M P GUPTA, MUMBAI V. ITO WD 12(3)(1), MUMBAI

ITA 4239/MUM/2011

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 8235 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 5 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-10-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 03-09-2014
• Assessment Year: misc
• Appeal Filed On: 24-05-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MOURYA PRATAP; MANJUNATHA SWAMI
• Assessee Lawyers: S E DASTUR; BHARAT J ANARTHANAN
• Keywords: Business expenditure; Bonafide belief; Source of fund; Deemed to accrue or arise in india
• Section: 69C; 143(3); 37(1); 147; 148

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL B, BENC H MUMBAI .. , , BEFORE : SHRI R.C.SHARMA, AM & SHRI AMIT SHUKLA, JM ./ ITA NO.4239/MUM/2011 ( / ASSESSMENT YEAR : 1988-89) M/S M.P.GUPTA, THROUGH LR. SHRI SUSHIL GUPTA, 161-C, MITTAL TOWERS, NARIMAN POINT, MUMBAI-400 021 VS. ITO WARD-12(3)(1), MUMBAI. ./ ! ./PAN/GIR NO. : AALPG 1065 E ( ' /APPELLANT ) .. ( #$' / RESPONDENT ) %& ' /ASSESSEE BY : SHRI S.E.DASTUR AND SHRI BHARAT JANARTHANAN /REVENUE BY : SHRI MOURYA PRATAP & MANJUNATHASWAMI % ( ) * / DATE OF HEARING : 3RD SEPT. 2014 +,-. ) * /DATE OF PRONOUNCEMENT : 31 ST OCT, 2014 !' / O R D E R PER R.C.SHARMA (A.M.) : THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER CIT(A), FOR ASSESSMENT YEAR 2008-09, IN THE MATTER OF ORDER PAS SED U/S.144 R.W.S. 143(3) OF THE I.T. ACT ON THE FOLLOWING GROUNDS :- THE UNDER MENTIONED GROUNDS OF APPEAL ARE WITHOUT PREJUDICE TO ONE ANOTHER: I. FIRST GROUND OF APPEAL ITA 4239/M/13 2 1. THE COMMISSIONER OF INCOME TAX (APPEALS) HAS ERR ED IN CONFIRMING PAYMENT OF REDEMPTION FINE OF RS 75,00,000 AS DEEME D INCOME U/S 69C. 2. SHE ERRED IN DISALLOWING EXPENSES/BUSINESS LOSS ON ACCOUNT OF REDEMPTION FINE OF RS 75,00,000 3. SHE FURTHER ERRED IN STATING THAT I) THE ASSESSEE WAS CARRYING ON BUSINESS IN AN UNLA WFUL MANNER OR IN CONTRAVENTION OF CERTAIN RULES. II) REDEMPTION FINE CANNOT BE HELD AS LAID OUT WHOL LY AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS. 4. SHE FAILED TO APPRECIATE THAT: 1. THE APPELLANT HAS EXPLAINED SOURCE OF EXPENDITUR E AND HENCE CANNOT BE DEEMED TO BE INCOME U/S 69C. II. THE APPELLANT IS CARRYING ON BUSINESS IN A LAWF UL MANNER. ILL. THE EXPENDITURE OF RS 75,00,000 IS WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS AND HENCE ALLOWABLE AS EXPE NDITURE. 5. THE APPELLANT PRAYS THAT DISALLOWANCE OF EXPENDI TURE / DEEMED INCOME U/S 69C ON ACCOUNT OF REDEMPTION FINE OF RS 75,00,0 00 BE DELETED. II. SECOND GROUND OF APPEAL 1. THE COMMISSIONER OF INCOME TAX (APPEALS) ERRED I N NOT CONSIDERING VALIDITY OF ORDER PASSED U/S 143(3) R.W.S. 141. 