Allowability of expenses towards penalty and damages in compensatory nature

RELEVANT PARAGRAPH 2.7 The Hon’ble Apex Court in the case of CIT v Ahmedabad Cotton Manufacturing Co. Ltd. 205 ITR 163 held as under:- “what needs to be done by an assessing authority under the Income-tax Act, 1961, in examining the claim of an assessee that the payment made by such assessee was a deductible expenditure under $.37 of the Income-tax Act although called a penalty is to see whether the law or scheme under which the amount was paid required such payment to be made as penalty or as something akin to penalty, that is imposed by way of punishment for breach or infraction...