2011 (12) TMI 741

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....no.1 reads as under. "The ld.CIT(A) has erred in law in holding that the payments were incidental to the carrying on the business and was deductible in computing the assessee's profits. Any payment made in the nature of late delivery charges tantamount to penalty and hence the CIT(A) Ghaziabad has erred in law in allowing the payment as normal business expenditure." 2. The relevant facts are that the assessee is in the business of manufacturing of light and heavy steel forgings and in the year under consideration returned an income of Rs. 11,25,51,558/-. Perusing the details of expenses debited to the Profit and Loss a/c the A.O. observed that the assessee had debited a sum of Rs. 13,65,267/- on account of payment of late delive....

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....t out in pages 3,4 and 5 of the impugned order. It was further contended that there is a distinction between the penalties which are levied for breach of law and compensation which arises out of breach of a contract. It was further argued that penalty leviable on account of breach of law is not permissible as a deduction whereas penalty for breach of contract is a business loss and has to be allowed. In support of the said stand reliance was placed on Full Bench Judgement of P&H Court in M/s Jamna Auto Industries, Yamunanagar vs. CIT, Haryana, Rohtak; CIT vs. Murari Lal Ahuja and Sons, Prakash Cotton Mills P.Ltd. vs CIT (1993) 111 CTR (SC) 389 (1993) 201 HR 684 (SC) and CIT vs. Indo Asian Switchgears P.Ltd.; CIT Lucknow vs. Reliable Water S....

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....unal. 4.1. Ld.D.R. places reliance upon the assessment order. Ld.A.R. on the other hand apart from relying upon the impugned order and the judgements relied upon therein invited our attention to the C.O. stating that the CIT(A) has passed a speaking order and the expenditure is compensatory in nature and deserves to be allowed. 5. We have heard the rival submissions and perused the material available on record. On a careful consideration of the same considering the judgements relied upon by the assessee and taken into consideration by CIT(A), and referred to before us, we are of the view that the claim of assessee has rightly been allowed by the CIT(A).There is a distinction between the penalty imposed for breach of law and the liquid....