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2019 (12) TMI 29 - AT - Income TaxDisallowance u/s 37(1) - penalty amount for supply of the coal with high moisture and low gross calorific value - HELD THAT:- As rightly held by the CIT(A),the inability to meet the contractual obligation by the assessee cannot be termed as an offence or infraction of law so as to deny the claim of the assessee by invoking the expression 1 to sec 37(1). We are in agreement with the CIT(A) that the eligibility of an item to tax or tax deduction can hardly be made to depend on the label given to it by the parties and at the same time the absence of a specific label cannot be destructive of the right of an assessee to claim a deduction, if in fact, the consideration for the receipt can be attributed to the sources indicated in the section. Merely because the assessee categorised the claim under “penalty levied on the assessee company for not complying to the terms of the contract”, is not permissible to the jump to the conclusion that such penalty was in respect of any offence or infraction of law committed by the assessee so as to invoke the provisions under Explanation 1 to section 37 (1) of the Act. The expression “penalty was levied on the assessee company for not complying to the terms of the contract”, clearly indicates that it is a civil consequence for not complying with certain terms of contract and has nothing to do with any offence. CIT(A) rightly applied the law laid down in the case of Prakash Cotton Mills [1993 (4) TMI 3 - SUPREME COURT], Swadeshi Cotton Mills [1997 (5) TMI 5 - SUPREME COURT] and Continental Construction Limited [1992 (1) TMI 5 - SUPREME COURT] and Catholic Syrian Bank [2002 (11) TMI 17 - KERALA HIGH COURT] and Bharat Televisions Private Limited [1998 (3) TMI 2 - SUPREME COURT] to the facts of this case, and reached a right conclusion that the disallowance cannot be sustained. Appeal of the Revenue is dismissed
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