CIT Vs. ANAND AFFILIATES

JUDGEMENT

(1.) This appeal has been preferred by the revenue under section 260A of the Income tax Act, 1961 (in short, "the Act") against the order of the Income Tax Appellate Tribunal Chandigarh Bench "B", Chandigarh passed in ITA No.751/Chandi/2004 dated 31.10.2007 in respect of assessment year 1999-2000, proposing to raise following substantial question of law:-

(2.) The assessee is a manufacturer of cycle parts and during assessment, made claim for amount paid to Electricity Board as penalty for violating power regulations. The said claim was disallowed by the Assessing Officer but was allowed by the CIT (Appeals). This view has been upheld by the Tribunal. After considering the nature of amount paid, the Tribunal held that the payment was identical to the one considered by this Court in CIT, Patiala v. Industrial Cables (India) Limited, (2007) 162 Taxman 423. The finding of the Tribunal is as under:-

(3.) There is no doubt that payments made in the nature of penalty or fine for any wrongful act cannot be allowed as permissible deductions but mere label of the payment is not conclusive. Certain payments may be incidental to the business and have to be allowed on the test of "commercial expediency", if no violation of law or public policy is involved. Where penalty is not for deliberate violation of law, the amount may be allowed as deduction. There may be cases involving illegality or moral turpitude on the one hand and innocent violation on the other. Law is well settled. Reference may be made to judgments of the Hon'ble Supreme Court in Haji Aziz and Abdul Shakoor Bros v. CIT, (1961) 41 ITR 350, Malwa Vanaspatti v. CIT, (1997) 225 ITR 383, Parkash Cotton Mills Pvt. Limited v. CIT, (1993) 201 ITR 684. The test has to be applied from case to case.