Sabyasachi Mukharji, J. - (1.) The following question has been referred to this court under Section 256(1) of the Income-tax Act, 1961 : " Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the amounts of Rs. 26,574 relating to rights and other expenses and Rs. 7,492 relating to bank commission and bank guarantee with regard to re-export of goods could not be allowed as deductible revenue expenses ? "
(2.) The assessment year under reference is 1967-68, for which the relevant accounting year was the year ending 31st July, 1966. The assessee carried on the business of manufacture of iron and steel rounds, bars, etc., and was one of the importers of sheets having head office in Calcutta and branches at Kumhari and Raipur, In the profit and loss account, the assessee claimed a sure of Rs. 26,574 with reference to freight and other expenses and expenses of Rs. 7,492 relating to bank commission and bank guarantee with regard to re-export of goods. The Income-tax Officer added these amounts to the total income of the assessee. The Income-tax Officer in his order stated as follows :. " In the P/L a/c this amourit has been claimed as deduction for re-exporting some sheets which were imported in the past. Examination of the case revealed that in the past the assessee imported some steel sheets from foreign country without any valid licence. On its arrival the materials were not allowed to be taken away by the assessee on the ground that the import was made illegally. After protracted correspondence and in order to avoid demurrage the company approached the Iron and Steel Controller who refused to oblige the company but issued a customs clearance permit to enable the company to take possession of the materials from the customs to avoid demurrage, etc., with a clear direction that the materials must have to be re-exported. The company agreed to do so. During this year, the materials were re-exported and a total amount of Rs. 26,574 was incurred by way of freight and other expenses. The assessee was asked to show cause as to why the expenditure should not be disallowed on the ground that it related to illegal transaction which did not give to the assessee any profit. This aspect of the case was also the subject-matter of enquiry by the Public Accounts Committee in the 50th report as well as by the Sarkar Commission. In their petition dated 11th November, 1971, the company argued that as soon as the clearance permit was granted to clear the goods the transaction, viz., import of the materials was regularised and, accordingly, any loss arising out of business transaction legally done must be allowed to the assessee. It seems that the company has not duly considered the proper impact of the whole transaction vis-avis its income-tax assets. If the assessee's contention is accepted then the question of disallowing the expenses may not have any valid force. In this regard, the company drew inspiration from the observation of the report of the Committee of Enquiry (Steel Transaction) by the Sarkar Committee. It appears that the assessee had not gone through properly the findings of the Sarkar Committee. At para 9.15 vide page 128 the Committee has categorically stated asunder; ' We therefore come to the conclusion that in respect of the orders of re-export of the goods which M/s. Aminchand Payarelal and M/s. Apeejay (P.) Ltd. had imported without valid licence and in resp"ect of which the Steel Controller issued the customs clearance permit on condition of reexport............... "
(3.) It would be, therefore, quite clear that the goods were imported without any valid licence which was not regularised by the issue of customs clearance permit. The permit was issued with a clear direction to re-export the goods. This was nothing but a punishment to the company for importing goods illegally. Accordingly, I cannot accept the contention of the assessee that the re-export expenses arose out of a valid business transaction. Accordingly, the claim of Rs. 26,574 would be disallowed.;