2011 (12) TMI 741 - AT - Income Tax

Summary

Issues Involved:
The judgment involves the issue of deductibility of late delivery charges as a business expense u/s 37(1) of the Income Tax Act, 1961.

Issue 1: Deductibility of Late Delivery Charges

The Revenue appealed against the CIT(A) order allowing the deduction of late delivery charges as a business expense for A.Y. 2006-07. The AO disallowed the amount of &8377; 13,65,267/- as a penalty for late delivery of goods. The assessee explained that the charges were compensatory in nature due to breach of contractual obligations. The CIT(A) considered previous findings in the assessee's favor and deleted the addition made by the AO.

The Tribunal upheld the CIT(A)'s decision, distinguishing between penalties for breach of law and compensation for late delivery. It noted that the occurrence of late delivery was not disputed, and such charges were inherent risks in business operations. The Tribunal found the charges compensatory and allowable as a business expense u/s 37(1) of the Income Tax Act, 1961.

In conclusion, the Tribunal dismissed the Revenue's appeal and upheld the CIT(A)'s order, stating that the late delivery charges were compensatory in nature and allowable as a business expense. The decision was based on the distinction between penalties for breach of law and compensation for late delivery, as well as previous findings in the assessee's favor.