2000 PLP (Trib (PTD)

13. The provisions pertaining to the constitution of Tribunal' and its power are contained in section 23-A which are not required to be reproduced. The provisions regarding imposition of civil penalty are contained in section 23-B and the relevant provisions are contained in subsections (4) and (9) which are reproduced below:

"(4) Save as provided in subsections (5) and (6), if any person contravenes or attempts to contravene or abets the contravention of the provisions of subsections (2) (3) and (5) of section 3, sub section (3) of section 4, section 10, subsection (1) of section 12 or subsection (3) of section 20 or any rule, direction or order made thereunder, he shall be liable to such penalty not exceeding five times the amount or value involved in such contravention or five thousand rupees, whichever is more, as may be adjudged by the Director or Additional Director of Adjudication or any other Adjudicating Officer having jurisdiction under subsection (8) to take cognizance of such contravention, and, if he persists in such contravention, or where the contravention or default is a continuing one, to a further penalty which may extend to two thousand rupees for every day during which the offence or, as the case may be, the contravention or default continues. (9) For the purpose of determining whether a person has contravened any of the provisions of subsections (4), (5) or (6), the Adjudicating Officer shall hold an enquiry in the manner prescribed, if any, after giving such person a reasonable opportunity for making a representation in the matter and if, on such inquiry, he is satisfied that the person has committed any contravention, he may impose the penalty provided for in this section. "

14. Section 23-C deals with the constitution of Appellate Board competent to hear appeals against the order of Adjudicating Officer made under subsection (4), subsection (5) or subsection (6) of section 23-B. The Tribunal constituted under section 23-A is empowered to impose criminal penalty enjoys the powers of Magistrate of First Class in relation to criminal trials and is required to follow as merely as may be, the procedure provided in the Code of Criminal Procedure, 1898 for trial before such Magistrate. The Adjudicating Officer and the Appellate Board appointed under sections 23-B and 23-C have all the powers of the Civil Courts under the Code of Civil Procedure 1898 while trying a suit. The proceedings before Tribunal and Adjudicating Officer shall be deemed to he judicial proceedings within the meaning of sections 193 and 228 of the Pakistan Penal Code and the Adjudicating Officer and Appellate Board shall be deemed to be a Court for the purposes of sections 480 and 482 of the Code of Criminal Procedure, 1898 (section 23-A (4) and section 23(F). Under section 23-A subsection (5) the powers of a Tribunal shall be as extensive as those of a Court of Session in respect of sentences of fine.

15. The head of account under which the excess amount has been deposited by the appellant under the directions of the State Bank of Pakistan contained in its Letter No.SB/I.C.A./748/99, dated 30th June, 1999 is as under:

"Govt. Deposit Account Central-1 Non Food Major Head 1100000 Minor Head 1130000 and detailed Head 1139803 Interest .on late payment of Government duties."

16. In this letter addressed by Chief Manager, State Bank of Pakistan to the Accountant-General Pakistan Revenue, Foreign Aid Section, Islamabad, it is specifically stated that the amount has been deposited by the National Refinery Limited for late deposit of counter-part funds. In the head of account the nature of deposit is described as interest while in the letter it is described as penalty.

17. On the other hand in the Foreign Exchange Manual which is updated up to 30-9-1994 the head of -account for depositing of penalty is given on pages 84 and 92 as follows:

"1000 Non tax Receipts 1300 Miscellaneous Receipts 1390 others Fees, Fines and Forfeitures."

18. Mr. Shabbar Zaidi has explained that the excess amount paid by the appellant on account of delay in depositing counter-part funds is actually in the nature of interest/mark-up. He has submitted that originally this payment was described as interest but subsequently when so-called Islamization of economy and financial matters was undertaken by the then Government the nomenclature was changed and the terms fine, penalty and penal interest were used inter-changeably in loose manner to describe the nature of amount paid for delayed depositing of counter-part funds with the State Bank of Pakistan. He has pointed out that in this background a simple amount of interest which was charged for delay in depositing counter-part funds and which was actually in the nature of compensation, was described differently. In para. 44 of Chapter XIII of the Foreign Exchange Manual which is under consideration in the present appeal it has been described as fine. The Foreign Exchange Circular No.64, dated 26-9-1974 the Senior Deputy Director of the State Bank of Pakistan, Exchange Control Department it is stated that under Circular No.81, dated 15-8-1967 the penal interest is to be recovered from the Authorised Dealer on account of late depositing of rupee counter part funds with the State Bank of Pakistan. Again in Circular Letter No. 14 dated 27-5-1975 issued by Senior Deputy Director, Exchange Control Department, Central Directorate, State Bank of Pakistan, Karachi addressed to Head Offices all designated Banks it is stated that the designated Banks shall pay penalty interest at the rate notified vide Foreign Exchange Circular No.64 of 1974. However, after purported Islamization the amount paid in the event of delay has been described in para. 44 Chapter XIII of the Foreign Exchange Manual as fine and in the letter dated 28-5-1998 issued by Foreign Exchange Department, Central Directorate, State Bank of Pakistan addressed to National Refinery limited it is stated that if the counter-part funds are not deposited within 10 days from the date of disbursement by the Islamic Development Bank the penalty shall be recovered at the prescribed rate viz, Rs.4/per day per Rs.10,

