Pr. Commissioner Of Income Tax, Jaipur-Ii, Jaipur v. M/S Agribiotech Industries Limited, Sp

HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH ATJAIPUR D.B. Income Tax Appeal No. 8 / 2018 Pr. Commissioner of Income Tax, Jaipur-II, Jaipur. ----Appellant Versus M/s Agribiotech Industries Limited, SP-825, Road No.14, V.K.I. Area, Jaipur ----Respondent _____________________________________________________ For Appellant(s) : Mr. R.B. Mathur with Mr. Prateek KedawatFor Respondent(s) : _____________________________________________________ HON'BLE MR. JUSTICE K.S.JHAVERI HON'BLE MR. JUSTICE VIJAY KUMAR VYASJudgment 20/02/2018 1.By way of this appeal, the appellant has challenged thejudgment and order of the Tribunal whereby the Tribunal hasdismissed the appeal of the Department confirming the order ofCIT (A). 2.Counsel for the appellant has framed the following substantial questions of law: (i) Whether in the facts and circumstances of thecase and in law the ITAT was justified inupholding the deletion of disallowance made u/s.37(1) of the Act amounting to Rs.31632000/- onaccount of penal excise duty debited in P & LAccount. (ii) Whether in the facts and circumstances of thecase and in law the ITAT was justified in holdingthat alleged excise demand notice are not penalin nature without appreciating the fact that thesame are for penalty demand levied by theExcise Department raised on account of fakeexport permit. 3.Mr. Mathur has contended that the assessee was penalisedpursuant to his illegal activities and this will not amount tobusiness expenses. He has relied on Section 37 and explanationthereto of the Income Tax Act which has been introduced in 1998and reads as under: 37. (1) Any expenditure (not being expenditureof the nature described in sections 30 to 36 andnot being in the nature of capital expenditure orpersonal expenses of the assessee), laid out orexpended wholly and exclusively for the purposesof the business or profession shall be allowed incomputing the income chargeable under the head"Profits and gains of business or profession". Explanation 1.—For the removal of doubts, it ishereby declared that any expenditure incurred byan assessee for any purpose which is an offenceor which is prohibited by law shall not be deemedto have been incurred for the purpose of businessor profession and no deduction or allowance shallbe made in respect of such expenditure.hereby declared that any expenditure incurred byan assessee for any purpose which is an offenceor which is prohibited by law shall not be deemedto have been incurred for the purpose of businessor profession and no deduction or allowance shallbe made in respect of such expenditure. 4.He contended that this will fall within the explanation and therefore, not business expenses. He has also taken us throughthe observations made by the CIT (A) which is quoted as under: 5.3 I have gone through the assessment order,statement of facts, grounds of appeal and writtensubmission carefully. It is seen that the assesseeis engaged in the business of manufacturing ofENA(Extra Neutral Alcohol) and Rectified Spirit.TheassesseemadeapaymentofRs.3,16,32,000/- to State Excise Authority inresponse to ekax olwyh uksfVl issued by the DistrictExcise Officer, Sikar. The contents of one of theekax olwyh uksfVl are reproduced hereunder for readyreference: 4.He contended that this will fall within the explanation and therefore, not business expenses. He has also taken us throughthe observations made by the CIT (A) which is quoted as under: 5.3 I have gone through the assessment order,statement of facts, grounds of appeal and writtensubmission carefully. It is seen that the assesseeis engaged in the business of manufacturing ofENA(Extra Neutral Alcohol) and Rectified Spirit.TheassesseemadeapaymentofRs.3,16,32,000/- to State Excise Authority inresponse to ekax olwyh uksfVl issued by the DistrictExcise Officer, Sikar. The contents of one of theekax olwyh uksfVl are reproduced hereunder for readyreference: Þfnukad 22-11-2010 dks vkids vkosnu ij fuEugLrk{kjdrkZ ds dk;Zdky }kjkeSllZ izhfe;j fMLVyjht izk] fy]] iqaMqpsjh] dks bZ,u, fu;kZr djus ds fy,vk;k ijfeV Øekad 1470 ,oa 1471 fnukad 3-11-2010 ds vUrxZr