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Issues involved:
The legality and correctness of the order passed by the Income Tax Appellate Tribunal, Bangalore, in ITA No.9/Bang/2008 regarding the deduction of an Interim award passed by the Arbitrator against the assessee to pay a sum of Rs. 52.84 lakhs to its Sub-contractor and the recoverability of this amount from the Central Government. Issue 1: Deductibility of Interim award during the current assessment year The assessee, engaged in construction activities under a contract from the Central Government, faced a dispute with its Sub-contractor leading to an Interim award by the Arbitrator to pay Rs. 52.84 lakhs. The Assessing Officer initially disallowed the deduction on the premise that the amount could be recovered from the Central Government. The Commissioner of Income Tax (Appeals) upheld this decision. However, the Income Tax Appellate Tribunal ruled in favor of the assessee, allowing the deduction as the payment was made based on the Interim order. The Tribunal emphasized that the payment could not be denied as a deduction merely because the final award was pending. Issue 2: Recoverability of Interim award from the Central Government The Tribunal highlighted that any payment made pursuant to an Interim order is contingent upon the final award of the Arbitration proceedings. If the final decision absolves the assessee from liability, any amount paid must be recovered from the Sub-contractor. Therefore, the Tribunal rejected the revenue's argument that the payment should not be deductible until the final award is issued. Conclusion: The High Court found no substantial questions of law in the appeal and consequently dismissed it, affirming the Tribunal's decision to allow the deduction of Rs. 52.84 lakhs paid by the assessee based on the Interim award.
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