2. SHE FAILED TO APPRECIATE THAT ORDER PASSED U/S 1 43(3) R.W.S. 147 AND NOTICE U/S 148 ARE INVALID AND WITHOUT JURISDICTION . 3. THE APPELLANT PRAYS THAT ORDER PASSED U/S 143(3) R.W.S. 147 BE TREATED AS INVALID, WITHOUT JURISDICTION AND BE QUASHED.. 2. RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORD PERUS ED. FACTS IN BRIEF ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF IMPORT AND SALE OF GOODS. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE E NTERED INTO AN AGREEMENT WITH EXPORT HOUSE M/S RAJNIKANT BROS. FOR IMPORT O F CERTAIN GOODS. THE SAID ITA 4239/M/13 3 EXPORT HOUSE HAD IMPORT LICENCE ISSUED AS PER THE O RDER OF HONBLE HIGH COURT AND SUPREME COURT WHICH COULD BE USED FOR IMP ORT OF VARIOUS COMMODITIES. THE ASSESSEE ENTERED INTO AGREEMENT W ITH THE EXPORT HOUSE M/S RAJNIKANT & BROS. ON 14 TH 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 INDI A 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 PERMI SSIBLE UNDER OGL OF IMPORT & EXPORT POLICY OF 1978-79. HOWEVER, WHEN THE GOOD S ARRIVED AT MADRAS PORT, M/S THE INDO AFGHAN CHAMBER OF COMMERCE APPROACHED THE HONBLE BOMBAY HIGH COURT TO BLOCK THESE IMPORTS, CLAIMING THAT SU CH IMPORTS WOULD AFFECT THEIR FUNDAMENTAL RIGHTS. THE HONBLE BOMBAY HIG H COURT DISMISSED THEIR WRIT PETITION VIDE ORDER DATED 31-1-1986 ON THE GRO UND THAT THE PETITIONERS DID NOT HAVE A FUNDAMENTAL RIGHT TO HAVE MONOPOLY I N THE TRADE AND THAT IMPORTERS M/S RAJNIKANT & BROS WERE NOT IN ANY WAY BLOCKING THE PETITIONERS FROM DOING THEIR BUSINESS. THEREAFTER M/S INDO AFG HAN CHAMBER OF COMMERCE FILED WRIT PETITION BEFORE THE HONBLE SUP REME COURT. THE HONBLE SUPREME COURT ORDERED THAT DRY FRUITS COULD NOT BE IMPORTED AGAINST THE ADDITIONAL LICENCES ISSUED TO EXPORT HOUSES. AFTER THE ORDER OF HONBLE SUPREME COURT, COLLECTOR OF CUSTOMS, MADRAS CONFISC ATED THE GOODS, IMPOSED REDEMPTION FINE OF RS. 1,20,00,000/- AND A PENALTY OF RS. 20,00,000/- ON M/S RAJNIKANT & BROS. M/S RAJNIKANT & BROS FILED APPEAL BEFORE THE CUSTOMS TRIBUNAL, MADRAS WHEREIN IT WAS OBSERVED THAT THERE WAS ADMITTEDLY SOME LACK OF CLARITY IN INTERPRETING THE IMPORT POLICY E VEN WITH LICENSING AUTHORITY AS BROUGHT OUT IN THE SUBMISSIONS BEFORE US. IT IS AL SO SEEN THAT THE BOMBAY CUSTOM HOUSE IN A SIMILAR INSTANCE HAD NOT IMPOSED ANY PENALTY ON THE IMPORTER. THE CIRCUMSTANCES OF THE CASE DO NOT REV EAL ANY MALA FIDES CONSIDERING THAT THERE WAS CERTAIN AMOUNT OF VAGUEN ESS IN THE POLICY ITSELF. IN ITA 4239/M/13 4 THIS VIEW OF THE MATTER THE PERSONAL PENALTY IS NOT JUSTIFIED AND IT IS ACCORDINGLY SET ASIDE. 