fu;kZrijfeV Øe’k% ,ldsvkj 016491 ,oa Øekad 016492 fnukad 22-11-2010 tkjhfd;s x;s FksA bu ijfeVksa ds vUrxZr 20000&20000 cYd yhVj bZ,u, vkidsvthrx< fLFkr laLFkku ls eSllZ izhfe;j fMLVyjht izk-fy-] iqaMqpsjh] Hkstus dsfy, fuxZfer fd;k gSAeSllZ izhfe;j fMLVyjht izk] fy]] iqaMqpsjh] dks bZ,u, fu;kZr djus ds fy,vk;k ijfeV Øekad 1470 ,oa 1471 fnukad 3-11-2010 ds vUrxZr fu;kZrijfeV Øe’k% ,ldsvkj 016491 ,oa Øekad 016492 fnukad 22-11-2010 tkjhfd;s x;s FksA bu ijfeVksa ds vUrxZr 20000&20000 cYd yhVj bZ,u, vkidsvthrx< fLFkr laLFkku ls eSllZ izhfe;j fMLVyjht izk-fy-] iqaMqpsjh] Hkstus dsfy, fuxZfer fd;k gSA fMIVh deh’kuj ¼vkcdkjh½] iqaMqpsjh esa vrxr djk;k gS fd mDr vk;krijfeV dwVjfpr gS rFkk muds dk;kZy; }kjk tkjh ugha fd;s x;s gSA mijksDrfLFkfr esa fu;kZr ijfeVksa ds vUrxZr 40000 yhVj bZ,u, xRuO; eSllZ izhfe;jfMLVyjht izk-fy- iqaMqpsjh ij ugha igqapk gSA vkius vius cU/ki= esa fuEuvadu fd;k gqvk gS%& “03. I undertake behalf of Agribiotech IndustriesLtd., that the import permits, its contents and inprinting are genuine. 04. I undertake behalf of Agribiotech IndustriesLtd., make goods any losses accrued toGovernment of its agency due to above beenfalse and fictitious the Agribiotech Industries Ltd.shall also be liable for prosecution if same is notgenuine. 05. I undertake behalf of Agribiotech IndustriesLtd., that Excise verification issued by ExciseAuthority of importing State shall be submittedwithin 90 days of Exporting Extra Neutral Alcoholfrom our distillery, failing we shall be liable forexcise Duty extra leviable at Rajasthan at thattime.” bl izdkj vkius cU/ki= ¼’kiFk i=½ dh 'krksZa dk mYya?ku fd;k gS D;ksafdfu;kZr ijfeVksa ds vUrxZr 40000 yhVj bZ,u, xRuO; eSllZ izhfe;jfMLVyjht izk-fy- iqaMqpsjh] ij ugha igqapk gSA vr% jktLFkku vkcdkjh fu;e]1956 ds vUrxZr cU/ki= dh 'krZ ds mYya?ku ds fy, cU/ki= ds vUrxZr ns;'kkfLr ¼panalty½ dh jkf’k 1]14]24]000@& ¼v{kjs :i;s ,d djksM pkSngyk[k pkSchl gtkj½ rRdky vkt fnukad 22-12-10 dks jktdks"k esa tekdjkdj pkyku izLrqr djsaA ;g uksfVl vkt fnukad 22-12-2010 dks esjs gLrk{kj ,oa dk;kZy; eqnz esa tkjhfd;k x;k gSAß The AO disallowed the payment made inresponse to the ekax olwyh uksfVl on the ground thatthe amount paid by the amount paid by theappellant to the Excise Authority was in nature ofpenalty, hence, according to AO, the same wasnot allowable as deduction under section 37(1). Ihave gone through the content of the ekax olwyhuksfVl carefully. The amount demanded by theDistrict Excise Authority, Sikar was mentioned as‘penalty’. The demand has been raised by theDistrict Excise Officer, Sikar for violating theconditions of the affidavit filed by the appellantbefore the Excise Authority at the time of exportof ENA outside the State of Rajasthan. In the ekaxolwyh uksfVl there is no mention of any section of theRajasthan Excise Act, 1950, or the Rule ofRajasthan Excise Rule-1956, for the violation ofwhich, the penalty has been demanded from theappellant. Any section of the Rajasthan ExciseAct, 1950 or the Rule of Rajasthan Excise Rule1956, under which the penalty has been levied ordemanded by the District Excise Officer, Sikar is also not mentioned in the ekax olwyh uksfVl . As thedemand has been raised for violation of theconditions of the affidavit filed by the appellantbefore the Excise Authorities, therefore, it wouldbe pertinent to reproduce the contents of theaffidavit filed by the appellant. The language ofthe affidavits filed by the appellant is as under: “Atul Sharma S/o Sh. S.S. Sharma age 40 yearsand resident Campus 54, Dhuleshwar Garden C-Scheme Jaipur Authorized Signatory ofAgriobiotech Industries Limited having itsregistered office at SP-825, Road no.14, V.K.I.Area Jaipur take an oath as under: 01. I am Authorized Signatory of AgriobiotechIndustries Ltd. SP156, RIICO Ind. Area Ajitgarh,Distt-Sikar (Rajasthan) 02. I have been authorized by Management ofAgriobiotech Ind Ltd. to obtain Export permitsfrom District Excise office, Sikar against importpermit no. 04/015885 to 13/015885 dated27.12.10 in favour of M/s United Spirits Ltd. UnitPalwal (Haryana). 03. I Undertake behalf of Agriobiotech Ind. Ltd.That the import permits its contents and inprinting are genuine. 