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TMI Blog2018 (5) TMI 353X X X X Extracts X X X X X X X X Extracts X X X X ..... al whereby the Tribunal has dismissed the appeal of the Department confirming the order of CIT (A). 2. Counsel for the appellant has framed the following substantial questions of law: (i) Whether in the facts and circumstances of the case and in law the ITAT was justified in upholding the deletion of disallowance made u/s. 37(1) of the Act amounting to ₹ 31632000/- on account of penal excise duty debited in P L Account. (ii) Whether in the facts and circumstances of the case and in law the ITAT was justified in holding that alleged excise demand notice are not penal in nature without appreciating the fact that the same are for penalty demand levied by the Excise Department raised on account of fake export permit. 3. Mr. Mathur has contended that the assessee was penalised pursuant to his illegal activities and this will not amount to business expenses. He has relied on Section 37 and explanation thereto of the Income Tax Act which has been introduced in 1998 and reads as under: 37. (1) Any expenditure (not being expenditure of the nature described in sections 30 to 36 and not being in the nature of capital expenditure or personal expenses of the assessee), ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the conditions of the affidavit filed by the appellant before the Excise Authority at the time of export of ENA outside the State of Rajasthan. In the there is no mention of any section of the Rajasthan Excise Act, 1950, or the Rule of Rajasthan Excise Rule-1956, for the violation of which, the penalty has been demanded from the appellant. Any section of the Rajasthan Excise Act, 1950 or the Rule of Rajasthan Excise Rule 1956, under which the penalty has been levied or demanded by the District Excise Officer, Sikar is also not mentioned in the . As the demand has been raised for violation of the conditions of the affidavit filed by the appellant before the Excise Authorities, therefore, it would be pertinent to reproduce the contents of the affidavit filed by the appellant. The language of the affidavits filed by the appellant is as under: Atul Sharma S/o Sh. S.S. Sharma age 40 years and resident Campus 54, Dhuleshwar Garden CScheme Jaipur Authorized Signatory of Agriobiotech Industries Limited having its registered office at SP-825, Road no.14, V.K.I. Area Jaipur take an oath as under: 01. I am Authorized Signatory of Agriobiotech Industries Ltd. SP156, RIICO In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd. 205 ITR 163, has laid down following guide lines for ascertaining the nature of the expenditure claimed by the appellant. What needs to be done by an assessing authority under the Income-tax Act, 1961, in examining the claim of an assessee that the 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 such payment to be made as penalty or as something akin to penalty, that is imposed by way of punishment for breach or infraction of the law or 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 payment as business expenditure of the assessee, allowable under section 37. In view of the above referred two decisions of the Supreme Court, relied upon by the appellant also, the nature of the sum demanded by the District Excise Officer, Sikar has to be decided. 5.4 I am of the considered view that- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... offence exceeds fifty bulk litres, 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 ₹ 20,000/-. There is no other section in the Rajasthan Excise Act, 1950 under which the penalty or fine can be levied for unlawful import and export. The section 18 of the Rajasthan Excise Act, 1950 provides that no excisable article shall be removed from any distillery, brewery 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 payment thereof. A reading of section 18 and section 54 of the Rajasthan Excise Act, 1950 makes it clear that the maximum penalty leviable 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 ₹ 20,000/-. Thus, it is clear th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ay the excise duty extra, leivable if the appellant failed to submit within 90 days of exporting ENA from its distillery the excise verification issued by the Excise Authority of the importing State. The amount paid by the appellant in response to the was excise duty paid by it during the ordinary course of the business carried on by it, wholly and exclusively for the purpose of the business of manufacturing ENA and Rectified Spirit, which is allowable as deduction under section 37(1) of the I.T. Act, 1961. Hence, the disallowance of ₹ 3,16,32,000/- made by the AO stands deleted. Accordingly, this ground of appeal is allowed. 5. He therefore, contended that the view taken by the CIT (A) is contrary to finding arrived at by the AO and requires to be reversed. 6. In support of his contention, he relied upon the following decisions: ( i) In Dr. T.A. Quereshi vs. CIT, Bhopal, (2006) 287 ITR 547 (SC), it has been held as under:- 8. No doubt, the assessee had contended that he was only earning income from his medical profession and was not doing any illegal activity of manufacturing and selling of heroin. However, the finding of fact of the Tribunal in its orde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee, it follows that the seizure and confiscation of such stock in trade has to be allowed as a business loss. Loss of stock in trade has to be considered as a trading loss vide Commissioner of Income- Tax v. S.N.A.S.A. Annamalai Chettiar [1972]86ITR607(SC) . ( ii) In Maddi Venkataraman Co. (P) Ltd. vs. CIT (1998) 229 ITR 534 (SC), it has been held as under:- 10. The English Courts have consistently held that penalty or fine or money paid to compound an offence under another statute cannot be allowed as a deduction under the Income Tax Act for the application of these principles, consideration of moral obliquity was quite immaterial. 18. The Indian Courts have also consistently held that payments tainted with illegality cannot be treated as money spent wholly and exclusively for the purpose of business. A long line of decisions was noted in the judgment under appeal. It is not necessary to refer to all of them. We shall refer to three cases decided by this Court. 20. The point that the expenditure incurred for the purpose of unlawful activity must be allowed to find out the commercial profits of the Company was specifically argued and rejected ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1997) 227 ITR 43 (Raj.), it has been held as under:- 5. Referred questions Nos. 1 and 3 have, it may be noted, arisen out of the Tribunal's findings recorded in paragraph 15 of its order. The Tribunal has disallowed the assessee's claim for deduction of the penalty amount on the ground that the penalty was imposed for infraction of the provisions of the Customs Act, 1962. The contention of Mr. Bhojwani, learned senior counsel for the assessee, is that in recording its finding the Tribunal overlooked the vital fact that the Government of India, in exercise of its revisional jurisdiction in the matter, had finally held that there was no infraction of law in importing its goods by the assessee. According to Mr. Bhojwani, this subsequent event was relevant to the issue and the Tribunal should have taken due note of it. 8. Coming to questions Nos. 1 and 3 referred to us the position comes to this. In the year of account the liability to pay personal penalty of ₹ 4lakhs had accrued or arisen against the assessee with the passing of the order by the Collector of Customs, Bombay. Such liability, in view of the principle laid down in Kedarnath Jute Mfg. Co. Ltd, v. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts 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 Commissioner issued the permission for export and returned the same to the District Excise Officer, who further returned the same to the Assistant Excise Officer posted at the assessee s company factory. Thus, after getting the necessary permissions from the Excise Departments, the consignment is dispatched under the supervision of Assistant Excise Officer. On the receipt of the goods by the buyer State, the Excise Department of the buyer State issues a receipt to the Excise Department of the assessee i.e. Rajasthan. The assessee also executes a bond with the Excise Department to make good the losses incurred to the department on account of loss of duty in case the goods delivery receipts are not received by the excise department of the assessee s state from the excise department of the buyer's state. The assessee executed a contractual bond to make good the losses to the government, thus the assessee indemnify the excise duty to the governmen ..... X X X X Extracts X X X X X X X X Extracts X X X X
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