Law:

Section:

Section 28(i) of the I ncome-tax Act, 1961 - Business loss/deductions - Allowability of - Whether amount of additional sales tax assessed could be claimed as deduction -held, yes - whether amount of penalty imposed for late filing of sales tax return could be allowed as deduction - H eld, no Facts The assessee-HUF claimed deductions on account of additional sales tax assessed as also on account of penalty imposed under section 17(3) of the Madhya Pradesh General Sales Tax Act, 1958, for late filing of return. The ITO disallowed both the claims for deduction. The Commissioner (Appeals) rejected the assessee's appeal. On further appeal, the Tribunal allowed the deductions as claimed. On reference : Held In view of the Supreme Court's decision in Kedarnath Jute Mfg. Co. Ltd. v. CIT [1971] 82 ITR 363 , the Tribunal was justified in allowing the deduction of additional sales tax assessed. As regards the penalty imposed in Haji Aziz & Abdul Shakoor Bros. v. CIT [1961] 41 ITR 350 , the Supreme Court has clearly held that infraction of law is not a normal incident of business and if a sum is required to be paid by the assessee as penalty for infraction of the law, it cannot be claimed as deductible expense as it cannot be called a commercial loss incurred in carrying on his business. In the instant case the penalty levied for not filing the return within the prescribed period was clearly on account of infraction of the law requiring filing of the return within the specified period. Section 17(3) of the said Act itself indicated that the penalty levied was not in the nature of an additional tax. Hence, the amount of the penalty levied under section 17(3) of the aforesaid Act could not be allowed as business deduction and the Tribunal was not justified in taking a contrary view. Cases referred to Kedarnath Jute Mfg. Co. Ltd. v. CIT [1971] 82 ITR 363 (SC), Haji Aziz & Abdul Shakoor Bros. v. CIT [1961] 41 ITR 350 (SC), CIT v.Malwa Vanaspati & Chemical Co. Ltd. [1982] 135 ITR 221 (MP), Simplex Structural Works v. CIT [1983] 140 ITR 782 (MP),Mahalakshmi Sugar Mills Co. v. CIT [1980] 123 ITR 429 (SC) and CIT v. Mandya National Paper Mills Ltd. [1984] 150 ITR…

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