04. I undertake behalf of Agriobioteh Ind. Ltd.make goods any losses accrued in government ofits agency due to above been false and fictitiousthe Agriobiotech Ind. Ltd. shall also be liable forall prosecution if same is not genuine. 05. I undertake behalf of Agriobiotech ind. Ltd.excise verification issued by excise authority ofimporting state shall be submitted within 90 daysof exporting Extra neutral Alcohol from outdistillery. Failing we shall be liable for excise dutyextra leviable at Rajasthan at that time.” If the contents of the ekax olwyh uksfVl and theaffidavit of the appellant are read together, it isclear that the amount demanded from theappellant by the District Excise Officer, Sikar is onthe basis of para 5 of the affidavit of theappellant, as the appellant had failed to submitwithin the period of 90 days of export of ENAfrom its distillery, the excise verification issuedby the Excise Authority of the importing State. Iam of the considered view that the issue to bedecided is the nature of the payment demandedby the District Excise Officer, Sikar by issue of ekaxolwyh uksfVl for violation of the conditions of the affidavit filed by the appellant. The SupremeCourt in the case of Prakash Cotton Mills Pvt. Ltd.Vs. CIT, Central, Bombay, 1993 AIR 2174 hasheld that whenever any statutory impost paid bythe assessee by way of damages or penalty orinterest is claimed as an allowable expenditureunder section 37(1) of the I.T. Act, 1961, the AOis required to examine the scheme of theprovisions of the relevant statute providing forpayment of such impost, notwithstanding thenomenclature of the impost as given by thestatute to find whether it is compensatory orpenal in nature. The authority has to allowdeduction under section 37(1) of the I.T. Act,1961 wherever such examination reveals theconcerned impost to be purely compensatory innature. The Hon’ble Apex Court in the case of CITvs. Ahmadabad Cotton Manufacturing CompanyLtd. 205 ITR 163, has laid down following guidelines for ascertaining the nature of theexpenditure claimed by the appellant. “What needs to be done by an assessingauthority under the Income-tax Act, 1961, inexamining the claim of an assessee that thepayment made by such assessee was adeductible expenditure under section 37 of theIncome-tax Act although called a penalty is tosee whether the law or scheme under which theamount was paid required such payment to bemade as penalty or as something akin to penalty,that is imposed by way of punishment for breachor infraction of the law or the statutory scheme.If the amount so paid is found to be not apenalty or something akin to penalty due to theact that the amount paid by the assessee was inexercise of the option conferred upon him underthe very law or scheme concerned, then one hasto regard such payment as business expenditureof the assessee, allowable under section 37. In view of the above referred two decisions of theSupreme Court, relied upon by the appellantalso, the nature of the sum demanded by theDistrict Excise Officer, Sikar has to be decided. 5.4 I am of the considered view that- I. The Penalty by any statutory authority can belevied only for violation of the provisions of thelaw of the land. In the appeal underconsideration the relevant law is the RajasthanExcise Act, 1950 and Rajasthan Excise Rule,1956. ii. Penalty can be levied only under the specificsection of the Act or the Rules. In the appealunder consideration the relevant Act is RajasthanExcise Act, 1950 and the Rajasthan Excise Rules,1956. The appellant has filed the copy of the RajasthanExcise Act, 1950. Under section 54 of the Act,penalty for unlawful import, export, transport,possession, etc has been provided. The AO hasalso quoted the provisions of section 54 in theassessment order. The provisions of section 54 ofthe Rajasthan Excise Act, 1950 are reproducedhereunder: “5.4. Penalty for unlawful import, export,transport, manufacture, possession etc. -Whoever in contravention of this Act or of anyrule or order made or of any licence, permit orpass granted, thereunder- (a) imports, exports, transports, manufactures,collects, sells or possesses any excisable article;or (b) cultivates any hemp plant (Cannabis sativa);or (c) Constructs or works any distillery, pot-still orbrewery; or (d) uses, keeps or has in his possession anymaterials, stills, utensil, implements or apparatuswhatsoever for the purpose of manufacturing anyexcisable article other than tari; or (e) removes any excisable article from anydistillery, pot-still brewery or warehouseestablished or licensed under this Act; or (f) bottles any liquor for the purposes of sale; or (g) taps or draws tari from any tari producingtree; shall be punishable with imprisonment for a termwhich may extend to three years and with finewhich may extend to twenty thousand rupees; Provided that if a person is so found inpossession of a workable still for the manufactureof any excisable article or is found to be guilty ofselling or possessing for sale any excisable articlein contravention of the provisions of this Act or ofany rule or order made or of any licence, permitor pass granted thereunder, he shall be punishedwith the minimum sentence of imprisonment forsix months and fine of two hundred rupees; Provided further that if the quantity of liquorfound at the time or in the course of detection ofthe offence exceeds fifty bulk litres, the personguilty for such offence shall be punished with theminimum sentence of imprisonment for one yearand fine of ten thousand rupees.” Provided that if a person is so found inpossession of a workable still for the manufactureof any excisable article or is found to be guilty ofselling or possessing for sale any excisable articlein contravention of the provisions of this Act or ofany rule or order made or of any licence, permitor pass granted thereunder, he shall be punishedwith the minimum sentence of imprisonment forsix months and fine of two hundred rupees; Provided further that if the quantity of liquorfound at the time or in the course of detection ofthe offence exceeds fifty bulk litres, the personguilty for such offence shall be punished with theminimum sentence of imprisonment for one yearand fine of ten thousand rupees.” A plane reading of the section 54 of theRajasthan Excise Act, 1950 makes it clear thatmaximum penalty (fine) that can be levied forunlawful import and export is only Rs.20,000/-.There is no other section in the Rajasthan ExciseAct, 1950 under which the penalty or fine can belevied for unlawful import and export. Thesection 18 of the Rajasthan Excise Act, 1950provides that no excisable article shall beremoved from any distillery, brewery pot-still,warehouse or other place of storage establishedor licensed under this Act unless the duty (if any)payable therefore under this Act has been paid ora bond has been executed for the paymentthereof. A reading of section 18 and section 54 of theRajasthan Excise Act, 1950 makes it clear thatthe maximum penalty leviable for removing theexcisable articles without paying duty (if any)payable therefore, under the Rajasthan ExciseAct, 1950 or without executing the bond for thepayment thereof, is only Rs.20,000/-. Thus, it isclear that the amount demanded by the StateExcise Officer, Sikar by issue of ekax olwyh uksfVl isnot penalty under section 54 or any other sectionof the Rajasthan Excise Act, 1950, because theamount demanded by the State Excise Officer,Sikar by issue of ekax olwyh uksfVl is huge and farexcess than the maximum amount of penaltyprescribed under section 54 of the RajasthanExcise Act, 1950. Alongwith the ekax olwyh uksfVl no order levying thepenalty has been issued by the State ExciseOfficer, Sikar. Only it has been mentioned in theekax olwyh uksfVl that the penalty has been levied asthe appellant has violated the conditions of theaffidavit filed by the appellant. The appellant inits written submission filed during the course ofproceedings, has given at page No.8, the workingof the amount demanded by the State ExciseOfficer, Sikar by issue of ekax olwyh uksfVl . The sameis reproduced at page No.7 & 8 of this order. Itcan be seen from the working given by theappellant that the amount demanded by theState Excise Officer, Sikar by issue of ekax olwyh uksfVlis only Excise Duty. No interest or any penalty is included in the amount demanded by the StateExcise Officer, Sikar. In support of the rate ofexcise