M/S. HAJI AZIZ AND ABDUL SHAKOOR BROS. vs THE COMMISSIONER OF INCOME-TAX, BOMBAY CITY II

The Supreme Court held that the penalty paid by the appellant for the confiscation of imported goods, due to a breach of government prohibition under Section 167(8) of the Sea Customs Act, 1878, is not an allowable deduction under Section 10(2)(XV) of the Indian Income-tax Act, 1922. The Court reasoned that such penalties cannot be considered as expenditures incurred wholly and exclusively for the purpose of business, as they do not constitute commercial losses in trade. The appeal was dismissed, affirming the High Court's decision against the appellant.