8. Business expenditure – Deduction on actual payment – Sections 37 and 43B – A. Y. 2007-08 – Export and import business – Misdeclaration- Evasion of customs duty – Search and arrest – Bail order by court on condition assessee’s deposit amount to be appropriated towards differential liability by custom authorities – Recovery of customs duty from amount deposited by assessee evident from order of Principal Commissioner of Customs. Allowable expenses

Princ. CIT vs.
Praveen Saxena; 391 ITR 365 (Del):

The assessee was a
proprietor of a concern doing export and import business. A search was
conducted by the customs authorities in the premises. The assessee was arrested
subsequently by the Directorate of Revenue Intelligence on the suspicion of
evasion of payment of duties. In the course of the court proceedings, the
customs authorities had contended that bail could be granted to the assessee
only if a substantial amount of the customs duty and penalty levied was
deposited. Therefore, the court directed the assessee to deposit the amount
which was to be appropriated by the customs authorities. In addition the
assessee was also directed to furnish an adequate security amount. For the A.
Y. 2007-08, the assessee claimed that the amount of deposit had to be allowed
u/s. 43B of the Income-tax Act,(hereinafter for the sake of brevity referred to
as the “Act”) 1961. The Assessing Officer disallowed the expenses on
the grounds that the amount was a penalty and consequently, even otherwise, in
the absence of an adjudication order, no amount was payable. The Commissioner
(Appeals) and the Tribunal allowed the assessee’s claim.

On appeal by the Revenue,
the Delhi High Court upheld the decision of the Tribunal and held as under:

“i)  It was
evident from the order of the Principal Commissioner of Customs that the duty
element and the identical amount of penalty had been determined. If there was
no misdeclaration by assessee to the customs authority and consequential
differential liability towards differential duty, the Department could not have
contended that the amount duly paid constituted allowable expenditure on
account of statutory liability u/s. 43B of the Act. The assessee did not do so
but was rightly made to do so did not in any manner detract its basic liability
which it always had to satisfy.

ii)  Therefore,
the contentions of the Department were misconceived and were rejected. The
deposit amounts paid were expenses and within the ambit of section 43B. The
appeal is dismissed.”