TaxTMI 
TaxTMI 
2006 (7) TMI 135
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....reated as business expenditure? (2) Whether the Tribunal even before deciding the issue is correct in holding that in respect of penalty paid for the infraction of law two views are possible and therefore the one favourable to the assessee should be taken? (3) Whether the Tribunal was correct in affirming the deletion made by the Appellate Commissioner in respect of unexplained investment made by the assessee and estimated by the Assessing Officer in respect of the assessment year 1970-71?" The assessee is a manufacturer of brass. He purchases copper, zinc, etc., for converting them into brass at its factory. A return of income was filed declaring total income at Rs. 15,800 for the assessment year 1970-71. Income was determined by the Department. Thereafter, the Department received information that the assessee has suppressed its real income and that the income chargeable to tax has escaped the assessment. Proceedings were reopened. The reopened assessment was concluded on August 23, 1978. The reopened assessment was pursued in appeal before the Commissioner and thereafter before the Income-tax Appellate Tribunal. Thereafter, when the matter was taken up in reference befor....
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....assessee is not for commercial expediency and is only for infraction of law and is in the nature of personal liability. A sum of Rs. 2 lakhs was brought to tax by the Department. Aggrieved as against the orders of assessment in respect of the assessment years 1970-71 and 1977-78, the assessee preferred appeals to the Commissioner of Income-tax. The appeal for the assessment year 1970-71 in respect of addition of Rs. 37,482 was allowed. The issue in respect of the assessment year 1977-78 as to reopening of the assessment and bringing to tax a sum of Rs. 2 lakhs incurred by the assessee for infraction of law was dismissed by the Commissioner. The Revenue took up the matter in appeal to the Income-tax Appellate Tribunal. The Appellate Tribunal dismissed the appeal filed by the Revenue in respect of the assessment year 1970-71 and allowed the appeal filed by the assessee in respect of the assessment year 1977-78. It is in these circumstances, the Revenue is before us seeking an order with regard to the validity of the orders in addition to consideration of the questions of law arising out of this appeal, as set out above. Sri Seschachala, learned counsel for the Revenue, invites ....
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....ve been unable to dispose of the unsold stock of inferior quality of tobacco. After noticing the same, the Supreme Court held that: "Spur of loss cannot be a justification for contravention of law. The assessee was engaged in tobacco business. The assessee was expected to carry on the business in accordance with law. If the assessee contravenes the provisions of the FERA to cut down its losses or to make larger profits while carrying on the business, it was only to be expected that proceedings will be taken against the assessee for violation of the Act. The expenditure incurred for evading the provisions of the Act and also the penalty levied for such evasion cannot be allowed as deduction. As was laid down by Lord Sterndale in the case of Alexander Von Glenn and Co. Ltd. [1920] 12 TC 232 (CA) it was not enough that the disbursement was made in the course of trade. It must be for the purpose of the trade. The purpose must be a lawful purpose." Similarly, a Division Bench of this court in the case of CIT v. Mamta Enterprises [2004] 266 ITR 356, after noticing the judgment of the Supreme Court, has chosen to hold as under: "In our opinion, no expense which is paid by way of ....
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....t the expenses which are for the purpose of enabling a person to carry on trade for making profits in the business are permitted but not if they are merely connected with the business. It was argued that unless the penalty is of a nature which is personal to the assessee and if it is merely ordered against the goods imported it is an allowable deduction. That, in our opinion, is an erroneous distinction because disbursement is deductible only if it falls within section 10(2)(xv) of the Income-tax Act and no such deduction can be made unless it falls within the test laid down in the cases discussed above and it can be said to be expenditure wholly and exclusively laid for the purpose of the business. Can it be said that a penalty paid for an infraction of the law, even though it may involve no personal liability in the sense of a fine imposed for an offence committed, is wholly and exclusively laid for the business in the sense as those words are used in the cases that have been discussed above. In our opinion, no expense which is paid by way of penalty for a breach of the law can be said to be an amount wholly and exclusively laid for the purpose of the business. The distinct....