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2016 (4) TMI 1096 - ITAT VISAKHAPATNAM

2016 (4) TMI 1096 - ITAT VISAKHAPATNAM - TMI - Addition of liquidated damage - Held that:- Liquidated damages paid for delay in delivery of materials is deductible expenditure in the year in which the liability to pay arises as per the agreement between the customers. The CIT(A) has rightly deleted the addition - Decided against revenue. - I.T.A.No.447/Vizag/2013 - Dated:- 18-3-2016 - SHRI V. DURGA RAO, JUDICIAL MEMBER AND SHRI G. MANJUNATHA, ACCOUNTANT MEMBER For The Appellant : Shri I. Sarish .....

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s selected for scrutiny and accordingly, notices u/s 143(2) and 142(1) of the Income-Tax Act, 1961 (hereinafter called as the Act ) were issued. In response to notice, the authorized representative of the assessee appeared from time to time and furnished books of accounts and other information. During the course of assessment proceedings, the A.O. noticed that the assessee has claimed an amount of ₹ 77,40,470/- towards liquidated damages towards breach of contract and debited to the P& .....

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uidated damage clause is provided for the delay in supplying the machines. Being so, in one of such case, the assessee has paid liquidated damages for breach of contract and the same is claimed as expenditure. However, the assessing officer after considering the explanations furnished by the assessee, disallowed the amount of ₹ 77,40,470/- and added to the income of the assessee. While doing so, the A.O. held that the liability arises only in respect of completed contracts on or before the .....

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r the assessment year 1982-83 reported in 34 ITD 50, deleted the additions. Aggrieved by the CIT(A) order, the revenue is in appeal before us. 4. The Ld. D.R. submitted that the CIT (A) was erred in deleting the additions made by the A.O. towards liquidated damages, by relying upon the ITAT, special bench decision in assessee s own case for the assessment year 1982-83. The Ld. D.R. further submitted that though the ITAT, allowed the claim of liquidated damages in assessee s own case, the departm .....

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Hyderabad special bench in assessee s own case, for the assessment year 1982-83 reported in 34 ITD 50. The AR further submitted that the ITAT, in assessee s own case for the assessment year 2002-03, 2005-06, 2006-07 and 2008-09 has allowed the claim of liquidated damages. Therefore, requested to uphold the order of the CIT(A). 6. We have heard both the parties, perused the materials available on record and gone through the orders of the authorities below. We have also gone through the case laws .....

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nt year. Relevant portion is reproduced hereunder: 6. We have heard both the parties and perused the materials available on record. We have also gone through the case laws relied upon by the parties. During the course of hearing, the A.R. of the assessee submitted that the issue involved in this appeal, is squarely covered by the decision of ITAT Hyderabad special bench in assessee s own case for the earlier assessment years. We have examined the case laws relied upon by the assessee in the ligh .....

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damages would arise only on completion of the contract. Accordingly, the AO verified the details of contract and identified that the liability towards the liquidity damages to the extent of ₹ 2,85,000/- has not crystallized during the year under consideration since the relevant contract was not completed by 31-3-2000. Accordingly he disallowed the above said sum of ₹ 2,85,000/- . However, the Ld CIT (A) noticed that the present issue is squarely covered by the decision of ITAT Hydera .....

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dentifies the contracts in which the scheduled date has expired and also quantifies the liquidated damages payable. Accordingly the assessee company makes provisions in the accounts. According to the assessee the point of accrual of liquidity damages is the point when the breach of scheduled date occurred. However, the AD was of the view that the point of accrual is the date of completion of relevant contract. 7.2 As noticed by the Ld CIT(A), the issue regarding the point of accrual of liquidity .....

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