1982 (3) TMI 97

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....ave considered the issue. Taking into account the increased expenditure incurred under this head, we would hold that a disallowance of Rs. 7,000 will be reasonable and fair on the facts and circumstances of the case. We would, therefore, direct that the disallowance should be restricted to Rs. 7,000. 2. Another issue relates to disallowance of Rs. 7,960 out of telephone expenses. CIT has dealt with this issue in para 2 of his order. After having perused the finding of the lower authorities and the disallowance sustained by the Tribunal in the preceding year we would hold that the disallowance of 1/3rd on total expenditure of Rs. 23,743 incurred on residential telephones is excessive. In our view, the disallowance could in fairness be res....

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....ement and, therefore, represented payments made for liability arising from the breach of contractual obligations. Following the decision of their Lordships of Punjab and Haryana High Court in the case of Cineramas 1977 CTR (P&H) 145 : (1977) 110 ITR 752 (P&H) he held that such payments could not be considered as a payment made in course of business or as incidental to carry on the business. In his view, such damages were hardly distinguishable from the penalties paid for infraction and breaches of law. They could not be considered as expenditure laid out of expended wholly or exclusively for the business of the assessee. On the other hand, the assessee claimed that these payments were in the nature of compensation made to the parties for la....

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....r by way of interest were made only with a view to endorse the agreement. There was no suggestion therefore for the CIT to put this payment on a par with the penalty payable for the infringement of a provision of law. 6. Having heard the rival submissions, we are persuaded that the finding of CIT(A) cannot be supported, in view of the decision of Supreme Court. CIT(A) had erroneously proceeded to hold that damages were in the nature of penalty paid for infraction of law of breach of contractual obligation. As has been brought out by the assessee, these payments were made to compensate the assessee on account of delay in making the supplies. For delay in making the payment of cess their Lordships of Supreme Court held in the aforesaid cas....