AI Drafter 
TaxTMI 
TaxTMI 
2017 (8) TMI 561
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....6/09/2012 declaring total income of Rs. 1,32,46,790/-. The case was selected for scrutiny and the assessment was completed on 17/03/2015 U/s 143(3) of the Income Tax Act, 1961 (in short the Act). The assessee company is engaged in manufacturing and sale of ENA, Country liquor and IMFL. The total sale of IMFL was Rs. 6,62,62,503/- and the excise duty claimed in the P&L account was debited to the tune of Rs. 8,40,12,623/-. There was an audit noted in the account of the assessee, which read as under:- "The Rajasthan State Excise Department has raised the demand of Rs. 1770.72 lacs vide various demand recovery notices on account of non verification of some of Export permits (relating to interstate sales) issued by the Excise Authority of importing states. The said demand has been challenged by the Company and Honorable Supreme Court of India vide its order dated 15.12.2011 has stayed the demand. However before the stay being granted by Apex Court, the Company has deposited up to 31.3.2012 Rs. 630.56 lacs (up to 31.3.2011 Rs. 314.24 Lacs) with State Government towards these demands under protest as the matter is sub- judice. The payment to/from government authorities on this ac....
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....nformed the Rajasthan State Excise Department that the import permits shown to have been issued by them, were fake. In pursuance of the bond executed by the assessee, the District Excise Officer, Sikar had issued demand recovery notices. Out of the total demand of Rs. 177072000/-, the assessee had made payment of Rs. 3,16,32,000/- against the above demand, which has been disallowed by the A.O. in the income of the assessee. 3. Being aggrieved by the order of the Assessing Officer, the assessee carried the matter before the ld. CIT(A), who after considering the submissions, has deleted the disallowance by observing as under:- "5.4 I am of the considered view that - i. The penalty by any statutory authority can be levied only for violation of the provisions of the law of the land. In the appeal under consideration the relevant law is the Rajasthan Excise Act, 1950 and Rajasthan Excise Rule, 1956. ii. Penalty can be levied only under the specific section of the Act or the Rules. In the appeal under consideration the relevant Act is Rajasthan Excise Act, 1950 and the Rajasthan Excise Rules, 1956. The appellant has filed the copy of the Rajasthan E....
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....port. The section 18 of the Rajasthan Excise Act, 1950 provides that no excisable article shall be removed from any distillery, brewery pot-still, warehouse or other place of storage established or licensed under this Act unless the duty (if any) payable therefore under this Act has been paid or a bond has been executed for the payment thereof. A reading of section 18 and section 54 of the Rajasthan Excise Act, 1950 makes it clear that the maximum penalty leviable for removing the excisable articles without paying duty (if any) payable therefore, under the Rajasthan Excise Act, 1950 or without executing the bond for the payment thereof, is only Rs. 20,000/-. Thus, it is clear that the amount demanded by the State Excise Officer, Sikar by issue of is not penalty under section 54 or any other section of the Rajasthan Excise Act, 1950, because the amount demanded by the State Excise Officer, Sikar by issue of is huge and far excess than the maximum amount of penalty prescribed under section 54 of the Rajasthan Excise Act, 1950. . Alongwith the no order levying the penalty has been issued by the State Excise Officer, Sikar. Only it has been mentioned in the that th....
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....1. Hence, the disallowance of Rs. 3,16,32,000/- made by the AO stands deleted. Accordingly, this ground of appeal is allowed." 4. Now the revenue is in appeal before us. The ld. CIT DR has vehemently supported the order of the Assessing Officer and submitted that the ld. CIT(A) was not justified in deleting the disallowance. 5. At the outset, the ld AR of the assessee has submitted as under:- 1. This is revenue appeal arising from the order passed by the Id. CIT(A), dated. 10.1.2017 in which the disallowance of Rs. 3,16,32,000/- made by the Ld. AO on account of excise duty paid by the assessee treating the same as penalty in nature has been deleted. 2. The brief facts of the case are that the assessee is a Limited company and is engaged in the business of manufacturing of ENA & Rectified Spirit. 3. For the year under consideration, the assessee filed its return of income for the AY 2012-13 declaring an income of Rs. 1,32,46,790/-. 4. Thereafter, the return of the assessee was processed under section 143(1) and the case was selected for scrutiny and notice under section 143(2) was issued on 06/08/2013. 5. During the course of assess....
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....he same to District Excise officer (DEO), Sikar for his permission after doing necessary verification at his level. A detailed check list to be filled by AEO as per excise laws and the check list to be sent to DEO is enclosed at pages 91 to 92 of the paper book. e. Thereafter the DEO forwards the same to Additional Commissioner, Excise, to obtain permission to export the goods. Additional Commissioner after doing the necessary verifications at his level forwards the same to Excise Commissioner, Udaipur for his permission. f. The office of the Excise Commissioner Udaipur after following the necessary procedure issues the permission for export/ dispatch and returns the permit to DEO Office Sikar. Office of the DEO returns the permit to AEO posted at the assessee company's factory. g. On getting the necessary permission from the excise department the consignment is dispatched by the assessee under the supervision of AEO posted at its factory. h. On receipt of the goods by the buyer, the State Excise Department of the buyer's state issues a receipt to the Excise Department of the assessee's state. i. The assessee also executes a bond....
