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Issues:
Whether the penalty levied under section 16(1)j) of the Rajasthan Sales Tax Act is an allowable deduction for the assessee in computing its total income for the relevant accounting years. Analysis: The case involved a dealer in Tata motor parts who purchased parts within Rajasthan, paid sales tax, and charged sales tax when supplying to Government Departments. The Sales Tax Department levied penalties for non-depositing the collected sales tax. The assessee claimed these penalties as deductions, but the Income-tax Appellate Tribunal disallowed it. The Tribunal held that penalties cannot be allowed as deductions, which was challenged by the assessee. The court analyzed the nature of the penalty under section 16(1)j) of the Rajasthan Sales Tax Act, which is imposed for infractions of the law. Referring to precedents, the court highlighted that penalties for contraventions of specific statutory provisions are not allowable deductions as they are not normal incidents of business. The court cited various judgments, including those by the Madhya Pradesh High Court, Bombay High Court, Allahabad High Court, and the Supreme Court, to support the proposition that penalties for breaches of law are not deductible as business expenditures. The court emphasized the distinction between penalties and interest, noting that automatic liabilities under statutes can be considered allowable deductions, but discretionary penalties cannot. It held that penalties for infractions of the law are not commercial losses expected in business operations. The court concluded that the entire amount paid by the assessee to the Sales Tax Department as penalties cannot be allowed as a deduction in computing its total income for the relevant accounting years under section 16(1)j) of the Rajasthan Sales Tax Act. In conclusion, the court ruled in favor of the Revenue, upholding the disallowance of penalties as deductions for the assessee. The Revenue was awarded costs of Rs. 300.
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