Income Tax Appellate Tribunal - Delhi
Indo Rama Synthetics (I) Ltd., New Delhi vs Department Of Income Tax
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 Building,
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, Jain,
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 to the assessment year 2007-08.
2. Brief facts of the case are that assessee is a listed Public Limited Company engaged in the business of manufacturing and sale of PSF, PFY etc. The assessee filed its return of income showing total income at Nil, and 2 the business loss of Rs. 202,33,36,763/-. The assessment was completed and total a loss of Rs.105,75,53,230/-, inter-alia, making 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 lacs.
3. The ld. CIT (A) allowed the assessee's appeal on all counts. Being aggrieved with the order of ld. CIT (A), the Department is in appeal before us and has taken following grounds of appeal.
1. On the facts and circumstances of the case and in 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 as revenue receipt.
2. On the facts and circumstances of the case and in 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 capital in nature.
3. On the facts and circumstances of the case and in 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 in 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 amend any ground of appeal raised above at the time of hearing.
3
4. Brief facts apropos ground no. 1 are that AO noticed from the computation of the income that the assessee company had claimed sales tax subsidy amounting to Rs.85,19,51,413/- as capital receipt not liable to tax. He noted that assessee had treated the sale tax subsidy as a part of its turnover in audited profit & loss account but did not treat the same as revenue receipt for income tax purpose. The assessee explained that the sales tax subsidy had been received as per State Government's 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 assessment year 2006-07, the assessee's claim was denied for the following reasons:
- "The subsidy was not intended to be a contribution towards capital outlay of the industrial unit
- It was given with the object of enabling the assessee to carry on the business, although the purpose behind it might have been to encourage industrialization.
- The incentives are available only after the industry has started functioning.
- Sales tax is a part of sales and in turn is a revenue receipt
- It is well settled that subsidies given by the governments to assist a person in his business are generally speaking, payments of revenue nature."
He, accordingly, made an addition of Rs.85,19,51,413/-.
4.1 Before ld. CIT(A), the assessee had submitted that the benefit of sales tax subsidy was granted to the assessee under the provisions of the scheme notified by Industries, Energy, and Labour Department, Govt. of 4 Maharashtra. The State Industrial and Investment Corporation of Maharashtra Ltd. (SICOM), the implementing agency for 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 investment. 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 areas of the state. It was further explained that the modus operandi of the scheme 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 paid to the State Government and was retained by the assessee. The Sales 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 quantum.
4.2 It was further submitted that the scheme postulated the following important conditions, among others, for eligibility under the scheme:
(i) Effective possession of land by an eligible Unit, 5
(ii) Tying up of the means of finance for the project the satisfaction of the concerned implementing agency
(iii) Acquisition of fixed assets at site to an extent of at least 10% of the total fixed assets as envisaged for 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 project. The assessee relied on the decision of Hon'ble Supreme Court in the case of CIT , Madras Vs. Ponni Sugars & Chemicals Ltd, 306 ITR 392 wherein it was held that the character of the receipt in the hands of the recipient has to be determined with respect to the purpose for which the subsidy was given. 