Free Wheels India Ltd. vs Commissioner Of Income-Tax
2001 Latest Caselaw 652 Del

JUDGMENT

1. Pursuant to the direction given by this court under Section 256(2) of the Income-tax Act, 1961 (in short "the Act"), the following question has been referred for the opinion of this court :

"Whether, on the facts and circumstances of the case, the Tribunal was justified in holding that the sum of Rs. 14,000 being the fine paid by the assessed in lieu of confiscation of the goods, could not be taken into account as part of the actual cost of the goods and consequently was not deductible in the computation of the business profits ?"

2. The dispute relates to the assessment year 1978-79.

3. The factual position is as follows :

The assessed, a company, at the relevant point of time was deriving income from production of free wheels. In the course of its business, the assessed had sold some of its raw material, the book value of which was. Rs. 2,43,515 for Rs. 2,37,431, and claimed loss of Rs. 6,620 on account of the sale of such raw material. There was a further loss on account of sale.

of 139.1 kgs. cadmium plates. The book value of the said plates was Rs. 32,107 but were sold for Rs. 13,910 incurring thereby a loss of Rs. 18,197 on their sale. The Income-tax Officer ignored the said loss on the ground that there could not be loss on the sale of cadmium plates as they were of very precious metal. The assessed preferred appeal before the Commissioner of Income-tax (Appeals). The said authority sustained the loss to the extent of Rs. 14,000 on a different ground, viz., that the said amount represented penalty imposed on the assessed for violation of the customs laws in 1973 when these were purchased and the said amount of Rs. 14,000 could not be regarded as the cost of cadmium plates. The assessed challenged the order before the Tribunal which upheld the view of the first appellate authority. The assessed prayed for reference which was rejected. Thereafter this court was moved and as noted above, the direction was given for referring the question.

4. We have heard learned counsel for the Revenue. There is no appearance on behalf of the assessed in spite of notice. Learned counsel for the Revenue submitted that the Tribunal's view is founded on the position of law settled by a long line of decisions.

5. The undisputed position being that, it would not add to the cost of materials purchased. From the documents placed for consideration of the Tribunal it was noticed that the imports of the goods were unauthorised and the goods were liable to be confiscated. Penalty under the concerned provision of the Customs Act, 1962, was leviable and in fact levied. In a case where the penalty has to be incurred because of the failure of the assessed himself, the penalty paid by the assessed could not be regarded as wholly laid out for the purpose of business. That being the position the decision of the Tribunal is in order. The question referred is answered in the affirmative, in favor of the Revenue and against the assessed.