DCIT, New Delhi V. M/s. Indo Rama Synthetics (I) Ltd., New Delhi

ITA 4462/DEL/2011

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 77611 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 6 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-04-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 21-01-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 05-10-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R S GILL
• Assessee Lawyers: ROHIT JAIN
• Keywords: Depreciation; Business expenditure; Difference of opinion; Capital receipt
• Section: 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: C NEW DELHI BEFORE SHRI S. V. MEHROTRA, ACCOUNTANT MEMBER AND SHRI C. M. GARG, JUDICIAL MEMBER I.T.A .NO.-4462/DEL/2011 (ASSESSMENT YEAR-2007-08) DCIT, VS. M/S INDO RAMA CIRCLE-11(1), SYNTHETICS (I) LTD. ROOM NO. 312, C. R. BUILDING, 903, MOHANDEV BUIL DING, NEW DELHI. 13 TOLSTOY MARG, NEW DELHI. PAN: AAACI1530L (APPELLANT) (RESPONDENT) REVENUE BY:- SH. R. S. GILL, CIT. DR. ASSESSEE BY:- SH. AJAY VOHRA, ADV. & SH. ROHIT, JAI N, ORDER PER S. V. MEHROTRA, AM : THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER PASSED BY THE CIT (A)-XXX, NEW DELHI, ON 26.07.2011 IN RELATION T O THE ASSESSMENT YEAR 2007-08. 2. BRIEF FACTS OF THE CASE ARE THAT ASSESSEE IS A L ISTED PUBLIC LIMITED COMPANY ENGAGED IN THE BUSINESS OF MANUFACTURING AN D SALE OF PSF, PFY ETC. THE ASSESSEE FILED ITS RETURN OF INCOME SHOWIN G TOTAL INCOME AT NIL, AND 2 THE BUSINESS LOSS OF RS. 202,33,36,763/-. THE ASSES SMENT WAS COMPLETED AND TOTAL A LOSS OF RS.105,75,53,230/-, INTER-ALIA, MAK ING FOLLOWING ADDITIONS: I. ADDITION ON ACCOUNT OF SALES TAX SUBSIDY RS.85,19,51,413/-. II. DISALLOWANCE OF TRIAL RUN EXPENSES RS.11,44,58, 672/-. III. DISALLOWANCE OF DEPRECIATION ON COMPUTERS RS.64,57,845/-. IV. DISALLOWANCE OF CUSTOM REDEMPTION FEES RS.15 LA CS. 3. THE LD. CIT (A) ALLOWED THE ASSESSEES APPEAL ON ALL COUNTS. BEING AGGRIEVED WITH THE ORDER OF LD. CIT (A), THE DEPART MENT IS IN APPEAL BEFORE US AND HAS TAKEN FOLLOWING GROUNDS OF APPEAL. 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS.85, 19,51,413/- MADE ON ACCOUNT OF TREATMENT OF SALES TAX SUBSIDY A S REVENUE RECEIPT. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE CIT (A) HAS ERRED IN DELETING THE ADDITION OF RS.11,44, 58,672/- MADE ON ACCOUNT OF TREATMENT OF TRIAL RUN EXPENSES AS CA PITAL IN NATURE. 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS.64, 57,845/- BY ALLOWING DEPRECIATION ON COMPUTER ACCESSORIES @ 60% . 4. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS.15, 00,000/- ON ACCOUNT OF PENALTY PAID TO CUSTOM AUTHORITIES. 5. THE APPELLANT CRAVES LEAVE TO ADD, ALTER OR AMEN D ANY GROUND OF APPEAL RAISED ABOVE AT THE TIME OF HEARING. 3 4. BRIEF FACTS APROPOS GROUND NO. 1 ARE THAT AO NOT ICED FROM THE COMPUTATION OF THE INCOME THAT THE ASSESSEE COMPANY HAD CLAIMED SALES TAX SUBSIDY AMOUNTING TO RS.85,19,51,413/- AS CAPITAL R ECEIPT NOT LIABLE TO TAX. HE NOTED THAT ASSESSEE HAD TREATED THE SALE TAX SUB SIDY AS A PART OF ITS TURNOVER IN AUDITED PROFIT & LOSS ACCOUNT BUT DID N OT TREAT THE SAME AS REVENUE RECEIPT FOR INCOME TAX PURPOSE. THE ASSESSE E EXPLAINED THAT THE SALES TAX SUBSIDY HAD BEEN RECEIVED AS PER STATE GOVERNME NTS SCHEME FOR ESTABLISHING OF NEW UNITS AND, THUS, BEING RELATED TO THE SETTING UP OF THE INDUSTRY, WAS A CAPITAL RECEIPT. HE NOTED THAT IN A SSESSMENT YEAR 2006-07, THE ASSESSEES CLAIM WAS DENIED FOR THE FOLLOWING REASO NS: - THE SUBSIDY WAS NOT INTENDED TO BE A CONTRIBUTIO N TOWARDS CAPITAL OUTLAY OF THE INDUSTRIAL UNIT - IT WAS GIVEN WITH THE OBJECT OF ENABLING THE ASSE SSEE TO CARRY ON THE BUSINESS, ALTHOUGH THE PURPOSE BEHIND IT MIGHT HAVE BEEN TO ENCOURAGE INDUSTRIALIZATION. - THE INCENTIVES ARE AVAILABLE ONLY AFTER THE INDUS TRY HAS STARTED FUNCTIONING. - SALES TAX IS A PART OF SALES AND IN TURN IS A REV ENUE RECEIPT - IT IS WELL SETTLED THAT SUBSIDIES GIVEN BY THE GO VERNMENTS TO ASSIST A PERSON IN HIS BUSINESS ARE GENERALLY SPEAK ING, PAYMENTS OF REVENUE NATURE. HE, ACCORDINGLY, MADE AN ADDITION OF RS.85,19,51,41 3/-. 