EXCISABLE ARTICLE OR IS FOUND TO BE GUILTY OF SELLING OR POSSESSING FOR SALE ANY EXCISABLE ARTICLE IN CONTRA VENTION OF THE PROVISIONS OF THIS ACT OR OF ANY RULE OR ORDER MADE OR OF ANY LICENCE, PERMIT OR PASS GRANTED THEREUNDER, HE SHALL BE PUNISHED WITH THE MINIMUM S ENTENCE OF IMPRISONMENT FOR SIX MONTHS AND FINE OF TWO HUNDRED RUPEES; ITA 272/JP/2017 DCIT VS. M/S AGRIBIOTECH INDUSTRIES LTD. 6 PROVIDED FURTHER THAT IF THE QUANTITY OF LIQUOR FO UND AT THE TIME OR IN THE COURSE OF DETECTION OF THE OFFENCE EXCEEDS FIFTY BULK LITR ES, THE PERSON GUILTY FOR SUCH OFFENCE SHALL BE PUNISHED WITH THE MINIMUM SENTENCE OF IMPRISONMENT FOR ONE YEAR AND FINE OF TEN THOUSAND RUPEES. A PLANE READING OF THE SECTION 54 OF THE RAJASTHAN EXCISE ACT, 1950 MAKES IT CLEAR THAT MAXIMUM PENALTY (FINE) THAT CAN BE LEVIED FOR UNLAWFUL IMPORT AND EXPORT IS ONLY RS.20,000/-. THE RE IS NO OTHER SECTION IN THE RAJASTHAN EXCISE ACT, 1950 UNDER WHI CH THE PENALTY OR FINE CAN BE LEVIED FOR UNLAWFUL IMPORT AND EXPOR T. THE SECTION 18 OF THE RAJASTHAN EXCISE ACT, 1950 PROVIDES THAT NO EXCISABLE ARTICLE SHALL BE REMOVED FROM ANY DISTILLERY, BREWE RY POT-STILL, WAREHOUSE OR OTHER PLACE OF STORAGE ESTABLISHED OR LICENSED UNDER THIS ACT UNLESS THE DUTY (IF ANY) PAYABLE THEREFORE UNDER THIS ACT HAS BEEN PAID OR A BOND HAS BEEN EXECUTED FOR THE P AYMENT THEREOF. A READING OF SECTION 18 AND SECTION 54 OF THE RAJA STHAN EXCISE ACT, 1950 MAKES IT CLEAR THAT THE MAXIMUM PENALTY LEVIAB LE FOR REMOVING THE EXCISABLE ARTICLES WITHOUT PAYING DUTY (IF ANY) PAYABLE THEREFORE, UNDER THE RAJASTHAN EXCISE ACT, 1950 OR WITHOUT EXECUTING THE BOND FOR THE PAYMENT THEREOF, IS ONLY RS.20,000/-. THUS, IT IS CLEAR THAT THE AMOUNT DEMANDED BY THE S TATE EXCISE OFFICER, SIKAR BY ISSUE OF EKAX OLQYH UKSFVL IS NOT PENALTY UNDER SECTION 54 OR ANY OTHER SECTION OF THE RAJASTHAN EX CISE ACT, 1950, BECAUSE THE AMOUNT DEMANDED BY THE STATE EXCISE OFF ICER, SIKAR BY ISSUE OF EKAX OLQYH UKSFVL IS HUGE AND FAR EXCESS THAN THE MAXIMUM AMOUNT OF PENALTY PRESCRIBED UNDER SECTION 54 OF THE RAJASTHAN EXCISE ACT, 1950. ALONGWITH THE EKAX OLQYH UKSFVL NO ORDER LEVYING THE PENALTY HAS BEEN ISSUED BY THE STATE EXCISE OFFICER, SIKAR. ONL Y IT HAS BEEN ITA 272/JP/2017 DCIT VS. M/S AGRIBIOTECH INDUSTRIES LTD. 7 MENTIONED IN THE EKAX OLQYH UKSFVL THAT THE PENALTY HAS BEEN LEVIED AS THE APPELLANT HAS VIOLATED THE CONDITIONS OF THE AFFIDAVIT FILED BY THE APPELLANT. THE APPELLANT IN ITS WRITTE N SUBMISSION FILED DURING THE COURSE OF PROCEEDINGS, HAS GIVEN AT PAGE NO. 8, THE WORKING OF THE AMOUNT DEMANDED BY THE STATE EXCISE OFFICER, SIKAR BY ISSUE OF EKAX OLQYH UKSFVL . THE SAME IS REPRODUCED AT PAGE NO. 7 & 8 OF THIS ORDER. IT CAN BE SEEN FROM THE WO RKING GIVEN BY THE APPELLANT THAT THE AMOUNT DEMANDED BY THE STATE EXCISE OFFICER, SIKAR BY ISSUE OF EKAX OLQYH UKSFVL IS ONLY EXCISE DUTY. NO INTEREST OR ANY PENALTY IS INCLUDED IN THE AMOUNT D EMANDED BY THE STATE EXCISE OFFICER, SIKAR. IN SUPPORT OF THE RATE OF EXCISE DUTY MENTIONED BY THE APPELLANT IN THE WORKING GIVEN BY THE APPELLANT, THE APPELLANT HAS FILED THE COPY OF NOTIFICATION DA TED 01.04.2005 (F.4(17)FD/EXCISE/2004) ISSUED BY THE DEPUTY SECRET ARY TO THE GOVERNMENT OF RAJASTHAN FINANCE DEPARTMENT EXCISE D IVISION AND NOTIFICATION DATED 01.04.2012 (F.4(1)FD/EX/2012 PAR T 1) ISSUED BY THE DEPUTY SECRETARY TO THE GOVERNMENT OF RAJASTHAN FINANCE DEPARTMENT EXCISE DIVISION. IN BOTH THE NOTIFICATIO N THE RATE OF EXCISE DUTY IS THE SAME WHICH HAS BEEN APPLIED BY T HE APPELLANT FOR WORKING OUT THE AMOUNT OF EXCISE DUTY DEMANDED BY THE STATE EXCISE OFFICER, SIKAR AS PENALTY BY ISSUE OF EKAX OLQYH UKSFVL . IN VIEW OF THE FACTS DISCUSSED ABOVE, AFTER GOING THROUGH THE CONTENTS OF THE EKAX OLQYH UKSFVL , CONTENTS OF THE AFFIDAVIT FILED BY THE APPELLANT, RAJASTHAN EXCISE ACT, 1950, RAJAS THAN EXCISE RULES, 1956 AND THE NOTIFICATIONS DATED 01.04.2005 AND 01.04.2012 ISSUED BY THE DEPUTY SECRETARY OF THE GOVERNMENT OF RAJASTHAN FINANCE DEPARTMENT EXCISE DIVISION, I AM OF THE CON SIDERED VIEW THAT THE AMOUNT DEMANDED BY THE STATE EXCISE OFFICE R, SIKAR WAS ITA 272/JP/2017 DCIT VS. M/S AGRIBIOTECH INDUSTRIES LTD. 8 NOT PANEL IN NATURE. THE AMOUNT WAS DEMANDED BY THE STATE EXCISE OFFICER, SIKAR FOR VIOLATION OF THE CONDITIO NS OF THE AFFIDAVIT FILED BY THE APPELLANT, IN WHICH IT HAD UNDERTAKEN TO PAY THE EXCISE DUTY EXTRA, LEIVABLE IF THE APPELLANT FAILED TO SUB MIT WITHIN 90 DAYS OF EXPORTING ENA FROM ITS DISTILLERY THE EXCISE VER IFICATION ISSUED BY THE EXCISE AUTHORITY OF THE IMPORTING STATE. THE AM OUNT PAID BY THE APPELLANT IN RESPONSE TO THE EKAX OLQYH UKSFVL WAS EXCISE DUTY PAID BY IT DURING THE ORDINARY COURSE OF THE B USINESS CARRIED ON BY IT, WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS OF MANUFACTURING ENA AND RECTIFIED SPIRIT, WHICH IS AL LOWABLE AS DEDUCTION UNDER SECTION 37(1) OF THE I. T. ACT, 196 1. HENCE, THE DISALLOWANCE OF RS.3,16,32,000/- MADE BY THE AO STA NDS DELETED. ACCORDINGLY, THIS GROUND OF APPEAL IS ALLOWED. 