Redemption Fine not allowable as Business Expenditure: Bombay High Court [Read Judgment]

A division bench of the Bombay High Court has held that the redemption fine paid to the customs department for violation of law cannot be allowed as business expenditure under Section 37 of the Income Tax Act, 1961.

The assessee, Sushil Gupta was using import license of M/s. Rajnikant Bros. which is an export house. For using the license, the assessee would pay service charges equivalent to 25% of CIF value of the goods. The consignment of almond was imported by M/s. Rajnikant Bros. The assessee contended that he had merely acted as an agent in the transaction. It was pointed out that upon confiscation of the goods, redemption fine and penalty were imposed by the Collector of Customs, Madras on M/s. Rajnikant Bros for which, the assessee claimed deduction.

The Tribunal, on second appeal, reduced the redemption fine to Rs. 75 Lacs and deleted personal penalty. And held that the redemption fine of Rs. 75,00,000/- is allowable as business expenditure under Section 37 of the Income Tax Act, 1961.

The bench comprising Justice B P Collabawala and Justice Akil Kureshi held that the Tribunal decision was without proper justification or detailed examination of material on record, followed the line of logic adopted by this Court in the case of Pannalal whereas the facts as we have noticed squarely fall within the parameters of the decision of the Supreme Court in the case of Hazi Aziz.

“The Assessing Officer had summoned the import licence holder M/s. Rajnikant Brothers whose representative had stated before the Assessing Officer that M.P. Gupta, the present assessee had imported almond by using the licence and that redemption fine of Rs. 75 lacs paid to the Madras Custom House was done by M.P. Gupta. All transactions were made by him and he was responsible for the fine. He stated clearly that as per the agreement, M/s. Rajnikant Brothers were only entitled to the service charges. Thus, there was ample evidence on record suggesting that the assessee had made imports through his direct involvement by using the import licence of M/s. Rajnikant Brothers and that M/s. Rajnikant Brothers merely received an agreed commission. The assessee cannot disassociate or divest himself from the irregularities or illegalities committed in the process of importing the goods. Thus, the penalty was for the infraction of law committed by the assessee. Under these circumstances, the question is answered in the negative i.e in favour of the Revenue and against the assessee. The impugned judgment of the Tribunal is set aside.”