4.1 BEFORE LD. CIT(A), THE ASSESSEE HAD SUBMITTED T HAT THE BENEFIT OF SALES TAX SUBSIDY WAS GRANTED TO THE ASSESSEE UNDER THE P ROVISIONS OF THE SCHEME NOTIFIED BY INDUSTRIES, ENERGY, AND LABOUR DEPARTME NT, GOVT. OF 4 MAHARASHTRA. THE STATE INDUSTRIAL AND INVESTMENT CO RPORATION OF MAHARASHTRA LTD. (SICOM), THE IMPLEMENTING AGENCY F OR AND ON BEHALF OF GOVERNMENT OF MAHARASHTRA, GRANTED THE ELIGIBILITY CERTIFICATE TO THE ASSESSEE FOR THE AFORESAID SUBSIDY. THE QUANTUM OF THE SALES TAX SUBSIDY INCENTIVE UNDER THE AFORESAID SCHEME WAS SUBJECT TO MONETARY CEILINGS, WHICH ARE SPECIFIED AS A PERCENTAGE OF FIXED CAPITAL INVESTME NT. THE SCHEME WAS INTRODUCED BY GOVERNMENT OF MAHARASHTRA WITH A VIEW TO ACHIEVE FASTER DISPERSAL OF INDUSTRIES OUTSIDE BOMBAY-THANE- PUNE, BELT AND TO ATTRACT INDUSTRIES TO THE UNDER DEVELOPED AND DEVELOPING AR EAS OF THE STATE. IT WAS FURTHER EXPLAINED THAT THE MODUS OPERANDI OF THE SC HEME WAS THAT THE ASSESSEE COLLECTED SALES TAX (WHICH WAS IN BUILT IN SALES PRICE OF THE PRODUCTS MANUFACTURED BY IT), WHICH WAS NOT REQUIRED TO BE P AID TO THE STATE GOVERNMENT AND WAS RETAINED BY THE ASSESSEE. THE SA LES TAX DEPARTMENT, THEREAFTER, CALCULATED THE EXEMPTION AVAILED BY THE ASSESSEE EVERY YEAR AND REDUCED THE SAME FROM THE OPENING BALANCE GIVEN BY THE GOVERNMENT OF MAHARASHTRA TO CONTROL THAT THE SUBSIDY IN THE FORM OF SALES TAX COLLECTED AND RETAINED OVER YEARS DID NOT EXCEED THE APPROVED QUA NTUM. 4.2 IT WAS FURTHER SUBMITTED THAT THE SCHEME POSTUL ATED THE FOLLOWING IMPORTANT CONDITIONS, AMONG OTHERS, FOR ELIGIBILITY UNDER THE SCHEME: (I) EFFECTIVE POSSESSION OF LAND BY AN ELIGIBLE UNI T, 5 (II) TYING UP OF THE MEANS OF FINANCE FOR THE PROJE CT THE SATISFACTION OF THE CONCERNED IMPLEMENTING AGENCY (III) ACQUISITION OF FIXED ASSETS AT SITE TO AN EXT ENT OF AT LEAST 10% OF THE TOTAL FIXED ASSETS AS ENVISAGED FO R THE PROJECT, AND (IV) EVIDENCE REGARDING EXPENDITURE ON THE PROJECT, INCLUDING ADVANCES AND PRE-OPERATIVE EXPENSES PAID, AGGREGATING TO AT LEAST 25% OF THE CAPITAL COST ENVISAGED FOR THE PROJECT. 4.3 THUS, IT WAS SUBMITTED THAT THE PURPOSE OF THE SUBSIDY WAS TO HELP THE ASSESSEE TO SET UP ITS BUSINESS OR COMPLETE A PROJE CT. THE ASSESSEE RELIED ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE O F CIT , MADRAS VS. PONNI SUGARS & CHEMICALS LTD, 306 ITR 392 WHEREIN I T WAS HELD THAT THE CHARACTER OF THE RECEIPT IN THE HANDS OF THE RECIPI ENT HAS TO BE DETERMINED WITH RESPECT TO THE PURPOSE FOR WHICH THE SUBSIDY W AS GIVEN. 4.4 IT WAS FURTHER SUBMITTED THAT THE PACKAGES SCHE ME OF INCENTIVES (PSI) (1993), AS APPLICABLE FOR ASSESSEES CASE, WAS SIMI LAR TO THE PSI- 1979, AS APPLICABLE TO RELIANCE INDUSTRIES LTD., WHEREIN SPE CIAL BENCH, ITAT, MUMBAI IN THE CASE OF DCIT VS. RELIANCE INDUSTRIES LTD., 88 ITD 273 HAS HELD THAT SALES TAX SUBSIDY RECEIVED UNDER PSI- (19 79) IS CAPITAL RECEIPT. IT WAS CONTENDED THAT IN RELIANCE INDUSTRIES CASE (SUP RA), THE SPECIAL BENCH WAS CONSIDERING THE PACKAGE SCHEME OF INCENTIVE, 19 79 NOTIFIED BY THE GOVERNMENT OF MAHARASHTRA VIDE GOVERNMENT RESOLUTIO N, INDUSTRIES, ENERGY AND LABOUR DEPARTMENT, NO.IDL-7079(2043)/IND -8 DATED 5 TH JANUARY 1980. IT WAS POINTED OUT THAT AS PER CLAUSE (VI) TO PARA 3.2 OF THE 6 1993, SCHEME AS APPLICABLE IN THE ASSESSEES CASE, THE 1979 SCHEME (CONSIDERED BY THE SPECIAL BENCH) WAS THE PREDECESS OR SCHEME AS APPLIED IN THE CASE OF THE ASSESSEE. IT WAS FURTHER POINTED OU T THAT THE TRIBUNAL IN ASSESSEES OWN CASE FOR AY 1997-98 AND AY 2000-01 T O 2002-03 HAD SET ASIDE THE MATTER TO THE FILE OF THE AO WITH THE DIR ECTION TO EXAMINE WHETHER THE SALES TAX INCENTIVE SCHEME IN QUESTION WAS IDEN TICAL TO THE SCHEME AS REFERRED TO IN RELIANCE INDUSTRIES LTD., CASE (SUPR A) AND IF SO, TO ALLOW THE ASSESSEES CLAIM. IT WAS FURTHER SUBMITTED THAT FOR AY 2004-05, THE ISSUE WAS DECIDED IN FAVOUR OF THE ASSESSEE BY LD. CIT (A) VI DE ORDER DATED 21.10.2009. THE LD. CIT (A) FOLLOWING THE ORDER FOR AY 2004-05 DELETED THE ADDITION. 