Commissioner Of Income Tax v. M/S Porrits & Spencer (A) Ltd

IN THE HIGH COURT OF PUNJAB AND HARYANA ATCHANDIGARH. I.T.A. No.538 of 2006 (O&M)Date of decision: 15.9.2009 Commissioner of Income Tax. -----Appellant Vs. M/s Porrits & Spencer (A) Ltd. -----Respondent CORAM:- HON'BLE MR. JUSTICE ADARSH KUMAR GOELHON'BLE MRS. JUSTICE DAYA CHAUDHARY Present:-None for the revenue. ORDER: Mr. Santosh Aggarwal, Advocatefor the assessee. ----- 1. The revenue has preferred this appeal under Section260-A of the Income Tax Act, 1961 (for short, “the Act”) againstorder dated 9.12.2005 passed by the Income Tax AppellateTribunal, Delhi Bench ‘D’ in I.T.A. No.3742/DEL/1998 for theassessment year 1992-93, proposing to raise followingsubstantial questions of law:- “i)Whether the Hon’ble ITAT has erred in law in deletingthe order of the CIT(A) in which the disallowance ofRs.2,60,692/- made by the Assessing Officer onaccount of commission paid to Managing Director andthe Executives.the order of the CIT(A) in which the disallowance ofRs.2,60,692/- made by the Assessing Officer onaccount of commission paid to Managing Director andthe Executives. ii)Whether the Hon’ble ITAT has erred in law inconfirming the order of the CIT(A) in which thedisallowance of Rs.48659/- made by the AssessingOfficer on account of personal use of Car wasdeleted?confirming the order of the CIT(A) in which thedisallowance of Rs.48659/- made by the AssessingOfficer on account of personal use of Car wasdeleted? iii)Whether the Hon’ble ITAT is correct in law in holdingthat penalty pai8d for infringement of law is anallowable expenditure and thereby deleting theaddition of Rs.1,87,500/- made by AO on account ofpenalty levied by customs authorities for not holdingthe import license for the machinery?”that penalty pai8d for infringement of law is anallowable expenditure and thereby deleting theaddition of Rs.1,87,500/- made by AO on account ofpenalty levied by customs authorities for not holdingthe import license for the machinery?” 2. During assessment, the Assessing Officer disallowedpayments on account of commission paid to Managing Directorand the Executives, expenses on use of car and amountrepresenting penalty levied by custom authorities for not holdingimport licence for the machinery. The CIT(A) partly upheld thedisallowance. However, on further appeal, the Tribunal set asidethe disallowance and accepted the claim of the assessee.3. On question (i), the Tribunal followed its order for theearlier assessment year in the case of the assessee. The saidview was upheld by this Court vide judgment dated 16.9.2008 inI.T.R. Nos.80-82 of 1982 Poritts & Spencer Ltd.v. CIT.Reference was made to judgment of the Hon’ble Supreme Courtin Shahzada Nand & Sonsv. CIT, Patiala108 ITR 358, holdingthat once genuineness of payment of the employees was notdoubted, the payment had to be allowed on the principle ofcommercial expediency. With regard to question (ii), the Tribunalfollowed the earlier order which was upheld by this Court in theorder referred to above and held that expenses were not forpersonal use. The same were for business purpose. 3. As regards question (iii), the Tribunal held that theassessee had only made a claim for depreciation on the amountof goods by treating as revenue expenditure. The relevantobservations of the Tribunal are as under:- 3. As regards question (iii), the Tribunal held that theassessee had only made a claim for depreciation on the amountof goods by treating as revenue expenditure. The relevantobservations of the Tribunal are as under:- “3.2 We have perused the records and consideredthe matter carefully. The decision of ITAT Delhi incase of M/s Scagram Manufacturing Pvt. Ltd. isdirectly on the points i.e. in relation to confiscation ofgoods. The ITAT has considered the decision ofCEGAT in case Blue Dart Express Pvt. Ltd., in whichit was held that confiscation fees was not akin topenalty for infringement of law but was price paid topurchase the goods. ITAT had also distinguished thejudgement of Hon’ble Supreme Court in case of MaddiVenkataraman relied upon by the Ld. DR and hadallowed the claim as revenue expenditure followingthe judgement of Hon’ble High Court of Madras incase of Parthasarthi (212 ITR 105) in which it hadbeen held that the fine paid in exercise of option givenby the statute for release of goods cannot be said tobe penal in nature notwithstanding its nomenclature.It may be clarified here that section 125 of theCustoms Act specifically provides that in case ofimport of goods prohibited by law, the officers have tofirst give options to the importer to pay fine asdeemed fit in lieu of confiscation. Such fine well,therefore, only add to the cost of the goods imported.In the case cited above ITAT had allowed the claim asrevenue expenditure. In the instant case, claimrelates to allowance of depreciation only. Thejudgement relied upon by the Ld. DR aredistinguishable. The case of Maddi Venkatraman had been duly considered by the ITAT in case of M/sScagram Manufacturing Pvt. Ltd., and distinguished.None of the cases cited by the Ld. DR relate todepreciation. The fine has been paid under theprovisions of law for release of imported goods andwill therefore, be part of the cost of goods. In our viewdepreciation will be allowable. We, therefore, reversethe order of CIT(A) and allow the claim of depreciationon the amount of fine paid by the assessee in lieu ofconfiscation of the goods.” 4. In view of above finding of the Tribunal, the question(iii) cannot be held to arise. The Tribunal has not allowedexpenditure representing penalty but has only alloweddepreciation in respect of cost of machinery, by including theredemption fine paid as part of cost. The Tribunal has followedjudgment of Madras High Court in CITv. N.M. Parthasarathy(1995) 212 ITR 105, distinguishing the judgment of the Hon’bleSupreme Court inMaddi Venkataraman & Co. (P) Ltd. v. CIT229 ITR 534. 5. Thus, we are of the view that no substantial questionof law arises for consideration. 6. The appeal is dismissed. (ADARSH KUMAR GOEL) JUDGE September 15, 2009ashwani ( DAYA CHAUDHARY ) JUDGE