4. NOW THE REVENUE IS IN APPEAL BEFORE US. THE LD. CI T DR HAS VEHEMENTLY SUPPORTED THE ORDER OF THE ASSESSING OFF ICER AND SUBMITTED THAT THE LD. CIT(A) WAS NOT JUSTIFIED IN DELETING T HE DISALLOWANCE. 5. AT THE OUTSET, THE LD AR OF THE ASSESSEE HAS SUB MITTED AS UNDER:- 1. THIS IS REVENUE APPEAL ARISING FROM THE ORDER PA SSED BY THE ID. CIT(A), DATED. 10.1.2017 IN WHICH THE DISALLOWANCE OF RS. 3 ,16,32,000/- MADE BY THE LD. AO ON ACCOUNT OF EXCISE DUTY PAID BY THE AS SESSEE TREATING THE SAME AS PENALTY IN NATURE HAS BEEN DELETED. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS A LIMITED COMPANY AND IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF ENA & RECTIFIED SPIRIT. 3. FOR THE YEAR UNDER CONSIDERATION, THE ASSESSEE F ILED ITS RETURN OF INCOME FOR THE AY 2012-13 DECLARING AN INCOME OF RS. 1,32, 46,790/-. ITA 272/JP/2017 DCIT VS. M/S AGRIBIOTECH INDUSTRIES LTD. 9 4. THEREAFTER, THE RETURN OF THE ASSESSEE WAS PROCE SSED UNDER SECTION 143(1) AND THE CASE WAS SELECTED FOR SCRUTINY AND N OTICE UNDER SECTION 143(2) WAS ISSUED ON 06/08/2013. 5. DURING THE COURSE OF ASSESSMENT PROCEEDINGS LD. AO RAISED THE QUERY IN RELATION TO THE PAYMENT OF EXCISE DUTY CLAIMED BY T HE ASSESSEE IN RESPECT OF PROFIT & LOSS ACCOUNT. 6. ASSESSEE SUBMITTED THE DETAILED REPLY IN RESPECT OF THE SAME ALONG WITH NECESSARY SUPPORTIVE EVIDENCES. 7. LD. AO IGNORING THE REPLY AND EVIDENCES FILED BY THE ASSESSEE TREATED THE PAYMENT AS PENALTY ADDED THE AMOUNT OF RS. 3,16,32, 000/- IN THE HANDS OF THE ASSESSEE DESPITE THE FACT THAT PAYMENT HAS B EEN MADE AS PER THE OPTION PROVIDED IN THE RAJASTHAN DISTILLERY RULES. 8. AGGRIEVED BY THE ORDER OF LD. AO, ASSESSEE PREFE RRED AN APPEAL BEFORE THE LD. CIT (A) AND LD. CIT(A) HAS PASSED A WELL RE ASONED ORDER AND HAS GIVEN A CATEGORICAL FINDING IN PG. 16 PARA 5.4 ONWA RDS OF HIS ORDER AND DELETED THE ADDITION ON THE GROUND THAT THE PAYMENT MADE BY THE ASSESSEE CANNOT BE IN THE NATURE OF ANY PENALTY SPE CIFIED IN THE RELEVANT RAJASTHAN EXCISE ACT AS WELL AS RAJASTHAN EXCISE RU LES. PAYMENT HAS BEEN MADE IN MADE IN VIOLATION OF THE CONDITIONS OF THE BOND FILED BY THE ASSESSEE IN WHICH IT HAD UNDERTAKEN TO PAY EXTRA EX CISE DUTY, IF THE ASSESSEE FAILED TO SUBMIT WITHIN 90 DAYS OF EXPORTI NG ENA FROM ITS DISTILLERY THE EXCISE VERIFICATION ISSUED BY THE EX CISE AUTHORITY OF IMPORTING STATE. THUS, BY HIS DETAILED FINDING LD C IT(A) HAS EXPLAINED THE NATURE OF PAYMENT MADE BY THE ASSESSEE AND ITS ALLO WABILITY U/S 37(1) OF THE INCOME TAX ACT. 9. THE NATURE OF EXCISE DUTY PAID BY THE ASSESSEE I S EXPLAINED AS UNDER: ITA 272/JP/2017 DCIT VS. M/S AGRIBIOTECH INDUSTRIES LTD. 10 A. THE ASSESSEE IS ENGAGED IN MANUFACTURE OF EXTRA NEUTRAL ALCOHOL AND RECTIFIED SPIRIT AND ITS COMPLETE SALES ARE MADE ON FOR (FREE ON ROAD) BASIS. EXTRA NEUTRAL ALCOHOL AND RECTIFIED SPIRIT M ANUFACTURED BY THE ASSESSEE ARE FREE FROM EXCISE DUTY. B. THE PARTY WHO WISH TO MAKE PURCHASES FROM THE AS SESSEE GETS EXCISE PERMIT (IMPORT PERMIT) FROM EXCISE DEPARTMENT OF IT S STATE (ISSUED BY THE STATE EXCISE OFFICE OF RECEIVING STATE). C. IN ORDER TO DELIVER THE GOODS THE ASSESSEE NEEDS TO OBTAIN EXPORT PERMIT FROM THE EXCISE DEPARTMENT OF ITS STATE. IN ORDER T O RECEIVE THE EXPORT, PERMIT, THE IMPORT PERMITS RECEIVED ARE FORWARDED T O, ASSISTANT EXCISE OFFICER (AEO) OF STATE EXCISE OFFICE POSTED AT ASSE SSEE COMPANY'S FACTORY FOR NECESSARY PERMISSION. D. AS PER THE PROCEDURE LAID DOWN IN RAJASTHAN STAT E EXCISE LAW, THE AEO PROCESSES THE PERMIT AND FORWARDS THE SAME TO DISTR ICT EXCISE OFFICER (DEO), SIKAR FOR HIS PERMISSION AFTER DOING NECESSA RY VERIFICATION AT HIS LEVEL. A DETAILED CHECK LIST TO BE FILLED BY AEO AS PER EXCISE LAWS AND THE CHECK LIST TO BE SENT TO DEO IS ENCLOSED AT PAGES 9 1 TO 92 OF THE PAPER BOOK. E. THEREAFTER THE DEO FORWARDS THE SAME TO ADDITION AL COMMISSIONER, EXCISE, TO OBTAIN PERMISSION TO EXPORT THE GOODS. A DDITIONAL COMMISSIONER AFTER DOING THE NECESSARY VERIFICATION S AT HIS LEVEL FORWARDS THE SAME TO EXCISE COMMISSIONER, UDAIPUR FOR HIS PE RMISSION. F. THE OFFICE OF THE EXCISE COMMISSIONER