4.5 AT THE TIME OF HEARING, LD. COUNSEL FOR THE ASS ESSEE POINTED OUT THAT THIS ISSUE IS COVERED BY THE DECISION OF TRIBUNAL F OR AY 2006-07 VIDE CONSOLIDATED ORDER DATED 26 TH MARCH 2013 PASSED FOR AYS 2005-06, 2006-07 AND 2008-09 VIDE ITA NOS. 280 & 281/DEL/2012 AND 58 31/DEL/2011 RESPECTIVELY. 4.6 WE FIND THAT TRIBUNAL HAS OBSERVED FOR AY 2005- 06 IN PARA 5 TO 5.2 AS UNDER: 5. GROUND NO.1 IS ON THE ISSUE OF SALES TAX SUBSID Y. SIMILAR DISALLOWANCES WERE MADE IN THE ASSESSMENT YEAR 1997 -98, 7 2003-04 AND 2004-05. THE ASSESSEE HAD SET UP A NEW UNIT IN BUTIBORI, NAGPUR DURING THE ASSESSMENT YEAR 1996-97 FOR THE MANUFACTURE OF POLYESTER FIBRE. THE NEW UNIT WAS E NTITLED TO THE BENEFIT OF SALES TAX SUBSIDY UNDER THE PROVISIONS O F DISPERSAL OF INDUSTRIES-NEW PACKAGES SCHEME OF INCENTIVES, 1993 NOTIFIED BY THE GOVERNMENT OF MAHARASHTRA. DURING THE CURRE NT ASSESSMENT YEAR THE ASSESSEE RECEIVED SALES TAX SUB SIDY OF RS.87,85,15,268/-. THIS WAS CLAIMED AS A CAPITAL R ECEIPT. THE AO BROUGHT THE SAME TO TAX ON THE GROUND THAT THE RECEIPT IN QUESTION IS A REVENUE RECEIPT. ON APPEAL THE COMMI SSIONER OF INCOME TAX (APPEALS) FOLLOWED THE ORDERS OF HIS PRE DECESSOR ON THE ISSUE AND ALLOWED THE CLAIM OF THE ASSESSEE. A GGRIEVED THE REVENUE IS IN APPEAL BEFORE US. 5.1. THE C BENCH OF THE TRIBUNAL IN ASSESSEES OW N CASE FOR THE ASSESSMENT YEARS 1997-98, 2000-2001, 2002-03, 2 003-04, 2004-05 UPHELD THE ORDERS OF THE FIRST APPELLATE AU THORITY. THE FIRST APPELLATE AUTHORITY AT PAGE 7 OF HIS ORDER HA S GIVEN A COMPARISON OF THE 1979 SCHEME WITH THE 1993 SCHEME. THE TRIBUNAL IN ITS ORDER HELD AS FOLLOWS:- 8 5. THE GROUND RAISED IN REVENUE'S APPEAL IN ITA NO . 5323/DEL/2011 (ASSESSMENT YEAR 1997-98) READ AS UND ER:- (I) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, THE LD. CIT(A) ERRED IN DELETING THE ADDITION OF RS.22, 85,62,948/- MADE ON ACCOUNT OF TREATMENT OF SALES TAX SUBSIDY A S REVENUE RECEIPTS. (II) THE APPELLANT CRAVES LEAVE TO ADD, ALTER OR AMEND A NY GROUND OF APPEAL RAISED ABOVE AT THE TIME OF HEARIN G. 6. ONE COMMON ISSUE RAISED IN REVENUE APPEALS PERTA INS TO DELETION OF ADDITION ON ACCOUNT OF SALES TAX SUBSID Y BY TREATING IT AS CAPITAL RECEIPT. 7. ASSESSEE IN THESE CASES CLAIMED THAT SALES TAX S UBSIDY RECEIVED BY THE ASSESSEE WAS CAPITAL RECEIPT NOT EXIGIBLE TO TAX. BEFORE THE AO ASSESSEE ALSO SUBSTANTIATED THE SAME WITH TH E DECISION OF ITAT (SPLBENCH) MUMBAI IN THE CASE OF CIT VS RE LIANCE INDUSTRIES LTD. 88 ITD 273 (MUM). ASSESSING OFFICE R ON THE OTHER HAND, FOUND THAT THE CLAIM IS UNACCEPTABLE FO R THE FOLLOWING REASONS: I) THE SUBSIDY WAS NOT INTENDED TO BE A CONTRIBUTI ON TOWARDS CAPITAL OUTLAY OF THE INDUSTRIAL UNIT. FURTHER IT W AS GIVEN WITH THE OBJECT OF ENABLING THE ASSESSEE TO CARRY ON IT S BUSINESS, ALTHOUGH THE PURPOSE BEHIND IT WAS TO ENCOURAGE INDUSTRIALIZATION. II) ALSO, IT WAS WELL SETTLED THAT WHERE SUBSIDIES GRANTED WERE GIVEN BY THE GOVERNMENT TO ASSIST A TRADER IN HIS B USINESS, THEY WERE GENERALLY SPEAKING, PAYMENTS OF A REVENUE NATU RE. THEY 9 WERE SUPPLEMENTARY TRADE RECEIPTS AND NOT CAPITAL PAYMENTS, ALTHOUGH THEY MIGHT BE CALLED ADVANCES OR MIGHT BE SUBJECT TO CONTINGENCY OF REPAYMENT. III). RELIANCE WAS PLACED ON THE DECISION IN THE C ASE OF KESORAM INDUSTRIES & COTTON MILLS LTD. VS. CIT, 191 ITR 518 OF HONBLE HIGH COURT OF CALCUTTA. ACCORDINGLY, AO ADDED THE AMOUNT OF SUBSIDY RECEIV ED AS REVENUE RECEIPT. 8. UPON ASSESSEES APPEAL, LD.CII(A) OBSERVED THAT THE SALES TAX SUBSIDY PERTAINS TO ASSESSEES UNIT AT BU TIBORI. BUTIBORI IS AN INDUSTRIAL AREA DEVELOPED BY MAHARAS HTRA INDUSTRIAL DEVELOPMENT CORPORATION IN1994. THE ASS ESSEE IN 1995 SET UP ITS INTEGRATED POLYESTER COMPLEX AT BUT IBORI FOR PRODUCTION OF POLY AND PSF. THE ASSESSEE WAS ELIGIB LE TO SALES TAX INCENTIVE BY WAY OF EXEMPTION UNDER THE 1 993 NEW PACKAGE SCHEME OF INCENTIVES OF GOVT. OF MAHARASHTR A. LD.CIT(A) ALSO NOTED THAT TRIBUNAL IN THE ASSESSEE S OWN CASE FOR ASSESSMENT YEAR 1997-98, ASSESSMENT YEAR 2000-0 1 TO 2002-03 WHILE CONCURRING WITH THE RULING OF THE CAS E PF DCIT VS. RELIANCE INDUSTRIES LTD. 88 ITD 273 (MUMBAI) (S B) TO THE CASE OF THE ASSESSEE, HAD SET ASIDE THE SUBJECT MAT TER FOR COMPARISON OF THE TWO SCHEME (ONE APPLIED BY ASSESS EE BEFORE THE LD.CIT(A) AND SECOND AVAILED AND APPLIED IN CAS E OF RELIANCE (SUPRA). 