While damages or penalty which are compensatory in nature are allowable as a deduction u/s 37(1) of the Act, damages which are penal in nature and in respect of infraction of law are not allowable as a business expenditure. Amounts paid by way of damages for a contractual breach is a normal incident of business and allowable as a deduction.
Baldev Singh Kanwar vs. CIT (1997) ITR 640 overruled.
Related Judgements
- CIT vs. Vardhaman Polytex (P & H High Court) (Full Bench)
(i) In considering whether the interest paid by an assessee on loans raised for acquisition of new asset, before the same was first put to use, is to be added towards the cost of the asset or the same is to be granted as a revenue expenditure for the…
