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PR COMMISSIONER OF INCOME TAX Versus TUDOR INDIA LTD

2016 (4) TMI 653 - GUJARAT HIGH COURT

Claim for deduction under section 37(1) - payment to Exide Technologies by way of reimbursement as Exide Technologies was required to pay such amount to Deramic Group on account of the default on the part of the assessee - Held that:- As what the assessee had paid to Exide Technologies was with a view to compensate the holding company for the amount which it was required to pay to Deramic Group on account of the breach committed by the assessee of the conditions of the agreement between Exide Te .....

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ADVOCATE ORAL ORDER (PER : HONOURABLE MS.JUSTICE HARSHA DEVANI) 1. In this appeal under section 260A of the Income Tax Act, 1961 (hereinafter referred to as the Act ), the appellant - revenue has challenged the order dated 21.08.2015 passed by the Income Tax Appellate Tribunal, B Bench, Ahmedabad (hereinafter referred to as the Tribunal ) in ITA No. 1298/Ahd/2012, by proposing the following question, stated to be a substantial question of law : Whether the Income Tax Appellate Tribunal has erred .....

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ied 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 Technologies Inc. which was paid by Exide Technologies and thereafter recovered from the assessee. As such amount had been paid in normal course of its business; the assessee claimed deduction of such amount as expenditure in the return of income. 3. During the course of assessment proceedings, the Assessi .....

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ing the correct total income of the assessee and therefore, added such amount to the total income of the assessee. The assessee carried the matter in appeal before the Commissioner of Income Tax (Appeals), who allowed the appeal. The revenue carried the matter in further appeal before the Tribunal, but did not succeed. 4. Mr. Sudhir Mehta, learned Senior Standing Counsel for the appellant, assailed the impugned order by submitting that the Tribunal has failed to appreciate that the assessee comp .....

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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 the record are that the assessee is in the business of .....

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ogies. It was the case of the assessee that the payment was in the nature of commercial penalty resulting from breach of contract to compensate other parties. The facts of the transaction are that the assessee is a group company of the Exide group which operates worldwide. The Group, while selling its separator business to Deramic Group, in order to assure business and in order to maintain quality of the product, had agreed with Deramic Group that all the entities of Exide Group shall purchase s .....

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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 prohibi .....

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dent from the facts noted hereinabove, there was an agreement between Exide Technologies and Deramic Group pursuant to purchase of the separator business of the Exide Group by Deramic Group to the effect that all the Group companies would purchase battery separators only from Deramic Group. Despite the aforesaid agreement, the assessee purchased separators from some other company. On account of such breach, Exide Technologies was required to pay the aforesaid amount to Deramic Group which would .....

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of the business or profession as contemplated under sub-section (1) of section 37 of the Act. 8. On behalf of the appellant, the learned counsel has placed reliance upon the decision of the Supreme 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, 19 .....

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