TMI Blog1986 (1) TMI 70X X X X Extracts X X X X X X X X Extracts X X X X ..... n holding on strength of its order for the assessment year 1965-66 that the amount of Rs. 41,000 paid by the assessee by way of penalty under the Sales Tax Act was allowable deduction as business expenditure ? " The relevant assessment year is 1971-72. The assessee is a Hindu undivided family earning income from business in cloth, etc. The assessee claimed deduction of Rs. 2,863 on account of additional sales tax assessed and a further deduction of Rs. 41,000 was also claimed on account of penalty imposed under section 17(3) of the Madhya Pradesh General Sales Tax Act, 1958, for late filing of the return during the relevant accounting year. The Income-tax Officer disallowed both these claims for deduction. The Commissioner of Income-tax ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an additional tax or interest on the tax payable. He further contended that at any rate it is not levied for any contumacious conduct of the assessee and, therefore, mere infraction of law resulting in the levy of penalty is not sufficient to disallow it as business expenditure. We are unable to accept this contention since it is contrary not only to the decisions of this court but also to the decisions of the Supreme Court. In Haji Aziz and Abdul Shakoor Bros. v. CIT [1961] 41 ITR 350 (SC), it was clearly held that " infraction of the 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 a deductible expense as it cannot be called a com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elated to the difference between the tax payable at the full rate and the tax payable at the concessional rate. It was pointed out that the true nature of the difference in tax was not that of a penalty inasmuch as the tax at the full rate was required to be paid as a tax in obedience to the law. Both these earlier decisions of this court are also in favour of the Revenue. Learned counsel for the assessee placed reliance on the decision of the Supreme Court in Mahalakshmi Sugar Mills Co. v. CIT [1980] 123 ITR 429. This case related to the liability for payment of interest on the arrears of cess which was an accretion to the cess resulting in enlargement of the cess liability automatically under the Act without the requirement of any speci ..... X X X X Extracts X X X X X X X X Extracts X X X X
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