Case Law Details

Case Name : Pr. Commissioner of Income Tax Vs Praveen Saxena (Delhi High Court)
Appeal Number : ITA 37/2016
Date of Judgement/Order : 25.01.2017
Related Assessment Year : 2007-08
High Court held that that the disallowance of Rs. 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 as same was appropriated by the Customs authorities and it was covered by Section 43B of the Income Tax Act, 1961.

Relevant Extract of the Judgment

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 Rs.3 crores.

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 Rs.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 07.2007 in Bail Application 18/2007, directing the assessee to deposit total amount of Rs.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 Rs.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) .

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 Rs. 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 Rs. 3,76,71,175/- and Rs. 1,44,75,272/-. On this amount, a penalty of like amount, i.e. aggregating to Rs. 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 Rs. 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 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 Rs. 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 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.

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