Penalty towards breach of contract cannot be disallowed under Explanation to Section 37(1)

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

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