Shyam Metalics And Engery Ltd. Vs DCIT (ITAT Kolkata)
ITAT Kolkata held that penalty paid to private entities/ third parties towards breach of contract is the usual course of business and doesn’t involve payment of penalty for infraction of any law hence disallowance made under Explanation to Section 37(1) of the Income Tax Act is unwarranted.
Facts- The assessee had sold shares of UIL at a loss of Rs.1,89,53,757/-. According to AO, though the assessee had furnished contract notes, bank statements and other documents in support of sale of shares of UIL but as per the Investigation Wing database, the share of UIL was penny stock which was being used by entry operators to provide bogus accommodation entries in the guise of capital gains or losses. AO also referred to a report published by the Directorate of Income tax Mumbai, which listed UIL as a penny stock scrip to arrange bogus LTCG/ loss. AO therefore held that the loss of Rs.1,89,53,757/- incurred on shares of UIL was not genuine and therefore added the same by way of cash credit u/s 68 of the Act.
Another contention of the assessee is with regard to the disallowance of penalty expenses of Rs.34,71,274/-. AO in the assessment order observed that the aforesaid sum being penal in nature was disallowable in terms of Explanation (1) to Section 37(1) of the Act. Though the assessee assailed the issue before the ld. CIT(A), but he has omitted to adjudicate this issue. Aggrieved, the assessee is now in appeal before us.
