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Issues Involved:
1. Whether the CIT(A) was justified in confirming the action of the Assessing Officer disallowing the expenses incurred in payment of the redemption fine of Rs. 1.50 lakhs under the Gold (Control) Act, 1968. 2. Whether the assessee is entitled to claim deduction of the amount of Rs. 1,50,000 and Rs. 45,000 paid towards fine and penalty respectively. 3. Whether the fine and penalty paid for infraction of law are deductible. Detailed Analysis: 1. Justification of CIT(A) in Confirming Disallowance of Redemption Fine: The assessee, engaged in the jewellery business, was searched by Central Excise officials, revealing discrepancies in gold stock records. The Collector of Central Excise ordered the confiscation of 1494.350 grams of gold, offering redemption of 1379.5 grams on payment of Rs. 1,50,000 fine. The assessee's appeal to the Customs, Excise, and Gold Control Appellate Tribunal resulted in the confirmation of the fine and a reduction of the penalty from Rs. 75,000 to Rs. 45,000. The Assessing Officer disallowed the deduction of the fine and penalty, which was upheld by the CIT(A) after examining relevant case laws and statutory provisions, concluding that the fine was for infraction of law and not compensatory. 2. Entitlement to Deduction of Fine and Penalty: The High Court of Kerala framed two questions regarding the deductibility of the fine and penalty. It directed the Assessing Officer to ascertain the nature of the payment (compensatory or penal) with reference to the relevant statutes. Upon reassessment, the Assessing Officer concluded that the redemption fine was penal in nature, disallowing the deduction. The CIT(A) supported this view, referencing multiple case laws, including the Supreme Court's decision in Haji Aziz & Abdul Shakoor Bros., which established that penalties for law infractions are not allowable deductions. 3. Deductibility of Fine and Penalty for Infraction of Law: The CIT(A) and the Tribunal examined the provisions of the Gold (Control) Act, 1968, and relevant case laws to determine the nature of the redemption fine. The Gold (Control) Act's sections 71 and 73 indicate that confiscation and the option to pay a fine are penalties for contravening the Act's provisions. The Tribunal emphasized that the fine was not compensatory but penal, aligning with the Supreme Court's ruling in Haji Aziz & Abdul Shakoor Bros. that fines for law infractions are not deductible business expenses. The Tribunal found no reason to interfere with the CIT(A)'s decision, confirming the disallowance of the fine and penalty as deductions. Conclusion: The Tribunal upheld the CIT(A)'s decision, confirming that the redemption fine and penalty paid by the assessee under the Gold (Control) Act, 1968, were not deductible as they were penal in nature for the infraction of law. The appeal by the assessee was dismissed.
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