2012 (12) TMI 169

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....nal nature? 2. Whether the Tribunal fell into error in deleting the disallowance of Rs.12,37,200/- made by the Assessing Officer under Section 43B(e) in the facts and circumstances of the case?" 2. The facts are that the assessee used to manufacture and trade in gold jewellery. Its return for the assessment year 2001-02 was selected for scrutiny and notice under Section 143(2) was issued and served upon the assessee. During the assessment proceedings the Assessing Officer disallowed Rs.1,04,000/- paid by the assessee as interest on customs duty demand. The assessee contended that he used to import jewellery manufacturing machinery under Export Promotion Capital Goods Scheme (EPCG Scheme) at a concessional rate with an export obligatio....

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....is an allowable business expenditure. Therefore, the addition made by the A.O. is deleted." 3. The Revenue's appeal before the Tribunal was that the disallowance directed to be set-aside by the CIT (A) was not justified since the amount paid was penal in nature. The Tribunal considered the submissions and held that there was no infirmity in the order of the CIT (A) and the amount paid was not penal in nature as much as it was as per the declared policy of the government and occasioned by the failure of the assessee to meet its obligations. The amount being interest was compensatory and not penal according to the Tribunal. 4. The counsel for the Revenue attacked the reasoning of the Tribunal contending that since the assessee availed t....

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....roached the DRT which made a composite order. The Assessing Officer held that the provisions of Section 43B(e) were attracted and the deduction of Rs.12,37,206/- could not be granted. The Assessing Officer also noted that a similar disallowance had been made in earlier year. 7. The CIT (Appeals) deleted the disallowance which resulted in the Revenue's appeal to the ITAT. The ITAT held as follows: - "5.1 Apropos ground no.2 also we see no infirmity in the order of CIT (A) inasmuch the amount claimed as expenditure was not in respect of any interest payable to schedule bank on loan but undisputedly it was in respect of guarantee fee payable by assessee to SBI, therefore, provisions of section 43B are not applicable. This ground of the r....