3. IN VIEW OF THE ABOVE ORDER OF THE CUSTOMS TRIBUN AL, MADRAS, THE ENTIRE PENALTY IMPOSED WAS WAIVED AND ALSO REDUCED THE RED EMPTION FINE BY 40%. THE ASSESSEE MADE A PAYMENT OF RS. 75 LACS TO CUSTO MS AUTHORITIES FOR RELEASING THE GOODS AND CLAIMED THE SAME AS BUSINES S EXPENDITURE. WHILE MAKING ASSESSMENT OF THE ASSESSEE, THE A.O. DISALLO WED THE PAYMENT OF RS. 75 LACS U/S 69-C OF THE INCOME TAX ACT, 1961 ON THE PLEA THAT THE SOURCE OF EXPENDITURE WAS NOT EXPLAINED. THE A.O. ALSO HELD THAT THE EXPENDITURE WAS IN THE NATURE OF FINE FOR INFRACTION OF LAW. THE LD . CIT(A) CONFIRMED THE ACTION OF THE A.O. IN AN APPEAL FILED BY THE ASSESSEE BEF ORE THE TRIBUNAL, THE TRIBUNAL VIDE ITS ORDER DATED 6-12-2006 ALLOWED THE APPEAL FOR STATISTICAL PURPOSE AND RESTORED THE ENTIRE ISSUE FOR RECONSIDE RATION TO THE FILE OF THE LD. CIT(A). IN THE SECOND ROUND, AGAIN THE LD. CIT(A) CONFIRMED THE DISALLOWANCE AGAINST WHICH THE ASSESSEE IS IN FURTHER APPEAL BEF ORE US. 4. IT WAS CONTENDED BY THE LD. SR. COUNSEL FOR THE ASSESSEE THAT THE AMOUNT SO PAID WAS NOT IN THE NATURE OF PENALTY BUT WAS IN THE NATURE OF REDEMPTION FINE. IT WAS FURTHER SUBMITTED THAT OTHE R CONSIGNMENTS OF ALMONDS IMPORTED BY OTHER EXPORT HOUSES WERE CLEARED BY THE BOMBAY CUSTOMS UNDER IDENTICAL UNDER SIMILAR IMPORT LICENCES. COPY OF T HE CUSTOMS TRIBUNAL ORDER WAS ALSO PLACED ON RECORD. OUR ATTENTION WAS FURTH ER INVITED TO THE FACT THAT THE HONBLE SUPREME COURT IN THE CASE OF ANOTHER IM PORTER 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 LICEN CES. IN THIS VIEW OF THE MATTER BOTH ASSESSEE AND IMPORT HOUSES AS WELL AS A LL PERSONS IN THE GOVERNMENT DEPARTMENT AND IN TRADE AT THAT TIME WER E HAVING BONA FIDE BELIEF THAT SUCH IMPORTS WERE PERMISSIBLE UNDER THE LICENC ES ISSUED AS ALMONDS OR DRY FRUITS WERE NEITHER IN APPENDIX 3 NOR APPENDIX 2 PART A OF THE IMPORT ITA 4239/M/13 5 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 DEFIN ITION OF PROHIBITED GOODS UNDER THE CUSTOMS ACT, 1962 WHICH READS AS UNDER:- PROHIBITED GOODS MEANS ANY GOODS THE IMPORT OR EX PORT OF WHICH IS SUBJECT TO ANY PROHIBITION UNDER THIS ACT OR ANY OT HER 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 PERMI TTED TO BE IMPORTED OR EXPORTED HAVE BEEN COMPLIED WITH. 5. IN VIEW OF THE ABOVE DEFINITION OF PROHIBITED G OODS, IT WAS CONTENDED THAT IMPORT OF ALMOND IN SHELL COULD NOT BE SAID TO HAVE BEEN PROHIBITED GOODS, HENCE REDEMPTION FINE CANNOT BE SAID TO HAVE BEEN IN THE NATURE OF PENALTY BUT IT WAS MERELY PAYMENT FOR REDEEMING THE GOODS OR BUYING BACK THE GOODS FROM CUSTOMS. AS PER THE LD. SR. COUNSEL FOR THE