Module: | Priority Sector, Consumer Protection & Digital Lending
Q80: Consider the following:
Assertion (A): The penalty for CRR default is not treated as a business expenditure for tax purposes.
Reason (R): Penalties paid for infraction of law are generally not deductible expenses under the Income Tax Act.
Reason (R): Penalties paid for infraction of law are generally not deductible expenses under the Income Tax Act.
✅ Correct Answer: A
The correct answer is A. Both the assertion and the reason are true, and the reason is the precise legal justification for the assertion.
Under the provisions of the Income Tax Act, 1961, any expenditure incurred by an assessee for any purpose which is an offense or which is prohibited by law (infraction of law) shall not be deemed to have been incurred for the purpose of business or profession.
When a bank fails to maintain its mandatory CRR or SLR, it is violating a statutory mandate of the RBI Act or BR Act.
The penal interest paid to the RBI is therefore classified as a penalty for the infraction of law.
Consequently, the bank is strictly prohibited from claiming this penalty amount as a deductible business expenditure when calculating its taxable income.
Under the provisions of the Income Tax Act, 1961, any expenditure incurred by an assessee for any purpose which is an offense or which is prohibited by law (infraction of law) shall not be deemed to have been incurred for the purpose of business or profession.
When a bank fails to maintain its mandatory CRR or SLR, it is violating a statutory mandate of the RBI Act or BR Act.
The penal interest paid to the RBI is therefore classified as a penalty for the infraction of law.
Consequently, the bank is strictly prohibited from claiming this penalty amount as a deductible business expenditure when calculating its taxable income.