8.1. A COMPARATIVE CHART ON THE SALIENT FEATURES O F THE PSI 1979 WITH 10 PSI 1993 WAS FURNISHED BY ASSESSEE BEFORE THE LD. C IT(A). LD. CLT(A) GAVE A FINDING THAT IT IS OBSERVED THAT OBJ ECT OF THE SUBSIDY OF BOTH THE SCHEME IS FOR PROMOTION OF IND USTRIALIZATION IN BACKWARD AREA OF THE STATE OF MAHARASHTRA. FURT HER, ELIGIBILITY CRITERIA AND STEPS FOR PROCESSING OF SC HEME (E.G. APPROVAL FROM GOVERNMENT AUTHORITIES, FINANCING OF PROJECT, EXPENDITURE ON PROJECT, APPROVAL FROM SICOM, MODE O F DISBURSEMENT OF SALES TAX INCENTIVE ETC.) ARE SIMIL AR IN BOTH THE SCHEMES. LD.CIT(A) FOUND THAT ACCORDING TO THE PSI 1993 PURPOSE OF THE SCHEME IS FOR ENCOURAGING SETTING UP OF MANUFACTURING UNIT IN BACKWARD AREA IN THE STATE. WHILE GRANTING SUBSIDIES FOR CAPITAL INVESTMENT, THE MAHA RASHTRA GOVERNMENT DOES NOT DISBURSE ANY AMOUNT BY WAY OF S UBSIDY BUT ALLOWS INDUSTRIAL UNDERTAKING TO COLLECT USUAL CHARGE ON ACCOUNT OF SALES TAX AND RETAIN IT AS CAPITAL SUBSI DY INSTEAD OF DEPOSITING THE SALES TAX COLLECTED. FROM THIS LD.C IT(A) OBSERVED THAT THE PURPOSE OF THE SCHEME IS NOT TO S UPPORT CARRYING ON BUSINESS IN A MORE PROFITABLE MANNER B UT IS FOR PROMOTION /SETTING UP THE PRODUCTION UNIT IN BACKWA RD AREA. COLLECTION OF SALES TAX AMOUNT IS SIMPLY A MEASUREM ENT OF THE SUBSIDY TO BE ALLOWED. LD. CIT(A) HELD THAT ONE CAN NOT SAY THAT SUBSIDY WAS GRANTED FOR CARRYING ON ITS BUSINESS OP ERATION IN DAY TO DAY MANNER. BEFORE THE LD. COMMISSIONER OF INCOME TAX (APPEALS) ASSESSEE ALSO CITED THE CASE LAW OF C.I.T. VS. PONN I SUGARS AND CHEMICALS LTD. 306 ITR 392 (SC). IN THIS CASE THE HONBLE APEX COURT HELD THAT THE CHARACTER OF THE RECEIPT IN THE HANDS 11 OF THE ASSESSEE COMPANY HAS TO BE DETERMINED WITH R ESPECT TO THE PURPOSE FOR WHICH THE SUBSIDY IS GIVEN. IN OTH ER WORDS, IN SUCH CASES ONE HAS TO APPLY THE PURPOSE TEST'. THE POINT OF TIME WHEN THE SUBSIDY IS PAID IS NOT RELEVANT. THE SOUR CE IS IMMATERIAL; THE FORM OF SUBSIDY IS ALSO IMMATERIAL. 8.2. LD.CIT9A) OBSERVED THAT THE SPECIAL BENCH OF THE TRIBUNAL (RELIANCE INDUSTRIES LTD. (SUPRA) RELYING ON THE PRINCIPLES LAID DOWN BY THE CASE OF SAHNEY STEEL & PRESS WORKS LTD. (SUPRA) CAME TO THE CONCLUSION THAT SINCE THE INCENTIVES WERE GIVEN FOR BRINGING ABOUT ADDITION TO NECESSARY INFRASTRUCTURE IN PROCESSING/DEVELOPING THE BACKWAR D AREA. IT WOULD BE IN THE NATURE OF CAPITAL RECEIPT NOT LIAB LE TO TAX. LD. COMMISSIONER OF INCOME TAX (APPEALS) FURTHER GAVE A FINDING THAT THE AFORESAID DECISION OF THE SPECIAL BENCH HA S BEEN RENDERED ON IDENTICAL FACTS AND IS ON ALL FOURS WIT H THE FACTS OF THE ASSESSEE'S CASE. LD.CIT(A) FURTHER NOTED THAT THE SCHEME UNDER CONSIDERATION OF THE TRIBUNAL IN THE ABOVE CA SE IS THE PREDECESSOR OF THE SCHEME APPLICABLE TO THE APPELLA NT AND HAD IDENTICAL OBJECTIVES. 8.3. LD.CIT(A) FURTHER HELD THAT IN THE PRESENT CA SE, THE PURPOSE OF GRANTING SALES TAX INCENTIVE IS CLEARLY ONLY TO PROVIDE AN INCENTIVE FOR ESTABLISHMENT OF NEW INDU STRIES IN THE UNDERDEVELOPED REGIONS OR TO EXPAND ITS EXISTING UN ITS OF THE STATE OF MAHARASHTRA. THAT THE INTENTION IS NOT TO INCREASE THE VIABILITY OF THE ELIGIBLE UNITS BUT TO PROMOTE DEVE LOPMENT OF FURTHER INDUSTRY AND INFRASTRUCTURE IN THE REGION. THAT IN THE AFORESAID CIRCUMSTANCES, THE EXEMPTION AVAILED OF BY THE 12 ASSESSEES ELIGIBLE UNITS UNDER THE SAID NOTIFICAT ION WOULD, IN VIEW OF THE DECISIONS CITED ABOVE, BE A CAPITAL RE CEIPT NOT LIABLE TO TAX. THEREFORE, LD.CIT(A) HELD THAT THIS GROUN D IS TO BE HELD IN FAVOUR OF THE ASSESSEE AND NOTIONAL AMOUNT OF SA LES TAX SUBSIDY IS HELD AS CAPITAL RECEIPT NOT CHARGEABLE T O TAX. 9. AGAINST THE ABOVE ORDER, THE REVENUE IS IN APPEA L BEFORE US. 10. WE HAVE HEARD THE RIVAL CONTENTIONS IN LIGHT OF THE MATERIAL PRODUCED AND PRECEDENTS RELIED UPON. WE FI ND THAT LD. CLT(A) HAS GIVEN A FINDING THAT ISSUE IN DISPUTE WA S COVERED BY THE SPECIAL BENCH DECISION OF THE TRIBUNAL IN THE CASE OF RELIANCE INDUSTRIES LTD. (SUPRA). THOUGH THE