1987 (12) TMI 70 - AT - Income Tax

Summary

Issues:
1. Admissibility of deduction of sales-tax penalty under s. 36(3) of the Bombay ST Act.
2. Consideration of earlier Tribunal order and decision in assessee's own case for the asst. yr. 1981-82.
3. Interpretation of penalty under s. 36(3) of the ST Act as a business expenditure.

Detailed Analysis:
1. The Tribunal was tasked with deciding the admissibility of deduction of a sales-tax penalty under s. 36(3) of the Bombay ST Act. Initially, the Tribunal, referencing a Supreme Court decision, held that such penalty was not deductible. However, a miscellaneous petition highlighted a similar issue in the assessee's case for a later year, where the Tribunal ruled in favor of the assessee. The petition argued that since the issue was already decided in the assessee's favor for a later year, no further arguments were presented. The Tribunal reconsidered the earlier order and re-fixed the matter for hearing.

2. During the hearing, one party relied on the earlier Tribunal order, while the other party presented a decision from a different Tribunal bench in the assessee's case for the asst. yr. 1981-82. This decision stated that expenditure on sales-tax is allowable as a revenue expenditure since penalties are not imposed for legal violations. The party supporting this view referenced a Special Bench decision and an order from another Tribunal bench, which clarified that the penalty under s. 36(3) is not interest but a penalty based on the law at the time. The Tribunal concluded that the penalty, although categorized as such, is akin to interest for delayed sales-tax payment and should be allowed as a business expenditure if incurred in good faith by the assessee as a trader.

3. Ultimately, the Tribunal dismissed the departmental appeal, ruling in favor of the assessee. The decision was based on the interpretation that the sales-tax penalty under s. 36(3) of the ST Act should be considered an admissible business expenditure, especially when incurred by the assessee in their capacity as a trader. The Tribunal's decision was influenced by previous rulings and interpretations on similar issues, leading to a favorable outcome for the assessee.