TaxTMI 
TaxTMI 
2017 (9) TMI 1038
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....bstantial question of law: "Whether the Appellate Tribunal has substantially erred in law in deleting the disallowance of liquidated damages of Rs. 26,12,269/- by overlooking the fact that the same is contrary to the explanation given to section 37(1) of the Income Tax Act, 1961 and cannot form part of expenditure?" 2. We therefore admit Tax Appeal No. 647 of 2017 for consideration of following question of law proposed by the Revenue: "Whether the Appellate Tribunal has erred in law and on facts in deleting the disallowance of Rs. 75,36,037/- on account of liquidated damages, without properly appreciating the facts of the case and the material brought on record?" Counsel for the assessee waived notice of admission. We h....
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....s by the customer, delay in inspection and performance test of the equipments by the customer or other authorized inspector. Thus, these are normal features inherent in the business in which assessee deals." 4. The assessee also pointed out that in earlier years, the Tribunal had granted such claim of the assessee. The Assessing Officer however, was not convinced. He was of the opinion that though the assessee had incurred the loss, the same cannot be considered as business loan and allowed under section 37 of the Act. He was also of the opinion that the assessee had suffered damages which were in the nature of penalty imposed by the various parties for delay in delivering or late completion of the contract. The Assessing Officer referre....
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....pported the decision of the Tribunal contending that due to various reasons, there would be delay in delivering of the goods or implementation of the contract leading to the liquidated damages paid by the assessee to the customers. This was purely a business loss rightly granted by the Tribunal under section 37 of the Act. The loss was not on account of any penal liability. Counsel relied on certain decisions to which, we would refer at a later stage. 8. Material on record would suggest that the assessee, who was in the business of manufacturing and trading of machinery, machinery parts and manufacturing of drink concentrates would sometimes fall behind the time schedule for execution of the contracts. Before the Assessing Officer, the a....
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....siness and cannot be dissect or disassociate from the assesse's normal business activities. 10. Section 37 of the Act is the residuary provision granting deduction of an expenditure not being expenditure of the nature of capital expenditure or personal expenses of the assessee, which is laid out or expended wholly and exclusively for the purposes of business or profession and not specified in the preceding sections 30 to 36 of the Act. Explanation to section 37(1) would clarify that any expenditure incurred by an assessee for any purpose which is an offence or which is prohibited by law shall not be deemed to have been incurred for the purpose of business or profession and no deduction or allowance shall be made in respect of such ex....
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....ensate the loss suffered by CPT due to occupation of land in excess of what was demised to the assessee. Therefore, the payment did not partake the character of penalty. The payment could not partake the character of a capital expenditure because contention of the CPT was that the prayer for lease of the land unauthorisedly occupied could not be examined before payment of the compensation. Therefore, the payment was altogether compensatory for the benefit already received by the assessee by user of the land which had or could have nothing to do with a grant of lease in future." 14. Full Bench of Punjab and Haryana High Court in case of Jamna Auto Industries vs. Commissioner of Income Tax reported in 299 ITR 92 highlighted the difference ....