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TMI Blog2007 (5) TMI 182X X X X Extracts X X X X X X X X Extracts X X X X ..... passed by the Income-Tax Appellate Tribunal, Chandigarh Bench, Chandigarh (for short, `the Tribunal') in I.T.A. No.493/Chandi/87 for the assessment year 1983-84:- "Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that forfeiture of security deposits amounting to Rs.16.27 lakhs by way of compensation for not completing the contract works within the stipulated period specified in the agreement, constituted an allowable commercial loss, notwithstanding the fact that the matter is pending disposal before the Arbitrator?" 2 Briefly, the facts are that the assesses in the present case is a contractor executing various works. While computing the income for the assessment year in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 762. On the contrary, learned counsel appearing for the assessee submitted that there is distinction culled out by various judicial pronouncements in penalty leviable for breach of law and penalty/ compensation arising out of the breach of contract. Whereas the penalty leviable on account of breach of law is not a permissible deduction, however, penalty which is on account of breach of contract is certainly a business loss and has to be allowed. He referred to Commissioner of Income-Tax v. Murari Lal Ahuja and Sons, (1989) 177 ITR 228 (P H), Prakash Cotton Mills P. Ltd. v. Commissioner of Income-Tax, (1993) 201 ITR 684 (SC) and Commissioner of Income-Tax v. Indo Asian Switch-Gears (P.) Ltd., (1996) 222 ITR 772 (P H). 5 While considering ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It is also not disputed by learned counsel for the revenue that the reference arising out of Punjab Wireless Systems' case (supra), which was relied upon by the Tribunal, in favour of the assessee, has been answered by this Court against the revenue. 8 In the present case, the compensation paid by the assessee was on account of breach of contract which does not fall in the category of payment of penalty for breach of any law but would be a compensation for breach of contractual obligations, accordingly, will fall in the category of allowable deduction. 9 For the reasons recorded above, the question referred is answered against the revenue and in favour of the assessee. 10 The reference is disposed of accordingly. - - TaxTMI ..... X X X X Extracts X X X X X X X X Extracts X X X X
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