UDAIPUR AF TER FOLLOWING THE NECESSARY PROCEDURE ISSUES THE PERMISSION FOR EXPOR T/ DISPATCH AND RETURNS THE PERMIT TO DEO OFFICE SIKAR. OFFICE OF T HE DEO RETURNS THE PERMIT TO AEO POSTED AT THE ASSESSEE COMPANY'S FACT ORY. ITA 272/JP/2017 DCIT VS. M/S AGRIBIOTECH INDUSTRIES LTD. 11 G. ON GETTING THE NECESSARY PERMISSION FROM THE EXC ISE DEPARTMENT THE CONSIGNMENT IS DISPATCHED BY THE ASSESSEE UNDER THE SUPERVISION OF AEO POSTED AT ITS FACTORY. H. ON RECEIPT OF THE GOODS BY THE BUYER, THE STATE EXCISE DEPARTMENT OF THE BUYER'S STATE ISSUES A RECEIPT TO THE EXCISE DEPART MENT OF THE ASSESSEES STATE. I. THE ASSESSEE ALSO EXECUTES A BOND WITH THE EXCIS E DEPARTMENT TO MAKE GOOD THE LOSSES INCURRED TO THE DEPARTMENT ON ACCOU NT OF LOSS OF DUTY IN CASE THE GOODS DELIVERY RECEIPTS ARE NOT RECEIVED B Y THE EXCISE DEPARTMENT OF THE ASSESSEES STATE FROM THE EXCISE DEPARTMENT OF THE BUYER'S STATE. 10. IN THE PRESENT CASE THE ASSESSEE SOLD THE GOODS AFTER OBTAINING THE EXPORT PERMIT FROM THE EXCISE DEPARTMENT AND UNDER THE SUP ERVISION OF AEO POSTED AT ITS FACTORY PREMISES THEREBY DISCHARGING ITS CONTRACTUAL OBLIGATION. 11. UNFORTUNATELY, THE EXCISE DEPARTMENT OF THE ASS ESSEE'S STATE I.E. RAJASTHAN DID NOT RECEIVE THE MATERIAL DELIVERY REC EIPT FROM THE EXCISE DEPARTMENT OF THE RECEIVING STATE OF PURCHASERS I.E . PREMIER DISTILLERY PVT. LTD, M/S D RENAISSANCE BOTTLING, LOWER LACHUMI ERE AND M/S D MAUFLANG, RI-BHOI. 12. AS PER THE BOND EXECUTED BY THE ASSESSEE IT WAS LIABLE TO PAY THE LOSS OF DUTY TO THE EXCISE DEPARTMENT OF RAJASTHAN. SINCE IN THIS CASE THERE WAS NO DUTY ON THE ITEM SOLD BY THE ASSESSEE, A PRESUMP TIVE CALCULATION WAS MADE BY THE EXCISE AUTHORITIES AND ACCORDINGLY DUTY WAS LEVIED. 13. THE RAJASTHAN STATE EXCISE DEPTT HAS RAISED DE MAND BY ISSUE OF RECOVERY NOTICES OF RS. 1,14,24,000/- AND RS. 6,85,44,000/- VIDE THEIR DEMAND ITA 272/JP/2017 DCIT VS. M/S AGRIBIOTECH INDUSTRIES LTD. 12 LETTER NOS. EXCISE/ SPIRIT/10/5758 DATED 22.12.2010 AND EXCISE/ SPIRIT/10/5778 DT. 23.12.2010 ON ACCOUNT OF PART OF THE CONSIGNMENT OF ENA (EXTRA NEUTRAL ALCOHOL) NOT REACHED THE DECLARE D DESTINATION BY REFERRING THE DEMAND AS PENALTY ON THE BASIS OF BON D/ BOND EXECUTED BY THE COMPANY. 14. IT CLEAR FROM THE AFORESAID BOND THAT EXCISE DU TY EXTRA COULD ONLY BE CHARGED IF THE CONSIGNMENT (ENA) DOES NOT REACH TO DECLARED DESTINATION. THERE IS NO PROVISION FOR PENALTY. 15. HOWEVER, FOR THE REASONS BEST KNOWN TO THE EXCI SE DEPARTMENT THE WORD 'PENALTY' WAS USED BY THE EXCISE AUTHORITIES WHILE LEVYING THE SAID DEMAND AS AGAINST THE WORD 'DUTY'. 16. IN THE PRESENT CASE THE ASSESSEE SUPPLIED THE M ATERIAL AS PER THE EXCISE RULES AND ON THE BASIS OF PERMITS DULY VETTED BY TH EM. 17. THE EXCISE DEPARTMENT HAS CALCULATED THE DUTY B Y APPLYING THE RATES AS APPLICABLE ON MANUFACTURING OF 1MFL ON THE QUANTITY OF ENA SOLD BY THE ASSESSEE AS IS EVIDENT FROM THE PB PG. 139. CALCULATION OF DEMAND OF RS. 114240007- BULK QUANTITY OF ENA IN DISPUTE = 40000 LTR LONDON PROOF 1 BULK LITRE = 0.5714 LTR STRENGTH OF ENA = 96% TOTAL LONDON PROOF LTR = 40000/.5714*96% = 67200 LPL PER EXCISE RATE ON IMFL RS. 170 LPL EXCISE DEMAND RS. 11424000 B. CALCULATION OF DEMAND OF RS. 68544000 QUANTITY OF ENA IN DISPUTE = 240000 BULK LTR ITA 272/JP/2017 DCIT VS. M/S AGRIBIOTECH INDUSTRIES LTD. 13 1 BULK LITRE = 0.5714 LONDON PROOF LTR STRENGTH OF ENA = 96% TOTAL LONDON PROOF LTR = 40000/.5714*96% = 403200 LPL EXCISE RATE ON IMFL RS. 170 PER LPL EXCISE DEMAND RS. 68544000 18. FROM THE ABOVE CALCULATION, IT IS CLEAR THAT TH E EXCISE AUTHORITIES HAVE JUST RECOVERED THE EXCISE DUTY WHICH WOULD HAVE BEEN LEV IED ON IMFL PRODUCED FROM THE ENA SOLD BY THE ASSESSEE. THUS TH E AMOUNT SHOWN BY THEM IS ACTUALLY OF DUTY AND NOT OF 'PENALTY' AS ST ATED BY THEM IN THEIR RECOVERY ORDER. 19. HERE IT IS IMPORTANT TO READ THE BOND AT EXECUT ED BETWEEN THE ASSESSEE AND THE EXCISE AUTHORITIES SPECIFICALLY COMMUNICATE S THAT THE ASSESSEE IS SUPPOSED TO INDEMNIFY THE EXCISE DUTY TO THE GOVERN MENT EXCHEQUER AND NOT OF ANY PENALTY. THE DUTY PAID IS EXACTLY THE SA ME AS PER THE RATES NOTIFIED IN PB PG. 140 TO 143. 20. IN THE PRESENT CASE THE ASSESSEE HAS SUPPLIED T HE MATERIAL UNDER SUPERVISION OF EXCISE AUTHORITIES, AND AFTER GETTIN G DUE CLEARANCES FROM THEM. IN THE PRESENT CASE THE ASSESSEE HAS MADE AN FOR (FREE ON ROAD) SALE WHICH HAS BEEN MADE AFTER VETTING OF EXCISE AU THORITIES. THERE IS NO FAULT OF THE ASSESSEE IF THE PERMITS RECEIVED FROM OTHER STATE END OUT TO BE FAKE WHICH HAVE BEEN DULY VETTED BY THE EXCISE D EPARTMENT OF THE ASSESSEE COMPANY. 