$~7
* IN THE HIGH COURT OF DELHI AT NEW DELHI
Decided on: 25.01.2017
+ ITA 37/2016
PR. COMMISSIONER OF INCOME TAX-XVIII ..... Appellant
Through : Sh. Ashok. K. Manchanda, Sr. Standing
Counsel.
versus
PRAVEEN SAXENA ..... Respondent
Through : Sh. Ajay Wadhwa and Sh. Sameep
Gupta, Advocates.
CORAM:
HON'BLE MR. JUSTICE S. RAVINDRA BHAT
HON'BLE MR. JUSTICE NAJMI WAZIRI
MR. JUSTICE S. RAVINDRA BHAT (OPEN COURT)
1. The Revenue claims to be aggrieved by the order of the Income Tax
Appellate Tribunal (ITAT) whereby it dismissed its appeal. The ITAT
affirmed the order of CIT(A) who had directed that the disallowance of `70
lakhs paid by the assessee respondent as a condition pursuant to the order of
this Court dated 01.02.2007 was liable as an expense and that it was covered
by Section 43B of the Income Tax Act, 1961 [hereafter "the 1961 Act"].
2. The assessee is engaged in the business of import and export of
commodities, including edible oil, through a proprietory concern, i.e. M/s.
Nova International. On 22.11.2006, a search was conducted by the Customs
authorities in its premises; the assessee was arrested subsequently by the
Directorate of Revenue Intelligence (DRI) on 05.12.2006 on the suspicion of
evasion of payment of duties to the extent of more than `3 crores.
ITA 37/2016 Page 1
3. The assessee had approached this Court; in the course of proceedings,
the Customs authorities had contended that the duty element payable was in
excess of `3 crores and that bail could be granted only if a substantial
amount out of that was deposited. The Court, therefore, made an order on
01.07.2007 in Bail Application 18/2007, directing the assessee to deposit
total amount of `70 lakhs which was to be appropriated by the Customs
authorities. In addition, the assessee was also directed to furnish adequate
security to the extent of `2 crores. For the concerned year, i.e. AY 2007-08,
the assessee contended that the amount had to be allowed under Section 43B
of the 1961 Act. The Assessing Officer (AO) framed the assessment,
disallowing the amount amongst others. He was of the opinion firstly that the
amount was a penalty and consequently, even otherwise, in the absence of an
adjudication order, no amount was payable.
4. The CIT(A) was of the opinion that the amounts paid were pursuant to
this Court's order and were compensatory in nature and were also liable
under Section 37 of the 1961 Act. Relying on a large number of precedents,
the CIT(A) took note of a Special Bench order of the ITAT in DCIT v. Glaxo
Smithkline Consumer Healthcare Ltd. 2007 (110) TTJ 183 (Chd) and held
that the expense was liable to be allowed under Section 43B. The ITAT
before which the Revenue preferred an appeal [aggrieved with the findings
of the CIT(A)] confirmed the CIT(A)'s order and also relied upon a ruling of
the Supreme Court in CIT v. Birla Brother Pvt. Ltd. 1971 (82) ITR 166 (SC)
and ruled as follows:
"28. In view of above, at the outset, we note that undisputedly
the assessee made payment of Rs.70 lacs as per direction of
Hon'ble High Court of Delhi given in the bail order dated
01.02.2007 which enlarged the assessee on bail in a criminal
ITA 37/2016 Page 2
case of Custom Duty Evasion. At the time of payment the custom
duty assessment was pending and yet to be completed in future.
Obviously, when it is found that the assessee has evasioned
custom duty then the penalty is obvious and leviable as per the
relevant provisions of the Act but until and unless assessment is
not completed the amount of custom duty/additional custom
duty, interest thereon and penalty cannot be ascertained and in
this situation impugned payment made by the assessee cannot
be held as penalty or penal in nature at any stretch of
imagination.
29. Under above facts and circumstances the ld. CIT(A)
rightly hold that till the time the adjudication takes place
ascertained of duty and penalty, if any, cannot be determined.
The ld. CIT(A) further went to hold that as such situation takes
place the amount deposited by the assessee shall first be
appropriated towards the custom duty and balance shall go
towards interest, if any, and the balance amount so paid, if any,
shall be thereafter appropriated towards penalty, if levied, in
the case of assessee. We are also in agreement with the findings
of the ld. CIT(A) wherein he accepted the alternate argument of
the assessee that the additional custom duty of Rs.70 lacs paid
by the assessee is an allowable expenditure U/S 43B of the Act.
