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TMI Blog2007 (5) TMI 182X X X X Extracts X X X X X X X X Extracts X X X X ..... rder dated 9.9.1988 passed by the Income-Tax Appellate Tribunal, Chandigarh Bench, Chandigarh (for short, `the Tribunal') in I.T.A. No.493/Chandi/87 for the assessment year 1983-84:- "Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that forfeiture of security deposits amounting to Rs.16.27 lakhs by way of compensation for not completi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (1967) 65 ITR 395 held that the amount in question, being only on account of compensation for breach of contract and not a penalty for breach of law, was allowable. In further appeal by the revenue, the Tribunal upheld the order passed by the CIT (A) while relying upon an earlier order passed by it in the case of Punjab Wireless Systems Limited. It was observed by the Tribunal that the amount in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ments in penalty leviable for breach of law and penalty/ compensation arising out of the breach of contract. Whereas the penalty leviable on account of breach of law is not a permissible deduction, however, penalty which is on account of breach of contract is certainly a business loss and has to be allowed. He referred to Commissioner of Income-Tax v. Murari Lal Ahuja and Sons, (1989) 177 ITR 228 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . No.37 of 1991 -3- paying a sum as compensation, the amount of compensation paid by the assessee was held to be an allowable deduction. Similar view was expressed by a Division Bench of this Court in Indo Asian Switch-Gears' case[1996] 222 ITR 772 where the amount of penalty paid by the assessee therein to Punjab State Electricity Board on account of late delivery of goods was held not to be on a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee was on account of breach of contract which does not fall in the category of payment of penalty for breach of any law but would be a compensation for breach of contractual obligations, accordingly, will fall in the category of allowable deduction. 9 For the reasons recorded above, the question referred is answered against the revenue and in favour of the assessee. 10 The reference i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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