000. Mr. Shabbar Zaidi has produced a Letter No.GD/ICA/4107/748-99, dated 9-6-1999 issued by Chief Manager, General Department, State Bank of Pakistan which says that the calculation sheet of penalty was forwarded with the advise to deposit the penalty amount with the State Bank of Pakistan. The calculation sheet of penalty does not contain any fine or penalty order by any authority empowered to impose fine or penalty but it is mere calculation on the basis of formula contained in para.44 of Chapter XIII of the Foreign Exchange Manual.

19. Now we proceed to examine the cases on which the parties have placed reliance. The first judgment is by the Hon'ble Supreme Court of Pakistan in the case of CIT v. Premier Bank Limited on which both the parties have placed reliance. The revenue has placed reliance on the following passages from the judgment of Hon'ble Supreme Court of Pakistan:

"Expenditure incurred as penalty or fine paid on account of infraction of law cannot be permitted as expenditure laid out wholly or exclusively for the purpose of the business of the assessee." "However, whether liability is incurred in the form of penalty or in the form of penal interest the main question, would be, whether such payment were closely related to the business of the respondent. In the present case, the expenditure on account of penal interest was necessitated because of the failure of the respondents to maintain the required level of their credit balance. Such expenditure, therefore; was not incurred in the normal course of business of the respondents but it was in the nature of penalty." "As have been pointed out earlier, the payments made by the respondents were in nature of fine, therefore, in any case, they cannot be held to have been laid out wholly or exclusively for the purpose of its business."

20. On the other hand the learned counsel for the assessee has placed reliance on the following observation of Hon'ble Supreme Court of Pakistan:

"However, in case of expenditure which, although, has been incurred by the assessee on account of infringement of a provision of a statute, but is not in the nature of penalty, the question whether such expenditure is admissible under section 10(2)(xvi), or not, would depend upon the circumstances of each case. "

21. Thus, the contention of learned counsel for the assessee is that the ratio of the judgment of Hon'ble Supreme Court of Pakistan in Premier Bank Ltd. is that every expenditure on account of infringement of a provision of a statute is not to be disallowed. Only such expenditure is to be disallowed which on account of infringement of a provision of a statute falls within the purview of fine or penalty. For the purposes of ascertaining if any expenditure not in the nature of fine or penalty in infringement of any provisions of law is laid out wholly and exclusively for the purpose of business and if it is so the expenditure is to be allowed as admissible deduction and if it is not for, business consideration and is in the nature of penalty or fine the expenditure is not to be allowed, the facts of each case are to be examined. Mr. Shabbar Zaidi has submitted that while examining the relevant law, its purpose and the nature of business conducted by a banking company it was held that the penal interest charged under section 36(4) of the State Bank of Pakistan Act, 1956 was in the nature of penalty and, therefore, the expenditure was not incurred in the normal course of business of the assessee. Mr. Shabbar Zaidi has submitted that the specific finding of the Hon'ble Supreme Court of Pakistan was confined to the case of a banking company. The facts and circumstances of the business conducted by a banking company and the nature of penal interest charged under section 36(4) of the State Bank Act, 1956 are absolutely different and distinguishable from the facts and circumstances of the present case and, therefore, under the law of precedent the specific finding of the Hon'ble Supreme Court of Pakistan is not attracted to the facts of the present case. Mr. Shabbar Zaidi has submitted that, however, the ratio of the judgment of Hon'ble Supreme Court of Pakistan is general in nature and is applicable to the facts of the present case i.e. an expenditure incurred by an assessee on account of infringement of a provision of a statue, which is not in the nature of penalty and is for business consideration shall be an admissible expenditure. Elaborating his point of view Mr. Shabbar Zaidi contended that in the present case an agreement under the caption Import Trade Financing Agreement' was executed between the Islamic Development Bank, the "President of Islamic Republic of Pakistan, National Refinery Limited and State Bank of Pakistan. The Government of Islamic Republic of Pakistan requested Islamic Development Bank to finance the purchase for the beneficiary (National Refinery Limited) a quantity of crude oil. The request was accepted against security of a guarantee from gauranter (State Bank of Pakistan). The purchase price was paid by the Islamic Development Bank and the State Bank of Pakistan as gurantor undertook to make payment to Islamic Development Bank on demand irrespective of the fact whether the amount was recoverable from beneficiary or not. In pursuance of this agreement the crude oil was imported. The payment was made by the State Bank of Pakistan and the appellant (beneficiary) was required to deposit counter-part funds with the State Bank of Pakistan within the specified period. The appellant had no fund and, therefore, instead of arranging funds on interest the appellant adopted the course permissible under the Foreign Exchange Manual and choose to deposit excess amount of Rs.4/per day per Rs.10, 000 as a business expediency.

