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TMI Blog2016 (4) TMI 653X X X X Extracts X X X X X X X X Extracts X X X X ..... : "Whether the Income Tax Appellate Tribunal has erred in law and on facts in upholding the order of CIT (A) in deleting the addition made by the Assessing Officer of Rs. 65,52,000/- in respect of penalty for breach of contract?" 2. Exide Technologies Inc. (Parent Company of Exide Group of which the respondent assessee - M/s Tudor India Ltd. is a group company) entered into a contract with Deramic Group in relation to purchase of specified battery separators. In terms of the agreement, all the group companies of Exide group would purchase specified battery separators from Deramic Group. The assessee, during the year under consideration, purchased batteries from another entity because of which, Deramic Group imposed a penalty on Exide T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ribunal has failed to appreciate that the expenditure incurred by the assessee was not in the nature of expenditure which a prudent businessman would not incur and that the Tribunal has also failed to appreciate that the expenditure was of contingent nature depending upon the facts disclosed in the Tax Audit Report and that the acceptance regarding this payment by the Transfer Pricing Officer at arm's length price was irrelevant for determining the correct total income of the assessee. Therefore, the Assessing Officer has rightly added the same to the total income of the assessee. It was, accordingly, urged that the appeal does give rise to the question of law, as proposed or as may be formulated by the court. 5. The facts as emerging from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s that any expenditure (not being expenditure of the nature described in sections 30 to 36 and not being in the nature of capital expenditure or personal expenses of the assessee), laid out or expended wholly and exclusively for the purposes of the business or profession shall be allowed in computing the income chargeable under the head "Profits and gains of business or profession". Explanation 1 to sub-section (1) of section 37 of the Act provides that any expenditure incurred by an assessee for any purpose which is an offence or which is prohibited by law shall not be deemed to have been incurred for the purpose of business or profession and no deduction or allowance shall be made in respect of such expenditure. 7. In the facts of the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Court in the case of Prakash Cotton Mills P. Ltd. v. Commissioner of Income Tax, (1993) 201 ITR 684, for the proposition that whenever any statutory impost paid by an assessee by way of damages or penalty or interest is claimed as an allowable expenditure under section 37(1) of the Income Tax Act, 1961, the assessing authority is required to examine the scheme of the provisions of the relevant statute providing for payment of such impost notwithstanding the nomenclature of the impost as given by the statute, to find whether it is compensatory or penal in nature. The authority has to allow deduction under section 37(1) wherever such examination reveals the concerned impost to be purely compensatory in nature. Wherever such impost is found ..... X X X X Extracts X X X X X X X X Extracts X X X X
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