Sales Tax Penalty not allowable as business expense to the extent it is not compensatory

M/s. Bokaro Power Supply Co. Ltd. Vs. DCIT (ITAT Delhi)

In the case of Swadeshi Cotton Mills Vs. CIT Ltd. (supra) the Hon’ble Supreme Court has held that, ‘where the amount paid is partly penal and partly compensatory, the amount to the extent that it is compensatory could be allowed as deduction’. Further, Hon’ble Jurisdictional High Court in the case of CIT Vs. Bharat Steel Tubes Limited (supra) has held that ‘the penalty for delayed payment of sales tax is not a deductible expenditure.

Penalty levied for default of failure to furnish return under the VAT Act

Penalty levied is not compensatory in the nature, as it is for default of failure to furnish return under the VAT Act. Accordingly, contention of the learned counsel in respect of amount of penalty of Rs. 5000 is rejected.

Penalty for delayed filing of form i.e. G-VAT 409 under section 63(3) of the Jharkhand VAT Act, 2005

Penalty was for not getting the accounts audited and furnishing a true copy of the audit report within the time specified. Thus, we agree with the contention of the Ld. counsel that the penalty of Rs. 35,07,407.40 is not compensatory in the nature and accordingly, not allowable in terms of Explanation -1 to section 37 of the Act.