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TMI Blog1982 (5) TMI 98X X X X Extracts X X X X X X X X Extracts X X X X ..... business was commenced after obtaining due approval of the concerned authorities and was set up in the plot owned by the LIC outside Connaught Circus,New Delhi. After running the show for a short period between2-10-1970to9-11-1970, it had to be stopped under the orders of the Ministry of Home Affairs. The foreign artists employed by the assessee in running the venture were departed by the Government and proceedings under the Foreign Exchange Regulation Act, 1973 (FERA) were also initiated by the Directorate of Enforcement. The assessee entered into litigation with the Government for the closure of the business and had to incur large amount of litigation expenses. On15-10-1973the Special Additional Director, Enforcement Directorate,New Delh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on by the assessee was a lawful business and continued to be so till it was closed by the Government. The assessee also referred to the decision of the Gujarat High Court in Mihir Textiles Ltd.'s case and also the decision of the Supreme Court in CIT v. Piara Singh [1980] 124 ITR 40 and submitted that even if there was an infraction of law, the expenditure incurred on payment of penalties was an allowable deduction. The Commissioner (Appeals) also did not accept the assessee's contention and relying on the decision of the Supreme Court in Haji Aziz Abdul Shakoor Bros. v. CIT [1961] 41 ITR 350, came to the conclusion that the violation of the FERA was not and could not be regarded as an essential part of the business carried on by the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The law on the subject has been clearly laid down by the Hon'ble Supreme Court in Haji Aziz Abdul Shakoor Bros.'s case wherein the Hon'ble Supreme Court has observed as under : " A review of these cases shows that expenses which are permitted as deductions are such as are made for the purpose of carrying on the business, i.e., to enable a person to carry on and earn profit in that business. It is not enough that the disbursements are made in the course of or arise out of or are concerned with or made out of the profits of the business but they must also be for the purpose of earning the profits of the business. As was pointed out in Von Glehn's case [1920] 24 KB 553 an expenditure is not deductible unless it is a commercial loss in tra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the assessee in trying to preserve his business was incidental to the carrying on of the said business. We do not dispute the findings of the Tribunal recorded in connection with the assessment year 1971-72 when the assessee claimed certain litigation expenses and other incidental expenses and the same were allowed by the Tribunal, but where a business is carried on lawfully by an assessee, it is not an incidence of business to commit infraction of the law and, hence, any expenditure incurred for violating the law committed in the carrying on of a lawful business could not be allowed as an admissible deduction. Although the learned counsel of the assessee had heavily relied on the decision of the Supreme Court in Piara Singh's case but i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ited to J.S. Parkar v. V.B. Palekar [1974] 94 ITR 616 (Bom.), where on a difference of opinion between two learned judges of the Bombay High Court, a third learned judge agreed with the view that the value of gold confiscated by the customs authorities in smuggling operations was not entitled to deduction against the estimated and assessed income from an undisclosed source. It was observed that the loss arose by reason of an infraction of the law and as it had not fallen on the assessee as a trader or businessman a deduction could not be allowed. Apparently, the true significance of the distinction between an infraction of the law committed in the carrying on of a lawful business and an infraction of the law committed in a business inherent ..... X X X X Extracts X X X X X X X X Extracts X X X X
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