4.4 It was further submitted that the packages scheme of incentives (PSI) (1993), as applicable for assessee's case, was similar to the PSI- 1979, as applicable to Reliance Industries Ltd., wherein Special Bench, ITAT, Mumbai in the case of DCIT Vs. Reliance Industries Ltd., 88 ITD 273 has held that Sales Tax subsidy received under PSI- (1979) is capital receipt. It was contended that in Reliance Industries case (Supra), the Special Bench was considering the Package Scheme of Incentive, 1979 notified by the Government of Maharashtra vide Government Resolution, Industries, Energy and Labour Department, No.IDL-7079(2043)/IND-8 dated 5th January 1980. It was pointed out that as per clause (vi) to Para 3.2 of the 6 1993, scheme as applicable in the assessee's case, the 1979 Scheme (considered by the Special Bench) was the predecessor scheme as applied in the case of the assessee. It was further pointed out that the Tribunal in assessee's own case for AY 1997-98 and AY 2000-01 to 2002-03 had set aside the matter to the file of the AO with the direction to examine whether the Sales Tax Incentive Scheme in question was identical to the scheme as referred to in Reliance Industries Ltd., case (Supra) and if so, to allow the assessee's claim. It was further submitted that for AY 2004-05, the issue was decided in favour of the assessee by ld. CIT (A) vide 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 assessee pointed out that this issue is covered by the decision of Tribunal for AY 2006-07 vide consolidated order dated 26th March 2013 passed for AYs 2005-06, 2006-07 and 2008-09 vide ITA Nos. 280 & 281/Del/2012 and 5831/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 subsidy. 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 1996-97for the manufacture of polyester fibre. The new unit was entitled to the benefit of sales tax subsidy under the provisions of Dispersal of Industries-New Packages Scheme of Incentives, 1993 notified by the Government of Maharashtra. During the current Assessment Year the assessee received sales tax subsidy of Rs.87,85,15,268/-. This was claimed as a capital receipt. The AO brought the same to tax on the ground that the receipt in question is a revenue receipt. On appeal the Commissioner of Income Tax (Appeals) followed the orders of his predecessor on the issue and allowed the claim of the assessee. Aggrieved the Revenue is in appeal before us.
5.1. The 'C' Bench of the Tribunal in assessee's own case for the Assessment Years 1997-98, 2000-2001, 2002-03, 2003-04, 2004-05 upheld the orders of the First Appellate Authority. The First Appellate Authority at page 7 of his order has 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 under:-
(i) On the facts and circumstances of the case and in law, the ld. CIT(A) erred in deleting the addition of Rs.22,85,62,948/-
made on account of treatment of sales tax subsidy as revenue receipts.
(ii) The appellant craves leave to add, alter or amend any ground of appeal raised above at the time of hearing.
6. One common issue raised in Revenue appeals pertains to deletion of addition on account of sales tax subsidy by treating it as capital receipt.
7. Assessee in these cases claimed that sales tax subsidy received By the assessee was capital receipt not exigible to tax. Before the AO assessee also substantiated the same with the decision of ITAT (SplBench) Mumbai in the case of CIT Vs Reliance Industries Ltd. 88 ITD 273 (Mum). Assessing Officer on the other hand, found that the claim is unacceptable for the following reasons:
i) The subsidy was not intended to be a contribution towards capital outlay of the industrial unit. Further it was given with the object of enabling the assessee to carry on its 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 business, they were generally speaking, payments of a revenue nature. 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 case of Kesoram Industries & cotton Mills Ltd. vs. CIT, 191 ITR 518 of Hon'ble High Court of Calcutta.
Accordingly, AO added the amount of subsidy received as revenue receipt.
8. Upon assessee's appeal, Ld.CiI(A) observed that the sales tax subsidy pertains to assessee's unit at Butibori. Butibori is an industrial area developed by Maharashtra Industrial Development corporation in1994. The assessee in 1995 set up its integrated polyester complex at Butibori for production of POLY and PSF. The assessee was eligible to sales tax incentive by way of exemption under the 1993 New Package Scheme of Incentives of Govt. of Maharashtra. Ld.CIT(A) also noted that Tribunal in the assessee's own case for Assessment Year 1997-98, Assessment Year 2000-01 to 2002-03 while concurring with the ruling of the case pf DCIT vs. Reliance Industries Ltd. 88 ITD 273 (Mumbai) (SB) to the case of the assessee, had set aside the subject matter for comparison of the two scheme (one applied by assessee before the Ld.CIT(A) and second availed and applied in case of Reliance (supra).
