2006 (10) TMI 140

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....tion of law has been referred for opinion of this court by the Income-tax Appellate Tribunal, Chandigarh Bench, Chandigarh, arising out of its order dated March 16, 1988, in ITA No. 529 and CO No. 49/Chd. of 1985, in respect of the assessment year 1976-77 : "Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in deleting the addition made by the Income-t....

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....y benefit the assessee inasmuch as the money would remain available to the assessee and, therefore, any penalty levied on this count could be claimed as a legitimate business expenditure. In the case of Dwarka Dass and Co. v. Excise and Taxation Commissioner [1969] Current Law Journal 290 (Punj), it was held that a penalty under section 18(2) of the Punjab Excise Act was not in the nature of punis....

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....ance." 3. We have heard learned counsel for the Revenue. 4. We find that the view taken by the Tribunal is in consonance with the judgment of the hon'ble Supreme Court in Prakash Cotton Mills P. Ltd. v. CIT [1993] 201 ITR 684, wherein the question was deduction claimed on account of interest paid for delayed payment of sales tax and ESI contribution. It was observed that where the amount pai....

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....o be of a composite nature, that is, partly of compensatory nature and partly of penal nature, the authorities are obligated to bifurcate the two components of the impost and give deduction to that component which is compensatory in nature and refuse to give deduction to that component which is penal in nature." 5. In the present case, it has been clearly found that though termed as fine, the p....