The Commissioner Of Income Tax Ii, Ludhiana v. M/S Hero Cycles Limited, Ludhiana

IN THE HIGH COURT OF PUNJAB AND HARYANA ATCHANDIGARH ITA No.655 of 2008 Date of decision: 9.12.2008 The Commissioner of Income Tax II, Ludhiana Vs. -----Appellant M/s Hero Cycles Limited, Ludhiana --Respondent CORAM:- HON'BLE MR JUSTICE ADARSH KUMAR GOELHON'BLE MR JUSTICE L.N.MITTAL Present: Mr. Rajesh Sethi, Sr.Standing Counsel for the revenue. Adarsh Kumar Goel,J. 1. This appeal has been preferred by the revenue under section 260A of the Income tax Act, 1961 (in short,‘the Act’) against the order of the Income Tax AppellateTribunal Chandigarh Bench ‘B’, Chandigarh passed in ITANo.751/Chandi/2004 dated 31.10.2007 in respect ofassessment year 1999-2000, proposing to raise followingsubstantial question of law:- “Whether on the facts and in thecircumstances of the case the ITAT was rightin law in deleting the payment made to PSEBon account of extra charges being penalty paidas capital expenditure under the IT Act?” 2. The assessee is manufacturer of cycle parts and during assessment, made claim for amount paid toElectricity Board as penalty for violating powerregulations. The said claim was disallowed by theAssessing Officer but was allowed by the CIT(Appeals).This view has been upheld by the Tribunal. Afterconsidering the nature of amount paid, the Tribunal heldthat the payment was identical to the one considered by thisCourt in CIT, Patiala v. Industrial Cables (India)Limited, (2007) 162 Taxman 423. The finding of theTribunal is as under:- “12. We have given our carefulconsideration to the rival contentions. In ourconsidered view, there is no distinction betweenthe nature of the payment made by the assessee tothe PSEB in the case of Industrial Cables (India)Limited (supra) and in the case of the assessee.Since the claim of the assessee in the case ofIndustrial Cables (India) Limited (supra) has beenheld not to be in the nature of penalty, werespectfully following the order of the Hon’blePunjab and Haryana High Court in the case of Industrial Cables (India) Limited (supra) hold thatthe assessee is entitled to deduction on account ofextra charges paid to the PSEB for drawing extraload in peak hours. The addition of Rs.11,83,050/-is accordingly deleted.” 3. There is no doubt that payments made in the nature of penalty or fine for any wrongful act cannot beallowed as permissible deductions but mere label of thepayment is not conclusive. Certain payments may beincidental to the business and have to be allowed on thetest of ‘commercial expediency’, if no violation of law orpublic policy is involved. Where penalty is not fordeliberate violation of law, the amount may be allowed asdeduction. There may be cases involving illegality or moralturpitude on the one hand and innocent violation on theother. Law is well settled. Reference may be made tojudgments of the Hon’ble Supreme Court inHaji Aziz &Abdul Shakoor Bros v. CIT, (1961) 41 ITR 350,MalwaVanaspatti v. CIT,(1997) 225 ITR 383,Parkash CottonMills Pvt. Limited v. CIT,(1993) 201 ITR 684. The testhas to be applied from case to case. 4.Since the Tribunal has followed an order of this Court, which is not shown to be different, we are unable to hold that any substantial question of law arises. 5.Accordingly, the appeal is dismissed. (Adarsh Kumar Goel)Judge December 9, 2008 ‘gs’ (L.N.Mittal)Judge