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2019 (11) TMI 95 - AT - Income TaxDeduction on account of washout charges - cancellation of expired contract - whether there was an extension of contract or not as the said document i.e. fax transmission dated 10.01.2005 was not before the TPO? - TPO came to conclusion that it was not a case of cancellation of contract, but a case of cancellation of expired contract, as the said contract was valid for the month of January, 2005 itself - TPO did not accept the plea of the assessee was that the reason for not shipment of balance amount was not explained by the assessee - HELD THAT:- There was a contract between the parties to purchase the goods in the month of January, 2005. Only part of goods could be purchased by the assessee, as the supplier of the goods had requested for an extension of contract i.e. to extend the period of shipping/delivery. The communication is dated 10.01.2005 and is also prior to shipping of part of the contract received by assessee. The reason for extending the contract was also mentioned in the said letter itself i.e. availability of the vessel at the end of February, 2005. Simultaneously, there was fall in the prices of crude soyabean oil and as a business decision, the assessee communicated to LD Asia, supplier, to cancel the delivery of balance goods. The said decision was taken in order to save the losses that the assessee would have incurred after receipt of the balance crude soyabean oil, as the market had collapsed and the assessee could not have been in a position to sell the goods on profit. Another aspect of issue is that in order to make the aforesaid payment to LD Asia, permission had to be sought from RBI, for such remittance. The permission had been awarded by the RBI, consequent to which only the assessee made the payment to LD Asia. In such a scenario on the ground that the extension of contract, not being available before the TPO, could not be the reason to deny the claim of the assessee, especially where the assessee claims that it had filed the same before TPO. The said communication was filed before the CIT(A), who had accepted that there was fall in prices in the soyabean oil in the market. The only objection was whether there was a valid contract of 2/3rd February, when the contract was cancelled. We find no merit in the orders of the authorities below in this regard as the contract was between the two parties and in case of business exigencies they took a decision to extend the contract and the said contract was then cancelled between the parties because of the market conditions. The payment of the washout charges has been made after sanction of RBI and in such circumstances, we hold that the assessee is entitled to claim deduction of ₹ 1.65 crores. Accordingly we hold so. - Decided in favour of assessee.
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