22. Mr. Shabbar Zaidi has submitted that in the above circumstances the excess amount paid by the appellant was for business consideration. It was in the nature of compensation paid to the gauranter/State Bank of Pakistan on account of delay in depositing the counter-part funds, because of paucity of funds and the course adopted was permissible under the Foreign Exchange Manual. The excess amount paid was automatic and was in contemplation of the parties, therefore, notwithstanding the describing of excess amount as fine or penalty or penal interest in various circulars/letters/directions issued by the State Bank of Pakistan and because mere use of certain words or wrong nomenclature shall not change the nature of a transaction which is to be determined and gauged on the basis of substance of the matter. He has contended that if any excess amount is automatic and is within the contemplation of the parties it has to be treated as compensation and not a fine or penalty or in the nature of fine or penalty.

23. Mr. Shabbar Zaidi has next contended that the ratio of judgment of the Indian Supreme, Court in the case of Maddi & Company (supra) is not attracted to the fact of the present case. He has, therefore, submitted that the reliance placed by the learned CIT (A) on this judgment is misplaced. The relevant facts in this case were that the assessee entered into an agreement in contravention of the provision contained in FERA. On receiving information necessary investigation was made and it was found that the assessee had indulged in transaction in violation of the provision of the FERA. The proceedings were taken against the assessee for infringement of sections 4(2) and 5(1)(e) of the FERA and penalty was imposed under section 23(1)(a) read with section 23-C of the FERA. The assessee claimed expenses, which he had incurred in the course of transaction in violation of the statute. The Assessing Officer disallowed the claim for the reason that the payment was not genuine and it contravened the provision of FERA. The Tribunal held that claim was admissible. The High Court of Andhra Pradesh vide judgment reported as (1983) 144 ITR 373 held that if an assessee is penalized under one Act he cannot claim that amount to be set off against his income under another Act because they will be frustrating the entire object of imposition of penalty. The Supreme Court of India upheld the decision of Andhra Pradesh High Court and held that the assessee had indulged in transaction in violation of the provision of FERA and the penalty was also levied under the provisions of FERA, therefore, it was against public policy to allow the benefit of deduction.

24. Now we will consider some other judgments from Indian Jurisdiction, which have bearing on the issue under consideration. In the case of ACTT v. Rustam Jehangir Vakil Mills Limited (1976) 103 ITR 298) (Gujrat High Court), the assessee was a limited company manufacturing cotton textile. The Textile Commissioner under the provisions of the Cotton Textile (Control Order) directed the assessee to produce certain types of cloth in the quantity set out in the direction. The assessee did not manufacture that type of cloth and, therefore, under clause 21-C (1)(b) the assessee was called upon to pay different amounts from time to time. The assessee paid the amount to Textile Commissioner and claimed this amount as allowable expenditure on the ground that it was expended wholly and exclusively for the purpose of business. The I.T.O. did not allow the deduction. The Appellate Assistant Commissioner allowed the claim. The revenue took the matter in further appeal to Tribunal. The Tribunal confirmed the decision of A.A.C. The revenue filed reference in Gujrat High Court. The Gujrat High Court held that under the law the assessee has option to make payment in lieu of manufacturing of minimum quantity of cloth and, therefore, the payment was not in the nature of infraction of law and the amount paid was neither penalty or akin to penalty. Similar view was taken in the judgment reported (1979) 120 ITR

