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

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