ASSESSEE THE REDEMPTION FINE LEVIED BY THE COLLECTOR OF CUSTOMS, MADRAS WAS MORE TO INDEMNIFY THE GOVERNMENT OF INDIA FOR THE DIFFERENC E IN IMPORT PRICE AND MARKET PRICE AND NOT FOR INFRACTION OF ANY LAW. FO R THIS PURPOSE, RELIANCE WAS PLACED ON THE DECISION OF CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF DCIT VS. DIMEXON (1999) 65 TTJ (MUMBAI) WHEREIN IT WAS HELD THAT REDEMPTION FINE PAID BY THE ASSESSEE UNDER CENTRAL EXCISE RULES IN EXERCISE OF OPTION CONFERRED UNDER THE SAID RULES IS ALLOWAB LE EXPENDITURE U/S 37(1). FURTHER RELIANCE WAS PLACED ON THE DECISION OF JOHN SON PEDDER PVT. LTD. VS. ITO 53 TTJ (IND) 284, ITO VS. OM PRAKASH ARUN KUMAR , 91 TTJ (DEL) 170 AND CIT VS. PANNALAL NAROTTAMDAS, 67 ITR 667 (BOM). 6. RELIANCE WAS ALSO PLACED BY THE LD. COUNSEL FOR THE ASSESSEE ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF PR AKASH COTTON MILLS P. LTD. VS. CIT [1993] 201 ITR 684 (SC) AND CIT VS. AHMEDAB AD COTTON MFG. CO. LTD. [1994] 205 ITR 163 (SC) WHEREIN IT WAS HELD THAT ST ATUTORY IMPOST PAID AS DAMAGES, PENALTY OR INTEREST, IF COMPENSATORY IN NA TURE, IT IS ALLOWABLE AS ITA 4239/M/13 6 BUSINESS EXPENDITURE. THE LD SR. COUNSEL FOR THE AS SESSEE ALSO DRAWN OUR ATTENTION TO THE ORDER OF THE LD. CIT(A) WHEREIN RE FERENCE WAS MADE TO THE CASES OF T. KHEMCHAND TEJOOMAL, 161 ITR 492 AND AGR A LEATHERS LTD. 200 ITR 792. THE LD. SR. COUNSEL FOR THE ASSESSEE SUBM ITTED THAT THESE CASES PERTAINED TO PENALTIES LEVIED BY THE CUSTOMS AUTHOR ITIES FOR THE UNLAWFUL ACT OF THE ASSESSEE, HOWEVER, IN THE PRESENT CASE THE A SSESSEE HAS NOT COMMITTED ANY UNLAWFUL ACT, THEREFORE, THEASE CASES ARE NOT A PPLICABLE TO THE ASSESSEE. THE LD. SR. COUNSEL FOR THE ASSESSEE FURTHER INVITE D OUR ATTENTION TO THE RELEVANT OBSERVATION IN THE CASE OF AGRA LEATHERIES WHEREIN THE COURT HAS SAID THAT THE HONBLE BOMBAY HIGH COURT HAD CORRECTLY AL LOWED THE EXPENDITURE AS A BUSINESS EXPENDITURE AS WELL AS ALLOWED TO BE ADD ED TOWARDS THE COST OF GOODS. 7. FURTHER, RELIANCE WAS ALSO PLACED ON THE DECISIO N OF HONBLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS. HERO CYCL ES LTD., 17 BTR 281 AND IN THE CASE OF CIT VS. INDUSTRIAL CABLES (I) LTD. 2 12 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 TH E MEMORANDUM TO THE FINANCE BILL 1998 TO SHOW THAT THE PURPOSE OF INTRODUCING E XPLANATION TO SECTION 37(1) OF THE ACT WAS TO APPLY THE SAME IN THE CASE OF UNL AWFUL EXPENDITURE SUCH AS ON ACCOUNT OF PROTECTION MONEY, EXTORTION, HUFTA, B RIBES ETC. AND NOT TO THE NORMAL BUSINESS EXPENSES. 