2001 (1) TMI 69

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....l is correct in law in deleting the disallowance of Rs. 13,605 made by the Income-tax Officer on account of penalty paid to the Delhi Development Authority for the misuse of the premises occupied by the assessee for the purpose of business ? 2. Whether, on the facts and in the circumstances of the case, the Tribunal is correct in holding that the commercial use of the premises meant for residential use by the assessee does not amount to infraction of law and the penalty paid in pursuance thereof is incidental to the business of the assessee and such expenditure is wholly and exclusively laid out for the purpose of business under section 37 of the Income-tax Act, 1961 ? For assessment year 1975-76 : 1. Whether, on the facts and in t....

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....he view that the expenditure was in the nature of penalty and was not allowable. The matter was carried in appeal by the assessee before the Appellate Assistant Commissioner (in short the "AAC"). It was submitted that the expenditure was made for business purposes and was as such allowable. The Appellate Assistant Commissioner did not accept the plea. The matter was carried in further appeals before the Tribunal by the assessee. The Tribunal, inter alia, came to the following conclusions : "6. We have heard the parties and perused the entire evidence on record. Learned counsel for the assessee contended that the land lady has filed a suit for demolition of unauthorised construction. That matter is still sub judice. So at this stage it ca....

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....g to allow the expenditure." On being moved for reference, the Tribunal declined to do so and this court directed reference of the questions indicated above. We have heard learned counsel for the Revenue. There is no appearance on behalf of the assessee. Learned counsel for the Revenue submitted that the Tribunal has not noticed the factual position correctly. In fact the partners have clearly indicated that the payments were made as damages to the DDA for unauthorised additions, alterations and misuse of the premises. In Prakash Cotton Mills P. Ltd. v. CIT [1995] 201 ITR 684, it was observed by the apex court that whenever any statutory impost paid by an assessee by way of damages or penalty or interest is claimed as an allowable ....