GOODHOST LIQUORS PVT LTD. vs. DCIT,

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ITA 72/PAT/2013Status: DisposedITAT Patna01 July 2024AY 2007-085 pages
AI SummaryDismissed

What did the Tribunal hold?

The Tribunal held that the penalty paid for violations of Excise and VAT laws is not an allowable business deduction. Allowing such a deduction would negate the purpose of imposing penalties under those laws.

What were the facts?

The assessee, Goodhost Liquors Pvt. Ltd., incurred a penalty of Rs. 23,10,451/- for violations of Excise Tax and Sales Tax (VAT) laws. The assessee sought to claim this penalty as a deductible business expenditure.

What were the issues?

Whether a penalty paid for violation of Excise Tax and Sales Tax (VAT) laws is an allowable business expenditure as a deduction under the Income Tax Act.

Which sections of the Income-tax Act were involved?

Section 37

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, KOLKATA-PATNA ‘e-COURT’, KOLKATA

Before: Shri Rajpal Yadav, Vice-(KZ) & Dr. Manish Borad

Per Rajpal Yadav, Vice-President (KZ):- The present appeal is directed at the instance of assessee against the order of ld. Commissioner of Income Tax (Appeals)-1, Patna dated 7th December, 2012 passed for A.Y. 2007-08.

1.

Assessment Year: 2007-2008 Goodhost Liquors Pvt. Ltd. 2. It is pertinent to note that this appeal was listed for hearing on 22.11.2016, but no one appeared on behalf of the assessee and it was dismissed for want of prosecution vide order dated 22.11.2016.

3.

The assessee thereafter filed a Miscellaneous Application bearing No. 1/PAT/2017 and contended that Shri Sanjay Kumar, Director of the assessee-company was in Kolkata and could not give instruction to his staff to take adjournment from the Tribunal. This application of the assessee was allowed by the ITAT vide its order dated 11th January, 2023. The appeal was restored to its original number.

4.

In response to the notice of hearing, no one has come present on behalf of the assessee. In the past on 18th April, 2023, Shri Nitish Prasad Sinha, Advocate appeared but sought adjournment. Thereafter no one has appeared. Since it is a very old appeal, therefore, we heard it ex- parte.

5.

It emerges out from the record that the assessee has taken fourteen grounds of appeal, which are not in consonance of Rule 8 of Income Tax Appellate Tribunal Rules. The grounds are descriptive in nature. In brief, the substantial solitary issue involved in this appeal is whether a penalty imposed for violation of Excise Tax and Assessment Year: 2007-2008 Goodhost Liquors Pvt. Ltd. Sales Tax Act (VAT) amounting to Rs.23,10,451/- is allowable as a deduction to the assessee or not.

6. The assessee at the relevant time was engaged in the business of manufacturing of Indian made foreign liquor. It has filed its return of income on 01.01.2008 declaring total income at ‘NIL’. The case of the assessee was selected for scrutiny assessment and notices under section 142(1) and143(2) were issued and served upon the assessee. An assessment order was passed under section 143(3) on 30.12.2009 and thereafter it was reopened. It appears that revisionary powers were exercised by the ld. Commissioner and this assessment order was set aside in pursuance of the ld. Commissioner’s order, ld. Assessing Officer has passed the fresh order on 24.01.2012 under section 143(3)/263. It emerges out from the record that license of the assessee to manufacture Indian made foreign liquor was cancelled by the Excise Authorities. The assessee challenged that order by way of a Writ Petition before the Hon’ble High Court and ultimately it was held that such licence be restored on payment the revenue loss along with penalty by the assessee. The ld. Assessing Officer has held that penalty paid by the assessee for violation of excise and VAT is not allowable as a deduction to the assessee as per Explanation 1 attached to Section 37 of the Income Tax Act. Accordingly, ld. Assessing Officer has made an addition of Rs.23,10,451/-.

Assessment Year: 2007-2008 Goodhost Liquors Pvt. Ltd.

7.

Appeal to the ld. CIT(Appeals) did not bring any relief to the assessee.

8.

With the assistance of ld. D.R., we have gone through the record carefully. A perusal of the grounds of appeal revealed that major contention raised by the assessee is that such payment of Rs.23,10,451/- was made for restoration of its licence, which is a necessary business expenditure and thus allowable. However, we do not find force in the contention of the assessee. It is pertinent to observe that jurisprudence on this issue contemplates that where the entire business of the assessee is illegal and the income is sought to be taxed by the ITO, then the expenditure incurred in the illegal activities will also have to be made as a deduction but if business is otherwise lawful and the assessee resorts to unlawful mean to augment its profit or reduce loss, then the expenditure incurred for this unlawful activities cannot be allowed as a deduction. Even if the assessee has to pay the fine or penalty because of an inadvertent infraction of law, which does not invoke any moral obligatory, the result will be the same. The Explanation to Section 37 prohibits allowance of any deduction of alleged expenditure, which was incurred towards activities prohibited by law. If this amount is being allowed to the assessee as a deduction, what is the use of imposing penalty under the Excise/VAT

Assessment Year: 2007-2008 Goodhost Liquors Pvt. Ltd. Law because from one hand, the assessee made the payment for violation of Excise provision and on the other hand, it has claimed deduction under the Income Tax Act as an allowable business expenditure. Therefore, we are of the view that ld. CIT(Appeals) has rightly confirmed the disallowance. After going through the order of the ld. CIT(Appeals), we do not find any error in it. Accordingly the appeal of the assessee is dismissed.

9.

In the result, the appeal of the assessee is dismissed. Order pronounced in the open Court on 01.07.2024.

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