321. In (1981) 123 ITR 269 (Al1.H.C.) Nanhoomal Jyoti Prassed v. CIT it has been held that the demurrage charged- by Port Authority is compensation for the delay in clearance of goods in godown from the Port Authorities and is a business expenditure, which is admissible. It was held that the commercial expediency dictated and required the assesssee to take delivery of the goods from the Port Authorities after paying compensation to them for use of their dock facility beyond the free period allowed under the rules. The demurrage paid by the assessee was not line for infraction of any law and, therefore, it was an admissible expenditure. It would be pertinent to refer that the Income-tax Appellate Tribunal of Pakistan has held vide judgment reported as (1960) 2 Tax 389 that demurrage is neither a fine nor penalty and is to be allowed as admissible expenditure.

25. In the case of Mahalakshmi Sugar Mills Co. v. CIT (1980) 123 ITR 429) (SC) the facts were that the assessee was engaged in the business of manufacture and sale of sugar. A claim of deduction was made on account of interest paid on arrear of Cess due under the U.P. Sugar Can Cess Act, 1956. The I.T.O. disallowed the claim but the A.A.C. held that it was a permissible deduction and the Income-tax Appellate Tribunal affirmed the view. The reference was preferred in Dehli High Court. The Delhi High Court vide judgment reported as (1972) 85 ITR 320 held that the amount was paid by way of penalty for an infringement of the Act and, therefore, the claim was not admissible. The assessee preferred appeal before the Supreme Court of India. The Supreme Court of India considered sections 3 and 4 of the Sugar Can Cess Act, 1956 which read as follows:

"(3) Imposition of cess.

(1) The State Government may by notification in the Official Gazette impose a cess not exceeding four annas per maund on the entry of the case into the premises of a factory for use, consumption or sale therein .... (2) The cess imposed under subsection (1) shall be payable by the owner of the factory and shall be paid on such date and at such place as may be prescribed. (3) Any arrear of cess not paid on the date prescribed under sub section (2) shall carry interest at 6 per cent per annum from such date to date of payment. (4) The State Government may for the purpose of assessment and collection of the cess, appoint officers and authorities and may also prescribe the manner in which the cess shall be assessed and collected. (5) Where any person is in default in making the payment of the cess, the officer or authority empowered to collect the cess may direct that in addition to the amount of the arrears and interest a sum not exceeding 10 percent. thereof shall by way of penalty be recovered from the person liable to pay the cess. (6) The officer or authority empowered to collect the cess may forward to the Collector a certificate under his signature specifying the amount of arrears including interest due from any person, and on receipt of such certificate the Collector shall proceed of land revenue. (7) Any sum imposed by way of penalty under subsection (5) shall be recoverable in the manner provided in subsection (6) for the recovery of the arrear of cess. 4. "Penalties.

If any person defaults in the payment of cess imposed under subsection (1) of section 3, or, contravenes any provision of any rule made under this Act, he shall without prejudice to his liability, therefore, under subsection (5) of section 3, be liable to imprisonment up to six months or to a fine not exceeding rupees five thousand or both and in the case of continuing contravention to a further fine not exceeding rupees one thousand for each day during which the contravention continues."

25. The Supreme Court of India observed that under section 3(2) the payment of cess is to be made on the date prescribed under the rules. Rules 4 of the UT. Sugar Cane Cess Rules, 1956 provides that the cess due on the sugar cane entering into the premises during the first fortnight of each calendar year must be deposited in the Government treasury by the 22nd day of that month and the cess due for the remainder of the month must be deposited before the seventh day of the next following month. If the cess is not paid by the specified date, then by virtue of section 3(3) the arrear of cess will carry interest at the rate of 6 % per annum from the specified date to the date of payment. The Supreme Court of India further observed that under subsection (5) of section 3 additional sum was recoverable by way of penalty from a person who defaults in making payment of cess. The Supreme Court of India held that the entire interest and arrear of cess under section 3(3) is in reality part and parcel of the liability to pay cess. It is an accretion to the cess. It was observed as follows:

