1979 (1) TMI 19 - HC - Income Tax

Summary

Issues involved: The judgment involves the deduction of penalties and damages claimed by an assessee for the assessment years 1970-71 and 1971-72 under the Income Tax Act, 1961.

For the assessment year 1970-71: The assessee debited a sum for damages and penalties in its books, claiming deduction. The ITO disallowed a portion of the claim. The AAC further reduced the claim amount based on analysis of specific items. The Appellate Tribunal allowed the deduction, considering delays in contract execution as inherent in the business. The Commissioner challenged this decision.

For the assessment year 1971-72: The assessee claimed deduction for damages and penalties, which was initially disallowed by the ITO and AAC but later allowed by the Appellate Tribunal based on the previous year's decision. The Commissioner raised a question on the allowance of this deduction.

Court's Decision: The High Court upheld the Appellate Tribunal's decision for both years. It noted that the payments were incidental to the business due to inherent delays in contract execution. The court cited precedents emphasizing that expenses incurred for carrying on business are deductible, as long as they are not penalties for breaching laws. The court referred to various cases supporting the deduction of damages incurred in the course of business operations. The judgment favored the assessee, affirming the deductions claimed for both assessment years.