1996 (5) TMI 12 - HC - Income Tax

High Court rules against assessee, upholds Rs. 27 lakh income addition for tax, fines not deductible as business expenditure.

Commissioner Of Income Tax Versus Jamiyatrai Rajpal

Commissioner Of Income Tax Versus Jamiyatrai Rajpal - [1998] 232 ITR 437, 150 CTR 185 Issues:1. Whether the Tribunal was justified in deleting the addition of Rs. 27 lakhs representing fine for violation of Customs and Imports and Exports Acts claimed as business expenditure.Analysis:The case involved an income-tax reference under section 256(1) of the Income-tax Act. The Tribunal referred a question regarding the deletion of Rs. 27 lakhs addition as business expenditure by the assessee, representing a fine for violating the Customs and Imports and Exports Acts. The assessee imported palm kernel seeds, which were confiscated, and paid the fine to release the goods. The Assessing Officer disallowed the claim as business expenditure based on the Calcutta High Court's decision in a similar case. The Commissioner of Income-tax (Appeals) upheld the disallowance, but the Tribunal set aside their orders. The Tribunal found no deliberate violation by the assessee and observed that the fine was paid to release the goods, not for violating the law.The High Court referred to various precedents, including the Supreme Court's decision in Haji Aziz and Abdul Shakoor Bros. v. CIT, where it was held that fines or penalties for law violations are not allowable as business expenditure. The Court also cited the Calcutta High Court's decision in Raghubir Prasad Gupta case, which emphasized that payments for law violations are not deductible under section 37(1) of the Act. The Court highlighted that fines for infractions of the law are not considered commercial losses and are not incurred wholly and exclusively for business purposes.Regarding the facts of the case, the Court noted that the assessee was aware that palm kernel seeds were not covered under the open general licence when placing the order. Even after a clarification by the Government, the assessee confirmed the supply and extended the period for delivery. The Court found that the assessee took a risk by ordering goods not included in the licence and attempted to benefit from the subsequent notification. Therefore, the Court concluded that the expenditure on the fine cannot be deductible under section 37 of the Act and should be added to the assessee's income for taxation.In conclusion, the Court ruled in favor of the Revenue and against the assessee, upholding the addition of Rs. 27 lakhs as income and subject to taxation.