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Issues:
1. Deletion of addition of Rs. 4,97,912 and Rs. 3,21,000 on account of forfeiture of security deposit and payment of compensation respectively. Detailed Analysis: The appeal by the revenue pertains to the assessment year 1985-86. The primary issue revolves around the deletion of additions concerning the forfeiture of security deposit and payment of compensation. The Assessing Officer contended that these deductions were claimed as provisions and not as ascertained liabilities. The assessee, a construction contractor, argued that the forfeiture and compensation were incidental to its business due to contract breaches, not statutory violations. The first appellate authority favored the assessee, emphasizing that the forfeitures were due to contract breaches, not legal infringements. The Departmental Representative argued that the forfeitures and compensation involved penalty elements and cited legal precedents. However, the Tribunal noted that each case must be examined based on payment nature and background. In this case, no rule violations were found, only contract breaches. The assessee's counsel highlighted that the compensation was due to work delays, not penalties. Legal precedents were cited to support the argument that such payments, not penalties, are allowable business expenditures under Section 37 of the Income-tax Act. The Tribunal concurred with the first appellate authority, stating that the forfeitures and compensation were business-related incidents, not penalties. The deductions were deemed legitimate as the work delays led to the forfeitures, without any evidence of legal violations by the assessee. The Tribunal upheld the allowance of deductions, emphasizing that the actions were in the best interest of the business, and no legal infringements were committed. Ground No. 1 of the appeal was dismissed.
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