8.1. A comparative chart on the salient features of the PSI 1979 with 10 PSI 1993 was furnished by assessee before the Ld. CIT(A). Ld. ClT(A) gave a finding that it is observed that object of the subsidy of both the scheme is for promotion of Industrialization in backward area of the State of Maharashtra. Further, eligibility criteria and steps for processing of scheme (e.g. approval from government authorities, financing of project, expenditure on project, approval from SICOM, mode of disbursement of sales tax incentive etc.) are similar 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 Maharashtra government does not disburse any amount by way of subsidy but allows industrial undertaking to collect usual charge on account of sales tax and retain it as capital subsidy instead of depositing the sales tax collected. From this Ld.CIT(A) observed that the purpose of the scheme is not to support carrying on business in a more profitable manner but is for promotion /setting up the production unit in backward area. Collection of sales tax amount is simply a measurement of the subsidy to be allowed. Ld. CIT(A) held that one cannot say that subsidy was granted for carrying on its business operation in day to day manner.
Before the Ld. Commissioner of Income Tax (Appeals) assessee also cited the case law of C.I.T. vs. Ponni Sugars and Chemicals Ltd. 306 ITR 392 (SC). In this case the Hon'ble Apex Court held that the character of the receipt in the hands 11 of the assessee company has to be determined with respect to the purpose for which the subsidy is given. In other words, in such cases one has to apply the 'purpose test'. The point of time when the subsidy is paid is not relevant. The source 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 backward area. It would be in the nature of capital receipt not liable to tax. Ld. Commissioner of Income Tax (Appeals) further gave a finding that the aforesaid decision of the special Bench has been rendered on identical facts and is on all fours with the facts of the assessee's case. Ld.CIT(A) further noted that the Scheme under consideration of the Tribunal in the above case is the predecessor of the Scheme applicable to the appellant and had identical objectives.
8.3. Ld.CIT(A) further held that in the present case, the purpose of Granting sales tax incentive is clearly only to provide an incentive for Establishment of new industries in the underdeveloped regions or to Expand its existing units of the State of Maharashtra. That the intention is not to increase the viability of the eligible units but to promote development of further industry and infrastructure in the region. That In the aforesaid circumstances, the exemption availed of by the 12 assessee's eligible units under the said notification would, in view of the decisions cited above, be a capital receipt not liable to tax. Therefore, Ld.CIT(A) held that this ground is to be held in favour of the assessee and notional amount of sales tax subsidy is held as capital receipt not chargeable to tax.
9. Against the above order, the Revenue is in appeal before us.
10. We have heard the rival contentions in light of the material produced and precedents relied upon. We find that Ld. ClT(A) has given a finding that issue in dispute was 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 scheme, however, in the 1993 scheme terms and conditions were of the same nature and intent. For this purpose, a comparative chart was referred by the Ld. CIT (A). As per the comparative chart the terms and conditions applicable in 1979 scheme were of the same nature and intent of the 1993 scheme. We further note that Mumbai Tribunal in the case of Everest Industries 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/2012 in the case of M/s Indo Rama Textiles Ltd. on identical facts has held that the decision of the Mumbai Tribunal, special Bench In the case of Reliance Industries 88 ITD 273 is applicable. Accordingly, in the background of the aforesaid discussion and precedents, we hold that the Ld. CIT(A) has passed a 13 reasonable order which does not need any interference 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 ground." 4.7. For AY 2006-07 Tribunal has observed in Para 15 & 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, Nagpur, State of Maharashtra, is a capital receipt or Revenue receipt.
16. Consistent with the view taken by us while disposing of ground no.1 during the Assessment Year 2005-06, we uphold the order of the Commissioner of Income Tax (Appeals) and dismiss this ground of the Revenue."