"The arrear of cess 'carries' interest; if the cess is not paid within the prescribed period a larger sum will become payable as cess. The enlargement of the cess liability is automatic under section 3(3). No specific order is necessary in order that the obligation to pay interest should accrue. The liability to pay interest is as certain as the liability to pay cess. As soon as the prescribed date is crossed without payment of the cess, interest begins to accrue. It is not a penalty, for which provision has been separately made by section 3(5). Nor it is a penalty within the meaning of section 4, which provides for a criminal liability and a criminal prosecution. The penalty payable under section 3(5) lies in the discretion of the collecting officer or authority. In the case of the penalty under section 4 no prosecution can be instituted unless, under section 5(1), a complaint is made by or under the authority of the Cane Commissioner or the District Magistrate. There is another consideration distinguishing the interest payable under section 3(3) from the penalty imposed under section 3(5). Section 3(6) provides that the officer or authority empowered to collect the cess may forward to the Collector a certificate under his signature specifying the amount of arrears including interest due from any person, and on receipt of such certificate the Collector is required to proceed to recover the amount specified from such person as if it were an arrear of land revenue. The words used in section 3(6) are 'specifying the amount of arrears including interest', that is to say that the interest is part of the arrear of cess. In the case of a penalty imposed under section 3(5), a separate provision for recovery has been made under section 3(7). Although the manner of recovery of a penalty provided by section 3(7) is the same as the manner for recovery provided by section 3(6) of the arrear of cess, the legislature dealt with it as something distinct from the recovery of the arrears of cess including interest. In truth, the interest provided for under section 3(3) is in the nature of compensation paid to the Government for delay in the payment of cess. It is not by way of penalty. The provision for penalty as a civil liability has been made under section 3(5) and for penalty as a criminal offence under section

4. The Delhi High Court proceeded entirely on the basis that the interest bore the character of a penalty. It was, according to the learned Judges 'penal interest'. The learned judges failed to notice section 3(5) and other provisions of the Cess Act...In our opinion the interest paid under section 3(3) of the Cess Act cannot be described as penalty for an infringement of the law." In the case of CIT, Karantaka v. Mandya National Paper Mills Limited (1984) 150 ITR 27 Karnataka High Court) a reference was made if the amount paid by an assessee as penalty for non-payment of sales-tax is an allowable deduction. The relevant facts were that the assessee committed default in payment of tax under the Karnataka. Sales Tax Act, 1957. Consequently, it had to pay penalty under section 13(2) of the said Act. The said amount was claimed as allowable deduction and the Assessing Officer disallowed to claim holding that it was not a business expenditure. It was urged before the Tribunal that the penalty collected under section 13(2) of the said Act should not be construed as penalty levied for any infraction of law as it represented only damages paid to the Government for the belated payment of tax due. The contention was accepted and the addition was deleted. It was held by the Karnataka High Court that the amount payable by the assessee was a statutory liability and it was not for the infraction of any law. It was further held that the Act gives no discretion to the authorities to waive or reduce the penalty. Obligation is cast on the defaulting assessee to make payment of the penalty computed in the manner provided by section 13(2). Reliance was placed on the judgment of Supreme Court of India in the case of Mahalakshmi (1980) 123 ITR 429) wherein it was held that the interest paid on arrears of cess under section 3(3) of the U.P. Sugar Cane Cess Act, 1956 was accretion to the cess and not a penalty payable for infringement of any law. Ultimately it was held that the penalty paid under section 13(2) of the Karnataka Sales Tax Act, 1957 was not a penalty in the real sense of the term and it was only a compensation for delay in payment of the tax due. It was thus held as an allowable deduction.

