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2019 (10) TMI 898 - ITAT CHENNAIDisallowance of expenditure u/s 37(1) - Amount paid as penalty for using electricity during restricted hours - HELD THAT:- Without opting for continuous power supply, the assessee was found in usage of energy during restricted hours (above 15% of contracted load), prohibited by law, thereby, it was levied to pay penalty, which cannot be treated as just like payment of electricity charges, but, it is an offence committed by the assessee against which, the assessee was penalized. As per Explanation to section 37(1) of the Act, 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. This Explanation would squarely apply to the facts of the assessee's case and the amount paid being penalty, the AO was justified in disallowing the same and rightly confirmed by the ld. CIT(A). Thus, the ground raised by the assessee stands dismissed. Disallowance of payment made to Sales Tax Department - HELD THAT:- Payment made to Sales Tax Department by way of interest which is compensatory in nature for belated filing of return and payment of taxes thereon. We have also gone through the order of the Joint Commissioner (Appeals) First, Commercial Tax, Uttarakhand, in assessee’s own case, wherein, it was amply clear and elaborately discussed the circumstances under which penalty was levied, more particularly, against levy of penalty by the AO [Commercial Tax], the assessee preferred further appeal. Therefore, the penalty payment made by the assessee and disallowed by the Assessing Officer was rightly confirmed by the ld. CIT(A). Thus, the ground raised by the assessee stands dismissed. Rejection of alternative plea of proportionate deduction under section 80IC - HELD THAT:- Expenditure which is an offence or 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 and made it clear that only that expenditure which is related to business activity would come under the purview of the aforesaid circular of the CBDT. CIT(A) further held that the expenditure had already been incurred and therefore, but for the disallowance under the Income Tax Act, would not increase the profit in the hands of the assessee. Thus, the ld. CIT(A) has held that as the disallowance under Explanation to section 37(1) of the Act is deemed to have not been incurred for the purpose of business, they cannot be considered for the purpose of computing profits of the business of the assessee, thereby, the question of claiming any deduction under section 80IC of the Act does not arise. In the appellate order, the ld. CIT(A) has narrated correct position of law and penalty payment made by the assessee, cannot be claimed as an allowable expenditure. In view of the above facts, the alternative plea raised by the assessee stands dismissed.
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