21. ANY LIABILITY ARISING DUE TO THE ANY FAILURE WO ULD BE CONSIDERED AS A BUSINESS LOSS AND CANNOT BE CONSIDERED AS A PENALTY THAT TOO WHEN THERE IS NO SUCH PROVISION IN THE EXCISE ACT. THE ASSESSE E HAS EXECUTED A CONTRACTUAL BOND TO MAKE GOOD THE LOSSES TO THE GOV ERNMENT AND THUS THE LOSS ARISING FROM THE SAME WOULD BE CONTRACTUAL BUSINESS LOSS. ITA 272/JP/2017 DCIT VS. M/S AGRIBIOTECH INDUSTRIES LTD. 14 22. IN THIS RESPECT A PRAYER WAS MADE BEFORE THE AO TO KINDLY SEEK INFORMATION FROM THE EXCISE AUTHORITIES TO BRING FO RWARD THE SPECIFIC PROVISIONS/SECTION(S) OF THE STATUTORY ACT (ANY) UN DER WHICH THE PAYMENT MADE BY THE ASSESSEE TOWARDS EXCISE DUTY (AS IN THI S CASE) IS CONSIDERED EITHER AS AN OFFENCE OR IS PROHIBITED BY LAW. IN TH IS RESPECT THE ASSESSEE ALSO SOUGHT AN OPPORTUNITY TO FILE AN EXPLANATION A GAINST THE PROVISIONS BROUGHT FORWARD BY AO AGAINST THE ASSESSEE. 23. THE ENA WAS EXPORTED AFTER VERIFICATION OF THE IMPORT PERMIT AT 4 STAGES BY THE EXCISE AUTHORITIES AND THE EXCISE AUTHORITIE S ON BEING SATISFIED ISSUED THE EXPORT PERMIT FOR EXPORT OF ENA. ANY LOS S ARISING TO THE ASSESSEE ON ACCOUNT OF NON PERFORMANCE OF OTHER PAR TY SHALL BE CONSTRUED AS BUSINESS LOSS. 24. THUS, IN THE PRESENT CASE THE ASSESSEE HAS ACTE D BONAFIDE IN SUPPLYING THE MATERIAL UNDER THE GUIDANCE OF EXCISE AUTHORITI ES. THE EXCISE AUTHORITIES HAVE SIMPLY USED THE WORD 'PENALTY' AS AGAINST THE CORRECT WORD 'DUTY RECOVERED FROM THE ASSESSEE. A MERE USE OF DIFFERENT WORD BY AN AUTHORITY CANNOT ALTER THE NATURE OF TRANSACT ION. THE ASSESSEE VIDE ITS BOND PROMISED TO MAKE GOOD THE LOSS OF DUTY TO EXCISE DEPARTMENT WHICH HAS BEEN DONE BY IT. THE SAME IS AN EXPENDITU RE IN THE HANDS OF THE ASSESSEE AND THUS ALLOWABLE. 25. IN ANY STATUTE THERE ARE THREE COMPONENT OF DEM AND- TAX, INTEREST AND DEMAND. WHENEVER THERE IS ANY DEFAULT FIRST OF ALL THE TAX IS RECOVERED I.E., THE TAX THAT WOULD BE PAYABLE IF THERE IS NO DEFAULT. THEN INTEREST IS CHARGED FOR DELAY IN MAKING PAYMENT AND THEN THE PE NALTY PROCEEDINGS ARE INITIATED AND PENALTY IS LEVIED. SIMILARLY, IN THE PRESENT CASE, THERE ARE SEPARATE PENALTY PROVISIONS PRESCRIBED IN THE RAJAS THAN EXCISE ACT, 1950- CHAPTER IX FROM SECTION 54 TO 70. A PERUSAL OF ALL THE PROVISIONS CLEARLY SHOWS THAT ISSUE INVOLVED IN THE PRESENT CASE IS NO WHERE COVERED BY ITA 272/JP/2017 DCIT VS. M/S AGRIBIOTECH INDUSTRIES LTD. 15 THESE SECTIONS. THUS, PENALTY IS NOT LEVIABLE FOR S UCH DEFAULT AS PER RAJASTHAN EXCISE ACT, 1950. 26. SECONDLY, EXPORT OF LIQUOR UNDER THE SPECIAL BO ND IS GOVERNED BY THE RAJASTHAN EXCISE RULES, 1956 AND THERE IS A SPECIFI C RULE- RULE 14 FOR THE SAME. RULE 14 CLEARLY SPECIFIES THAT DUTY ON CONSIG NMENT ISSUED UNDER A GENERAL BOND SHALL BE WRITTEN OFF ON RECEIPT OF PAS S AND CERTIFICATE PROVIDED NONE OF THE CONDITIONS OF THE BOND HAS BEE N INFRINGED MEANING THEREBY IN CASE THE PASS IS NOT RECEIVED, THE DUTY HAS TO BE PAID AND NOT ANY PENALTY. 27. NOW COMING TO THE THE RAJASTHAN DISTILLERIES RU LES, 1976 WHICH SPECIFIES THE RULES FOR MAKING EXPORT UNDER BOND, IT CLEARLY SPECIFIES THAT IN CASE THE ITEMS WERE NOT DELIVERED AT THE DESTINATION , T HE DISTILLER SHALL INDEMNIFY FOR ANY LOSS OF DUTY WHICH THE GOVERNOR M AY SUFFER BY REASON OF SUCH NON-DELIVERY OR SHORT DELIVERY BY PAYING TO HIM ON DEMAND THE DUTY AT THE RATE WHERE IN FORCE ON ANY QUANTITY NOT SO DELIVERED. (RULE 94 AND FORM R D 15) 28. THUS, THIS IS THE ONLY DUTY WHICH IS PAID BY TH E ASSESSEE. THIS IS NOT THE PENALTY. PENALTY WOULD BE LEVIED SEPARATELY AS PER THE SPECIFIED SECTIONS OF THE ACT. THIS AMOUNT HAS BEEN PAID TO INDEMNIFY THE EXCISE DUTY LOSS BY THE REVENUE DUE TO NON-DELIVERY OF ASSIGNMENT. T HE PENALTY WOULD BE LEVIED SEPARATELY AND THATS WHY ASSESSEE IS IN FUR THER LITIGATION. 29. THIS ISSUE INVOLVED IN PRESENT CASE IS SQUARELY COVERED BY THE ORDER OF GUJRAT HIGH COURT IN THE CASE OF CIT, GUJRAT VS TAR UN COMMERCIAL MILLS CO. LTD (1977) 107 ITR172 IN WHICH IT HAS BEEN HELD THA T: 'WE ARE OF THE OPINION THAT HAVING REGARD TO THE T ERMS CONTAINED IN THE BOND WE FIND THAT IT IS OPTIONAL FOR THE MANUFA CTURERS TO ACHIEVE THE EXPORT TARGET PRESCRIBED FOR THEM OR TO PAY TO THE GOVERNMENT THE SUM OR SUMS CALCULATED AT THE RATE OF 10 PAISE BY LINEAR YARD TO ITA 272/JP/2017 DCIT VS. M/S AGRIBIOTECH INDUSTRIES LTD. 16 COVER UP THE SHORTFALL IN THE EXPORT OBLIGATIONS. T HE OPTION ENVISAGED IN THE BOND ENTERED INTO BETWEEN THE PARTIES CLEARL Y INDICATES THAT THE OPTION WAS WITH THE MANUFACTURERS AND THAT OPTI ON MAY BE AVAILED OF