Om Prakash, J. - (1.) BY order dated November 19, 1977, the Income-tax Appellate Tribunal (Delhi Bench-A, Delhi), has referred the following question under Section 256(1) of the Income-tax Act, 1961 (briefly "the Act, 1961"), for the opinion of this court : "Whether, on the facts and in the circumstances of the case, the penalty of Rs. 46,500 paid by the assessee to the customs authorities on import of 'plastic sponges' constitutes an allowable deduction under Section 28 or 37(1) of the Income-tax Act ; or in the alternative, could the amount of the aforesaid penalty paid form part of the cost of the goods to be assessed?"
(2.) THE facts as found in its order dated January 11, 1977, by the Appellate Tribunal in I. T. A. No. 4296 of 1974-75 pertaining to the assessment year 1971-72, briefly, are that the assessee had obtained licences for import from Agra Charen Kala Kendra Pvt. Ltd. and thereunder the assessee imported plastic sponges. THE, Customs Authorities held that, under those import licences, the assessee could have imported only natural sponges and not plastic sponges but the latter had been illegally imported without any import licence. THE Tribunal found that, under the import licences, import of natural sponges alone was permissible and that penalty has been levied for infraction of law to the tune of Rs. 46,500. The assessee claimed deduction of the aforesaid amount as business expenditure which claim was negatived by the Tribunal on the ground that the penalty, having been paid for infraction of law, was not a permissible deduction. It was held that the aforesaid expenditure was not laid out wholly or exclusively for the carrying on of business. The Appellate Tribunal also rejected the contention of the assessee that if the said amount is not held to be business expenditure, then the assessee be permitted to add that amount towards the cost of the goods. Before us, learned counsel for the assessee contends that the Tribunal erred in holding that the aforesaid amount had been paid as penalty. It is urged by him that the goods had been confiscated by the Customs Authorities on the ground that, under the import entitlements, the assessee was not entitled to import plastic sponges but natural sponges only. He says that for violating the terms of the import entitlements, the Customs Authorities merely imposed a fine of Rs. 46,500 to enable the assessee to take away the confiscated goods for home consumption. He also contends that the Tribunal was wrong in holding that only natural sponges could have been imported under the import entitlements.
(3.) WHETHER or not the true nature of the aforesaid amount was penalty, fine or something else and whether the assessee could have imported items other than natural sponges under the import licences, these questions are no more open to the assessee, inasmuch as the question referred to this court at the instance of the assessee by the Tribunal, does not raise any factual controversy. If the assessee believed that the sum of Rs. 46,500 was not penalty in nature but something else and that import of other items was also permissible, then the assessee could have sought rectification of the order of the Appellate Tribunal under Section 254(2) of the Act of 1961. The facts can no more be agitated before us because the correctness of the facts as found by the Tribunal was never disputed before it after its decision. No rectification was sought before the Appellate Tribunal raising the controversy that the Tribunal was in error in holding that penalty had been levied on it and that only natural sponges could have been imported under the import licence. Had the assessee applied for rectification before the Tribunal that the aforesaid amount was not paid as penalty, but as fine only to save the goods from being confiscated, then only there would have been a controversy relating to the true nature of the amount. Similarly, the Tribunal's order does not raise the controversy about the scope of the import licences. This court has only advisory jurisdiction and the opinion will be recorded on the basis of the facts found by the Appellate Tribunal on the question as referred to it. The question referred to this court by the Appellate Tribunal at the instance of the assessee raises the precise controversy whether or not the penalty of Rs. 46,500 is a permissible deduction. The Appellate Tribunal clearly found that it is the assessee who imported plastic sponges in violation of the terms of import licence and, therefore, the penalty levied was not a permissible deduction. Import of plastic sponges being without import entitlement was contrary to law. The penalty was, therefore, levied for infraction of law.;