As the Department has not brought on record any distinguishing 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 noted that assessee had incurred trial run expenses amounting to Rs.11,44,58,672/- which were capitalized as part of Plant & Machinery in the audited annual accounts. The same were claimed as revenue expenses while computing the taxable 14 income. The AO disallowed the assessee's claim, inter-alia, observing that trial production was only an intermediate stage in making a plant ready for commercial production. It is a sort of testing stage 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 establishing 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 Maharashtra wherein existing three CP plants were already in place. The relevant dates of establishment and commencement of production of the new CP's were as under:
CP-4 CP-5
Date of commencement of Trial 09.03.2007 10.09.2006
Run/Production
Date of commencement of 30.03.2007 01.11.2006
commercial Production
7. He further observed that during the year under consideration, the assessee merely expanded its business operations by establishing two new CP Plants. He further pointed out that not only assessee 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 receipt.
8. At the outset ld. counsel for the assessee submitted that this issue is now concluded by the decision of Hon'ble Delhi High Court in the assessee's own case reported at 333 ITR page 18 wherein it has been held that where the new unit proposed to be set up by the assessee was the expansion of its business operation, the expenditure incurred on the proposed unit, is to be allowed as business expenditure even if the project was abandoned.
9. Ld. DR relied on the order of AO.
10. We have considered the rival submissions and perused 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 deduction 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 business organizations, administration and the funds of existing as well as the new plants were same and controlled by the common management of the assessee company itself. The staff working at various units were enrolled with the assessee and the company managed the manufacturing operations as carried out by the 16 respective plants, both old units as well as the new units. Further, the assessee was already in the business of manufacture of polyester yarn/fabric. Thus it was rightly concluded that the assessee merely expanded its business operations by establishing two new CP plants at its existing premises at Butibori, which resulted in capacity expansion of the Industry for Products (yarn) being manufactured by the assessee. He has further noted that the expenses were in respect of personnel costs, administrative expenses and also raw material, store, power, repairs and maintenance and other expenses which inherently were revenue in nature.
11. He has further pointed out that the AO had nowhere disputed the fact that the assessee had commenced operations at the two new CP's by initially undertaking trial production, followed by commercial production.
12. We find that Hon'ble Delhi High Court in assessee's own case in 333 ITR page 18 held as under:
"10. A harmonious reading of the aforesaid two judgments of this court, namely, Triveni Engineering Works Ltd. (Supra) on the one hand and Modi Industries (Supra) on the other, would clearly demonstrate that one has to keep in mind the essential purpose for which such an expenditure is incurred. If the expenditure is incurred 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 irrelevant as to whether project really materialized or not. However, if the expenditure incurred is in respect of the same business which is already carried on by the assessee, 17 even if it is for the expansion of the business, namely, to start new unit which is same as earlier business and there is unity of control and a common fund, then such an expense is to be treated as business expenditure. In such a case whether new business/asset comes into existence or not would become a relevant factor. If there is no creation of new asset, then the expenditure incurred would be of revenue nature. However, if the new asset 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 existing plant, therefore, the expenses incurred by assessee which were inherently 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 assessee company had claimed the depreciation of Rs.77,49,413/- on computers. AO noted that computers were reflected under the head furniture and fittings in the fixed assets schedule but the assessee had claimed depreciation @ 60% on computers. After considering the assessee's submissions, AO allowed depreciation @ 10%.
15. The ld. CIT(A) allowed the assessee's appeal, inter-alia, observing that classification of computers under the head furniture 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 assessee's own case for AY 2008-09 vide ITA 18 No.5831/Del/2011 dated 26th 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 computation of depreciation under the Companies Act has no relevance. The disallowance cannot be based merely on entries made in the books of accounts or in the annual accounts. The AO has not brought out any infirmity in the claim of the assessee. Under these circumstances we uphold the findings of the CIT(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 custom redemption fees of Rs.15 lacs which had been paid to the custom authorities 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 pointed out that the Bench had observed that the imported car was liable for confiscation and the fine and penalty levied for its release was right. The sum of Rs.15 lac was paid by the assessee for getting the car released and the 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 penalty however, AO, did not accept the AO's contention and made the addition of Rs.15 lac.
