Allowabilty of deduction

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varsha kanojia

varsha kanojia (Querist)
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09 August 2011 Whether expenses incurred in relation to illegal income will be allowed as deduction ?

Bhaskaran Chackrapani Warrier

Bhaskaran Chackrapani Warrier (Expert)
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09 August 2011 Pl see CIT Vs. Maddi Venkataratnam & Co P ltd (1983) 144 ITR 373 (AP).

Relevant portion is extracted below.

Payments made in pursuance of, or in furtherance of illegal transaction, cannot be taken into consideration and cannot be deducted from out of the income arising from such lawful business because infraction of law is not a normal incident of such business. But, if the State wants to tax the gains and profits from an illegal business, it should follow logically that even the illegal payments and penalties must also be deducted, because the business itself being illegal, the payments are also bound to be illegal, and the incurring of penalties or fines must be deemed to be a normal incident of such illegal business.

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