27. We have carefully examined and considered the ratio of judgment in the case of Premier Bank Limited by the Hon'ble Supreme Court of Pakistan and the other judgments cited before us. We draw the following inferences from the ratio of judgments cited before us. (1) An expenditure incurred on account of fine or penalty or in the nature of fine or penalty is not to be allowed as deduction. (2) An expenditure which although has been incurred by an assessee on account of infringement of a provision of a statute but not in the nature of fine or penalty can be allowed as admissible deduction provided it is incurred wholly and exclusively for the purpose of business. (3) The question whether any expenditure on account of infringement of any provision of law is for the purpose of business and is an admissible expenditure shall depend on the facts and circumstances of each case. (4) If any expenditure is claimed on a transaction in flagrant violation of the provisions contained in any law and the transaction, act/omission is liable to the levy of fine or penalty by way of criminal or civil sanction and the competent Authority has imposed civil or criminal penalty provided in the law then expenditure incurred on illegal transaction as well as penalty for indulging in such illegal transaction both shall be inadmissible expenditure. (5) If there are various provisions in any law providing for automatic enhanced/excess payment on commission of a default or delay and there is a provision for imposition of penalty/fine as well within the discretion of authorities competent under a law and the provisions for imposition of fine or penalty within the discretion of competent authorities have not been invoked and an enhanced/excess amount is charged for any default/delay, such enhanced excess amount shall be deemed to be part and parcel of the original liability. (6) If the excess amount paid by an assessee in the normal course of business and wholly and exclusively for business purposes on account of any delay or default is within the contemplation of the parties and the excess amount paid is automatic which requires mere calculation it would be in the nature of compensation paid for delay or default and- it shall not be deemed as penalty or fine, or in the nature of penalty/fine or akin to the penalty or fine. (7) If any excess amount is paid by an assessee for any delay or default in performance of an act and the excess charge is fixed and not in the discretion of any competent Authority in law and no separate proceeding is required for charging the excess/enhanced amount and no separate order is required to be made and there is no requirement of framing any charge or confronting the - defaulting party and seeking explanation then the amount so charged would not be deemed to be penalty/fine. (8) Mere use of word penalty or fine shall not make an amount to be in the nature of penalty or fine untill and unless in the substance the amount charged is penalty or fine or in the nature of penalty or fine. (9) The payment of such amount only shall be treated as penalty/fine which is charged as a result of infraction/transgression/violation which is imposed by an authority competent in law and an amount paid by an assessee on its violation/discretion/option available in law for the consideration of business purposes in pursuance of commercial expediency and not with the intention of flouting the mandatory provision of law shall not be deemed to be penalty/fine and shall be deemed to be extension of liability permissible in law and/or compensation for delay/default contemplated by the patties and permissible in law. (10) The demurrage paid to the Port and Railway authorities which is in excess of the original liability, likewise surcharge for delayed payment of utility bills such as, electricity bill, gas bill, telephone bill, property tax, water tax, municipal taxes, motor vehicle taxes, arms licence fee, late payment fee for examination, late payment fee for renewal of various licences so and on so forth are not in the nature of penalty or fine, as all of these payments are automatic without initiation of any separate proceedings and without any separate order and exercise of any discretion by any competent authority on the consideration of facts and circumstances of each case. (11) In the case of Mahalakshmi (Supra) the Supreme Court of India has dealt with the issue elaborately. Under section 3(3) of the Sugar Cane Cess Act, 1956 the payment of interest at 6 % was automatic for which no separate or specific order was required and the obligation to pay interest was to accrue automatically and, therefore, payment of such amount was held to be part of the original liability and not penalty or fine. The excess amount was held to be compensatory in nature. Under subsection (5) of section 3 of the same Act the officer or authority empowered to collect the cess may direct for payment of additional tax and such amount was held to be penalty it was not automatic or a mere matter of calculation without discretion. In, the case of Premier Bank Limited the Hon'ble Supreme Court of Pakistan has held the payment of penal interest under subsection (4) of section 36 of the State Bank Act, 1956 in the nature of fine. A perusal of subsection (4) of section 36 of the State Bank Act, 1956 shows that the penal interest was to be made by order of the bank. It was not automatic. The words used in subsection (4) of section 36 are, "schedule bank may be ordered by the bank to pay to the bank". Thus, it was within the competence and discretion of the State Bank of Pakistan to order for the payment by schedule bank. Once it is provided that a separate and specific order is to be made than it will not make any difference if the rate of penal interest is fixed.

