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TMI Blog1998 (2) TMI 593X X X X Extracts X X X X X X X X Extracts X X X X ..... sentation was made to the Government jointly on behalf of the diamond exporters. Pending the representation of the diamond exporters with the Government, writ petitions were filed by the diamond exporters in the Bombay High Court and Delhi High Court. The respective High Courts held that the diamond exporters were legally entitled to grant of export house certificates and consequently additional import licences. Against the order passed by the Bombay High Court, the Union of India preferred an appeal before the Supreme Court and the latter in its order dt. 10th April, 1985, in Civil Appeal No. 1423 of 1984, directed the Union of India to issue necessary export house certificates/additional import licences for the year 1978-79, within three months from the date of the order, i.e. from 18th April, 1985. The Import licences so granted was to be valid for all items except items which are specifically banned under the prevalent import policy at the time of import. The order further provided that the diamond exporters shall be entitled to import all items whether canalised or otherwise in accordance with the relevant rules. In pursuance to the order of the Supreme Court, the assessee was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... those canalised items could be imported which are permitted specifically to be imported under the policy. This judgment is dt. 12th Sept., 1986. 6. In view of the law laid down by the Supreme Court, the goods imported by the assessee were confiscated. However, under s. 125 of the Customs Act, the assessee was given an option to pay a fine of ₹ 2,80,000 and ₹ 21,50,000 for asst. yrs. 1987-88 and 1988-89, respectively, in lieu of confiscation of goods. The assessee paid the redemption fine, on the basis of which the imported goods were cleared. It is claimed by the assessee that goods had been sold on the high sea and the payment of fine was the liability of the buyers. It is also claimed that the assessee has recovered the cost from the buyers and accordingly there is in effect no deduction claimed. 7. However, the AO made the addition on the ground that the amount of ₹ 2,80,000 and ₹ 21,50,000 for asst. yr. 1987-88 and 1988-89 had been paid by the assessee as a penalty for infraction of law. He has placed reliance on the decision of the Bombay High Court in the case of T. Khemchand Tejomal vs. CIT (1986) 51 CTR (Bom) 781: (1986) 161 ITR 492(Bom). 8 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee, on the other hand, sought to support the order of the CIT(A). It was further contended that there is a distinction between the levy of penalty and imposition of fine under the Customs Act. Reference was made to s. 111 of the Customs Act, which provides for confiscation of goods. Sec. 125 of the Customs Act gives an option to pay the fine in lieu of confiscation. Sec. 112 provides for penalty and prosecution. Reliance was placed on the decision of the Madras High Court in the case of CIT vs. N.M. Parthasarathy (1995) 125 CTR (Mad) 174: (1995) 212 ITR 105(Mad) and that of the Himachal Pradesh High Court in the case of Khushal Singh Subhash Chander vs. CIT (1997) 228 ITR 608(HP) in support of the contention that when the assessee has acted in good faith there is no question of disallowance on the ground of having contravened the provisions of the law. It was further contended that the decision of the Bombay High Court in the case of T. Khemchand Tejomal (supra) is distinguishable on facts as that was a case of penalty, whereas the decision of the Bombay High Court in the case of Pannalal Narottamdas Co. (supra) is directly on the point involved in this case. Distinguis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n cases where the penalty/fine has to be incurred because of the fault of the assessee himself, as for instance for the reason of his having carried on his business in an unlawful manner or in contravention of certain rules and regulations, the penalty/fine paid by the assessee for such conduct thereof could not be regarded as wholly laid out for the purpose of the business, because the incurring of the said expenses has not been necessitated by the business but by the conduct of the assessee in trying to carry out the business in an unlawful manner. However, if on the other hand, the assessee has acted in good faith without any intention of contravening the provisions of law and in the course of the business any expenditure is incurred towards the cost of goods by way of fine in lieu of confiscation, such expenditure would fall within the ambit of the expenditure wholly laid out for the purpose of the business. 14. Let us consider the case of the assessee in the light of the above principles. It is not disputed in this case that the assessee had opened the L/Cs for the import of such goods which were believed legally permissible to be imported. Even at the cost of repetition we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... port policy. The judgment of the Supreme Court is dt. 12th Sept., 1986, when the L/Cs had been opened, as already pointed out, on 6th Nov., 1985. The facts stated above clearly establish that the assessee had no intention of violating the provisions of the Customs Act. It was only on the basis of the understanding of the law as per the decision of the Bombay High Court that the L/Cs had been opened and goods imported and in such circumstances the decision of the Bombay High Court in the case of Pannalal Narottamdas Co. (supra), in our view, is clearly applicable. We are, therefore, of the considered view that the CIT(A) was justified in allowing deduction to the assessee in respect of the fine paid by the assessee on account of redemption fee in lieu of confiscation of goods. The order of the CIT(A) is thus upheld. 15. In these circumstances, we do not consider it necessary to deal with the alternative contention raised on behalf of the assessee that the penalty had been paid on behalf of the buyers and therefore, on disallowance could be made in the hands of the assessee. 16. For asst. yr. 1987-88 there is not other ground of appeal. However, for asst. yr. 1988-89, there i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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