18. The ld. CIT (A) deleted the addition following the decision of Hon'ble Madras High Court in CIT vs. N. M. Parthasarathy 212 ITR 105, inter-alia, 19 observing that the amount paid was in the form of additional duty for non- complying with certain procedural requirements specified 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 covered by the decision of Hon'ble 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 have perused the record of the case. The ld. CIT (A) has discussed the issue 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 31st March, 2001, in terms of which an assessee importing any new vehicle in India was required to produce certificate of compliance as per the provisions of Rule 126 of Central Motor Vehicle Rules, 1989 from the Automotive 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 the required certificate was not issued by the prescribed authority by the time 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 payment 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 expenditure on account of redemption fees of Rs.15 lacs payable to Custom Authorities u/s 125 of the Customs Act, 1962 for release of an imported car. These facts are not disputed by the revenue authority. Therefore, the findings of ld. CIT (A) that the sum of Rs.15 lacs was purely of compensatory nature in the form of additional duty for not complying with certain procedural requirements specified in the DGFT notification, cannot be faulted. 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 Hon'ble Delhi High Court in the case of Usha Micro Process Control (Supra) has observed in Para 10 as under:
"8. The observations of the CEGAT are pertinent. They are extracted below:
18. Keeping in view the totality of the facts and circumstances of the case, we reduce the fine in lieu of the confiscation to Rs. 4,00,000.00 (Rupees four lacs only).
19. Now coming to the penalty, we would like to observe that in the foregoing paragraphs we have held the importation of hardware as authorised and regarding the importation of 21 software, the appellants had requested for the re-exportation of the software and had also placed on record to the effect that the software which was sent with the hardware was not ordered by the appellants and the appellants were keen for sending them back. There is complete absence of the elements of mens reg (sick) and the valuation of the hardware has been taken 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 authority 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. Parthasarathy's case (supra), the identical situation where redemption fine 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 goods belonging to the assessee had been confiscated under section 111(d) of the Customs Act, 1962, read with section 3 of the Imports and Exports (Control) Act, 1947. However, under section 125 of the Customs Act, 1962, an option had been given to the owner assessee to pay, in lieu of such confiscation, a fine of Rs. 1,84,000 which had been reduced on appeal to Rs. 84,000 and the goods had been cleared exercising the option. If the seized goods, without the exercise of option, had been confiscated once and for all, it goes without saying that the property in the goods shall vest in the Government, in the sense of the Government becoming the absolute owner thereof. The fine amount, whatever be its quantification, that is to say, whether it is equivalent to or below the value of the goods seized, cannot at all, in such a situation, be stated 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 allow deduction under section 37(1) of the Income Tax Act as laid down by the apex court in the two latest decisions aforecited. Further, the expenses incurred by way of payment of fees to advocates in defending penalty proceedings must also be construed as an allowable deduction. We, therefore, answer questions Nos. 1 and 4 in the affirmative and against the Revenue."22
10. In the present case, this Court notices that originally the penalty which the appellant had been directed to pay was deleted by the CEGAT. What remained was the confiscation; the appellant was given the choice of redeeming the goods by depositing redemption fine as is evident from combined reading of paragraph Nos. 18 and 19 of CEGAT order. The Tribunal went so far as to say that 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 not 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 Mills Pvt. Ltd.'s case (supra), this Court is of the opinion that the amount of redemption fine in the present case was compensatory and therefore, fell outside the mischief of explanation of Section 37(1) of the Income Tax Act.
24. In view of above discussion, respectfully, following the decision of Hon'ble 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 MEMBER
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 PS
04/04/2014
2. Draft placed before author 16/04/2014 PS
3. Draft proposed & placed before the JM/AM
second member
4. Draft discussed/approved by JM/AM
Second Member.
5. Approved Draft comes to the 17/04/2014 PS/PS
Sr.PS/PS
6. Kept for pronouncement on PS
7. File sent to the Bench Clerk 17/04/2014 PS
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10. Date of dispatch of Order.