8. ORDER OF THE HONBLE DELHI HIGH COURT DATED 7 TH 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 DISCUSSIN G 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 ITA 4239/M/13 7 RECEIVED THE BALANCE CONSIDERATION FROM THE AUCTION PROCEEDS. ACCORDINGLY REDEMPTION FINE WAS HELD TO BE AN ALLOWABLE BUSINES S EXPENDITURE AND THE ORDER OF THE TRIBUNAL WAS CONFIRMED. 9. ON THE OTHER HAND, IT WAS VEHEMENTLY ARGUED BY T HE LD. CIT- DR THAT AS PER THE ORDER OF THE CEGAT (CUSTOMS TRIBUNAL) DATED 27-10-1986, ADDITIONAL LICENCES PRODUCED BY THE ASSESSEE WERE NOT VALID FO R THE IMPORT OF DRY FRUITS VIZ. ALMOND IN SHELL AND THE IMPORT HAS CORRECTLY B EEN HELD TO BE UNAUTHORIZED. ACCORDINGLY REDEMPTION FINE CANNOT B E SAID TO BE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. HE FURTHER CONTENDED THAT PENALTY WAS PAID BY THE ASSESSEE BECAUSE OF HI S OWN FAULT I.E CARRYING OF BUSINESS IN UNLAWFUL MANNER OR IN CONTRAVENTION OF CERTAIN RULES AND REGULATIONS AND ACCORDINGLY SUCH PENALTY/FINE CANNO T BE REGARDED AS WHOLLY AND EXCLUSIVELY LAID OUT FOR THE PURPOSE OF BUSINES S. 10. WE HAVE CONSIDERED THE RIVAL CONTENTIONS, CAREF ULLY GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW AND RELEVANT MATERI ALS PLACED BEFORE US. WE HAVE ALSO DELIBERATED UPON THE JUDICIAL PRONOUNCEME NTS REFERRED BY LOWER AUTHORITIES IN THEIR RESPECTIVE ORDERS AS WELL AS C ITED BY THE LD. SR. COUNSEL FOR THE ASSESSEE AND THE LD. D.R. DURING THE COURSE OF BEARING BEFORE US, IN THE CONTEXT OF THE FACTUAL MATRIX OF THE CASE. FROM TH E RECORD WE FOUND THAT DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE EN TERED INTO AN AGREEMENT WITH AN EXPORT HOUSE M/S RAJNIKANT & BROS. AS PER THE TERMS OF THE AGREEMENT M/S RAJNIKAN & BROS IMPORTED CONSIGNMENT OF ALMONDS IN SHELL AT MADRAS PORT. THIS IMPORT WAS ACTUALLY FOR ONE O F THE NOMINEE OF THE ASSESSEE M/S PEANUT PRODUCTS OF INDIA HAVING FACTOR Y FOR PROCESSING ALMONDS/NUTS IN MADRAS. THE ASSESSEE AND THE EXPOR T HOUSE HAVE BONAFIDE BELIEF THAT ALMONDS IN SHELL WAS ONE OF THE ITEMS A LLOWED FOR IMPORT AGAINST THE SAID ADDITIONAL LICENCE GRANTED. WHEN THE GOOD S ARRIVED AT MADRAS PORT, M/S THE INDO AFGHAN CHAMBER OF COMMERCE APPROACHED THE HONBLE BOMBAY ITA 4239/M/13 8 HIGH COURT TO BLOCK THESE IMPORTS, CLAIMING THAT SU CH IMPORTS WOULD AFFECT THEIR FUNDAMENTAL RIGHTS. THE HONBLE BOMBAY HIG H COURT DISMISSED THEIR WRIT PETITION VIDE ORDER DATED 31-1-1986 ON THE GRO UND THAT THE PETITIONERS DID NOT HAVE A FUNDAMENTAL RIGHT TO HAVE MONOPOLY I N THE TRADE AND THAT IMPORTERS M/S RAJNIKANT & BROS WERE NOT IN ANY WAY BLOCKING THE PETITIONERS FROM DOING THEIR BUSINESS. 