During course of search and survey operations conducted by Maharashtra VAT Authorities, sales tax authorities have found that the assessee was indulged in bogus purchases by way of accommodation entries where in assessee had wrongly claimed input tax credits on these alleged bogus purchases.  The assessee has claimed input tax credits were set off by assessee against its output VAT liabilities . In order to buy peace and end litigation under MVAT Act, 2002, assessee paid additional tax along with payment of interest under S. 30(2) and 30(4) of MVAT Act, 2002 of the Act. Interests paid was claimed as business expenditure deduction.  Tribunal held that interest paid under S. 30(2) of MVAT Act, 2002 was not penal in nature hence allowable; however, interest paid under S. 30(4) of MVAT Act, 2002 which was in addition to interest payable under section 30(2) was penal in nature and could not be allowed in view of provision of Explanation 1 to S.37(1)  of the Act.( AY.2009-10, 2012-13 )