COMMISSIONER OF INCOME TAX vs. M/S PORRITTS & SPENCER

The revenue has preferred this appeal under Section 260-A of the Income Tax Act, 1961 (for short, “the Act”) against order dated 9.12.2005 passed by the Income Tax Appellate Tribunal, Delhi Bench ‘D’ in I.T.A. No.3742/DEL/1998 for the assessment year 1992-93, proposing to raise following substantial questions of law:- “i) Whether the Hon’ble ITAT has erred in law in deleting the order of the CIT(A) in which the disallowance of Rs.2,60,692/- made by the Assessing Officer on account of commission paid to Managing Director and the Executives. ii) Whether the Hon’ble ITAT has erred in law in confirming the order of the CIT(A) in which the disallowance of Rs.48659/- made by the Assessing Officer on account of personal use of Car was deleted?

During assessment, the Assessing Officer disallowed payments on account of commission paid to Managing Director and the Executives, expenses on use of car and amount representing penalty levied by custom authorities for not holding import licence for the machinery. The CIT(A) partly upheld the disallowance. However, on further appeal, the Tribunal set aside the disallowance and accepted the claim of the assessee.

On question (i), the Tribunal followed its order for the earlier assessment year in the case of the assessee. The said view was upheld by this Court vide judgment dated 16.9.2008 in I.T.R. Nos.80-82 of 1982 Poritts & Spencer Ltd. v. CIT. Reference was made to judgment of the Hon’ble Supreme Court in Shahzada Nand & Sons v. CIT, Patiala 108 ITR 358, holding that once genuineness of payment of the employees was not doubted, the payment had to be allowed on the principle of commercial expediency. With regard to question (ii), the Tribunal followed the earlier order which was upheld by this Court in the order referred to above and held that expenses were not for personal use. The same were for business purpose.

As regards question (iii), the Tribunal held that the assessee had only made a claim for depreciation on the amount of goods by treating as revenue expenditure. The relevant observations of the Tribunal are as under:- “3.2 We have perused the records and considered the matter carefully. The decision of ITAT Delhi in case of M/s Scagram Manufacturing Pvt. Ltd. is directly on the points i.e. in relation to confiscation of goods. The ITAT has considered the decision of CEGAT in case Blue Dart Express Pvt. Ltd., in which it was held that confiscation fees was not akin to penalty for infringement of law but was price paid to purchase the goods. ITAT had also distinguished the judgement of Hon’ble Supreme Court in case of Maddi Venkataraman relied upon by the Ld. DR and had allowed the claim as revenue expenditure following the judgement of Hon’ble High Court of Madras in case of Parthasarthi (212 ITR 105) in which it had been held that the fine paid in exercise of option given by the statute for release of goods cannot be said to be penal in nature notwithstanding its nomenclature. It may be clarified here that section 125 of the Customs Act specifically provides that in case of import of goods prohibited by law, the officers have to first give options to the importer to pay fine as deemed 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 as revenue expenditure. In the instant case, claim relates to allowance of depreciation only. The judgement relied upon by the Ld. DR are distinguishable. The case of Maddi Venkatraman had been duly considered by the ITAT in case of M/s Scagram Manufacturing Pvt. Ltd., and distinguished. None of the cases cited by the Ld. DR relate to depreciation. The fine has been paid under the provisions of law for release of imported goods and will therefore, be part of the cost of goods. In our view depreciation will be allowable. We, therefore, reverse the order of CIT(A) and allow the claim of depreciation on the amount of fine paid by the assessee in lieu of confiscation of the goods.”

In view of above finding of the Tribunal, the question (iii) cannot be held to arise. The Tribunal has not allowed expenditure representing penalty but has only allowed depreciation in respect of cost of machinery, by including the redemption fine paid as part of cost. The Tribunal has followed judgment of Madras High Court in CIT v. N.M. Parthasarathy (1995) 212 ITR 105, distinguishing the judgment of the Hon’ble Supreme Court in Maddi Venkataraman & Co. (P) Ltd. v. CIT 229 ITR 534. 5. Thus, we are of the view that no substantial question of law arises for consideration.

The appeal is dismissed. (ADARSH KUMAR GOEL) JUDGE September 15, 2009 ( DAYA CHAUDHARY ) ashwani JUDGE 4