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2019 (12) TMI 1196 - ITAT DELHIDisallowance of bad debts written-off and debited under the head provision for liquidated damages in the financial statement of the year under assessment - HELD THAT:- When nature of the amount due has not been disputed by the revenue authorities being irrecoverable from the customers against various jobs carried out by the assessee in the course of business nor disputed the explanation given by the assessee before the Ld. CIT(A), aforesaid deductions is eligible for claim during the year under assessment. So far as question of treating the claim of payment of liquidated damages in the nature of penalty is concerned, when aforesaid damages are undisputedly business expenditure incurred on account of contractual default, the contractual liability cannot be treated as a penal liability. Hon’ble Supreme Court in case of Prakash Cotton Mills Ltd. vs. CIT [1993 (4) TMI 3 - SUPREME COURT] also decided the issue as to when the amount paid by assessee as interest or damages or penalty could be regarded as compensatory in character as would entitle such assessee to claim it as an allowable expenditure u/s 37(1) We are of the considered view that when the damages paid by the assessee are business expenditure incurred on account of contractual liability the same cannot be treated as penal liability as has been held by Ld. CIT(A). Moreover, once it has come on record that the amount in question is irrecoverable from the customer and has been written off in the books of accounts during the year under assessment the amount is eligible for deduction u/s 36(1)(vii) of the Act as claimed by the assessee. - Decided in favour of assessee. Addition of deemed dividend u/s 2(22)(e) - HELD THAT:- Amount paid by assessee company to TPPL was on account of sale of plant and machinery and not on account of loan and in view of CBDT Circular No. 19/2017 of 12.06.2017 the same is a commercial transactions and provisions contained u/s 2(22)(e) are not attracted. So, we are of the considered view that tax, if any, is to be paid on this amount by the shareholder as the amount is not advance but a business transaction being sale proceeds of the sale of plant and machinery by TPPL to the assessee company. - Decided in favour of assessee.
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