9911796707
TMI Blog2000 (11) TMI 112X X X X Extracts X X X X X X X X Extracts X X X X ..... gal expenses incurred in connection therewith respectively, claimed as allowable deductions in computing the business profit of the assessee for the assessment year 1972-73?" The background facts, as indicated in the statement of the case, are as follows : The assessee is a public limited company and it maintained its books on the mercantile system of accounting. So far as the assessment year 1972-73 is concerned, the previous year ended on December 31, 1971. The assessee at the relevant point of time, carried on business as an importer of chemicals. These were not allowed to be imported directly and hence the assessee was acting as a distributor of the chemicals imported, under the authority of the State Trading Corporation (in short t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al of such unlifted quota. One A. S. Gupta, who was the director incharge of the operations, was of the opinion that the assessee had the right to dispose of such stocks. A resolution was adopted on January 27, 1964, which permitted disposal of the unlifted stock through the agency, Mam Raj Radhey Shiam Gupta. Incidentally, A. S. Gupta was the proprietor of the said concern. As per the books of account maintained by the assessee on the sales of such unlifted stocks effected by it, there was a net profit, which was taxed. The total quantity imported was 3,85,879.630 kgs. ; the total quantity sold to quota holders was 3,31,583.540, and the quantity sold through Mam Raj Radhey Shiam was 51,073.200 kgs. There was thus a shortage. The value of g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ebited to purchase account and was not shown in the profit and loss account. It was further observed that the assessee had to pay the amount as damages, because one of its directors who was incharge of the work at the relevant period had unauthorisedly and dishonestly sold the goods through its proprietary concern and the liability having arisen because of the deliberate and dishonest violation of the terms of agency, the expenditure was not incidental to the business. A counsel fee of Rs. 2,750, in respect of the transactions, in question was also disallowed. The matter was carried in appeal before the Appellate Assistant Commissioner (in short the "AAC"), who confirmed the views of the Assessing Officers. The matter was carried in further ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e passed against the company for misfeasance committed by its directors, the claim is not allowable. A sum paid in settlement of a civil action for damages on the ground of fraud committed in the course of the assessee's business, is to be allowed as a business expenditure. The factual position is different in the present case. The mere fact of a settlement is not a proof of any infraction of law. Thus, the essence of the Matter is, where there is a breach of contract and the breach is not dishonest, it can be looked upon as one of the incidents of carrying an the business, and, therefore, damages payable be allowed as a deduction. Where there is no dishonest act on the part of the assessees in carrying on the business, a loss arising from ..... X X X X Extracts X X X X X X X X Extracts X X X X
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