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TMI Blog2024 (10) TMI 1146X X X X Extracts X X X X X X X X Extracts X X X X ..... with the penalty at any point of time. The Interest due to delayed payment of custom duty is deductible u/s 37 of the Act as it is an accretion to the main payment and not a penalty and accordingly allowable as deduction. Appeal filed by the assessee is allowed. - Shri Laxmi Prasad Sahu, Accountant Member And Shri Keshav Dubey, Judicial Member For the Appellant : Sri H.V. Gowthama, A.R. For the Respondent : Ms. Neera Malhotra, D.R. ORDER PER KESHAV DUBEY, JUDICIAL MEMBER: This appeal filed by the assessee is directed against order of Addl.JCIT(A), Thane dated 30.4.2024 vide DIN Order No. ITBA/APL/S/250/2024-25/1064474836(1) for the AY 2013-14 passed u/s 250 of the Income Tax Act, 1961 (in short The Act ). The assessee has raised following grounds of appeal: 1. The Ld. Addl. Commissioner of Income Tax (Appeals) erred on facts in law by confirming the order passed by the Ld. Assessing Officer, NFAC, Delhi, disallowing interest paid on delayed payment of additional Customs Duty paid, considering the same as in nature of penalty. 2. The Addl. Commissioner of Income Tax (Appeals) was wrong in stating that interest payment on delayed payment of additional Customs Duty is required to b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eedings, it was noticed that for the purpose of manufacture of Fertilizers, the assessee company imports some of the raw materials, on which the assessee Company has to pay customs duty depending on the classification of the raw material. Based on the certain classification of the material, the assessee company had already paid customs duty, which was debited to purchase account in the normal course. There was notice from the Customs Authorities, stating that the payment of customs duty by the assessee was on wrong classification and accordingly the excess amount was claimed by the Customs Authorities. The matter was taken up to the Customs and Central Excise Settlement Commission. Based on reclassification, the settlement commission, Chennai bench vide order dated 19.03.2015 held that the Appellant company had misclassified the three imported consignments with an intention to evade payment of countervailing duty. Further, it was held that this act of the assessee exhibited certain amount of dishonesty and ordered the assessee to pay additional customs duty of Rs. 1,40,87,305/- and interest of Rs. 1,25,46,377/-. Over and above, the additional Customs Duty and interest, the penalty ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... halaxmi Sugar Mills Co. Ltd. Vs. CIT (1980) 3 Taxman 52 (SC), the assessee claimed deduction of interest paid on arrears of cess under the UP Sugarcane Cess Act, cannot be described as a penalty paid for an infringement of the law. In the case of Lachmandas Mathuradas V. CIT (2002) 122 Taxman 828 (SC), the Hon ble Supreme Court held that interest on arrears or on outstanding balance of sales tax is compensatory in nature and would be allowable as deduction in computing profits of a business. In the case of C.G. Sanghi V. CIT (1985), 156 ITR 95 (Raj), the Hon ble Rajasthan High Court held that the interest payable u/s 11B of the Rajasthan Sales Tax Act, is not a penalty but an expenditure which is revenue in nature and is an allowable deduction u/s 37(1) of the Act. 3.1 She further submitted that as can be seen from the assessment order and other details filed by the assessee, the assessee had imported 3 consignments of Bright Yellow Sulphur Crude and during the course of investigation carried by the DRI authorities, it was found that the assessee had misclassified these import consignments and paid the customs duty at a lower rate. The Hon'ble Custom and Central Excise Settleme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITR 199 (SC), wherein held that where penalty was imposed not on account of any delayed payment of central sales tax but was for contravention of provisions of Central Sales Act, 1956, the penalty levied on assessee could not be allowed as deduction. 4.1 Aggrieved by the order of ld. CIT(A) the assessee is in appeal before us. 5. We have heard the rival submissions and perused the materials available on record. It is undisputed fact that company imports some of the raw materials on which custom duty is required to be paid. The assessee for the year under consideration had imported bright yellow sulphur crude for the purposes of manufacture of fertilizers and on certain classification of goods, the custom duty was paid at the time of import. Subsequently, the custom department had raised issues relating to classification of the imported goods and the matter was finally settled before the customs and Central Excise Settlement Commission. Based on the new classification, the assessee company had to pay Rs. 1,40,87,305/- as a differential custom duty. On the above additional custom duty charged on the assessee company, a total of Rs. 1,25,73,583/- was also charged as interest on delay ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... moval of doubts, it is hereby clarified that the expression expenditure incurred by an assessee for any purpose which is an offence or which is prohibited by law under Explanation 1, shall include and shall be deemed to have always included the expenditure incurred by an assessee, (i) for any purpose which is an offence under, or which is prohibited by, any law for the time being in force, in India or outside India; or (ii) to provide any benefit or perquisite, in whatever form, to a person, whether or not carrying on a business or exercising a profession, and acceptance of such benefit or perquisite by such person is in violation of any law or rule or regulation or guideline, as the case may be, for the time being in force, governing the conduct of such person; or (iii) to compound an offence under any law for the time being in force, in India or outside India.] 5.1 From the plain reading of above section, it can be safely inferred that any expenditure not being expenditure of the nature described in section 30 to 36 of the Act can be allowed if the following conditions are satisfied: a) Expenses are in the nature of revenue. b) It is not personal expenses of the assessee. c) Laid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tral Excise Rules, 1944 for contravention of relevant provisions of the law. Assessee however, opted for payment of redemption fine of Rs. 2 lakhs and claimed the same as business expenditure. 5.5 Further, in the case of Swadeshi Cotton Mills Company Ltd. cited (supra), the issue was whether whenever payment of impost is found to be partly of compensatory in nature and partly of penal in nature, whether the authorities are obligated to bifurcated to components of impost and give deduction to that component which is compensatory in nature and refused to give deduction to that component which is penal in nature. 5.6 Further, in the case of PCIT Vs. Sushil Gupta cited (supra), the issue was whether fine or penalty for redemption of goods ordered to be confiscated for breach of import conditions is allowable as deduction or not? 5.7 In the case of CIT Vs. Rane Brake Linings Ltd. cited (supra), the issue was whether penalty paid for violating law in course of conduct of business can be regarded as deductible expenditure? 5.8 Thus, it can be seen that all the decisions relied upon by the ld. D.R. are distinguishable on present facts and issue under consideration in the present case. In f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9; Provident Funds Act to the concerned trust. consequently, the company had to pay interest thereon. This interest is now claimed as a deduction by the assessee under section 37 of the Income Tax Act, 1961, as if it is an expenditure. The contention of the Revenue is that the payment of interest was actually a penalty not deductible and that the payment was to penalise the assessee for the delayed payment. This contention was not accepted by the Appellate Tribunal. Hence, this reference. 4. There is no serious dispute that the payment in question by the assessee was interest. This payment was obviously under section 7-Q of the Employees' Funds and Miscellaneous Provisions Act, 1952, under which the to pay interest on the delayed payment fastens itself. The liability of the thereon is to pay simple interest as the very provision states. There provisions under the said Act to penalize the employer for the delayed payment. In such social welfare legislations, it is usual to find similar - one for the payment of interest for delayed payment and the other contributor for the delay. The latter is to enforce as a matter of frequent delays, while the former is to compensate the contri ..... X X X X Extracts X X X X X X X X Extracts X X X X
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