28. Applying above principles to the present case we find that the appellant, imported crude oil under the loan advanced by Islamic Development Bank, Jeddah. The State Bank of Pakistan was also a party to the agreement in the capacity of a guarantor. As per State Bank of Pakistan procedure counter-part rupee fund was required to be deposited with State Bank of Pakistan within 10 days of disbursement of fund by Islamic Development Bank. Due to paucity of funds the appellant could not deposit the counter-part fund with State Bank of Pakistan and, therefore, on account of this delay the appellant was required to pay to the State Bank of Pakistan an additional sum of Rs.4 per day per Rs.10, 000 which has been described in the Foreign Exchange Manual as fine. The payment of excess amount is automatic and has been charged by mere calculation and issuance of a calculation sheet. For the purpose of charging the excess amount the State hank of Pakistan has not resorted to the provisions contained in the Foreign Exchange Regulation Act for the imposition of civil or criminal penalty. The head of account under which the excess amount has been deposited by the appellant under the direction of the State Bank of Pakistan has described the deposit as interest on late payment of Government duties. There is a separate head of account for depositing of penalty in which the nature of deposits are described as, fine and forfeiture. The officials concerned in the State Bank of Pakistan are themselves not clear about the nature of excess amount deposited by the appellant as they have described this amount differently on different occasion. The nature of excess amount has been described on different occasions as penalty interest, fine and penalty. The excess amount charged by the State Bank of Pakistan is not in pursuance of any fine penalty order by any competent authority in exercise of discretion vested in the said authority and after compliance of the necessary procedure prescribed in law and application of mind. There is no infringement of any statute law as in the case of Premier Bank Limited decided by the Hon'ble Supreme Court of Pakistan. In the case of Premier Bank Limited the penal interest was charged under section 36(4) of the State Bank of Pakistan Act, 1955 which provides that if at the close of business on any day the balance held at the bank by any scheduled bank is below the minimum fixed by subsection (1), such scheduled bank may be ordered by the bank to pay to the bank penal interest. Thus the charging of penal interest under section 36(4) of the State Bank of Pakistan Act, 1956 is not automatic but it is within the discretion of the State Bank of Pakistan an order is to be made in this behalf. On the other hand neither any provision in the FERA have been brought to our notice nor in the instructions issued by the State Bank of Pakistan under subsection (3) of section 20 of the FERA any description is vested in any authority. As already discussed above the contravention of provisions contained in subsection (3) of section 20 or any rule, direction or order made thereunder is liable to the levy of penalty under section 23-B of the FERA and no such penalty has been levied by the competent authority.

28. The appellant has proved up to the hilt that excess payment was made wholly and exclusively for business consideration, the excess payment is neither in the, nature of penalty nor fine and, therefore, the principle laid down by the Hon'ble Supreme Court of Pakistan in the case of Premier Bank Limited on which both the parties have placed reliance is not applicable. The Hon'ble Supreme Court has held that in the case of expenditure which, although, has been incurred by the assessee on account of infringement of a provision of a statute but is not to the nature of penalty, the question whether such expenditure is admissible or not would depend upon the circumstances of each case. In the present case the expenditure is for business consideration and, therefore, we are of the considered opinion that the excess payment having been incurred for business consideration, in exercise of option available to the appellant in contemplation of the parties is an admissible expenditure under section 23 of the Income Tax Ordinance, 1979.

29. As a result of above finding it is held that the learned two officers were not justified in disallowing the claim on account of excess amount paid to the State Bank of Pakistan at Rs.305 million. The addition stands deleted and the Assessing Officer is directed to allow the claim.

30. The second objection is not pressed as the issue already stands decided against the appellant. The impugned finding of learned CIT (A) in respect of disallowance of development surcharge on feedstock is, therefore, upheld.

31. So far the third objection is concerned, Mr. Shabbar Zaidi has submitted that the issue already stands decided in favour of appellant. The learned representative for the department is not able to rebut the contention. The impugned order of learned CIT (A) setting aside the issue is, therefore, vacated. The disallowance made by the Assessing Officer is hereby deleted. The Assessing Officer is directed to allow the claim.

32. This brings us to the last objection raised in the grounds of appeal. A perusal of the assessment order shows that a provision was made for diminution in the value of investment at Rs.1,08,51,

000. The Assessing Officer disallowed the claim for two reasons, first, it was a mere provision and was, therefore, not allowable and secondly, the investment made was capital in nature and, therefore, was not admissible. The learned counsel for the appellant is not able to show any provision of law under which the claim is admissible. The findings of the learned two officers below are, therefore, not-open to any exception. Likewise, the claim on account of provisions for doubtful debt was disallowed and the learned counsel for the appellant has conceded that the law as contained in the Income Tax Ordinance does not permit the admissibility of any claim on account of mere provision. Only which such bad debt can be claimed which has been actually written off. The findings of the learned two officers below are, therefore, not open to any exception, which hereby upheld.

33. The appeal stands disposed of as above. C. M. A. /M. A. K./31/Tax(Trib.) Appeal disposed of.