TMI Blog1996 (4) TMI 47X X X X Extracts X X X X X X X X Extracts X X X X ..... t imports, in question, were not contraband, is wrong, illegal, perverse, bad in law, and without jurisdiction ? 2. Whether, on the facts and in the circumstances of the case, the above said amount of penalty of Rs. 4 lakhs, imposed by the Collector of Customs, even when the imports were bona fide and in conformity with the policy of the Government and the provisions of law, as found by the revisional authority under the Customs Act, 1962, is necessary expense of the business ? And whether the said expenditure is a liability deductible from the income of the assessee of that year and incurred in that year, i.e., ending March 31, 1979, relevant to the assessment year 1979-80, even though the assessee has maintained account books on the mercantile basis ? 3. Whether, on the facts and in the circumstances of the case, the interest paid on the money borrowed to pay the amount of Rs. 4 lakhs, referred to in question No. 2 above, is the necessary expenses of the business of the applicant and deductible from his income ?" Shorn of avoidable details the facts relevant and sufficient to answer the referred questions are these : During the accounting period relevant to the assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e his order dated February 20, 1982, set aside the order of confiscation of goods as well as the order levying personal penalty. It was under the above background that the assessee claimed deduction of the entire amount of Rs. 10,50,000 plus Rs. 4,000 paid as interest on the borrowed amount of Rs. 4,00,000 as being business expenditure. The Income-tax Officer, following the instructions of the Inspecting Assistant Commissioner given under section 144B of the Act, allowed deduction of Rs. 6,50,000 but following the Supreme Court decision in the case of Haji Aziz and Abdul Shakoor Bros. v. CIT [1961] 41 ITR 350 disallowed the deduction of the amount of penalty and interest on the ground that the personal penalty was imposed for infraction of law and was, therefore, not a deductible business expenditure. In appeal the learned Commissioner of Income-tax (Appeals) allowed the deduction of Rs. 4,00,000 plus interest of Rs. 4,000 on the ground that the expenditure was incurred by the assessee in carrying on its business and that the same was not expended in respect of any infringement of law. However, he directed the Income-tax Officer to charge tax on the aforesaid amount as and when t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the amount was disallowable. We hold accordingly. 3. Alternatively, if it is permissible to take into account the final order of the Secretary to the Government in revision passed on February 20, 1982, to hold that the assessee-firm had not contravened the provisions of the Customs Act, then it could also be said that the said order would relate back to the date of import and there was absolutely no liability on the assessee to pay the penalty. Since the firm maintains accounts on the mercantile basis, the mere payment of the amount of penalty would not justify the allowance of the claim because the liability did not at all accrue, there being no order levying penalty since the penalty has finally been cancelled. In either view of the matter, therefore, the amount of penalty could not be allowed as a deduction. We hold accordingly, allow the appeal and reverse the order of the Commissioner of Income-tax (Appeals) and restore that of the Income-tax Officer. The same would apply also to the interest paid on this amount of Rs. 4,00,000 borrowed from the bank and in this regard also, the amount was rightly disallowed by the Income-tax Officer and the Commissioner of Income-tax was i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... int of time. The general rule is that deduction can be permitted in respect of only those expenses or losses which have accrued in the relevant accounting year. This general rule, however, is required to be applied after taking into account such subsequent events which have a bearing on the issue being decided by the authority concerned. It is, therefore, permissible in law to take into consideration, at the time of deciding an issue, such subsequent event, legal or factual, which may have an effect on the decision of the issue. It is necessary to do so for the obvious reason that the aim of law is to do substantial justice between the parties and to impart to them not merely legal or technical justice but, as far as possible, real and substantial justice. Justice is to be imparted in accordance with law and not simply in subordination to law. The former expression promotes and advances expansion and development of law; the latter makes law, rather, stagnant and static. A developing society needs developing legal notions. Coming to questions Nos. 1 and 3 referred to us the position comes to this. In the year of account the liability to pay personal penalty of Rs. 4 lakhs had ac ..... X X X X Extracts X X X X X X X X Extracts X X X X
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