FOR A VARIETY OF REASONS IN THE INTEREST OF COMMERCIAL EXPEDIENCY. THE EXPORT OBLIGATIONS WHICH THE TEXTIL E MANUFACTURERS MAY HAVE INCURRED FOR THE USE OF TRADE MARK 'SANFOR IZED ' MAY NOT BE FULFILLED FOR VARIOUS FACTORS OVER WHICH THE MANUFA CTURERS MAY NOT HAVE CONTROL. THE TREND AND COMPETITION IN THE INTE RNATIONAL MARKET, THE QUALITY AND QUANTITY OF THE GOODS PRODUCED BY T HE MANUFACTURERS MAY BE SOME OF THE FACTORS WHICH MAY ULTIMATELY HAV E A BEARING ON THE QUESTION OF ACHIEVING THE TARGET. IN THE INTERE ST OF BUSINESS, TEXTILE MANUFACTURERS OPT FOR PAYMENT OF COMPENSATI ON OR DAMAGES TO COVER UP THE SHORTFALL IN THE EXPORT OBLIGATIONS . IT IS NO DOUBT TRUE THAT THE WORD USED IN THE SCHEME WHICH WE HAVE SET OUT ABOVE FOR THE SUM TO BE PAID IN DEFAULT OF FULFILLING THE EXP ORT OBLIGATION HAS BEEN DESCRIBED AS A PENALTY BUT IN THE ULTIMATE ANA LYSIS IT IS THE SUBSTANCE OF THE TRANSACTION BETWEEN THE PARTIES WH ICH HAS TO BE CONSIDERED FOR PURPOSES OF DETERMINING WHAT IS THE NATURE AND IMPORT OF THE SCHEME AND THE BOND EXECUTED IN PURSU ANCE THEREOF. THE EXERCISE OF OPTION, AS STATED ABOVE, MAY BE THE RESULT OF THE COMMERCIAL EXPEDIENCY AS WELL AS CERTAIN EXTRANEOUS FACTORS OVER WHICH THE MANUFACTURERS MIGHT NOT HAVE THE CONTROL AND, THEREFORE, IN VIEW OF THE SCHEME AND THE BOND WITH WHICH WE AR E CONCERNED HERE, IT CANNOT BE SAID THAT THERE IS A BREACH OF A PUBLIC POLICY WHICH MAY RENDER THE PAYMENT, AGREED TO BE MADE FOR THE D EFAULT ARISING AS A RESULT OF THE BREACH, AS ONE AKIN TO PENALTY. UND ER NO CIRCUMSTANCES, WITHOUT VIOLENCE TO THE LANGUAGE, IT CAN BE SAID TO BE INFRACTION OF THE LAW. IN THAT VIEW OF THE MATTER, THEREFORE, WE DO NOT FIND ANY REASONS TO INTERFERE WITH THE ORDER OF THE TRIBUNAL WHEN IT VIEWED THE PAYMENT IN QUESTION AS EXPENSES WHOLLY A ND EXCLUSIVELY LAID OUT FOR THE BUSINESS. IN THAT VIEW OF THE MATT ER, THEREFORE, WE ANSWER THE QUESTION REFERRED TO US IN THE AFFIRMATI VE AND IN FAVOUR OF THE ASSESSEE. THE COMMISSIONER OF INCOME-TAX SHALL PAY COSTS OF THIS REFERENCE TO THE ASSESSEE.' NOMENCLATURE USED IN ANY PROVISION OF LAW IS NOT C ONCLUSIVE. ITA 272/JP/2017 DCIT VS. M/S AGRIBIOTECH INDUSTRIES LTD. 17 30. IT IS WELL SETTLED LAW THAT THE NOMENCLATURE US ED IN ANY PROVISION OF LAW TO DESCRIBE ANY PAYMENT, TO BE MADE BY A PERSON, AS INTEREST, COMPENSATION, PENALTY ETC. IS NOT CONCLUSIVE. 31. IN THIS REGARD RELIANCE IS PLACED IN THE ORDER OF THE DIVISION BENCH OF THE ANDHRA PRADESH HIGH COURT IN CIT V HYDERABAD ALLWYN METAL WORKS LIMITED [1988] 172 ITR 113, THE SUPREME COURT , IN PRAKASH COTTON MILLS PVT. LTD. V CIT (CENTRAL) BOMBAY [1993] 201 ITR 684 (SC) HELD THAT WHENEVER ANY STATUTORY IMPOST PAID BY AN ASSESSEE B Y WAY OF DAMAGES OR PENALTY OR INTEREST, IS CLAIMED AS AN ALLOWABLE EXPENDITURE UNDER SECTION 37(1) OF THE I.T. ACT, THE ASSESSING AUTHOR ITY IS REQUIRED TO EXAMINE THE SCHEME OF THE PROVISIONS OF THE RELEVAN T STATUTE PROVIDING FOR PAYMENT OF SUCH IMPOST NOTWITHSTANDING THE NOME NCLATURE OF THE IMPOST AS GIVEN BY THE STATUTE, TO FIND WHETHER IT IS COMPENSATORY OR PENAL, IN NATURE. THE AUTHORITY HAS TO ALLOW DEDUCT ION UNDER SECTION 37(1) OF THE I.T. ACT, WHERE EVER SUCH EXAMINATION REVEALS THE CONCERNED IMPOST TO BE PURELY COMPENSATORY IN NATURE. WHERE E VER SUCH IMPOST IS FOUND TO BE OF A COMPOSITE NATURE, THAT IS, PARTLY OF COMPENSATORY NATURE AND PARTLY OF PENAL NATURE, THE AUTHORITIES ARE OBL IGATED TO BIFURCATE THE TWO COMPONENTS OF THE IMPOST AND GIVE DEDUCTION TO THAT COMPONENT WHICH IS COMPENSATORY IN NATURE AND REFUSE TO GIVE DEDUCTION TO THAT COMPONENT WHICH IS PENAL IN NATURE. SIMILARLY, THE HON'BLE APEX COURT IN THE CASE OF C IT V AHMEDABAD COTTON MANUFACTURING CO. LTD. 205 ITR 163 HELD AS UNDER:- 'WHAT NEEDS TO BE DONE BY AN ASSESSING AUTHORITY U NDER THE INCOME-TAX ACT ; 1961, IN EXAMINING THE CLAIM OF AN ASSESSEE THAT TH E PAYMENT MADE BY SUCH ASSESSEE WAS A DEDUCTIBLE EXPENDITURE UNDER SECTION 37 OF THE INCOME-TAX ACT ALTHOUGH CALLED A PENALTY IS TO SEE WHETHER THE LAW OR SCHEME UNDER WHICH THE AMOUNT WAS PAID REQUIRED SUC H PAYMENT TO BE MADE AS PENALTY OR AS SOMETHING AKIN TO PENALTY, TH AT IS IMPOSED BY WAY ITA 272/JP/2017 DCIT VS. M/S AGRIBIOTECH INDUSTRIES LTD. 18 OF PUNISHMENT FOR BREACH OR INFRACTION OF THE LAW O R THE STATUTORY SCHEME. IF THE AMOUNT SO PAID IS FOUND TO BE NOT A PENALTY OR SOMETHING AKIN TO PENALTY DUE TO THE ACT THAT THE AMOUNT PAID BY THE ASSESSEE WAS IN EXERCISE OF THE OPTION CONFERRED UPON HIM UNDER THE VERY LAW OR SCHEME CONCERNED, THEN ONE HAS TO REGARD SUCH PAYME NT AS BUSINESS EXPENDITURE OF THE ASSESSEE, ALLOWABLE UNDER SECTIO N 37....' 