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TMI Blog2017 (8) TMI 561X X X X Extracts X X X X X X X X Extracts X X X X ..... , we uphold the order of the ld. CIT(A). - Decided against revenue. - ITA No. 272/JP/2017 - - - Dated:- 31-7-2017 - SHRI BHAGCHAND, AM AND SHRI KUL BHARAT, JM For The Revenue : Shri Varinder Mehta (CIT DR) For The Assessee : Shri Ved Jain Shri Himanshu Goyal (CA) ORDER PER: BHAGCHAND, A.M. This is the appeal filed by the revenue emanates from 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 ₹ 3,16,32,000/- made by the A.O. on account of penal excise duty debited in P L account. 2. The only issue involved in this appeal is against deleting the disallowance of ₹ 3,16,32,000/- on account of penal excise duty debited in the P L account. In this regard, the brief facts of the case are that the assessee had filed e-return for the financial year 2011-12 relevant to A.Y. 2012-13 on 26/09/2012 declaring total income of ₹ 1,32,46,790/-. The case was selected for scrutiny and the assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hillong 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 buyer s state to make export of ENA. The said import permit is then submitted to the Rajasthan State Excise Department and thereafter export permit 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 purpose, the assessee (seller) has to execute a bond stating that excise verification (of stock received by importing state) issued by the Excise authority of the importing state sha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) cultivates any hemp plant (Cannabis sativa); or ( c) constructs or works any distillery, pot-still or brewery; or ( d) uses, keeps or has in his possession any materials, stills, utensil, implements or apparatus whatsoever for the purpose of manufacturing 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 which may extend to three years and with fine which may extend to twenty thousand rupees; Provided that if a person is so found in possession 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 contravention 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 sentence of imprisonment for six months and fine of two hundred rupees; Provided further t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ort 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 dated 01.04.2005 (F.4(17)FD/Excise/2004) issued by the Deputy Secretary to the Government of Rajasthan Finance Department Excise Division and notification dated 01.04.2012 (F.4(1)FD/Ex/2012 part 1) issued by the Deputy Secretary to the Government of Rajasthan Finance Department Excise Division. In both the notification the rate of excise duty is the same which has been applied by the appellant for working out the amount of excise duty demanded by the State Excise Officer, Sikar as penalty by issue of . In view of the facts discussed above, after going through the contents of the , contents of the affidavit filed by the appellant, Rajasthan Excise Act, 1950, Rajasthan 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 considered view that the amount demanded by the State Excise Officer, Sikar was not panel in nature. The amount was demanded by the State Excise Officer, Sikar for violation of the conditi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ld. CIT(A) has passed a well reasoned order and has given a categorical finding in Pg. 16 Para 5.4 onwards 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 specified in the relevant Rajasthan Excise Act as well as Rajasthan Excise Rules. 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 excise duty, if the assessee failed to submit within 90 days of exporting ENA from its distillery the excise verification issued by the Excise Authority of importing state. Thus, by his detailed finding Ld CIT(A) has explained the nature of payment made by the assessee and its allowability u/s 37(1) of the Income Tax Act. 9. The nature of excise duty paid by the assessee is explained as under: 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 manufactured by the assessee are free from excise duty. b. The party who wish to make purchases from the assessee gets Excise Permit (Import Permit) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... istillery Pvt. Ltd, M/s D Renaissance Bottling, Lower Lachumiere 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 presumptive calculation was made by the excise authorities and accordingly duty was levied. 13. The Rajasthan State Excise Deptt has raised demand by issue of recovery notices of ₹ 1,14,24,000/- and ₹ 6,85,44,000/- vide their demand 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 declared destination by referring the demand as penalty on the basis of bond/ bond executed by the company. 14. It clear from the aforesaid bond that Excise Duty 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 excise department the word penalty was used by the excise authorities while levying the said demand as against the word duty . 16. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e an FOR (Free on road) sale which has been made after vetting of Excise Authorities. 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 Department of the assessee company. 21. Any liability arising due to the any failure would 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 assessee has executed a contractual bond to make good the losses to the government and thus the loss arising from the same would be contractual business loss. 22. In this respect a prayer was made before the AO to kindly seek information from the Excise Authorities to bring forward the specific provisions/section(s) of the Statutory Act (any) under which the payment made by the assessee towards Excise Duty (as in this case) is considered either as an Offence or is Prohibited by Law. In this respect the assessee also sought an opportunity to file an explanation against 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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. The penalty would be levied separately and that s why assessee is in further 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 Tarun commercial mills Co. Ltd (1977) 107 ITR172 in which it has been held that: We are of the opinion that having regard to the terms contained in the bond we find that it is optional for the manufacturers 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 cover up the shortfall in the export obligations. The option envisaged in the bond entered into between the parties clearly indicates that the option was with the manufacturers and that option may be availed of for a variety of reasons in the interest of commercial expediency. The export obligations which the textile manufacturers may have incurred for the use of trade mark sanforized may not be fulfilled fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... impost 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 impost notwithstanding the nomenclature of the impost as given by the statute, 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 such examination reveals the concerned impost to be purely compensatory in nature. Where ever such impost is found to be of a composite nature, that is, partly of compensatory nature and partly of penal nature, the authorities are obligated 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 CIT v Ahmedabad Cotton Manufacturing Co. Ltd. 205 ITR 163 held as under:- what needs to be done by an assessing authority under the Income-tax Act; 1961, in examining the claim of an assessee that the paymen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee (performance guarantee) due to the nonfulfillment 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 deduction of the same as business expenditure under section 37(1) - Following decision of Prakash Cotton Mills P. Ltd. vs. Commissioner of Income-Tax [1993 (4) TMI 3 - SUPREME Court] - Decided against Revenue. c. In the case of M/s Usha Microprocess Controls Ltd. vs CIT ITA 101/2000 dated 5th 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, fell outside the mischief of explanation of Section 37(1) of the Income 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 reliance is placed on following case laws. Case Laws: a. Prakash Cotton Mills Pvt. Ltd. v CIT (Central) Bombay (Supra): The Supreme Court held that whenever any statutory impost paid by an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... usiness 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 violation of trading beyond exposer limit, late submission of margin certificate and delay in making deliveries of shares due to deficiencies were deductible as a business expenditure, as the amount was paid during the course of business of assessee s business and these was no infraction of law. f. Gold Crest Capital Markets Limited v ITO 36 ITR 177 (2010) : Mumbai ITAT in another landmark case decided that fine or penalty 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, Penalty paid by assessee a share broker, for excess utilization limits comparable to it for doing trade of its clients at a particular time was allowable u/s. 37(1) of the Incometax 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 allow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a. DCIT v. Messee Duvsseldorf India (P) Ltd. (2010) 129 TTJ 81 T (Del.). b. Mahalaxmi Sugar Mills Co. v. CIT (1980) 123 ITR 429 (SC). l. Remfry Sagar Consultants Pvt. [ITA No.5887/Del/2011Dated.- July 20, 2012 ITAT Del] : The amount of interest paid for delayed payment of service tax is compensatory in nature and has the same 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 ₹ 3,16,32,000/- incurred by the assessee 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 engaged in manufacturing and sale of ENA and rectified liquor. The party who wish to make purchases from the assessee gets Excise Permit (Import Permit) from excise department of their State. In order to deliver the goods the assessee needs to obtain Export Permit from the Excise Department o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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