duty mentioned by the appellant in theworking given by the appellant, the appellant hasfiled the copy of notification dated 01.04.2005(F.4(17)FD/Excise/2004) issued by the DeputySecretary to the Government of RajasthanFinance Department Excise Division andnotification dated 01.04.2012 (F.4(1)FD/Ex/2012part 1) issued by the Deputy Secretary to theGovernment of Rajasthan Finance DepartmentExcise Division. In both the notification the rateof excise duty is the same which has beenapplied by the appellant for working out theamount of excise duty demanded by the StateExcise Officer, Sikar as penalty by issue of ekax olwyhuksfVl- included in the amount demanded by the StateExcise Officer, Sikar. In support of the rate ofexcise duty mentioned by the appellant in theworking given by the appellant, the appellant hasfiled the copy of notification dated 01.04.2005(F.4(17)FD/Excise/2004) issued by the DeputySecretary to the Government of RajasthanFinance Department Excise Division andnotification dated 01.04.2012 (F.4(1)FD/Ex/2012part 1) issued by the Deputy Secretary to theGovernment of Rajasthan Finance DepartmentExcise Division. In both the notification the rateof excise duty is the same which has beenapplied by the appellant for working out theamount of excise duty demanded by the StateExcise Officer, Sikar as penalty by issue of ekax olwyhuksfVl- In view of the facts discussed above, after goingthrough the contents of the ekax olwyh uksfVl contentsof the affidavit filed by the appellant, RajasthanExcise Act, 1950, Rajasthan Excise Rules, 1956and the notifications dated 01.04.2005 and01.04.2012 issued by the Deputy Secretary ofthe Government of Rajasthan FinanceDepartment Excise Division, I am of theconsidered view that the amount demanded bythe State Excise Officer, Sikar was not panel innature. The amount was demanded by the StateExcise Officer, Sikar for violation of the conditionsof the affidavit filed by the appellant, in which ithad undertaken to pay the excise duty extra,leivable if the appellant failed to submit within 90days of exporting ENA from its distillery theexcise verification issued by the Excise Authorityof the importing State. The amount paid by theappellant in response to the ekax olwyh uksfVl wasexcise duty paid by it during the ordinary courseof the business carried on by it, wholly andexclusively for the purpose of the business ofmanufacturing ENA and Rectified Spirit, which isallowable as deduction under section 37(1) of theI.T. Act, 1961. Hence, the disallowance ofRs.3,16,32,000/- made by the AO standsdeleted. Accordingly, this ground of appeal isallowed.” 5.He therefore, contended that the view taken by the CIT (A)is contrary to finding arrived at by the AO and requires to bereversed. 6.In support of his contention, he relied upon the followingdecisions: (i)In Dr. T.A. Quereshi vs. CIT, Bhopal, (2006) 287 ITR 547 (SC), it has been held as under:- 8. No doubt, the assessee had contended thathe was only earning income from his medicalprofession and was not doing any illegalactivity of manufacturing and selling ofheroin. However, the finding of fact of theTribunal in its order dated 31.3.1993 is thatthe assessee was engaged in manufactureand selling of heroin. Thus the Income Taxauthorities themselves have recorded afinding that the assessee was engaged inmanufacture and selling of heroin. No doubtthe order of the Tribunal dated 31.3.1993 wassubsequently recalled by the Tribunal, butsince with ultimate order dated 14.10.1998the Tribunal has held that the heroin seizedwas the assessee's stock in trade it is implicitthat the Tribunal reiterated to view that theassessee was doing the business ofmanufacture and sale of heroin. Once the Income Tax authorities records sucha finding of fact, it follows that any loss fromsuch a business is a business loss. 10. The High Court, however, in paragraph 10of its judgment observed: Once the Income Tax authorities records sucha finding of fact, it follows that any loss fromsuch a business is a business loss. 10. The High Court, however, in paragraph 10of its judgment observed: The assessee in this case was engaged inprofession of doctor. He had nothing to dowith the contraband