ITAT Disallows Expense of penalty paid u/s 112(a) of Custom Act

The Income Tax Appellate Tribunal (ITAT) has held that imposition for penalty u/s 112(a) of the Customs Act is prescribed in order to avoid doing or omit to do and abetting the doing or omission of such an act which causes a violation of prohibited acts under the Customs Act and therefore in our considered opinion, imposition of ‘Penalty’ is penal in nature and the payment made for the discharge of punishment for violation of prohibited acts and/or restriction(s) imposed under the provisions of law, cannot be considered as compensatory in nature. Hence on the facts and circumstances of this case, conclusions drawn by the authorities below, and analyzations made above,, the amount paid as ‘penalty’ is an inadmissible expenditure and not allowable under the provisions of section 37(1) of the Act.

The Assessee claimed the expenditure of 65,61,700/- which includes  Rs. 17,18,800/- on account of penalty u/s 112(a) of the Customs Act 1962. The Assessee contended that the fine and penalty referred above are compensatory in nature and for the purpose of getting the goods released from Custom Authorities and thus, liable to be allowed as expenditure u/s 37(1) of the Act.

Whereas the revenue has claimed that the said fine and penalty levied upon the Assessee are penal in nature and are levied for the violation of law, therefore, the same are inadmissible expenditures as per Explanation 1 to section 37(1) of the Act.

The Bench of Mr. R.K. Panda and Mr. N.K. Choudhary consequently sustained the addition made and affirmed on account of ‘Penalty’.

To Read Judgment Download PDF Given Below: