TaxTMI 
TaxTMI 
TaxTMI 
2026 (3) TMI 265
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....claring total income of Rs. 17,36,20,470/- which was processed u/s 143(1)(a) of the Act on 24.11.2021 and a demand of Rs. 3,69,860/- was raised. The case was selected for complete scrutiny assessment under the assessment Scheme, 2019 on the following issues: - * Large sales promotion expenses vis-is gross receipts * Huge loss from currency fluctuations 3. After close scrutiny of return of income and computation of income, the Assessing Officer ('AO') noticed that the assessee has claimed expenses on account of the penalty on late supply of Rs. 32,91,211/-. Notice u/s 142(1) of the Act was issued asking for the details and the assessee has filed response and also reply to the show cause notice stating that the said amount was deducted by Government as the supply was got delayed by the Assessee and as per tender agreement clause, the government department has levied penalty towards late supply of goods. The late supply expenses are allowable business expenditure u/s 37 of the Act as having been laid out wholly and exclusively for the purpose of the business of the assessee and not being in the nature of capital expenditure or personal expenses. The AO did not agr....
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.... and Ld. Sr. DR on behalf of the Revenue. The Ld. AR has filed the written submissions as under: "The appellant duly explained the nature of damages on late supply and further explained that the nature of damages/penalty on late supply is neither an offence nor prohibited by law therefore damages on late supply cannot be disallowed as per explanation 1 to section 37, being laid out wholly and exclusively for the purpose of the business of the assessee but the AU passed the Assessment Order by ignoring the explanations/justification/clarifications purely indulging in suspicion, surmises, conjecture & misinterpreting the facts of the case and ignoring the evidences brought on record by the appellant. The same is evident from the Assessment Order page 8 para 3.7 which reads as under 3.7 From this it is clear that assessee is habitual in making late payment Late payment is spread over all the year. Therefore, this type of activity can be stated as offensive in nature Therefore, it can be stated that, assessee has delayed the payment of government and carried out offence. Therefore, explanation 1 to section 37 is applicable in this case Therefore, the amount of Rs. 32,....
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.... judicial pronouncements (1) Sardar Prit Inder Singh v. CIT, (1986) 160 ITR 493 (Pat) (damages paid for delay supply of certain articles and also for supplying articles of inferior quality-hold deductible (2) CIT v. Indo Asian Switch-gears (P) Ltd., (1996) 222 ITR 772, 794 (Punj) (amount paid to the Punjab State Electricity Board for delay in delivery of goods has been held deductible because the same was not on account of infraction of any law]. (3) CIT v. S.A. Builders P. Ltd., (2008) 299 ITR 88, 90, 91 (Pun), following CIT v Murari Lal Ahuja & Sons, (1989) 177 ITR 228 (Punj); CIT v. indo Asian Switch gears (P) Ltd., (1196) 222, ITR (Punj) [compensation for breach of contractual obligations held deductible) (4) Hind Mercantile Corpn. Ltd. v. CIT [1963) 49 ITR 23 (Mad.). Damages for Breach of contract for export of goods before declaration of export policy of the Government are deductible. (5) CIT. v. Sohanlal Kanwar & Sons [1987] 164 ITT 129 (Raj) Compensation payable by the assessee-firm which has entered into export contracts but was enable to execute contracts due to high export duty levied by the Government to deductible. ....
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.... 3.8 Penalty proceedings u/s 270A of the Income Tax Act is hereby initiated for under reporting in consequence to mis-reporting of income. 4. Accordingly Assessed Income is computed as under: Sl No. Description Amount (in INR) 1. Income as per Return of Income filed 17,36,20,470/- 2. Income as computed u/s 143(1)(a) 17,49,90,680/- 3. Variation in respect of issue of 32,91,211/- 4. Assed Total Income/Loss determined as Per the above proposal 17,82,81,891/- 5. Assessed u/s 143(3) r.w.s. 144B of the I.T.Act at Rs. 17,82,81,890/-. Penalty proceeding under section 270A is initiated for underreported its income consequence of misreporting of income. Computation of Income and demand notice u/s 156 of the Act is generated and attached." 9. The assessee has challenged the assessment order and the observation of the Ld. AO before the Ld. CIT(A) by raising various grounds of appeal. The Ld. CIT(A) without determination of any points has dismissed the appeal just by reproducing the observation of Ld. AO which is evident from the following extracts of the impugned order from para 2.1 to onwards as below: "2.1 Asses....