1988 (2) TMI 111 - AT - Income Tax

Summary

Issues:
1. Sustenance of addition of Rs. 21,542 in the assessment year 1976-77.
2. Allowability of deduction for different components of the total amount.

Analysis:
1. The appeal challenged the addition of Rs. 21,542 by the CIT(A) for various liabilities. The ITO considered the entire amount as a penalty for breach of law, disallowing it as a deduction. The CIT(A) categorized the amount into three components and disallowed them separately. The tribunal reversed the CIT(A)'s decision for two components and allowed the deduction of Rs. 3,835. The liability was created during the relevant accounting period, and the assessee was entitled to the deduction as it pertained to sales-tax denial by the Sales-tax Department.

2. The second component of Rs. 14,018 was a penalty under s. 36(3) of the Bombay Sales-tax Act. The tribunal referred to a judgment stating that such penalties were akin to interest for depriving the Government of its dues, making them deductible. The tribunal agreed with this reasoning and allowed the deduction of Rs. 14,018.

3. The third component of Rs. 3,689 was forfeited by the Government for excess sales tax collection. The details were unclear, and the tribunal remanded this issue to the ITO for further determination. Depending on whether the excess collection was previously claimed as a deduction, the assessee's entitlement to a deduction for the forfeited amount would be decided. The appeal was partly allowed, with deductions allowed for two components and one issue remanded for fresh determination.