Published on: February 14, 2024 at 16:25 IST
Court: Supreme Court of India
Citation: CIT V. Prakash Chand Lunia (2024)
Honourable Supreme Court of India has held that a Business can-not claim losses which arise out of imposition of confiscation or penalty under Section 37 of the Income Tax Act, 1961. It is held that Section 37 of the Income Tax Act, 1961 does allows for any deduction of expenditure/loss incurred on account of penalty/confiscation. It is held that if the manufactured goods are confiscated by an authority and action of the assesses are proved then in that case deduction will not be allowed citing the explanation 1 of the Section 37 of Income Tax Act.
80. On the abovesaid analysis, the following conclusions are arrived at:
80.1. The words “any expenditure” mentioned in Section 37 of the Act take in their sweep loss occasioned in the course of business, being incidental to it.
80.2. As a consequence, any loss incurred by way of an expenditure by an assessee for any purpose which is an offence or which is prohibited by law is not deductible in terms of Explanation 1 to Section 37 of the Act.
80.3. Such an expenditure/loss incurred for any purpose which is an offence shall not be deemed to have been incurred for the purpose of business or profession or incidental to it, and hence, no deduction can be made.
80.4. A penalty or a confiscation is a proceeding in rem, and therefore, a loss in pursuance to the same is not available for deduction regardless of the nature of business, as a penalty or confiscation cannot be said to be incidental to any business.
Drafted By Abhijit Mishra