Respectfully following the decision of Special Bench of the
ITAT, Chandigarh in the case of DCIT Vs. Glaxo Smithkline
Consumer Healthcare Ltd. (Supra) we hold that section 43B
allow deduction of impugned payment as additional custom duty
irrespective of the previous year in which the liability to pay
such sum was raised against the assessee. Accordingly, we are
unable to see any perversity, ambiguity or any other valid
reason to interfere with the impugned order and we uphold the
same."
5. It is urged by learned counsel for the Revenue rather vehemently that
the liability had never arisen and that in the absence of an adjudication order,
the amount was not payable by the assessee, and, therefore, was correctly
disallowed under Section 43B. It was submitted that even otherwise, the
ITA 37/2016 Page 3
records would show that the later order of the Customs authorities
substantiate the Revenue's contention in that the amounts directed to be paid
were towards penalty. Learned counsel also relied upon the judgment of the
Supreme Court in Indian Smelting and Refining Company Ltd. v. CIT 248
ITR 4 (SC).
6. This Court has carefully considered the submissions and gone through
the records. The order of the Court, while enlarging the assessee on bail had
categorically relied upon the Customs authorities' submissions that there was
considerable evasion of duty in excess of ` 3 crores. Taking that into
consideration, the Court had required deposit of certain amounts which were
to be appropriated towards duty element. It goes without saying that the
adjudication proceeded and the duty was framed subsequently at `
3,76,71,175/- and ` 1,44,75,272/-. On this amount, a penalty of like amount,
i.e. aggregating to ` 5,21,46,447/- was levied. This is evident from the order
of the Principal Commissioner of Customs, who also directed appropriation
of the sum of ` 70 lakhs towards the liability deposited during the course of
investigation. The relevant portions of the order of the Principal
Commissioner is extracted below:
"vi) I confirm and order recovery of Customs duty amounting
to Rs.1,44,75,272/- payable on the goods imported and cleared
vide 66 Bills of Entry as detailed in two Annexures, Annexure
B1 & B2 to SCN, along with interest from Novus International,
301, South Plaza-II, 209, Masjid Moth, NDSE-II, New Delhi
(Noticee No.1) through its Proprietor Shri Praveen Saxena
under the then existing proviso to Section 28(1) of the Customs
Act, 1962 read with Section 28AB ibid;
vii) I impose a penalty of Rs.5,21,46,447/- (i.e.
Rs.3,76,71,175/- & Rs. 1,44,75,272/- Total Rs.5,21,46,447/-) on
ITA 37/2016 Page 4
M/s. Novus International through its Proprietor, Shri Praveen
Saxena under Section 114 A of the Customs Act, 1962.
However, if the aforesaid duty along with interest payable
under the then existing Section 26AB is paid within thirty days
from the date of communication of this order, the amount of
penalty under Section 114A shall be twenty five per cent of the
duty evaded provided further that the benefit of reduced penalty
shall be available subject to the condition that the amount of
penalty so determined has also been paid within the period of
thirty days referred to above;
viii) The amount of Rs.70 lakhs voluntarily deposited by M/s
Novus International towards differential duty during the course
of the investigation is ordered to be appropriated towards
payment of duty, interest and penalty."
7. So far as the AO's assumption that the amount was a penalty goes, this
Court notices that the the said official appears to have either deliberately or
for whatever reasons overlooked the plain language of the Principal
Commissioner's order. So too, the learned counsel who argued that what was
levied was "penalty" and not "differential duty". As is evident from the
order, the Principal Commissioner clearly determined the duty element at `
5,21,46,447/- and an identical amount as penalty liability. In these
circumstances, the rationale for the Revenue's contention is entirely
misplaced. So far as the question of liability goes, we notice that the
judgment in Indian Smelting (supra) was a case where the assessee did not
admit liability and the Court had upheld the Revenue's contention that
payment was only towards a contingent liability and could not constitute
expenditure. The facts there were clearly different from the facts here. The
assessee was accused of misdeclaration and consequential differential
liability towards differential duty. If there was no such misdeclaration, the
ITA 37/2016 Page 5
Revenue could not have contended that the amounts duly paid constituted
allowable expenditure on account of statutory liability under Section 43B.
That the Assessee did not do so but was quite rightly made to do so does not
in any manner detract from its basic liability which it always had to satisfy.
Therefore, the contentions of the Revenue are entirely misconceived and are
rejected. The appeal does not involve any substantial question of law. It is
accordingly dismissed.
S. RAVINDRA BHAT
(JUDGE)
NAJMI WAZIRI
(JUDGE)
JANUARY 25, 2017/ajk
ITA 37/2016 Page 6
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