Appeal allowed for breach of contract penalty deduction under Income Tax Act Section 37.

The appeal was allowed for statistical purposes as the Tribunal held that the penalty paid for breach of contract was deductible under Section 37 of the Income Tax Act. The Commissioner of Income Tax (Appeals) was directed to adjudicate the issue on its merits, emphasizing the need for a proper consideration of grounds even in ex-parte orders.

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Issues involved:
The appeal was filed against the order of the Commissioner of Income Tax (Appeals) regarding the disallowance of expenditure on packing penalty under Section 37(1) r.w. Explanation of the Income Tax Act, 1961 for AY 2012-13.

Details of the Judgment:

Issue 1: Disallowance of Expenditure on Packing Penalty
The assessee, engaged in manufacturing processed food, challenged the disallowance of expenditure of Rs.43,58,970 incurred on packing penalty. The Assessing Officer disallowed the expenditure on the ground that it was related to breach of contract and hence not allowable deduction under Section 37(1) of the Act. The Commissioner of Income Tax (Appeals) dismissed the appeal ex-parte, citing negligence, without addressing the merits. The Tribunal noted that the penalty paid was in the nature of damages for breach of contract, not a statutory impost, and thus deductible under Section 37 of the Act. The Tribunal referred to various judgments supporting the assessee's position and emphasized that the Commissioner of Income Tax (Appeals) should have dealt with the grounds on merits even in an ex-parte order. It was held that the issue required to be restored back to the file of the Commissioner of Income Tax (Appeals) for adjudication in accordance with the law. The appeal of the assessee was allowed for statistical purposes.

Separate Judgment delivered by the Judges:
No separate judgment was delivered by the judges in this case.

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