sec.37

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vipin (Querist)
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07 December 2009 please tell me how to judge that whether a payment is penal or compensatory in nature w.r.t sec.37 of income tax which disallows certain payment which are incurred but prohibited by any law.
PHARMA CO. HAS MADE PAYMENT WITH INTEREST SINCE PHARMA CO. WAS SELLING GOODS ABOVE GOVT. PRESCRIBED M.R.P

CA SURENDRA KUMAR RAKHECHA

CA SURENDRA KUMAR RAKHECHA (Expert)
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07 December 2009 A penalty imposed for breach of any law during the course of trade, etc., cannot be described as a commercial loss.

If a sum is paid by an assessee conducting his business, because in conducting it he has acted in a manner which has rendered him liable to penalty, it cannot be claimed as a deductible expenses.

Infraction of the law is not a normal incident of business and, therefore, no expense which is paid by way of penalty for a breach of law can be said to be an amount wholly and exclusively laid for the purpose of the business.

Haji Aziz & Abdul Shakoor Bros. v. CIT (1961) 41 ITR 350, 359 SC

Ca Surendra Rakhecha
Surat

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