article - Heroin forcarrying on his profession. It is an admittedfact that possession of Heroin is an offenceunder NDPS Act. In this view, the rigour ofexplanation to Section 37 was fully satisfiedand hence the question claiming anydeduction for the value of seized article didnot arise nor was an assessee entitled toclaim any such deduction who was bound inindulging in such heinous and illegal businessunconnected with his pious professionalactivity. Indeed, it was disgrace for a doctorcommunity where one doctor was foundindulging in doing such kind of activitiesagainst the humanity. In our opinion, the High Court has adopted anemotional and moral approach rather than alegal approach. We fully agree with the HighCourt that the assessee was committing ahighly immoral act in illegally manufacturingand selling heroin. However, cases are to bedecided by Court on legal principles and noton one's own moral views. Law is differentfrom morality, as the positivist juristsBentham and Austin pointed out. As already observed above, the facts of thecase are squarely covered by the decision ofthis Court in CIT v. Piara Singh (supra) 11. The explanation to Section 37 has reallynothing to do with the present case as it isnot a case of a business expenditure, but ofbusiness loss. Business losses are allowableon ordinary commercial principles incomputing profits. Once it is found that theheroin seized formed part of the stock intrade of the assessee, it follows that theseizure and confiscation of such stock in tradehas to be allowed as a business loss. Loss ofstock in trade has to be considered as atrading loss vide Commissioner of Income-Tax v. S.N.A.S.A. Annamalai Chettiar[1972]86ITR607(SC) . (ii)In Maddi Venkataraman & Co. (P) Ltd. vs. CIT (1998) 229ITR 534 (SC), it has been held as under:- 10. The English Courts have consistently heldthat penalty or fine or money paid tocompound an offence under another statutecannot be allowed as a deduction under theIncome Tax Act for the application of theseprinciples, consideration of moral obliquitywas quite immaterial. 18. The Indian Courts have also consistentlyheld that payments tainted with illegalitycannot be treated as money spent wholly andexclusively for the purpose of business. A longline of decisions was noted in the judgmentunder appeal. It is not necessary to refer toall of them. We shall refer to three casesdecided by this Court. 20. The point that the expenditure incurredfor the purpose of unlawful activity must beallowed to find out the commercial profits of the Company was specifically argued andrejected in the case of The Commissioners ofInland Revenue v. E.C. Warnes (supra). If apenalty is imposed for contravention of anystatutory provision, it cannot be said that thecommercial loss had fallen on the assessee asa trader. Illegal activity cannot be treated as atrading activity at all. As Lord sterndale heldthat it was not enough that the disbursementwas made in the course of or arose out of orwas connected with the trade or was madeout of the profits of the trade. Only if it couldbe shown that it was spent for the purpose ofthe trade that the deduction can be permittedunless the entire trade was unlawful. 20. The point that the expenditure incurredfor the purpose of unlawful activity must beallowed to find out the commercial profits of the Company was specifically argued andrejected in the case of The Commissioners ofInland Revenue v. E.C. Warnes (supra). If apenalty is imposed for contravention of anystatutory provision, it cannot be said that thecommercial loss had fallen on the assessee asa trader. Illegal activity cannot be treated as atrading activity at all. As Lord sterndale heldthat it was not enough that the disbursementwas made in the course of or arose out of orwas connected with the trade or was madeout of the profits of the trade. Only if it couldbe shown that it was spent for the purpose ofthe trade that the deduction can be permittedunless the entire trade was unlawful. 