TaxTMI 
TaxTMI 
1989 (9) TMI 386
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....ng the expenditure incurred on the guests and selling agents is allowable ? (3) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the amount of Rs. 14,385 representing the difference paid on the cancellation of contracts was allowable as a deduction in computating the profits and gains of the assessee's business for asst. yr. 1972-73 ? (4) Whether, on the facts and in the circumstances of the case, the amount of Rs. 47,393 paid for non-delivery of export cloth in time is allowable as a deduction ?" 2. The year of assessment in this reference is the asst. yr. 1972-73, for which the relevant period of account is the year ending on 31st March, 1972. 3. Question No. 1 ....
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....d commodity had gone up due to the increased manufacture of synthetic fabrics by the assessee and that in the meanwhile the rates or prices of yarn had also increased. The amount paid by the assessee in the instance case was for the difference of the rates claimed by the above party from the assessee by way of damages. After we have given our careful consideration of the facts of the case, we are of the view that the claim of the assessee was justified and that the above payment should have been allowed as deduction by the authorities below. In this view of the matter, the claim of the assessee is allowed and the orders of the authorities below on this point stand set aside." 6. It would appear from the order of the Tribunal that the ass....
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.... 12 of the contract with them. This is evidenced from the copy of the contract filed. Penalty is not an allowable item. Hence, disallowed." The AAC went into this question at length and observed as under : "In the instance case the facts have to be interpreted on the basis of terms of the contract. Clause 12 of the contract provides that the seller shall, on the buyer abandoning his other right under the contract insofar as they relate to deliveries, pay to the buyer penalty at the rate of 1 1/2 per cent on the value of goods the delivery of which has not been given within the due date. The first part of this cl. 12 is that the buyer will pay godown rent and insurance in case of taking delivery after the due date. In my opinion ....
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....ion that the expenditure of the assessee should be considered to have been incurred for the purpose of his business and that the payment was not for violation of any law or statutory provision. The order of the AAC is, therefore, confirmed." 12. From the facts noted by the IT authorities and the Tribunal, it appears that the goods were not delivered in time and as because the goods were not delivered in time a penalty under the default clause the aforesaid sum of Rs. 47,393 had to be paid by way of penalty. It is not a penalty for breach of any law. The payment was made on account of the contractual obligation under cl. 12 of the agreement. When the goods were not delivered within the stipulated period, an extra amount, designated 'p....