32. AMOUNT PAID IS COMPENSATORY IN NATURE AND NOT P ENALTY IN NATURE THUS, IT IS IMPORTANT TO SUBMIT HERE THAT THE ACTI ON OF LEVYING EXCISE DUTY ON THE ASSESSEE IN CASE THE DELIVERY RECEIPTS ARE N OT RECEIVED FROM THE IMPORTING STATE IS COMPENSATORY IN NATURE AND NOT P ENAL IN NATURE AND THUS THE PAYMENT OF THE SAID DUTY CANNOT BE CONSIDE RED AS A PENALTY FOR ANY OFFENCE OR AN ACT PROHIBITED BY LAW. IN THE FOL LOWING CASES AMOUNT PAID ON ACCOUNT OF PENALTY BEING COMPENSATORY IN NA TURE HAVE BEEN ALLOWED BY THE HONORABLE SUPREME COURT AND THE HIGH COURTS A. IN THE CASE OF CIT VS. REGALIA APPARELS (P) LTD. [2013] 352 ITR 71 HONORABLE BOMBAY HIGH COURT STATED DEDUCTION U/S 37(1) - PENALTY PAID TO THE APPAREL EXPORT PROMOTION COUNCIL - FORFEITURE OF GURANTEE - FAILURE TO FULFI LL THE OBLIGATION TO EXPORT - IT AT ALLOWED THE DEDUCTION - HELD THAT:- RESPONDENT TOOK A BUSINESS DECISION NOT TO HONOUR ITS COMMITMENT OF F ULFILLING THE EXPORT ENTITLEMENT IN VIEW OF LOSS BEING SUFFERED B Y IT. THE ASSESSING OFFICER DOES NOT DISPUTE THIS FACT NOR DOES HE DOUB T THE GENUINENESS OF THE CLAIM OF THE EXPENDITURE BEING FOR BUSINESS PURPOSE. IN THESE FACTS THE TRIBUNAL HELD THAT RESPONDENT ASSESSEE HA S NOT CONTRAVENED ANY PROVISIONS OF LAW AND THUS THE FORFEITURE OF TH E BANK GUARANTEE WAS COMPENSATORY IN NATURE UNDER SECTION 37(1) OF T HE ACT. B. IN THE CASE OF CIT VS. NEO STRUCTO CONSTRUCTION LTD. HONORABLE GUJARAT HIGH COURT VIDE ITS ORDER DATED 09.07.2013 STATED A S UNDER: BUSINESS EXPENDITURE U/S 37(1) - ENCASHMENT OF BAN K GUARANTEE - COMPENSATION FOR NON PERFORMANCE - WHETHER IN THE N ATURE OF PENALTY - HELD THAT:- ONGC ENCASHED THE BANK GUARAN TEE, WHICH WAS ITA 272/JP/2017 DCIT VS. M/S AGRIBIOTECH INDUSTRIES LTD. 19 FURNISHED BY THE ASSESSEE (PERFORMANCE GUARANTEE) D UE TO THE NON- FULFILLMENT OF THE CONTRACT BY THE ASSESSEE. IT CAN BE SAID TO BE COMPENSATORY IN NATURE AND NOT PENAL IN NATURE, THE ITAT HAS RIGHTLY HELD THAT THE ASSESSEE WOULD BE ENTITLED TO THE DED UCTION OF THE SAME AS BUSINESS EXPENDITURE UNDER SECTION 37(1) - FOLLO WING DECISION OF PRAKASH COTTON MILLS P. LTD. VS. COMMISSIONER OF IN COME-TAX [1993 (4) TMI 3 - SUPREME COURT] - DECIDED AGAINST REVENUE. C. IN THE CASE OF M/S USHA MICROPROCESS CONTROLS LT D. VS CIT ITA 101/2000 DATED 5 TH AUGUST 2013 AND COMMISSIONER OF INCOME TAX V. N.M. PARTHASARATHY, 1995 (212) ITR 105- IT WAS HELD THAT THE AMOUNT OF REDEMPTION FINE WAS COMPENSATORY AND THEREFORE, FEL L OUTSIDE THE MISCHIEF OF EXPLANATION OF SECTION 37(1) OF THE INC OME TAX ACT. 33. THERE IS ONLY PROCEDURAL DEFAULT AND IT IS NEITHER AN OFFENCE OR INFRINGEMENT OF LAW IN THE CASE OF THE ASSESSEE NONE OF THE ACT DONE BY IT IS EITHER AN OFFENCE OR ANYTHING PROHIBITED BY LAW. IN THIS RESPECT RELI ANCE IS PLACED ON FOLLOWING CASE LAWS. CASE LAWS: A. PRAKASH COTTON MILLS PVT. LTD. V CIT (CENTRAL) B OMBAY (SUPRA): THE SUPREME COURT HELD THAT WHENEVER ANY STATUTORY IMPO ST PAID BY AN ASSESSEE BY WAY OF DAMAGES OR PENALTY OR INTEREST, IS CLAIMED AS AN ALLOWABLE EXPENDITURE UNDER SECTION 37(1) OF THE I. T. ACT, THE ASSESSING AUTHORITY IS REQUIRED TO EXAMINE THE SCHEME OF THE PROVISIONS OF THE RELEVANT STATUTE PROVIDING FOR PAYMENT OF SUCH IMPO ST NOTWITHSTANDING THE NOMENCLATURE OF THE IMPOST AS GIVEN BY THE STAT UTE, TO FIND WHETHER IT IS COMPENSATORY OR PENAL, IN NATURE. THE AUTHORITY HAS TO ALLOW DEDUCTION UNDER SECTION 37(1) OF THE I.T. ACT, WHERE EVER SUC H EXAMINATION REVEALS THE CONCERNED IMPOST TO BE PURELY COMPENSATORY IN N ATURE. INTEREST PAID ITA 272/JP/2017 DCIT VS. M/S AGRIBIOTECH INDUSTRIES LTD. 20 FOR DELAYED PAYMENT OF SALES-TAX AND ESI CONTRIBUTI ON IS IN THE NATURE OF COMPENSATION, THE SAME WILL BE ALLOWABLE IRRESPECTI VE OF THE NOMENCLATURE USED. B. CIT V PRASAD AND CO. [2012] 341 ITR 480: THE DEL HI HIGH COURT DEALT WITH THE CASE OF ASSESSEE, A SHARE BROKER, PAYING PENALT Y TO THE DELHI STOCK EXCHANGE AND NATIONAL STOCK EXCHANGE FOR LATE DEPOS IT OF MARGIN MONIES AND OTHER VIOLATIONS OF TIMELY DELIVERY. FOLLOWING AN ITAT DECISION IN MASTER CAPITAL, THE HIGH COURT HELD THAT THESE PAYM ENTS WERE IN THE NORMAL COURSE OF BUSINESS OF THE ASSESSEE AND THERE WAS NO INFRACTION OF LAW. C. DWARKA DASS & CO. VS. EXCISE & TAXATION COMMR. 