Sudhindra Mohan Guha, J.
1. This reference under Section 256(1) of the I.T. Act, 1961, at the instance of the assessee relates to the assessment year 1970-71. The previous year ended on March 31, 1970.
2. In the proceeding for the assessment of tax, the ITO added, inter alia, Rs. 61,000 in the book profit of the assessee. During the year under assessment through an overdraft arrangement with Chartered Bank Ltd. import quota granted in the name M/s. Widge and Co. for 152 Wisconsin engines was purchased on November 8, 1969. In connection with this purchase the assessee had to pay on July 11, 1969, a sum of Rs. 61,000 as penalty to the customs authority for import of the petrol engines. According to the ITO, the penalty for an infringement of law was not an admissible expense.
3. The assessee went in appeal before the AAC. Upholding the contention of the assessee-appellant the AAC held that the amount of Rs. 61,000 paid by the assessee as penalty for releasing his goods from the customs authorities should be allowed as a proper deduction in computing the business income of the assessee.
4. The revenue being aggrieved with this order came in appeal before the Tribunal. The facts relevant for our purposes and found by the Tribunal may now be stated by us. The assessee purchased a licence for importing certain spare parts of earthmoving machinery granted in favour of M/s. Widge and Co. On arrival of the goods at the Calcutta Port the assessee applied for the clearance of the goods to the Collector of Customs, Calcutta. It was, however, found that the goods imported were not covered by the licence produced before him. The Collector of Customs held that the importation of the goods in dispute was without a valid licence prohibited under Section 11 of the Customs Act, 1962, read with Section 3(2) and (4) of the Imports and Exports (Control) Act, 1947, and the Government of India, Ministry of Commerce and Industry's Order No. 7/55 dated February 7, 1955. He, accordingly, confiscated the goods. However, in lieu of confiscation he allowed the assessee an option to clear the goods on payment of a fine of Rs. 61,000 within a month of his order. The assessee paid the fine and cleared the goods. He included the above amount in the purchase price of the goods.
5. It was contended on behalf of the revenue that no expenses which were paid by way of penalty for a breach of the law could be said to be an amount wholly and exclusively laid out for the purpose of the business of the assessee within the meaning of Section 37(1) of the Act. It was contended on behalf of the assessee that the assessee had incurred the above expenditure as a trader and not for violation of any law as he had imported the goods in which he was actually dealing and that the assessee's case fell squarely within the ratio of the decision of the Bombay High Court in CIT v. Pannalal Narotiamdas and Co. : 67ITR667(Bom) , Alternatively, it was contended that the assessee could also claim that the amount was a deductible expense under Section 28(1) of the Act.
6. The Tribunal rejected the contention of the assessee and allowed the departmental appeal. The Tribunal relied upon the decision of the Supreme Court in the case of Haji Aziz and Abdul Shakoor Bros. v. CIT : 1983ECR1942D(SC) . It was held therein that no expense which was paid by way of penalty for a breach of the law, even though it might involve no personal liability could be said to be an amount wholly and exclusively laid for the purpose of the business of the assessee within the meaning of Section 10(2)(xv) of the Indian I.T. Act of 1922 (corresponding to Section 37(1) of the I.T. Act, 1961). As tothe claim for deduction under Section 28(i) of the I.T. Act, 1961, it was stated that causing an infraction of the law entailing a penal consequence by way of payment of fine either for the release of the confiscated goods or for the personal penalty imposed upon the assessee, the expenditure of the sum in question can neither be said to be incidental to the nature of the business which the assessee carried on nor could it be said to be expended wholly and exclusively for the purpose of the business which it was carrying on. In the premises, the order of the AAC was reversed and that of the ITO was restored.
7. On the above facts the following question was referred to this court for opinion :
' Whether, on the facts, and in the circumstances of the case, the amount of Rs. 61,000 could be allowed as a deduction under Section 28(i) or under Section 37(1) of the Income-tax Act, 1961 ?'
8. Though Mr. Pranab Pal, learned counsel for the assessee argues that this amount is a deductible expenditure under Section 37(1) of the I.T. Act, 1961, yet in view of the aforesaid decisions of the Supreme Court and also the decision of this court in the case of Vishnu Sugar Mills ltd. v. C1T : 113ITR583(Cal) and the decision of the Gujarat High Court in the case of C1T v. Mihir Textiles Ltd. : 104ITR167(Guj) , we overrule his argument. He further argues that this amount is an allowable deduction under Section 28(i) of the Act, for, according to him, it is a commercial loss suffered by the assessee in the course of carrying on his business. But an infraction of the law is not a normal incident of the business and a penalty paid for an infraction of law is not a business loss in the commercial sense and is not a deductible expenditure under Section 28(i) of the I.T. Act, 1961, in view of the aforesaid decisions of this court and the Gujarat High Court including the observation of the Supreme Court in the aforesaid case.
9. In the premises, we answer the question in the negative and in favour of the revenue.
10. There will be no order as to costs.
11. I agree.