In Principal CIT v. Praveen Saxena, the Delhi High Court dismissed an appeal preferred by the Revenue contending that the amount deposited by the assessee as security during the customs proceedings is not allowable under section 43B of the Income Tax Act.
Coming to the facts of the case, penalty proceedings were initiated against the assessee by the Customs Department. During investigation, the assessee, pursuant to the Court order deposited an amount of Rs. 70 lakhs towards the security. The Assessing Officer, while completing income tax assessment, observed that the amount is liable to be disallowed since the payment was penal in nature.
The assessee maintained that the deposit of amount was compensatory in nature and therefore, is liable to be allowed as expenditure. Both the appellate authorities allowed this claim. Before the High Court, the Revenue reiterated the above findings and contended that the amount is not allowable under section 43B of the Income Tax Act. The Revenue further relied upon the Apex Court decision in Indian Smelting and Refining Company Ltd. v. CIT. Dismissing he appeal the bench noticed that the amount was paid as per the directions of the High Court and the same was no penal in nature.“So far as the AO’s assumption that the amount was a penalty goes, this Court notices that the the said official appears to have either deliberately or for whatever reasons overlooked the plain language of the Principal Commissioner’s order. So too, the learned counsel who argued that what was levied was “penalty” and not “differential duty”.
As is evident from the order, the Principal Commissioner clearly determined the duty element at ` 5,21,46,447/- and an identical amount as penalty liability.” Diving deeply into the facts of the case, the bench also noted that the decision relied upon by the Revenue cannot be applied to the instant case since the facts of both cases are entirely different. “The facts there were clearly different from the facts here. The assessee was accused of misdeclaration and consequential differential liability towards differential duty. If there was no such misdeclaration, the Revenue could not have contended that the amounts duly paid constituted allowable expenditure on account of statutory liability under Section 43B of the Income Tax Act. That the Assessee did not do so but was quite rightly made to do so does not in any manner detract from its basic liability which it always had to satisfy. Therefore, the contentions of the Revenue are entirely misconceived and are rejected.”
