Penalty for breach of law is not deductible, and reassessment was valid where undisclosed material justified initiation.

A penalty paid for breach of law is not an allowable deduction because it is not expenditure laid out wholly and exclusively for business purposes, so it cannot reduce taxable income. On reassessment, proceedings under section 147(b) were supported by material information that the penalty had been paid and had not been disclosed in the return, so the initiation was not without jurisdiction. The application for a statement of the case was therefore rejected.

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Issues: (i) whether penalty of Rs. 3,000 paid for breach of law was an allowable deduction; (ii) whether reassessment proceedings under section 147(b) were without jurisdiction.

Issue (i): whether penalty of Rs. 3,000 paid for breach of law was an allowable deduction.

Analysis: The claim was covered by the rule that an amount paid by way of penalty for breach of law is not expenditure laid out wholly and exclusively for the purposes of business and cannot be deducted in computing taxable income.

Conclusion: The deduction was not allowable and no reference was required on this question.

Issue (ii): whether reassessment proceedings under section 147(b) were without jurisdiction.

Analysis: The Tribunal found that material information had come to the Income-tax Officer showing that the amount of Rs. 3,000 had been paid by way of penalty and had not been disclosed in the return, providing the basis for initiation of reassessment proceedings.

Conclusion: The reassessment proceedings were not without jurisdiction and no question of law arose.

Final Conclusion: The application for requiring a statement of the case was rejected.

Ratio Decidendi: A penalty paid for breach of law is not deductible as business expenditure, and reassessment proceedings are valid where the Income-tax Officer has information justifying initiation under section 147(b).

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