SCHEME APPLICABLE IN THE CASE OF RELIANCE INDUSTRIES LTD. WAS 1979 SC HEME, HOWEVER, IN THE 1993 SCHEME TERMS AND CONDITIONS W ERE OF THE SAME NATURE AND INTENT. FOR THIS PURPOSE, A COMPAR ATIVE CHART WAS REFERRED BY THE LD. CIT (A). AS PER THE COMPAR ATIVE CHART THE TERMS AND CONDITIONS APPLICABLE IN 1979 SCHEME WERE OF THE SAME NATURE AND INTENT OF THE 1993 SCHEME. WE FU RTHER NOTE THAT MUMBAI TRIBUNAL IN THE CASE OF EVEREST INDUSTR IES LTD. IN ITA NO. 814/MUM/2007 HAS HELD THAT SALIENT FEATURES OF THE 1993 SCHEME ARE IDENTICAL TO THAT OF 1979 SCHEME. WE FURTHER NOTE THAT THE TRIBUNAL IN ITA NO.678 AND 679/DEL/20 12 IN THE CASE OF M/S INDO RAMA TEXTILES LTD. ON IDENTICAL FA CTS HAS HELD THAT THE DECISION OF THE MUMBAI TRIBUNAL, SPECIAL BENCH IN THE CASE OF RELIANCE INDUSTRIES 88 ITD 273 IS AP PLICABLE. ACCORDINGLY, IN THE BACKGROUND OF THE AFORESAID DIS CUSSION AND PRECEDENTS, WE HOLD THAT THE LD. CIT(A) HAS PASSED A 13 REASONABLE ORDER WHICH DOES NOT NEED ANY INTERFEREN CE ON OUR PART. ACCORDINGLY, WE UPHOLD THE SAME. 5.2. RESPECTFULLY FOLLOWING THE SAME WE UPHOLD THE ORDER OF THE FIRST APPELLATE AUTHORITY AND DISMISS THIS GROU ND. 4.7. FOR AY 2006-07 TRIBUNAL HAS OBSERVED IN PARA 1 5 & 16 AS UNDER: 15. GROUND NO.2 IS ON THE ISSUE AS TO WHETHER THE SALES TAX SUBSIDY RECEIVED FROM A NEW UNIT AT BUTIBORI, NAGPU R, STATE OF MAHARASHTRA, IS A CAPITAL RECEIPT OR REVENUE RECEIP T. 16. CONSISTENT WITH THE VIEW TAKEN BY US WHILE DISP OSING OF GROUND NO.1 DURING THE ASSESSMENT YEAR 2005-06, WE UPHOLD THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEAL S) AND DISMISS THIS GROUND OF THE REVENUE. AS THE DEPARTMENT HAS NOT BROUGHT ON RECORD ANY DIS TINGUISHING FEATURES FROM THE EARLIER YEARS, RESPECTFULLY FOLLOWING THE EARLIER ORDERS OF TRIBUNAL INCLUDING THE DECISION FOR AY 2006-07, THIS GROUND IS DISMISSED. 5. BRIEF FACTS APROPOS GROUND NO. 2 ARE THAT AO NOT ED THAT ASSESSEE HAD INCURRED TRIAL RUN EXPENSES AMOUNTING TO RS.11,44,5 8,672/- WHICH WERE CAPITALIZED AS PART OF PLANT & MACHINERY IN THE AUD ITED ANNUAL ACCOUNTS. THE SAME WERE CLAIMED AS REVENUE EXPENSES WHILE COMPUTI NG THE TAXABLE 14 INCOME. THE AO DISALLOWED THE ASSESSEES CLAIM, INT ER-ALIA, OBSERVING THAT TRIAL PRODUCTION WAS ONLY AN INTERMEDIATE STAGE IN MAKING A PLANT READY FOR COMMERCIAL PRODUCTION. IT IS A SORT OF TESTING STAG E OF THE PLANT. THE TESTING COULD GO FOR ANY TIME TILL THE DESIRED RESULTS WERE ACHIEVED. 6. LD. CIT (A) DELETED THE ADDITION TAKING NOTE OF THE FACT THAT THE ASSESSEE HAD EXPANDED ITS BUSINESS OPERATIONS BY ES TABLISHING TWO NEW CONTINUOUS POLYMERIZATION (CP) PLANTS (ONE FOR POY PRODUCTION AND ANOTHER FOR PSF PRODUCTION) OF 400 TONNES PER DAY EACH (150 ,000 TONES PER ANNUM) AT ITS EXISTING UNIT AT BUTIBORI, NAGPUR UNIT IN MA HARASHTRA WHEREIN EXISTING THREE CP PLANTS WERE ALREADY IN PLACE. THE RELEVANT DATES OF ESTABLISHMENT AND COMMENCEMENT OF PRODUCTION OF THE NEW CPS WERE AS UNDER: CP-4 CP-5 DATE OF COMMENCEMENT OF TRIAL RUN/PRODUCTION 09.03.2007 10.09.2006 DATE OF COMMENCEMENT OF COMMERCIAL PRODUCTION 30.03.2007 01.11.2006 7. HE FURTHER OBSERVED THAT DURING THE YEAR UNDER C ONSIDERATION, THE ASSESSEE MERELY EXPANDED ITS BUSINESS OPERATIONS BY ESTABLISHING TWO NEW CP PLANTS. HE FURTHER POINTED OUT THAT NOT ONLY ASS ESSEE CLAIMED RUNNING 15 EXPENSES OF RS.11.44 CRORES BUT ALSO RECEIVED TRIAL RUN INCOME OF RS.50 CRORES WHICH WAS TAKEN BY THE ASSESSEE AS REVENUE R ECEIPT. 8. AT THE OUTSET LD. COUNSEL FOR THE ASSESSEE SUBMI TTED THAT THIS ISSUE IS NOW CONCLUDED BY THE DECISION OF HONBLE DELHI HIGH COURT IN THE ASSESSEES OWN CASE REPORTED AT 333 ITR PAGE 18 WHE REIN IT HAS BEEN HELD THAT WHERE THE NEW UNIT PROPOSED TO BE SET UP BY TH E ASSESSEE WAS THE EXPANSION OF ITS BUSINESS OPERATION, THE EXPENDITUR E INCURRED ON THE PROPOSED UNIT, IS TO BE ALLOWED AS BUSINESS EXPENDI TURE EVEN IF THE PROJECT WAS ABANDONED. 9. LD. DR RELIED ON THE ORDER OF AO. 10. