JUDGMENT - V.S. Desai, J.

1. The question raised on this reference is :

"Whether the penalties totalling Rs. 31,302 paid in breach of the Sea Customs Act in respect of imports of stock-in-trade, but on bills of lading purchased in good faith, is a proper deduction under section 10 (1) of the Income-tax Act ?"

2. The assessee is a registered firm dealing, inter alia, in gum. In the course of its business it purchased bills of lading and other shipping documents from certain parties in respect of some consignments of gum imported by them from Africa. When the goods arrived in India and were sought to be cleared through customs by the assessee on the basis of the documents purchased by it, it was found that the imports were unauthorised and the goods were liable to be confiscated and a penalty was liable to be imposed under section 167 (8) of the Sea Customs Act. The assessee paid an amount of Rs. 31,302 as and by way of penalty for saving the goods from being confiscated. These penalties were paid by the assessee between the dates October 28, 1944, and January 16, 1945, which fell within the Samvat year 2001, which was the accounting year of the assessee for the assessment year 1946-4

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