11. THEREAFTER, A WRIT PETITION WAS FILED BEFORE TH E HONBLE SUPREME COURT WHEREIN THE HONBLE SUPREME COURT ORDERED THAT DRY FRUITS COULD NOT BE IMPORTED AGAINST THE ADDITIONAL LICENSES ISSUED TO EXPORT HOUSES. AFTER THE ORDER OF THE HONBLE SUPREME COURT, THE COLLECTOR O F CUSTOMS, MADRAS CONFISCATED THE GOODS, IMPOSED REDEMPTION FINE OF R S. 1,20,00,000/- AND A PENALTY OF RS. 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 E VEN WITH LICENSING AUTHORITIES. AN APPEAL WAS FILED BY M/S RAJNIKANT & BROS. AGAINST THE ORDER OF CUSTOMS AUTHORITIES AND THE CUSTOMS TRIBUNAL (CE GAT) CATEGORICALLY OBSERVED IN ITS ORDER THAT THERE WAS LACK OF CLARIT Y IN INTERPRETING THE IMPORT POLICY EVEN WITH LICENSING AUTHORITIES. WHILE FRAMI NG SCRUTINY ASSESSMENT U/S 143(3) OF THE ACT, THE A.O. DISALLOWED THE EXPE NDITURE OF RS. 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 ASSE SSEE HAD NOT EXPLAINED THE SOURCE OF EXPENDITURE, THEREFORE, ADDITION WAS MADE Y/S 69-C OF THE ACT. AS PER OUR CONSIDERED VIEW, THE IMPORT OF ALMOND WAS N OT IN CONTRAVENTION OF LAW IN FORCE, THE GOODS WERE IMPORTED UNDER IMPORT LICE NCE ISSUED BY GOVERNMENT AUTHORITIES. IT IS ALSO CLEAR FROM THE ORDER OF CUSTOMS TRIBUNAL DATED 27-10-2014 WHO HAS WAIVED THE PENALTY STATING THAT THE CIRCUMSTANCES OF THE CASE DO NOT REVEAL ANY MALAFIDES CONSIDERING THAT THERE WAS CERTAIN AMOUNT OF VAGUENESS IN THE POLICY ITSELF. IT WAS FU RTHER OBSERVED BY THE ITA 4239/M/13 9 CUSTOMS TRIBUNAL THAT BOMBAY CUSTOM AUTHORITIES IN SIMILAR INSTANCE HAD NOT IMPOSED ANY PENALTY ON THE IMPORTER. AFTER CONS IDERING THE ENTIRETY OF FACTS AND CIRCUMSTANCES, THE CUSTOMS TRIBUNAL CONCL UDED THAT THERE WAS NO ANY MALAFIDES ON THE PART OF THE ASSESSEE INSOFAR A S THERE WAS CERTAIN VAGUENESS IN THE IMPORT POLICY ITSELF. IN THE RESUL T, THE TRIBUNAL COMPLETELY WAIVED THE PENALTY AND THE REDEMPTION FINE WAS ALSO REDUCED TO 40%. THE ASSESSEE HAS CLAIMED AN AMOUNT OF RS. 75 LACS PAID TO THE CUSTOMS AUTHORITIES WAS IN THE NATURE OF BUSINESS EXPENDITU RE. 12. THE HONBLE SUPREME COURT IN THE CASE OF AHMEDA BAD COTTON MFG. CO. LTD. (SUPRA) HELD THAT STATUTORY IMPOST PAID AS DAM AGES, PENALTY OR INTEREST, IF COMPENSATORY IN NATURE, IT IS ALLOWABLE AS BUSINESS EXPENDITURE. IT WAS FURTHER OBSERVED THAT THE NOMENCLATURE WAS NOT CONC LUSIVE. IT WAS CONCLUDED THAT PAYMENT, THOUGH REFERRED AS A PENALTY, BUT IN FACT MADE IN EXERCISE OF OPTION AVAILABLE UNDER STATUTORY SCHEME, IN COURSE OF ASSESSEES BUSINESS, IS ALLOWABLE BUSINESS EXPENDITURE. IN THE INSTANT CASE ALSO THE PAYMENT WAS MADE TO RELEASE THE GOODS, THEREFORE, THE SAME CAN BE SAID TO BE COMPENSATORY AS THE CUSTOMS AUTHORITIES WERE RECOVE RING THE DIFFERENCE BETWEEN THE MARKET