The assessee claimed a deduction under section 35ABB on account of payments made to the Department of Telecommunications towards liquidated damages and interest thereon paid.  The Assessing Officer disallowed the claim of the assessee holding that liquidated damages and interest paid thereon were penal in nature and not allowable under section 35ABB.  The assessee claimed deduction of payments to various clubs as membership fee, said to have been incurred wholly and exclusively for the purpose of business. The Assessing Officer disallowed the amounts observing that the assessee had tried to link the personal expenses with business expenses and that the expenditure incurred in the club were not wholly and exclusively for the purpose of business. The CIT(A) deleted the disallowances. On appeal Held, (i) that the assessee paid liquidated damages and interest thereon due to breach of the agreement and not a breach of law.  Thus, the expenditure claimed did not fall within the Explanation to S. 37(1).  Since it was incidental to business, it could not be disallowed. (ii) That considering the expenditure incurred and the nature of the industry, the amount incurred by the assessee for corporate club membership fees was for business promotion and no disallowance could be made.  (AY. 2010-11).