TMI Blog1995 (3) TMI 140X X X X Extracts X X X X X X X X Extracts X X X X ..... ad "Security" as under :--- Rs. (i) Ganga-Nagar Co.-op. Oil Seeds Processing Mills 1,53,847 (ii) Shri Dashmesh Academy, Anandpur Sahib 2,15,690 (iii) Ganganagar Co-op. Sahkari Spinning Mills, Ganganagar 1,00,000 (iv) Food Corporation of India, Narwana 28,275 -------- 4,97,812 -------- 4. The Assessing Officer was of the view that forfeiture of the security was nothing but a penalty on account of breach of contract. Sim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ls, the assessee had no option but to claim deduction though that matter had been referred for arbitration also. It was also pleaded that an award had been given which was pending in the Court for making it the rule of the Court. The award was given entitling the assessee to receive a sum of Rs. 40,82,978 as against its claim for Rs. 4,59,62,920. Similarly, in the case of Ganganagar Co-op. Sahakari Spinning Mills, the matter again went before the Arbitrator because the work of the factory building was required to be completed on or before 3-3-1980 and of the residential building before 3-6-1980 but was not so done. Since the work was not completed by the assessee before the due date, extension of time was sought and initially 6 months'exten ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... us that forfeiture of the security money as well as payment of compensation did involve the element of penalty and, therefore, could not be claimed as a deduction. Reference has been made to a decision of the Madras High Court in the case of Mask Co. v. CIT [1943]11 ITR 454 for the proposition that the award of damages was not incidental to the assessee's trade and did not constitute an expenditure because the assessee's action in disregarding the undertaking given was palpably dishonest. In that case, the assessee was carrying on the business in crackers and had entered into a contract under which the assessee's goods were to be sold at certain specified rates. The assessee, however, in breach of this contract, sold crackers at lower rat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amas v. CIT [1977]110 ITR 762, the Punjab and Haryana High Court had again an occasion to examine a question whether expenditure had been laid out wholly and exclusively for the purposes of the assessee's business. It was held that the expenditure must be in some way connected with the trade and must be an ordinary or contemplable incident of trade. Infractions of law, including breaches of obligation, are not normal incidents of business. Penalty and damages paid in connection with such infractions and breaches cannot be expenditure laid-out or expended wholly and exclusively for the assessee's business. 8. We have considered the plea raised by the learned Departmental Representative and have also perused the judicial pronouncements but ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITR 172, a view has been taken by the Gujarat High Court that there was a distinction between the expenditure and penalty and amount paid by the assessee for short export was a business expenditure incurred wholly and exclusively for the purposes of the assessee's business. Similarly, the Madras High Court in the case of CIT v. Surya Prabha Mills (P.) Ltd. [1980]123 ITR 654 also took a similar view where the assessee could not import the allotted quantity of foreign cotton and had to make payment of the guarantee amount for the bales not imported. This was held to be not a penalty. The Gujarat High Court again had an occasion to examine a similar question in the case of CIT v. Bharat Vijay Mills Ltd. [1981]128 ITR 633. In that case also, t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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