PRICE AND IMPORT COST. HONBLE DELHI HIGH COURT IN THE CASE OF M/S VIKAS CHEMICALS (SUPRA) VIDE ORDER DATE D 7 TH AUGUST, 2014 HAVE DEALT WITH EXACTLY SIMILAR ISSUE WHEREIN THE ASSESS EES CLAIM FOR DEDUCTION OF RS. 45 LACS PAID TO CUSTOMS AUTHORITIES WAS ALLOWED . THE HONBLE DELHI HIGH COURT OBSERVED THAT PAYMENT WAS IN RESPECT OF COMME RCIAL TRANSACTION BETWEEN TWO UNRELATED PARTIES. THE ASSESSEE HAD AP PLIED FOR CLEARANCE OF GOODS IN INDIA. EARLIER SIMILAR GOODS HAVE CLEARED BY CUSTOMS AUTHORITIES UNDER REP LICENCE. THE FAULT OR DEFECT IN THE REP LICENCE WAS NOT ATTRIBUTABLE TO THE ASSESSEE. THE ASSESSEE WAS NOT TO BE BLAMED WHO HAS NOT INDULGED IN ANY OFFENCE OR INCURRED ANY EXPENDITURE FOR THE PUR POSE WHICH WAS PROHIBITED 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 HONBLE SUPREME COURT, ITA 4239/M/13 10 THEY HAVE RECEIVED THE BALANCE CONSIDERATION FROM T HE 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. A PPLYING THE PROPOSITION OF LAW AS DISCUSSED HEREINABOVE AND KEEPING IN VIEW TH E 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 ACCOR DINGLY THE SAME WAS ALLOWABLE AS BUSINESS EXPENDITURE WHICH ENHANCES TH E COST OF GOODS. SO FAR AS THE EXPLANATION OF THE SOURCE OF FUND IS CONCERN ED, WE FOUND THAT THE PAYMENT WAS MADE BY SISTER CONCERN OF THE ASSESSEE NAMELY M/S MANGLA BROTHERS THROUGH ACCOUNT PAYEE CHEQUE/DD. THE ASSES SEE HAS ALSO FURNISHED GIR NO. AV-297-M(2) OF M/S MANGLA BROTHERS BEFORE T HE LD. CIT(A) IN THE FIRST ROUND OF APPEAL. THE CERTIFICATE/CONFIRMATION FROM M/S MANGLA BROS. WAS ALSO GIVEN TO THE LOWER AUTHORITIES. UNDER THESE CIRCUMS TANCES, THERE IS NO REASON TO DOUBT THE SOURCE OF PAYMENT. THE LD. COUNSEL FOR 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 RELE VANT ENTRY MADE REGARDING PAYMENT OF RS. 75 LACS. THE FACT THAT THE ASSESSEE IS CHALLENGING THE DISALLOWANCE OF PAYMENT MADE TO CUSTOMS AUTHORITY C LEARLY ESTABLISHES THAT THE SAME WAS RECORDED IN THE BOOKS OF ACCOUNT AND T HEREFORE CLAIMED AS BUSINESS EXPENDITURE. ITA 4239/M/13 11 13. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWE D. ORDER PRONOUNCED IN THE OPEN COURT ON 31 ST .OCTOBER, 2014. ) +,-. / 0% 1 31 /10/2014 , ) 4( 5 SD/- SD/- ( ) (AMIT SHUKLA) ( . . ) (R.C.SHARMA ) #!$ / JUDICIAL MEMBER #####%#!$ / ACCOUNTANT MEMBER 6( MUMBAI ; 0% DATED 31 /10/2014 #. . /PKM , % . / PS !' &'() *)' / COPY OF THE ORDER FORWARDED TO : !' / BY ORDER, + / , - ( ASSTT. REGISTRAR) , 6( / ITAT, MUMBAI 1. ' / THE APPELLANT 2. #$' / THE RESPONDENT. 3. ( ) / THE CIT(A), MUMBAI. 4. / CIT 5. ;< 4 #%=& , * =&. , 6( / DR, ITAT, MUMBAI 6. 4 > ? ( / GUARD FILE. $ ; # //TRUE COPY//