Bombay H.C : Whether the Tribunal was, on the facts and in the circumstances of the case and in law, correct in treating the amounts of Rs. 63,432 and Rs. 38,592 being penalties levied for nonpayment of sales-tax within the prescribed time, as interest for late payment of tax, and further in holding that the liability to pay it arose during the normal course of the assessee’s business and that it represented a liability incurred wholly and exclusively for the purposes of business and that it was, therefore, an allowable expenditure under the IT Act ?

Counsel Appeared

Dr. V. Balasubramanian, J.P.Devadhar & K.C. Sidhwa, for the Revenue : N.A.Dalvi i/b N. Chagal & Co., for the Assessee

T. D. SUGLA, J.:

There are two questions in this reference raised at the instance of the Department. The questions read thus :

“(1) Whether the Tribunal was, on the facts and in the circumstances of the case and in law, correct in treating the amounts of Rs. 63,432 and Rs. 38,592 being penalties levied for nonpayment of sales-tax within the prescribed time, as interest for late payment of tax, and further in holding that the liability to pay it arose during the normal course of the assessee’s business and that it represented a liability incurred wholly and exclusively for the purposes of business and that it was, therefore, an allowable expenditure under the IT Act ?

(2) Whether the Tribunal was, on the facts and in the circumstances of the case and in law justified in holding that the entire amount of Rs. 7,32,260 paid to Jalan Trading Co. (P) Ltd. as forwarding and freight charges was an expenditure laid out for the purposes of the assessee’s business and in holding that the entire amount was an admissible deduction ?”

Counsel are agreed that in so far as the first question is concerned, it is covered by this Court’s judgment in the case of Jairamdas Bhagchand vs. CIT (1988) 73 CTR (Bom) 20:(1988) 171 ITR 545 (Bom), in favour of the Revenue. Accordingly, we answer the first question in the negative and in favour of the Revenue.

The facts relevant to the second question are that the assessee has claimed an expenditure of Rs. 7,32,260 in connection with the export of 28,000 steel drums to a foreign party at Zambia. The amount was paid to Jalan Trading Company, one of the assessee’s sister concerns, by way of forwarding charges. The ITO disallowed the entire claim of the assessee observing that such a payment was not verifiable and not connected with the business. The AAC, however, found that Jalan Trading Company had actually incurred an expenditure on this score of Rs. 4,57,150. He held that the difference between Rs. 7,32,260 and Rs. 4,57,150, i.e., Rs. 2,75,110, was not an expenditure necessitated due to business consideration. Accordingly, he restricted the disallowance to Rs. 2,75,110.

The Department accepted the order of the AAC . In the appeal filed by the assessee, the Tribunal found that Jalan Trading Company had assisted the assessee in the export of drums, that Jalan Trading Company was not a benami concern of the assessee and that Jalan Trading Company had paid taxes on the income earned out of this transaction. In the absence of material justifying a finding that Jalan Trading Company was used as a benami, the Tribunal held that the entire claim of the assessee in this behalf was allowable as deduction. Dr. Balasubramanian, learned counsel for the Revenue, submits that the amount that was actually expended in this behalf was Rs. 4,57,150. This was the amount which was paid by Jalan Trading Company to the shippers, viz., Shaw Wallace and Company. He contended that the difference between the two sums, i.e., Rs. 2,75,110, could not be said to have been spent by the assessee for the purpose of its business.

In our opinion, the submission of the Department is without any merit. There is a finding that the export of 28,000 drums was made with the assistance of Jalan Trading Company and that an amount of Rs. 7,32,260 was paid by the assessee to Jalan Trading Company. It is also a fact that Jalan Trading Company, though one of the assessee’s sister concerns, is not a benami concern of the assessee. In the circumstances, the mere fact that Jalan Trading Company, in turn, actually incurred an expenditure of Rs. 4,57,150 has no relevance to the question before us. Accordingly, we answer the second question in the affirmative and in favour of the assessee. No order as to costs.

[Citation :182 ITR 21]