1 969 CURRENT LAW JOURNAL 290: IT WAS HELD THAT A PENALTY UNDER S. 18 (2) OF THE PUNJAB EXCISE ACT WAS NOT IN THE NATURE OF PUNISHMENT AND THE OPT ION TO PAY THE PENALTY WAS IN THE NATURE OF ENABLING PROVISION WHI CH COULD HAVE SOME RELATION WITH THE APPROXIMATE QUANTUM OF LOSS WHICH THE LICENSEE MIGHT SUFFER IN CASE OF AN ORDER CANCELLING THE LICENCE F OR THE REMAINING PERIOD. FURTHER, THIS BENCH HAD AN OCCASION TO CONSIDER THI S MATTER IN THE CASE OF SHADI SINGH KASHMIRA SINGH VS. ITO (1983) 15 TLR 48 5 (CHG.-TRIB.) AND IT WAS HELD THEREIN THAT THE PAYMENT MADE IN RESPECT O F DEFAULT UNDER S. 36B OF THE PUNJAB EXCISE ACT, 1914, WAS INCIDENTAL TO TRADE AND WAS ALLOWABLE AS SUCH. D. COMMISSIONER OF INCOME TAX VS. HOSHIARI LAL KEWA L KRISHAN : CIT (1961) 41 ITR 350 (SC): THE FINE WAS INCURRED BY TH E ASSESSEE FOR MAKING BELATED PAYMENTS OF THE SAID EXCISE DUTY. THOUGH TE RMED AS FINE, THE PAYMENT WAS NOT IN THE NATURE OF PUNISHMENT BUT WAS BY WAY OF COMPENSATION. THE PAYMENT WAS IN EFFECT INTENDED TO COMPENSATE THE LOSS ON ACCOUNT OF DELAY IN MAKING THE PAYMENT AND WAS NOT BY WAY OF PENALTY FOR BREACH OF LAW. THE AMOUNT PAID CAN BE C ONSIDERED TO BE ITA 272/JP/2017 DCIT VS. M/S AGRIBIOTECH INDUSTRIES LTD. 21 LEGITIMATE BUSINESS EXPENSE OF THE ASSESSEE, THOUGH TECHNICALLY, IT MAY BE CALLED PENALTY. E. MASTER CAPITAL [2008] 23 SOT 60: IT WAS HELD BY THE TRIBUNAL THAT AMOUNT PAID BY THE ASSESSEE, A SHARE BROKER TO NSE FOR VIO LATION OF TRADING BEYOND EXPOSER LIMIT, LATE SUBMISSION OF MARGIN CER TIFICATE AND DELAY IN MAKING DELIVERIES OF SHARES DUE TO DEFICIENCIES WER E DEDUCTIBLE AS A BUSINESS EXPENDITURE, AS THE AMOUNT WAS PAID DURING THE COURSE OF BUSINESS OF ASSESSEES BUSINESS AND THESE WAS NO IN FRACTION OF LAW. F. GOLD CREST CAPITAL MARKETS LIMITED V ITO 36 ITR 177 (2010) : MUMBAI ITAT IN ANOTHER LANDMARK CASE DECIDED THAT FINE OR PENAL TY IMPOSED BY NSE TO ITS MEMBERS IS REGULATED BY THEIR IN HOUSE LAWS AND COULD NOT BE TERMED AS VIOLATION OF STATUTORY LAWS AND HENCE CANNOT BE DISALLOWED. G. VRM SHARE BROKING (P) LTD. 27 SOT 469 : AGAIN, P ENALTY PAID BY ASSESSEE A SHARE BROKER, FOR EXCESS UTILIZATION LIMITS COMPARA BLE TO IT FOR DOING TRADE OF ITS CLIENTS AT A PARTICULAR TIME WAS ALLOWABLE U /S. 37(1) OF THE INCOME- TAX ACT. H. DCIT V BHARAT C GANDHI [2011] 10 TAXMANN.COM256: COMPOUNDING FEES PAID TO RTO BY A TRANSPORTER FOR TRANSPORTING OVER DIMENSIONAL CONSIGNMENTS IS AN ALLOWABLE BUSINESS EXPENDITURE U /S 37. THESE ARE NOT IN CONTRAVENTION OF LAW AND THE RTO AUTHORITIES NEI THER SEIZED THE VEHICLE NOR BOOKED ANY OFFENCE BUT ARE GENERALLY COLLECTING AS A ROUTINE AMOUNT AT THE CHECK POST ITSELF WHILE ALLOWING THE GOODS T O BE TRANSPORTED. I. COMMISSIONER OF INCOME TAX VS. HERO CYCLES LTD. 17 DTR 281: THERE IS NO DOUBT THAT PAYMENTS MADE IN THE NATURE OF PENALTY OR FINE FOR ANY WRONGFUL ACT CANNOT BE ALLOWED AS PERMISSIBLE D EDUCTIONS BUT MERE LABEL OF THE PAYMENT IS NOT CONCLUSIVE. CERTAIN PAY MENTS MAY BE INCIDENTAL TO THE BUSINESS AND HAVE TO BE ALLOWED O N THE TEST OF ITA 272/JP/2017 DCIT VS. M/S AGRIBIOTECH INDUSTRIES LTD. 22 'COMMERCIAL EXPEDIENCY', IF NO VIOLATION OF LAW OR PUBLIC POLICY IS INVOLVED. WHERE PENALTY IS NOT FOR DELIBERATE VIOLATION OF LA W, THE AMOUNT MAY BE ALLOWED AS DEDUCTION. PENALTY, FINES, ETC PAID BY T HE ASSESSEE TO STATE ELECTRICITY BOARD FOR VIOLATING POWER REGULATION (D RAWING EXTRA LOAD IN PEAK HOURS) WAS ALLOWABLE DEDUCTION U/S. 37(1) OF T HE ACT. J. AHMEDABAD COTTON MFG. CO. LTD. & ORS. (SUPRA): T HE HON'BLE SUPREME COURT IN THE CASE HELD AS UNDER: 'IN EXAMINING THE CLAIM OF AN ASSESSEE THAT A PAYMENT MADE BY HIM IS A DEDUCTIBLE EXPENDIT URE UNDER S. 37 OF THE IT ACT, 1961, WHAT NEEDS TO BE DONE BY THE ASSE SSING AUTHORITY IS TO SEE WHETHER THE LAW OR SCHEME UNDER WHICH THE AMOUN T WAS PAID REQUIRED SUCH PAYMENT TO BE MADE AS A PENALTY OR SO METHING AKIN TO PENALTY IMPOSED BY THE WAY OF PUNISHMENT FOR BREACH OR INFRACTION OF THE LAW OR THE STATUTORY SCHEME; IF THE AMOUNT SO PAID (ALTHOUGH CALLED A PENALTY) IS FOUND TO BE NOT A PENALTY OR SOMETHING AKIN TO PENALTY DUE TO THE FACT THAT THE AMOUNT PAID BY THE ASSESSEE WAS I N EXERCISE OF THE OPTION CONFERRED UPON HIM UNDER THE VERY LAW OR SCH EME CONCERNED, THE ASSESSING AUTHORITY HAS TO REGARD SUCH PAYMENT AS B USINESS EXPENDITURE OF THE ASSESSEE, ALLOWABLE UNDER S. 37 AS AN INCIDE NT OF BUSINESS LAID OUT AND EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS.' K. KAIRA CAN COMPANY LTD. VS. DEPUTY COMMISSIONER O F INCOME TAX [2 ITR (TRIB) 20] :PAYMENT, MADE UNDER SEBI REGULAT ION SCHEME, 2002 FOR FAILURE TO MAKE DISCLOSURE AS REQUIRED UNDER SEBI ( SUBSTANTIAL ACQUISITION OF SHARES AND TAKEOVERS) REGULATIONS 1997 COULD NOT BE TREATED AS PENALTY AS IT IS A PAYMENT FOR REGULARIZING THE DEF AULT COMMITTED HENCE SUCH PAYMENT CANNOT BE DISALLOWED BY INVOKING EXPLA NATION TO S. 37(1). A. DCIT V. MESSEE DUVSSELDORF INDIA (P) LTD. (20 10) 129 TTJ 81 T (DEL.). B. MAHALAXMI SUGAR MILLS CO. V. CIT (1980) 123 IT R 429 (SC). ITA 272/JP/2017 DCIT VS. M/S AGRIBIOTECH INDUSTRIES LTD. 23 L. REMFRY & SAGAR CONSULTANTS PVT. [ITA NO.5887/DEL /2011DATED.