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Issues:
1. Allowability of damages paid for unauthorized occupation of land as a business expenditure. 2. Timing of liability for payment of damages and its admissibility as a deduction. Detailed Analysis: 1. The primary issue in this case was the allowability of damages paid by the assessee for unauthorized occupation of a piece of land as a business expenditure. The Departmental Representative argued that such damages should not be considered an admissible deduction, citing precedents like Mahalakshmi Sugar Mills Co. v. CIT and Haji Aziz & Abdul Shakoor Bros. v. CIT. The contention was that these damages were not incurred for business purposes but as a penalty for infringing the law. However, the assessee maintained that the payment was akin to rent for using the land for business activities and should be allowed as a deduction. The Appellate Tribunal, after considering the arguments, held that the damages paid by the assessee were indeed for the purpose of business and did not constitute a penalty for any legal infringement. The Tribunal emphasized that the payment was made solely for business use and did not result in acquiring a capital asset or personal expenditure, thus making it a legitimate business expense. The Tribunal also referenced the judgment in P.N. Sikand v. CIT to support the deductibility of such payments. Consequently, the Tribunal upheld the order of the AAC, ruling in favor of the assessee. 2. The second issue revolved around the timing of the liability for the payment of damages and its admissibility as a deduction. The Departmental Representative contended that since the initial notice demanding payment was received in a previous year and the final liability was settled in a subsequent year, the payment should not be allowed as a deduction in the current year. However, the Tribunal analyzed the accounting practices of the assessee, noting that the liability to pay the sum of Rs. 20,000 arose during the calendar year 1975 when the payment was actually made by the assessee. Despite the final settlement of the liability in a later year, the Tribunal held that the liability that arose in 1975 and was fulfilled in the same year should be considered for deduction in the relevant assessment year. Therefore, the Tribunal dismissed the appeal, affirming the admissibility of the payment as a deduction for the year in question.
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