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TMI Blog2014 (1) TMI 842X X X X Extracts X X X X X X X X Extracts X X X X ..... as deductible and business expenditure - amounts paid to Government as penalty and damages for delay in execution of contracts was a deductible item - the order of the FAA reversed – Decided in favour of Assessee. Disallowance of amounts written off as irrecoverable u/s 37 of the Act - Advance given to Government departments – Held that:- FAA has given a categorical finding of fact that no details of departments except for of the PWD Department were furnished - in view of lack of proof that as to when and to whom these advances were given same could not be allowed u/s.37 or 36(1)(vii)of the Act - The order of the FAA does not suffer from any infirmity - In absence of details of expenditure claimed by the assessee he has rightly disallow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... siness of manufacturing of vaccines and life saving drugs filed its return of income on 25.11.2006 declaring total income of Rs.79.24 lakhs. Assessment was finalised by the Assessing Officer(AO) on 28.11.2008 determining the total income of the assessee at Rs. NIL after bringing brought forward losses of the AY. 2004-05.During the assessment proceedings, AO found that the assessee had debited an amount of Rs.19.37 lakhs as sundry balances written off. He directed the assessee to submit the details of the same and also asked to show cause as to why the same should not be disallowed. After considering the submissions of the assessee, he held that the explanation offered by the assessee for writing off sundry balances was not in conformity wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lation of contract regarding issue of delay in the delivery of vaccines. The FAA held that from the statement of the assessee it was not clear that the amount in question related to penalty imposed by the Government of India on the appellant in respect of breach of contract regarding the clause concerning time bound delivery, that under no stretch of imagination one could say that was a bad debt, that penalty was imposed for non fulfilling the contract, that the amount was not covered u/s 36(1)(vii)of the Act, that the submissions of the assessee to treat the same as business loss u/s 37.of the Act was not acceptable. The FAA declined to interfere with the order of the AO and upheld the addition made by him. 2.3.Before us, Authorised Repr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .....deduct from the contract price as agreed liquidated damages and not by way of penalty, a sum equivalent to ..... (Clause 16).From the above clause it is clear that Rs.9.68 lakhs deducted by Govt of India as liquidated damage cannot be treated as breach/infringement of law or amount paid as penalty. Provisions of section 37 prohibits allowance of penalty payments only. In the case under consideration assessee had written off liquidated damage as per the terms and conditions of the agreement. In our opinion payment of liquidated damage has to be allowed. We find that Hon'ble Patna High Court in the case of Sardar Prit Singh(supra) has held that damages for delay in supply and for supply of articles of inferior quality was not a penalty f ..... X X X X Extracts X X X X X X X X Extracts X X X X
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