- JULY 20, 2012 ITAT DEL] : THE AMOUNT OF INTEREST PAID FOR DE LAYED PAYMENT OF SERVICE TAX IS COMPENSATORY IN NATURE AND HAS THE S AME CHARACTER A SERVICE TAX AND IT IS NOT IN NATURE OF ANY PENALTY OR FINE DISALLOWABLE AS EXPENSES U/S 37 OF THE INCOME TAX ACT. 1961. 34. IN VIEW OF THE ABOVE SUBMISSION IT IS REQUESTED TO KINDLY ALLOW THE EXPENDITURE OF RS. 3,16,32,000/- INCURRED BY THE AS SESSEE WHICH IS PURELY DURING THE COURSE OF BUSINESS AS ALLOWABLE U/S 37(1 ) OF THE INCOME TAX ACT, 1961. 6. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES, PERUSED THE MATERIAL AVAILABLE ON THE RECORD AND ALSO GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. THE ASSESSEE COMPANY IS ENGAGE D IN MANUFACTURING AND SALE OF ENA AND RECTIFIED LIQUOR. THE PARTY WHO WISH TO MAKE PURCHASES FROM THE ASSESSEE GETS EXCISE PER MIT (IMPORT PERMIT) FROM EXCISE DEPARTMENT OF THEIR STATE. IN ORDER TO DELIVER THE GOODS THE ASSESSEE NEEDS TO OBTAIN EXPORT PERMIT FROM THE EXC ISE DEPARTMENT OF RAJASTHAN. IN ORDER TO RECEIVE THE EXPORT PERMIT, T HE IMPORT PERMITS RECEIVED FROM THE ASSISTANT EXCISE OFFICER OF THAT STATE IS NECESSARY FOR PERMISSION. AS PER THE PROCEDURE LAID DOWN IN THE RA JASTHAN STATE EXCISE LAW, THE ASSISTANT EXCISE OFFICER PROCESSES THE PERM ITS AND FORWARDED THE SAME TO DISTRICT EXCISE OFFICER FOR HIS PERMISSION. THE DISTRICT EXCISE OFFICER FORWARDS THE SAME TO ADDITIONAL COMMISSIONER , EXCISE, TO OBTAIN PERMISSION TO EXPORT THE GOODS. AFTER FOLLOWING THE PROCEDURE, THE EXCISE ITA 272/JP/2017 DCIT VS. M/S AGRIBIOTECH INDUSTRIES LTD. 24 COMMISSIONER ISSUED THE PERMISSION FOR EXPORT AND R ETURNED THE SAME TO THE DISTRICT EXCISE OFFICER, WHO FURTHER RETURNED TH E SAME TO THE ASSISTANT EXCISE OFFICER POSTED AT THE ASSESSEES COMPANY FAC TORY. THUS, AFTER GETTING THE NECESSARY PERMISSIONS FROM THE EXCISE D EPARTMENTS, THE CONSIGNMENT IS DISPATCHED UNDER THE SUPERVISION OF ASSISTANT EXCISE OFFICER. ON THE RECEIPT OF THE GOODS BY THE BUYER S TATE, THE EXCISE DEPARTMENT OF THE BUYER STATE ISSUES A RECEIPT TO T HE EXCISE DEPARTMENT OF THE ASSESSEE I.E. RAJASTHAN. THE ASSESSEE ALSO EX ECUTES A BOND WITH THE EXCISE DEPARTMENT TO MAKE GOOD THE LOSSES INCUR RED TO THE DEPARTMENT ON ACCOUNT OF LOSS OF DUTY IN CASE THE G OODS DELIVERY RECEIPTS ARE NOT RECEIVED BY THE EXCISE DEPARTMENT OF THE AS SESSEES STATE FROM THE EXCISE DEPARTMENT OF THE BUYER'S STATE. THE ASSE SSEE EXECUTED A CONTRACTUAL BOND TO MAKE GOOD THE LOSSES TO THE GOV ERNMENT, THUS THE ASSESSEE INDEMNIFY THE EXCISE DUTY TO THE GOVERNMEN T EXCHEQUER. THE DUTY PAID IS EXACTLY THE SAME AS PER THE RATES NOTI FIED BY THE GOVERNMENT, THEREFORE, THE SAID PAYMENT IN DISCHARG ING THE CONTRACTUAL OBLIGATION TO INDEMNIFY THE EXCISE DEPARTMENT FOR T HE PAYMENT OF THE EXCISE DUTY TO THE GOVERNMENT EXCHEQUER, CANNOT BE HELD IN PENAL NATURE. THEREFORE, WHATEVER NOMENCLATURE GIVEN BY TH E EXCISE DEPARTMENT FOR THE DEMAND NOTICE CANNOT BE HELD AS PENALTY. IN VIEW OF THESE FACTS AND CIRCUMSTANCES, WE FIND NO MERIT IN T HE APPEAL OF THE ITA 272/JP/2017 DCIT VS. M/S AGRIBIOTECH INDUSTRIES LTD. 25 REVENUE. THIS VIEW IS SUPPORTED BY THE DECISION OF TH E HON'BLE SUPREME COURT IN THE CASE OF CIT VS. HYDERABAD ALLWYN METAL W ORKS LIMITED (SUPRA), PRAKASH COTTON MILLS PVT. LTD. VS. CIT (SU PRA) AND THE HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT, GUJARAT VS. TA RUN COMMERCIAL MILLS CO. LTD. (SUPRA). IN VIEW OF THE ABOVE FACTS AND CIR CUMSTANCES AND THE CASE LAWS, WE UPHOLD THE ORDER OF THE LD. CIT(A). 7. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED ORDER PRONOUNCED IN THE OPEN COURT ON 31/07/2017. SD/- SD/- DQY HKKJR HKKXPAN (KUL BHARAT) (BHAGCHAND) U;KF;D LNL;@ JUDICIAL MEMBER YS[KK LNL;@ ACCOUNTANT MEMBER TK;IQJ@ JAIPUR FNUKAD@ DATED:- 31 ST JULY, 2017 *RANJAN VKNS'K DH IZFRFYFI VXZSFKR @ COPY OF THE ORDER FORWARDED TO: 1. VIHYKFKHZ @ THE APPELLANT- THE DCIT, CIRCLE-4, JAIPUR. 2. IZR;FKHZ @ THE RESPONDENT- M/S AGRIBIOTECH INDUSTRIES LIMITED, JAIPUR. 3. VK;DJ VK;QDR @ CIT 4. VK;DJ VK;QDRVIHY @ THE CIT(A) 5. FOHKKXH; IZFRFUF/K] VK;DJ VIHYH; VF/KDJ.K] T;IQJ @ DR, ITAT, JAIPUR 6. XKMZ QKBZY @ GUARD FILE (ITA NO. 272/JP/2017) VKNS'KKUQLKJ @ BY ORDER, LGK;D IATHDKJ @ ASST. REGISTRAR