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2016 (4) TMI 1096 - AT - Income TaxAddition 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.
Issues:
Assessment of liquidated damages claimed by the assessee in the profit & loss account for breach of contract. Analysis: The appeal was filed by the revenue against the order of CIT(A) concerning the assessment year 2009-10. The assessee, a company, declared a total income of &8377; 92,74,12,634/- and claimed &8377; 77,40,470/- towards liquidated damages for breach of contract. The assessing officer disallowed this amount, adding it to the assessee's income, stating that the liability for incomplete contracts cannot be deducted. The CIT(A), after considering the explanations and relying on a special bench decision, deleted the additions. The revenue challenged this deletion, arguing that the issue was pending before the High Court. However, the AR of the assessee supported the CIT(A)'s decision, citing previous ITAT rulings in favor of the assessee. The Tribunal examined the case laws and found that the issue of liquidated damages for breach of contract was deductible in the assessee's favor in earlier assessment years. The Tribunal upheld the CIT(A)'s decision, stating that the liquidated damages were deductible in the year the liability arose as per the agreement with customers. Therefore, the additions made by the assessing officer were directed to be deleted, and the appeal filed by the revenue was dismissed. In conclusion, the Tribunal affirmed that the liquidated damages claimed by the assessee for breach of contract were deductible as per the agreement terms with customers. The decision was based on previous rulings in the assessee's favor and the point of accrual of liability for such damages. The CIT(A)'s order deleting the additions was upheld, and the revenue's appeal was dismissed.
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