24. In the instant case the assessee hadindulged in transactions in violation of theprovisions of Foreign Exchange (Regulation)Act. The assessee's plea is that unless itentered into such a transaction, it would havebeen unable to dispose of the unsold stock ofinferior quality of tobacco. In other words, theassessee would have incurred a loss. Spur ofloss cannot be a justification for contraventionof law. The assessee was engaged in tobaccobusiness, the assessee was expected to carryon the business in accordance with law. If theassessee contravenes the provisions of FERAto cut down its losses or to make largerprofits while carrying on the business, it wasonly to be expected that proceedings will betaken against the assessee for violation of theAct. The expenditure incurred for evading theprovisions of the Act and also the penaltylevied for such evasion cannot be allowed asdeduction. As was laid down by LordSterndale in the case of Alexander Von Glehn(supra) that it was not enough that thedisbursement was made in the course oftrade. It must be for the purpose of the trade.The purpose must be a lawful purpose. 25. Moreover, it will be against public policy toallow the benefit of deduction under onestatute, of any expenditure incurred inviolation of the provisions of another statuteor any penalty imposed under anotherstatute. In the instant case, if the deductionsclaimed are allowed the penal provisions ofFERA will become meaningless. It has also tobe borne in mind that evasion of law cannotbe a trade pursuit. The expenditure in thiscase cannot, in any way, be allowed as wholly and exclusively laid out for the purpose ofassessee's business. (iii)In Assam Roller Flour Mills vs. CIT (1997) 227 ITR 43 (Raj.), it has been held as under:- 5. Referred questions Nos. 1 and 3 have, itmay be noted, arisen out of the Tribunal'sfindings recorded in paragraph 15 of its order.The Tribunal has disallowed the assessee'sclaim for deduction of the penalty amount onthe ground that the penalty was imposed forinfraction of the provisions of the CustomsAct, 1962. The contention of Mr. Bhojwani,learned senior counsel for the assessee, isthat in recording its finding the Tribunaloverlooked the vital fact that the Governmentof India, in exercise of its revisionaljurisdiction in the matter, had finally held thatthere was no infraction of law in importing itsgoods by the assessee. According to Mr.Bhojwani, this subsequent event was relevantto the issue and the Tribunal should havetaken due note of it. 5. Referred questions Nos. 1 and 3 have, itmay be noted, arisen out of the Tribunal'sfindings recorded in paragraph 15 of its order.The Tribunal has disallowed the assessee'sclaim for deduction of the penalty amount onthe ground that the penalty was imposed forinfraction of the provisions of the CustomsAct, 1962. The contention of Mr. Bhojwani,learned senior counsel for the assessee, isthat in recording its finding the Tribunaloverlooked the vital fact that the Governmentof India, in exercise of its revisionaljurisdiction in the matter, had finally held thatthere was no infraction of law in importing itsgoods by the assessee. According to Mr.Bhojwani, this subsequent event was relevantto the issue and the Tribunal should havetaken due note of it. 8. Coming to questions Nos. 1 and 3 referredto us the position comes to this. In the yearof account the liability to pay personal penaltyof Rs. 4lakhs had accrued or arisen againstthe assessee with the passing of the order bythe Collector of Customs, Bombay. Suchliability, in view of the principle laid down inKedarnath Jute Mfg. Co. Ltd, v. CITMANU/SC/0438/1971 : [1971]82ITR363(SC)would have been an allowable deduction inthe year of account but in view of theprinciple laid down in Haji Aziz'scase MANU/SC/0120/1960 :1983ECR1942D(SC) it was not so allowableas the liability related to a penalty imposedfor infringement of the provisions of theCustoms Act, 1962. That was the position inthe year under account. 