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PE RUSED THE RECORD OF THE CASE. THE FACTS ARE NOT DISPUTED. THE THREE CP PLANTS WERE ALREADY IN OPERATION SINCE 1996 AND TWO NEW CP PLANTS WERE SET UP FOR EXPANSION OF THE EXISTING BUSINESS. EXPENSES CLAIMED AS DEDUCTIO N WERE AFTER THE START OF BUSINESS OPERATIONS OF THE NEW CP PLANTS, THOUGH ON A TRIAL RUN BASIS. THE LD. CIT (A) HAS POINTED OUT IN PARA 6.9 THAT THE BUSINE SS ORGANIZATIONS, ADMINISTRATION AND THE FUNDS OF EXISTING AS WELL AS THE NEW PLANTS WERE SAME AND CONTROLLED BY THE COMMON MANAGEMENT OF THE ASSE SSEE COMPANY ITSELF. THE STAFF WORKING AT VARIOUS UNITS WERE ENROLLED WI TH THE ASSESSEE AND THE COMPANY MANAGED THE MANUFACTURING OPERATIONS AS CAR RIED OUT BY THE 16 RESPECTIVE PLANTS, BOTH OLD UNITS AS WELL AS THE NE W UNITS. FURTHER, THE ASSESSEE WAS ALREADY IN THE BUSINESS OF MANUFACTURE OF POLYESTER YARN/FABRIC. THUS IT WAS RIGHTLY CONCLUDED THAT THE ASSESSEE MER ELY EXPANDED ITS BUSINESS OPERATIONS BY ESTABLISHING TWO NEW CP PLANTS AT ITS EXISTING PREMISES AT BUTIBORI, WHICH RESULTED IN CAPACITY EXPANSION OF T HE INDUSTRY FOR PRODUCTS (YARN) BEING MANUFACTURED BY THE ASSESSEE. HE HAS F URTHER NOTED THAT THE EXPENSES WERE IN RESPECT OF PERSONNEL COSTS, ADMINI STRATIVE EXPENSES AND ALSO RAW MATERIAL, STORE, POWER, REPAIRS AND MAINTE NANCE AND OTHER EXPENSES WHICH INHERENTLY WERE REVENUE IN NATURE. 11. HE HAS FURTHER POINTED OUT THAT THE AO HAD NOWH ERE DISPUTED THE FACT THAT THE ASSESSEE HAD COMMENCED OPERATIONS AT THE T WO NEW CPS BY INITIALLY UNDERTAKING TRIAL PRODUCTION, FOLLOWED BY COMMERCIA L PRODUCTION. 12. WE FIND THAT HONBLE DELHI HIGH COURT IN ASSESS EES OWN CASE IN 333 ITR PAGE 18 HELD AS UNDER: 10. A HARMONIOUS READING OF THE AFORESAID TWO JUDGMENTS OF THIS COURT, NAMELY, TRIVENI ENGINEERIN G WORKS LTD. (SUPRA) ON THE ONE HAND AND MODI INDUSTR IES (SUPRA) ON THE OTHER, WOULD CLEARLY DEMONSTRATE THA T ONE HAS TO KEEP IN MIND THE ESSENTIAL PURPOSE FOR WHICH SUCH AN EXPENDITURE IS INCURRED. IF THE EXPENDITURE IS I NCURRED FOR STARTING NEW BUSINESS WHICH WAS NOT CARRIED OUT BY THE ASSESSEE EARLIER, THEN SUCH EXPENDITURE IS HELD TO BE OF CAPITAL NATURE. IN THAT EVENT IT WOULD BE IRRELE VANT AS TO WHETHER PROJECT REALLY MATERIALIZED OR NOT. HOWE VER, IF THE EXPENDITURE INCURRED IS IN RESPECT OF THE SAME BUSINESS WHICH IS ALREADY CARRIED ON BY THE ASSESSE E, 17 EVEN IF IT IS FOR THE EXPANSION OF THE BUSINESS, NA MELY, TO START NEW UNIT WHICH IS SAME AS EARLIER BUSINESS AN D THERE IS UNITY OF CONTROL AND A COMMON FUND, THEN S UCH AN EXPENSE IS TO BE TREATED AS BUSINESS EXPENDITURE. I N SUCH A CASE WHETHER NEW BUSINESS/ASSET COMES INTO EXISTE NCE OR NOT WOULD BECOME A RELEVANT FACTOR. IF THERE IS NO CREATION OF NEW ASSET, THEN THE EXPENDITURE INCURRE D WOULD BE OF REVENUE NATURE. HOWEVER, IF THE NEW ASS ET COMES INTO EXISTENCE WHICH IS OF ENDURING BENEFIT, THEN SUCH EXPENDITURE WOULD BE OF CAPITAL NATURE. 13. SINCE IT WAS MERELY A CASE OF EXPANSION OF EXIS TING PLANT, THEREFORE, THE EXPENSES INCURRED BY ASSESSEE WHICH WERE INHERE NTLY OF REVENUE NATURE WERE RIGHTLY ALLOWED BY LD. CIT (A). IN THE RESULT, THIS GROUND IS DISMISSED. 14. BRIEF FACTS APROPOS GROUND NO. 3 ARE THAT ASSES SEE COMPANY HAD CLAIMED THE DEPRECIATION OF RS.77,49,413/- ON COMPU TERS. AO NOTED THAT COMPUTERS WERE REFLECTED UNDER THE HEAD FURNITURE A ND FITTINGS IN THE FIXED ASSETS SCHEDULE BUT THE ASSESSEE HAD CLAIMED DEPREC IATION @ 60% ON COMPUTERS. AFTER CONSIDERING THE ASSESSEES SUBMISS IONS, AO ALLOWED DEPRECIATION @ 10%. 15. THE LD. CIT(A) ALLOWED THE ASSESSEES APPEAL, I NTER-ALIA, OBSERVING THAT CLASSIFICATION OF COMPUTERS UNDER THE HEAD FUR NITURE AND FITTINGS, IN THE BOOKS OF ACCOUNT WAS IRRELEVANT. 16. AT THE OUTSET, LD. COUNSEL SUBMITTED THAT THIS ISSUE IS COVERED BY THE DECISION OF TRIBUNAL IN ASSESSEES OWN CASE FOR AY 2008-09 VIDE ITA 18 NO.5831/DEL/2011 DATED 26 TH MARCH 2013 WHEREIN IT HAS BEEN OBSERVED IN PARA 23 AS UNDER: 23. ON A CAREFUL CONSIDERATIONS OF THE CONTENTIONS , WE HOLD THAT THE CLASSIFICATION FOR THE PURPOSE OF COMPUTAT ION OF DEPRECIATION UNDER THE COMPANIES ACT HAS NO RELEVAN CE. THE DISALLOWANCE CANNOT BE BASED MERELY ON ENTRIES MADE IN THE BOOKS OF ACCOUNTS OR IN THE ANNUAL ACCOUNTS. THE A O HAS NOT BROUGHT OUT ANY INFIRMITY IN THE CLAIM OF THE ASSES SEE. UNDER THESE CIRCUMSTANCES WE UPHOLD THE FINDINGS OF THE C IT(A) AND DISMISS THIS GROUND OF REVENUE. CONSISTENT WITH THE VIEW TAKEN FOR AY 2008-09, THIS GROUND IS DISMISSED. 