1985 (12) TMI 48 - HC - Income Tax

Summary

Issues:
1. Disallowance of penalty for late payment of provident fund.
2. Disallowance of penalties of sales tax for delayed returns.
3. Disallowance of penalty on estate duty.
4. Disallowance of bank charges debited by the bank.

Analysis:

Issue 1: Disallowance of penalty for late payment of provident fund
The court referred to the decision in CIT v. Malwa Vanaspati & Chemical Co. Ltd., where it was held that penalties for contravention of statutory provisions cannot be considered as expenditure wholly and exclusively laid out for the purpose of business. The court affirmed this decision and ruled in favor of disallowing the penalty for late payment of provident fund.

Issue 2: Disallowance of penalties of sales tax for delayed returns
Following the same reasoning as in the previous issue, the court upheld the disallowance of penalties for sales tax delayed returns. The court relied on the decision in Malwa Vanaspati & Chemical Co. Ltd.'s case and concluded that such penalties do not qualify as allowable expenditure for the business.

Issue 3: Disallowance of penalty on estate duty
Consistent with the previous issues, the court ruled in favor of disallowing the penalty on estate duty. The court reiterated that penalties imposed on an assessee for statutory contraventions cannot be considered as expenses wholly and exclusively laid out for business purposes.

Issue 4: Disallowance of bank charges debited by the bank
The court analyzed the situation where the bank debited certain charges to the assessee's account for expenses incurred in connection with the salary of employees. The court noted that the bank had debited an amount to the assessee's account for expenses related to the godown-keeper and watchman. The court disagreed with the Tribunal's decision to disallow these charges, emphasizing that the bank was entitled to recover expenses incurred for preserving goods pledged by the assessee. The court clarified that the bank charges debited were justified and ruled in favor of the assessee.

In conclusion, the court answered the reference questions accordingly, disallowing penalties and charges except for the bank charges debited by the bank. Each issue was analyzed based on legal precedents and specific facts relevant to the case, resulting in a comprehensive judgment.