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2013 (2) TMI 19 - AT - Income TaxDisallowance of liquidated damages - CIT(A) held the amount as capital expenditure not allowable u/s 37 - Held that:- The assessee company has been incorporated to carry out business of supply of various electrical and optical connectivity equipment and the liquidated damages claimed by the assessee were incurred under contract with the purchasers of these equipments. Thus as per condition no. 0702(a) of the contract, the assessee supplier (seller) company was under obligation to deliver the ordered goods to the Railway company and other public sector undertaking enterprises (purchasers) within the period fixed for delivery in the contract and in case the assessee supplier(seller) company failed to deliver the ordered goods to purchaser enterprise within the period fixed for delivery in the contract, then liquidated damage @2% of the price of stores was to be recovered from the assessee supplier company by the purchaser Railway company. In this condition, it is specifically mentioned that the payment of liquidated damages would not be considered as penalty. Thus respectfully following the judgment of Commissioner of Income Tax, Pune vs R.D. Sharma and Co.(1982 (3) TMI 52 - BOMBAY HIGH COURT) wherein held that the delay in completion of contract is incidental to the business and liability of compensation arising because of delay is an allowable deduction under the Act. In the case in hand, admittedly, the assessee company claimed liquidated damages paid to the Railway department and other government undertaking enterprises as per contract and due to the delay in completion of supply contract. Therefore, this is an allowable expenditure and the authorities below were not justified in disallowing the same - findings of the CIT(A) that the payment of liquidated damages was capital in nature is not sustainable and deserves to be set aside. Thus the claim of the assessee company for liquidated damages is allowable u/s 37(1) of but the calculation of deduction has to be done by the AO because he has observed that the copies of the contract with M/s Bharat Electronics Ltd., Ghaziabad, Panchkula and Bangalore have not been furnished before him and the details furnished by the assessee before the Assessing Officer for the claim of liquidated damages was at much more percentage than prescribed in the contract - thus the claim of assessee on liquidated damages deducted under the agreed condition of the contract as allowable u/s 37(1) subject to the verification of actual claim by the AO - restore the issue of calculation of allowable amount to the file of AO.
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