17. BRIEF FACTS APROPOS GROUND NO. 4 IN REGARD TO C USTOM REDEMPTION FEES OF RS.15 LACS WHICH HAD BEEN PAID TO THE CUSTOM AUT HORITIES FOR THE RELEASE OF AN IMPORTED BMW CAR, ARE THAT AO EXAMINED THE ORDER OF THE APPELLATE TRIBUNAL OF CUSTOM, EXCISE AND SERVICE TAX, AND POI NTED OUT THAT THE BENCH HAD OBSERVED THAT THE IMPORTED CAR WAS LIABLE FOR C ONFISCATION AND THE FINE AND PENALTY LEVIED FOR ITS RELEASE WAS RIGHT. THE S UM OF RS.15 LAC WAS PAID BY THE ASSESSEE FOR GETTING THE CAR RELEASED AND TH E SUM OF RS.8 LAC WAS PAID TOWARDS PENALTY. THE ASSESSEE HAD ONLY CLAIMED THE SUM OF RS.15 LAC ON THE GROUND THAT THE SAME WAS NOT IN THE NATURE OF PENAL TY HOWEVER, AO, DID NOT ACCEPT THE AOS CONTENTION AND MADE THE ADDITION OF RS.15 LAC. 18. THE LD. CIT (A) DELETED THE ADDITION FOLLOWING THE DECISION OF HONBLE MADRAS HIGH COURT IN CIT VS. N. M. PARTHASARATHY 21 2 ITR 105, INTER-ALIA, 19 OBSERVING THAT THE AMOUNT PAID WAS IN THE FORM OF A DDITIONAL DUTY FOR NON- COMPLYING WITH CERTAIN PROCEDURAL REQUIREMENTS SPEC IFIED IN THE DGFT NOTIFICATION ( I.E. THE CERTIFICATE TO BE SUBMITTED AT THE TIME OF IMPORT). 19. LD. COUNSEL SUBMITTED THAT NOW THIS ISSUE IS CO VERED BY THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF USHA MICRO PROCESS CONTROLS LTD. VS. CIT (2013) 37 TAXMANN.COM 324 (DEL). 20. LD. DR RELIED ON THE ORDER OF AO. 21. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND HA VE PERUSED THE RECORD OF THE CASE. THE LD. CIT (A) HAS DISCUSSED THE ISSU E IN THE LIGHT OF VARIOUS PROVISIONS OF CUSTOMS ACT. HE HAS POINTED OUT THAT THE DIRECTOR GENERAL OF FOREIGN TRADE HAD ISSUED A NOTIFICATION DATED 31 ST MARCH, 2001, IN TERMS OF WHICH AN ASSESSEE IMPORTING ANY NEW VEHICLE IN INDI A WAS REQUIRED TO PRODUCE CERTIFICATE OF COMPLIANCE AS PER THE PROVIS IONS OF RULE 126 OF CENTRAL MOTOR VEHICLE RULES, 1989 FROM THE AUTOMOTI VE RESEARCH ASSOCIATION OF INDIA, PUNE. TO COMPLY WITH THE SAID NOTIFICATION, THE ASSESSEE APPLIED FOR THE ISSUANCE OF CERTIFICATE TO BE SUBMITTED AT THE TIME OF CLEARANCE OF THE IMPORTED VEHICLE. HOWEVER, SINCE T HE REQUIRED CERTIFICATE WAS NOT ISSUED BY THE PRESCRIBED AUTHORITY BY THE T IME OF IMPORT/CLEARANCE OF CAR, THE CUSTOMS AUTHORITY CONFISCATED THE IMPORTED CAR. 20 22. THE COMMISSIONER OF CUSTOMS AUTHORITY (IMPORT) GAVE THE OPTION TO THE ASSESSEE TO GET RELEASED THE IMPORTED CAR ON PA YMENT OF FINE OF RS.15 LACS LEVIABLE U/S 125 OF THE CUSTOMS ACT, 1962 AND PENALTY OF RS.8 LACS U/S 112(A) OF THE CUSTOMS ACT 1962. ALTERNATIVELY, THE ASSESSEE WAS REQUIRED TO RE-EXPORT THE CAR ON PAYMENT OF NOTIONAL PENALTY IN TERMS OF SECTION 112(A) OF THE ACT. CONSEQUENTLY, THE ASSESSEE INCURRED EXP ENDITURE ON ACCOUNT OF REDEMPTION FEES OF RS.15 LACS PAYABLE TO CUSTOM AUT HORITIES U/S 125 OF THE CUSTOMS ACT, 1962 FOR RELEASE OF AN IMPORTED CAR. T HESE FACTS ARE NOT DISPUTED BY THE REVENUE AUTHORITY. THEREFORE, THE F INDINGS OF LD. CIT (A) THAT THE SUM OF RS.15 LACS WAS PURELY OF COMPENSATORY NA TURE IN THE FORM OF ADDITIONAL DUTY FOR NOT COMPLYING WITH CERTAIN PROC EDURAL REQUIREMENTS SPECIFIED IN THE DGFT NOTIFICATION, CANNOT BE FAULT ED. THE ISSUE THAT IF THE AMOUNT PAYABLE IS IN COMPENSATORY AND NOT PENAL IN NATURE THEN THE SAME IS AN ALLOWABLE DEDUCTION, IS NO MORE RES INTEGRA. 23. WE FIND THAT HONBLE DELHI HIGH COURT IN THE CA SE OF USHA MICRO PROCESS CONTROL (SUPRA) HAS OBSERVED IN PARA 10 AS UNDER: 8. THE OBSERVATIONS OF THE CEGAT ARE PERTINENT. THE Y ARE EXTRACTED BELOW: 18. KEEPING IN VIEW THE TOTALITY OF THE FACTS AND C IRCUMSTANCES OF THE CASE, WE REDUCE THE FINE IN LIEU OF THE CONF ISCATION TO RS. 4,00,000.00 (RUPEES FOUR LACS ONLY). 