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2023 (11) TMI 858 - AT - Income TaxRestriction on deduction of expenditure u/s 37(1) - compensation paid for breach of contract - disallowing the damage charges paid to NHAL treating the same as in contravention of law - Prior Period expenditure - Also AO found that such damage charges were pertaining to the earlier year, therefore the same cannot be allowed as deduction on this count as well, being prior period expenses - HELD THAT:- Penalty has been paid by the assessee on account of breach of contract which cannot be equated with the offence, or something prohibited by law. As such, the assessee could not meet the deadline to fulfill the criteria laid down by the contractee being the NHAL and therefore the damages were levied by NHAL. The Hon’ble Gujarat High Court in the case of PCIT vs. Mazda Ltd. [2017 (9) TMI 1038 - GUJARAT HIGH COURT] has held that the deduction on account of liquidated damages cannot be disallowed under the provision of section 37(1). The amount of damage crystallized in the year under consideration as evident from the various letters written by NHAL - Thus, it cannot be said that such damages are prior period expenses. Assessee is entitled to the damages incurred by it as a deduction. As such, we do not find any infirmity in the order of the Ld. CIT(A). Hence the ground of appeal of the revenue is hereby dismissed. Disallowance of deduction u/s 80-IA(7) - assessee submitted that there was no deduction claimed by the assessee - HELD THAT:- DR appearing on behalf of the Revenue could not controvert the findings of the Ld. CIT(A). Accordingly, we concur with the finding of the Ld. CIT(A), on the reasoning that once no deduction has been claimed by the assessee u/s 80-IA of the Act, the question of making any disallowance does not arise. Hence, the ground of appeal of the revenue is hereby dismissed.
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