TaxTMI 
TaxTMI 
TaxTMI 
2018 (5) TMI 353
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....ermit. 3. Mr. Mathur has contended that the assessee was penalised pursuant to his illegal activities and this will not amount to business expenses. He has relied on Section 37 and explanation thereto of the Income Tax Act which has been introduced in 1998 and reads as under: 37. (1) Any expenditure (not being expenditure of the nature described in sections 30 to 36 and not being in the nature of capital expenditure or personal expenses of the assessee), laid out or expended wholly and exclusively for the purposes of the business or profession shall be allowed in computing the income chargeable under the head "Profits and gains of business or profession". Explanation 1.-For the removal of doubts, it is hereby declared that any expenditure incurred by an assessee for any purpose which is an offence or which is prohibited by law shall not be deemed to have been incurred for the purpose of business or profession and no deduction or allowance shall be made in respect of such expenditure. 4. He contended that this will fall within the explanation and therefore, not business expenses. He has also taken us through the observations made by the CIT (A) which is quoted as under: 5.3 ....
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....uage of the affidavits filed by the appellant is as under: "Atul Sharma S/o Sh. S.S. Sharma age 40 years and resident Campus 54, Dhuleshwar Garden CScheme Jaipur Authorized Signatory of Agriobiotech Industries Limited having its registered office at SP-825, Road no.14, V.K.I. Area Jaipur take an oath as under: 01. I am Authorized Signatory of Agriobiotech Industries Ltd. SP156, RIICO Ind. Area Ajitgarh, Distt-Sikar (Rajasthan) 02. I have been authorized by Management of Agriobiotech Ind Ltd. to obtain Export permits from District Excise office, Sikar against import permit no. 04/015885 to 13/015885 dated 27.12.10 in favour of M/s United Spirits Ltd. Unit Palwal (Haryana). 03. I Undertake behalf of Agriobiotech Ind. Ltd. That the import permits its contents and in printing are genuine. 04. I undertake behalf of Agriobioteh Ind. Ltd. make goods any losses accrued in government of its agency due to above been false and fictitious the Agriobiotech Ind. Ltd. shall also be liable for all prosecution if same is not genuine. 05. I undertake behalf of Agriobiotech ind. Ltd. excise verification issued by excise authority of importing state shall be submitted within 90 days ....
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....r scheme concerned, then one has to regard such payment as business expenditure of the assessee, allowable under section 37. In view of the above referred two decisions of the Supreme Court, relied upon by the appellant also, the nature of the sum demanded by the District Excise Officer, Sikar has to be decided. 5.4 I am of the considered view that- I. The Penalty by any statutory authority can be levied only for violation of the provisions of the law of the land. In the appeal under consideration the relevant law is the Rajasthan Excise Act, 1950 and Rajasthan Excise Rule, 1956. ii. Penalty can be levied only under the specific section of the Act or the Rules. In the appeal under consideration the relevant Act is Rajasthan Excise Act, 1950 and the Rajasthan Excise Rules, 1956. The appellant has filed the copy of the Rajasthan Excise Act, 1950. Under section 54 of the Act, penalty for unlawful import, export, transport, possession, etc has been provided. The AO has also quoted the provisions of section 54 in the assessment order. The provisions of section 54 of the Rajasthan Excise Act, 1950 are reproduced hereunder: "5.4. Penalty for unlawful import, export, tran....
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....asthan Excise Act, 1950 makes it clear that the maximum penalty leviable for removing the excisable articles without paying duty (if any) payable therefore, under the Rajasthan Excise Act, 1950 or without executing the bond for the payment thereof, is only Rs. 20,000/-. Thus, it is clear that the amount demanded by the State Excise Officer, Sikar by issue of is not penalty under section 54 or any other section of the Rajasthan Excise Act, 1950, because the amount demanded by the State Excise Officer, Sikar by issue of is huge and far excess than the maximum amount of penalty prescribed under section 54 of the Rajasthan Excise Act, 1950. Alongwith the no order levying the penalty has been issued by the State Excise Officer, Sikar. Only it has been mentioned in the that the penalty has been levied as the appellant has violated the conditions of the affidavit filed by the appellant. The appellant in its written submission filed during the course of proceedings, has given at page No.8, the working of the amount demanded by the State Excise Officer, Sikar by issue of . The same is reproduced at page No.7 & 8 of this order. It can be seen from the working given by the appellant that t....
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....nder:- 8. No doubt, the assessee had contended that he was only earning income from his medical profession and was not doing any illegal activity of manufacturing and selling of heroin. However, the finding of fact of the Tribunal in its order dated 31.3.1993 is that the assessee was engaged in manufacture and selling of heroin. Thus the Income Tax authorities themselves have recorded a finding that the assessee was engaged in manufacture and selling of heroin. No doubt the order of the Tribunal dated 31.3.1993 was subsequently recalled by the Tribunal, but since with ultimate order dated 14.10.1998 the Tribunal has held that the heroin seized was the assessee's stock in trade it is implicit that the Tribunal reiterated to view that the assessee was doing the business of manufacture and sale of heroin. Once the Income Tax authorities records such a finding of fact, it follows that any loss from such a business is a business loss. 10. The High Court, however, in paragraph 10 of its judgment observed: The assessee in this case was engaged in profession of doctor. He had nothing to do with the contraband article - Heroin for carrying on his profession. It is an admitte....
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....ded by this Court. 20. The point that the expenditure incurred for the purpose of unlawful activity must be allowed to find out the commercial profits of the Company was specifically argued and rejected in the case of The Commissioners of Inland Revenue v. E.C. Warnes (supra). If a penalty is imposed for contravention of any statutory provision, it cannot be said that the commercial loss had fallen on the assessee as a trader. Illegal activity cannot be treated as a trading activity at all. As Lord sterndale held that it was not enough that the disbursement was made in the course of or arose out of or was connected with the trade or was made out of the profits of the trade. Only if it could be shown that it was spent for the purpose of the trade that the deduction can be permitted unless the entire trade was unlawful. 24. In the instant case the assessee had indulged in transactions in violation of the provisions of Foreign Exchange (Regulation) Act. The assessee's plea is that unless it entered into such a transaction, it would have been unable to dispose of the unsold stock of inferior quality of tobacco. In other words, the assessee would have incurred a loss. Spur of ....
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.... or arisen against the assessee with the passing of the order by the Collector of Customs, Bombay. Such liability, in view of the principle laid down in Kedarnath Jute Mfg. Co. Ltd, v. CIT MANU/SC/0438/1971 : [1971]82ITR363(SC) would have been an allowable deduction in the year of account but in view of the principle laid down in Haji Aziz's case MANU/SC/0120/1960 : 1983ECR1942D(SC) it was not so allowable as the liability related to a penalty imposed for infringement of the provisions of the Customs Act, 1962. That was the position in the year under account. 9. However, taking into account the subsequent events which mainly consisted of a fire breaking out in the assessee's business premises in June, 1982, closure of the assessee's business and later on a company taking over the remains of the assessee's business, and the order of the Government of India knocking off the penalty in question in 1982 and on taking the effect of such order of the Government of India to the year of account with the help of the doctrine of "relating back", the position comes to this that in the year of account the liability in question stood wiped out and did no more survive for allo....