2003 (2) TMI 165 - AT - Income Tax

Tribunal upholds Customs fines as deductible under Income Tax Act, dismissing Revenue's appeal.

The Tribunal upheld the deletion of Rs. 1,30,000 as a redemption fine and Rs. 13,000 as a personal penalty imposed by the Customs Department. The Tribunal ... - Issues Involved:1. Deletion of the addition of Rs. 1,30,000 paid as redemption fine to the Customs Department.2. Deletion of the addition of Rs. 13,000 paid as personal penalty imposed by the Customs Department.Issue-Wise Detailed Analysis:1. Deletion of the addition of Rs. 1,30,000 paid as redemption fine to the Customs Department:The Revenue's grievance is that the CIT(A) was not justified in deleting the addition of Rs. 1,30,000 paid as redemption fine, which is in violation of law. The firm had imported dry dates from Pakistan and paid a redemption fine of Rs. 1,30,000 for excess weight found in the consignment. The Addl. Collector of Customs imposed this fine, giving the firm an option to get the goods released on payment of the fine. The AO disallowed this payment as an allowable expenditure, referencing the Supreme Court's judgment in Haji Abdul Shakur & Brothers vs. CIT, which held that penalties under the Sea Customs Act for importing banned items cannot be allowed as business deductions.The CIT(A) analyzed the customs order and found that the firm was imposed the redemption fine due to misdeclaration of tare weight and excess net weight of the consignment. The CIT(A) relied on several judgments, including Prakash Cotton Mills (P) Ltd. vs. CIT and CIT vs. N.M. Parthasarathy, concluding that the redemption fine was compensatory in nature and deductible under s. 37 of the IT Act. The CIT(A) noted that the payment was made under an option given by the Customs Act, making it compensatory rather than penal.The learned Departmental Representative argued that the retrospective amendment to s. 37(1) by the Finance (No. 2) Act, 1998, prohibits deduction of expenditure incurred for any purpose which is an offence or prohibited by law. However, the learned counsel for the assessee contended that the redemption fine does not fall into this category, as it is compensatory and not an offence or prohibited by law.The Tribunal concluded that the difference in weighment and the consequent redemption fine is neither an offence nor prohibited by law, and thus the retrospective amendment to s. 37 does not apply. Therefore, the deletion of the addition of Rs. 1,30,000 by the CIT(A) was upheld.2. Deletion of the addition of Rs. 13,000 paid as personal penalty imposed by the Customs Department:The Revenue also contested the deletion of the addition of Rs. 13,000 paid as a personal penalty. The Addl. Collector of Customs imposed this penalty under the Customs Act, 1962, for the same consignment of dry dates. The AO disallowed this payment as an allowable expenditure, referencing the same Supreme Court judgment.The CIT(A) treated the personal penalty similarly to the redemption fine, relying on the same judgments and reasoning that the penalty was compensatory. The CIT(A) concluded that the personal penalty was also deductible under s. 37 of the IT Act.The learned Departmental Representative reiterated the argument about the retrospective amendment to s. 37(1), but the learned counsel for the assessee maintained that the personal penalty was compensatory and not an offence or prohibited by law.The Tribunal agreed with the CIT(A) that the personal penalty was compensatory and not an offence or prohibited by law. Therefore, the deletion of the addition of Rs. 13,000 by the CIT(A) was also upheld.Conclusion:The appeal of the Revenue was dismissed, and the cross-objection filed by the assessee was dismissed as being out of time.