Law:

Section:

Section 37(1) of the Income-tax Act, 1961 [Corresponding to section 10(2)(xv) of the Indian Income-tax Act, 1922] - Business expenditure - Allowability of - Assessee, carrying on money-lending, surrafa and cloth business, was required under War Risks (Goods) Insurance Ordinance (No. IX of 1940) to get his full quantity of stock insured - Assessee, however insured his goods for an amount for below actual value of stock in hand - Finally, assessee was caught and, thereupon, matter was compounded at certain amount - Assessee claimed whole of compounded amount paid to Government as deductible expenditure - Tribunal, however, allowed amount which would have been payable as premia for war risk insurance but disallowed rest of amount - On instant reference, it was noticed that assessee had declared value of goods at figure far below proper value for purpose of making dishonest gain - Subsequently, when he compounded matter with control Government, he did so to escape criminal prosecution - Whether, in aforesaid circumstances, amount disallowed by Tribunal was not deductible under section 10(2)(xv) of 1922 Act - Held, yes FACTS The assessee was a registered firm carrying on money-lending, sarrafa and cloth business. The assessee was required under the War Risks (Goods) Insurance Ordinance (No. IX of 1940) to get his full quantity of stock insured. Year after year the assessee was getting his goods insured but for an amount far below the actual value of the stock that was in hand. Unltimately, the assessee was caught and notice was served on him to show cause why he should not be prosecuted. The matter was, however, compounded under section 12(A) of the said Ordinance and a sum of Rs. 16,895 was paid by the assessee to the Central government to compound the offence. The assessee claimed the whole of this amount as deductible expenditure under section 10(2)(xv) of 1922 Act. The Tribunal, however, allowed the amount which would have been payable as premia for war risk insurance but disallowed the rest of the amount which came to Rs. 11,265. On reference: HELD It was not necessary for the assessee for purposes of his trade or business to declare the value of his goods at a…

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