19. NOW COMING TO THE PENALTY, WE WOULD LIKE TO OBS ERVE THAT IN THE FOREGOING PARAGRAPHS WE HAVE HELD THE IMPORTATI ON OF HARDWARE AS AUTHORISED AND REGARDING THE IMPORTATIO N OF 21 SOFTWARE, THE APPELLANTS HAD REQUESTED FOR THE RE-E XPORTATION OF THE SOFTWARE AND HAD ALSO PLACED ON RECORD TO THE E FFECT THAT THE SOFTWARE WHICH WAS SENT WITH THE HARDWARE WAS NOT O RDERED BY THE APPELLANTS AND THE APPELLANTS WERE KEEN FOR SEN DING THEM BACK. THERE IS COMPLETE ABSENCE OF THE ELEMENTS OF MENS REG (SICK) AND THE VALUATION OF THE HARDWARE HAS BEEN T AKEN AT A HIGHER FIGURE DUE TO DIFFERENCE OF OPINION. 9. IN PRAKASH COTTON MILLS PVT. LTD.S CASE (SUPRA) , THE SUPREME COURT PERTINENTLY OBSERVED THAT WHENEVER AN AUTHORI TY HAS TO DECIDE WHETHER TO GRANT OR REFUSE DEDUCTION UNDER SECTION 37(1) OF THE INCOME TAX ACT, THE GOVERNING TEST WOULD BE WHETHER THE AMOUNT PAYABLE IS COMPENSATORY IN NATURE. IN N.M. PARTHASA RATHYS CASE (SUPRA), THE IDENTICAL SITUATION WHERE REDEMPTION F INE UNDER THE CUSTOMS ACT WAS IN ISSUE, THE COURT AFTER EXAMINING THE SCHEME OF THE ENACTMENT HELD AS FOLLOWS: 22. COMING TO THE FACTS OF THE CASE ON HAND, THE G OODS BELONGING TO THE ASSESSEE HAD BEEN CONFISCATED UNDE R SECTION 111(D) OF THE CUSTOMS ACT, 1962, READ WITH SECTION 3 OF THE IMPORTS AND EXPORTS (CONTROL) ACT, 1947. HOWEVER, U NDER SECTION 125 OF THE CUSTOMS ACT, 1962, AN OPTION HAD BEEN GIVEN TO THE OWNER ASSESSEE TO PAY, IN LIEU OF SUCH CONFI SCATION, A FINE OF RS. 1,84,000 WHICH HAD BEEN REDUCED ON APPEAL TO RS. 84,000 AND THE GOODS HAD BEEN CLEARED EXERCISING TH E OPTION. IF THE SEIZED GOODS, WITHOUT THE EXERCISE OF OPTION, H AD BEEN CONFISCATED ONCE AND FOR ALL, IT GOES WITHOUT SAYIN G THAT THE PROPERTY IN THE GOODS SHALL VEST IN THE GOVERNMENT, IN THE SENSE OF THE GOVERNMENT BECOMING THE ABSOLUTE OWNER THERE OF. THE FINE AMOUNT, WHATEVER BE ITS QUANTIFICATION, THAT I S TO SAY, WHETHER IT IS EQUIVALENT TO OR BELOW THE VALUE OF T HE GOODS SEIZED, CANNOT AT ALL, IN SUCH A SITUATION, BE STAT ED TO BE PENAL IN NATURE, NOTWITHSTANDING ITS NOMENCLATURE, BUT IT IS REPARATORY OR COMPENSATORY IN NATURE. ONCE IT IS COMPENSATORY IN NATURE, ITS GOES WITHOUT SAYING THAT THE AUTHORITY HAS TO A LLOW DEDUCTION UNDER SECTION 37(1) OF THE INCOME TAX ACT AS LAID D OWN BY THE APEX COURT IN THE TWO LATEST DECISIONS AFORECITED. FURTHER, THE EXPENSES INCURRED BY WAY OF PAYMENT OF FEES TO ADVO CATES IN DEFENDING PENALTY PROCEEDINGS MUST ALSO BE CONSTRUE D AS AN ALLOWABLE DEDUCTION. WE, THEREFORE, ANSWER QUESTION S NOS. 1 AND 4 IN THE AFFIRMATIVE AND AGAINST THE REVENUE. 22 10. IN THE PRESENT CASE, THIS COURT NOTICES THAT OR IGINALLY THE PENALTY WHICH THE APPELLANT HAD BEEN DIRECTED TO PA Y WAS DELETED BY THE CEGAT. WHAT REMAINED WAS THE CONFISCATION; THE APPELLANT WAS GIVEN THE CHOICE OF REDEEMING THE GOODS BY DEPOSITI NG REDEMPTION FINE AS IS EVIDENT FROM COMBINED READING OF PARAGRAPH NO S. 18 AND 19 OF CEGAT ORDER. THE TRIBUNAL WENT SO FAR AS TO SAY THA T VALUATION OF GOODS IN QUESTION WAS ON THE BASIS OF DIFFERENCE OF OPINION. NEVERTHELESS, THAT BEING THE RATIONALE FOR DELETION OF PENALTY, THE TRIBUNAL FELT THAT THE ORDER OF CONFISCATION DID NO T REQUIRE TO BE UPSET, INSTEAD REDEMPTION FINE WAS REDUCED TO RS. 4,00,000 /-. ON A PROPER APPLICATION OF THE RULING IN M/S. PRAKASH COTTON MI LLS PVT. LTD.S CASE (SUPRA), THIS COURT IS OF THE OPINION THAT THE AMOU NT OF REDEMPTION FINE IN THE PRESENT CASE WAS COMPENSATORY AND THERE FORE, FELL OUTSIDE THE MISCHIEF OF EXPLANATION OF SECTION 37(1) OF THE INCOME TAX ACT. 24. IN VIEW OF ABOVE DISCUSSION, RESPECTFULLY, FOLL OWING THE DECISION OF HONBLE DELHI HIGH COURT, THIS GROUND IS DISMISSED. 25. IN THE RESULT, THE REVENUE APPEAL IS DISMISSED. ORDER IS PRONOUNCED IN THE OPEN COURT ON 17/04/2014 SD/- SD/- (C. M. GARG) ( S. V. MEHROTRA) JUDICIAL MEMBER ACCOUNTANT M EMBER DATED: 17/04/2014 *AK VERMA* COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT 23 ASSISTANT REGISTRAR DATE INITIAL 1. DRAFT DICTATED ON 04/04/2014 PS 2. DRAFT PLACED BEFORE AUTHOR 16/04/2014 PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS 17/04/2014 PS/PS 6. KEPT FOR PRONOUNCEMENT ON PS 7. FILE SENT TO THE BENCH CLERK 17/04/2014 PS 8. DATE ON WHICH FILE GOES TO THE AR 9. DATE ON WHICH FILE GOES TO THE HEAD CLERK. 10. DATE OF DISPATCH OF ORDER.