Law:

Section:

Section 37(1) of the Income-tax Act, 1961 - Business expenditure - Allowability of - Assessment year 1976-77 - Whether where amount paid is in nature of compensation, same will be allowable irrespective of nomenclature used - Held, yes - Assessee claimed deduction of certain sum paid as fine, to excise department, for belated payment of excise duty instalment - Assessing Officer disallowed same - It was found that though sum paid was termed as fine, payment was not in nature of punishment but was by way of compensation - Whether sum in question would be allowable under section 37(1) - Held, yes CASES REFERRED TO Prakash Cotton Mills (P.) Ltd. v. CIT [1993] 201 ITR 684 / 67 Taxman 546 (SC) [Para 4] and Haji Aziz & Abdul Shakoor Bros. v. CIT [1961] 41 ITR 350 (SC) [Para 4.2]. Dr. N.L. Sharda for the Applicant. JUDGMENT 1. Following question of law has been referred for opinion of this Court by the Income-tax Appellate Tribunal, Chandigarh Bench, Chandigarh, arising out of its order dated 16-3-1988 in ITA No. 529 and CO No. 49/Chd. of 1985, in respect of assessment year 1976-77 :- "Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in deleting the addition made by the ITO on account of the fine paid to the Excise Department keeping in view the decision of the Hon'ble Supreme Court in the case ofHaji Aziz & Abdul Shakoor Bros. v. CIT, Bombay City II [1961] 41 ITR 350 ?" 2. The assessee claimed deduction of Rs. 31,433 paid as fine for belated payment of excise duty instalment. This was disallowed by the Assessing Officer as well as the appellate authority but the Tribunal reversed the said view and allowed the same with the following observations :- "6. So far as the assessee's cross-objection is concerned, in the assessment order the ITO himself had stated that from the scrutiny of record, it was found that the fine was incurred by the assessee for making belated payments of the said Excise Duty. Now making belated payments would indirectly benefit the assessee inasmuch as the money would remain available to the assessee and, therefore, any penalty levied on this count could be claimed as a legitimate business…

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