Business expenditure deduction denied for customs redemption fine and penalty arising from unlawful import disclosure and duty evasion.

Redemption fine and customs penalty paid on undeclared and oversized imported scrap were held not deductible under section 37(1) because they arose from infraction of law, not from an ordinary business expense. The Tribunal distinguished cases where redemption payments were made under a statutory option to reclaim confiscated goods, noting that those authorities did not apply where the assessee had failed to disclose the goods correctly and attempted to evade proper customs duty. The disallowance was therefore upheld.

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Issues: Whether the redemption fine and penalty paid to customs authorities for undeclared and oversized imported scrap were allowable as business expenditure under section 37(1) of the Income-tax Act, 1961.

Analysis: The imported goods were found to include re-rollable scrap that had not been disclosed in the bill of entry and invoice, leading to confiscation under the Customs Act, 1962 and imposition of fine and penalty. The claim for deduction depended on whether the payment was compensatory in nature or represented expenditure incurred because of infraction of law. The earlier authorities and the Tribunal distinguished decisions allowing deduction where the payment arose under a statutory option to redeem confiscated goods, holding that those cases did not apply where the assessee had acted unlawfully and attempted to evade the correct customs duty.

Conclusion: The redemption fine and penalty were not allowable under section 37(1) and the disallowance was upheld against the assessee.

Final Conclusion: The claim for deduction of the fine and penalty failed because the expenditure arose from violation of law and not from an ordinary incident of business.

Ratio Decidendi: Expenditure or penalty incurred because of infraction of law in carrying on business is not deductible as business expenditure under section 37(1) of the Income-tax Act, 1961.

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