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.... 0.5714 Ltr Strength of ENA = 96% Total London Proof Ltr = 40000/.5714*96% = 67200 LPL Per Excise rate on IMFL Rs. 170 LPL Excise demand Rs. 11424000 b. Calculation of demand of Rs. 68544000 Quantity of ENA in dispute = 240000 Bulk Ltr Strength of ENA = 96% Total London Proof Ltr = 40000/.5714*96% = 403200 LPL Excise rate on IMFL Rs. 170 Per LPL Excise demand Rs. 68544000 18. From the above calculation, it is clear that the Excise Authorities have just recovered the Excise Duty which would have been levied on IMFL produced from the ENA sold by the assessee. Thus the amount shown by them is actually of Duty and not of "Penalty" as stated by them in their recovery order. 19. Here it is important to read the bond at executed between the assessee and the Excise Authorities specifically communicates that the assessee is supposed to indemnify the Excise Duty to the government Exchequer and not of any penalty. The duty paid is exactly the same as per the rates notified in PB Pg. 140 to 143. 20. In the pr....
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.... then the penalty proceedings are initiated and penalty is levied. Similarly, in the present case, there are separate penalty provisions prescribed in the Rajasthan Excise Act, 1950- Chapter IX from Section 54 to 70. A perusal of all the provisions clearly shows that issue involved in the present case is nowhere covered by these sections. Thus, penalty is not leviable for such default as per Rajasthan Excise Act, 1950. 26. Secondly, export of liquor under the special bond is governed by the Rajasthan Excise Rules, 1956 and there is a specific rule- Rule 14 for the same. Rule 14 clearly specifies that duty on consignment issued under a general bond shall be written off on receipt of pass and certificate provided none of the conditions of the bond has been infringed meaning thereby in case the pass is not received, the duty has to be paid and not any penalty. 27. Now coming to the The Rajasthan Distilleries Rules, 1976 which specifies the rules for making export under bond, it clearly specifies that in case the items were not delivered at the destination, the distiller shall indemnify for any loss of duty which the governor may suffer by reason of such non-delivery ....
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....actors over which the manufacturers might not have the control and, therefore, in view of the scheme and the bond with which we are concerned here, it cannot be said that there is a breach of a public policy which may render the payment, agreed to be made for the default arising as a result of the breach, as one akin to penalty. Under no circumstances, without violence to the language, it can be said to be infraction of the law. In that view of the matter, therefore, we do not find any reasons to interfere with the order of the Tribunal when it viewed the payment in question as expenses wholly and exclusively laid out for the business. In that view of the matter, therefore, we answer the question referred to us in the affirmative and in favour of the assessee. The Commissioner of Income-tax shall pay costs of this reference to the assessee." Nomenclature used in any provision of law is not conclusive. 30. It is well settled law that the nomenclature used in any provision of law to describe any payment, to be made by a person, as interest, compensation, penalty etc. is not conclusive. 31. In this regard reliance is placed in the order of the Division Bench....
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....t penal in nature and thus the payment of the said duty cannot be considered as a penalty for any offence or an act prohibited by law. In the following cases amount paid on account of penalty being compensatory in nature have been allowed by the Honorable Supreme Court and the High Courts a. In the case of CIT vs. Regalia Apparels (P) Ltd. [2013] 352 ITR 71 Honorable Bombay High Court stated Deduction u/s 37(1) - penalty paid to the Apparel Export Promotion Council - Forfeiture of gurantee - failure to fulfill the obligation to export - IT AT allowed the deduction - Held that:- respondent took a business decision not to honour its commitment of fulfilling the export entitlement in view of loss being suffered by it. The Assessing Officer does not dispute this fact nor does he doubt the genuineness of the claim of the expenditure being for business purpose. In these facts the Tribunal held that respondent assessee has not contravened any provisions of law and thus the forfeiture of the bank guarantee was compensatory in nature under section 37(1) of the Act. b. In the case of CIT vs. Neo Structo Construction Ltd. honorable Gujarat High Court vide its order ....
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....osit of margin monies and other violations of timely delivery. Following an ITAT decision in Master Capital, the High Court held that these payments were in the normal course of business of the assessee and there was no infraction of law. c. Dwarka Dass & Co. vs. Excise & Taxation Commr. 1969 Current Law Journal 290: It was held that a penalty under s. 18(2) of the Punjab Excise Act was not in the nature of punishment and the option to pay the penalty was in the nature of enabling provision which could have some relation with the approximate quantum of loss which the licensee might suffer in case of an order cancelling the licence for the remaining period. Further, this Bench had an occasion to consider this matter in the case of Shadi Singh Kashmira Singh vs. ITO (1983) 15 TLR 485 (Chg.-Trib.) and it was held therein that the payment made in respect of default under s. 36B of the Punjab Excise Act, 1914, was incidental to trade and was allowable as such. d. COMMISSIONER OF INCOME TAX vs. HOSHIARI LAL KEWAL KRISHAN : CIT (1961) 41 ITR 350 (SC): The fine was incurred by the assessee for making belated payments of the said excise duty. Though termed as fine, the pay....
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....k hours) was allowable deduction u/s. 37(1) of the Act. j. Ahmedabad Cotton Mfg. Co. Ltd. & Ors. (supra): The Hon'ble Supreme Court in the case held as under: "In examining the claim of an assessee that a payment made by him is a deductible expenditure under s. 37 of the IT Act, 1961, what needs to be done by the assessing authority is to see whether the law or scheme under which the amount was paid required such payment to be made as a penalty or something akin to penalty imposed by the way of punishment for breach or infraction of the law or the statutory scheme; if the amount so paid (although called a penalty) is found to be not a penalty or something akin to penalty due to the fact that the amount paid by the assessee was in exercise of the option conferred upon him under the very law or scheme concerned, the assessing authority has to regard such payment as business expenditure of the assessee, allowable under s. 37 as an incident of business laid out and expended wholly and exclusively for the purpose of the business." k. KAIRA CAN COMPANY LTD. vs. DEPUTY COMMISSIONER OF INCOME TAX [2 ITR (Trib) 20] :Payment, made under SEBI Regulation scheme, 2002 for ....