9. However, taking into account thesubsequent events which mainly consisted ofa fire breaking out in the assessee's businesspremises in June, 1982, closure of theassessee's business and later on a companytaking over the remains of the assessee'sbusiness, and the order of the Government ofIndia knocking off the penalty in question in 1982 and on taking the effect of such order ofthe Government of India to the year ofaccount with the help of the doctrine of"relating back", the position comes to thisthat in the year of account the liability inquestion stood wiped out and did no moresurvive for allow ability or deductibility as abusiness expenditure. Thus from either of thetwo angles, as rightly held by the Tribunal,the amounts of penalty and interest paid forraising funds to pay such penalty did notpartake of the character of allowable businessexpenditure. 10. In view of the above discussion, questionsNos. 1 and 3 are required to be answered inthe affirmative, i.e., for the Revenue andagainst the assessee. 7.We have heard the learned counsel for the appellant. 8.In view of the observations made by the CIT (A) asreproduced above and the same has been confirmed by theTribunal as under: 6. We have heard the rival contentions of boththe parties, perused the material available on therecord and also gone through the orders of theauthorities below. The assessee company isengaged in manufacturing and sale of ENA andrectified liquor. The party who wish to makepurchases from the assessee gets Excise Permit(Import Permit) from excise department of theirState. In order to deliver the goods the assesseeneeds to obtain Export Permit from the ExciseDepartment of Rajasthan. In order to receive theExport Permit, the import permits received fromthe Assistant Excise Officer of that State isnecessary for permission. As per the procedurelaid down in the Rajasthan State Excise law, theAssistant Excise Officer processes the permitsand forwarded the same to District Excise officerfor his permission. The District Excise Officerforwards the same to Additional Commissioner,Excise, to obtain permission to export the goods.After following the procedure, the ExciseCommissioner issued the permission for exportand returned the same to the District ExciseOfficer, who further returned the same to the Assistant Excise Officer posted at the assessee’scompany factory. Thus, after getting thenecessary permissions from the ExciseDepartments, the consignment is dispatchedunder the supervision of Assistant Excise Officer.On the receipt of the goods by the buyer State,the Excise Department of the buyer State issuesa receipt to the Excise Department of theassessee i.e. Rajasthan. The assessee alsoexecutes a bond with the Excise Department tomake good the losses incurred to the departmenton account of loss of duty in case the goodsdelivery receipts are not received by the excisedepartment of the assessee’s state from theexcise department of the buyer's state. Theassessee executed a contractual bond to makegood the losses to the government, thus theassessee indemnify the excise duty to thegovernment exchequer. The duty paid is exactlythe same as per the rates notified by thegovernment, therefore, the said payment indischarging the contractual obligation toindemnify the excise department for the paymentof the excise duty to the government exchequer,cannot be held in penal nature. Therefore,whatever nomenclature given by the ExciseDepartment for the demand notice cannot beheld as penalty. In view of these facts andcircumstances, we find no merit in the appeal ofthe revenue. This view is supported by thedecision of the Hon'ble Supreme Court in thecase of CIT Vs. Hyderabad Allwyn Metal WorksLimited (supra), Prakash Cotton Mills Pvt. Ltd.Vs. CIT (supra) and the Hon’ble Gujarat HighCourt in the case of CIT, Gujarat Vs. TarunCommercial Mills Co. Ltd. (supra). In view of theabove facts and circumstances and the case laws,we uphold the order of the ld. CIT(A). 9.The finding of both the authorities are concurrent in nature. Apart from penal expenses which has been done for the businessactivity, while considering the matter, CIT (A) has gone into theobservations made by the competent authority and has come tothe conclusion that it was not penal in nature. 10.In that view of the matter explanation of Section 37 will notcome into play. In that view of the matter that was businessexpenses and has been rightly upheld by both the authorities. 11.Hence, no substantial question of law arises in this appeal. 12.The appeal is devoid of merits and stands dismissed. (VIJAY KUMAR VYAS)J. (K.S.JHAVERI)J. Bmg/21.