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Issues involved: Interpretation of section 43(5) of the Income-tax Act, 1961 regarding payment for breach of contract and whether it constitutes a speculative transaction.
Summary: The case involved the assessee, a business dealing in cotton and cotton seeds, who failed to fulfill a contract to supply cotton bales and settled by paying Rs. 48,158 to the mills. The Income-tax Officer disallowed this payment as a speculative transaction, which was upheld by the Appellate Assistant Commissioner but overturned by the Tribunal. The key question was whether this payment for breach of contract fell under section 43(5) of the Income-tax Act, 1961. The Tribunal found that the payment was due to abnormal circumstances and breach of contract, not a speculative transaction. Citing precedents, including CIT v. Shantilal P. Ltd. and CIT v. Maya Ram Jia Lal, the court emphasized that damages for breach of contract do not constitute a speculative transaction. As the Tribunal had determined the payment was for breach of contract, it could not be categorized as a speculative transaction under section 43 of the Act. In conclusion, the court ruled in favor of the assessee, holding that the payment for breach of contract was not a speculative transaction as per section 43 of the Income-tax Act, 1961. The decision was made based on the factual finding by the Tribunal, and no costs were awarded in this matter.
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