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TMI Blog2023 (11) TMI 858X X X X Extracts X X X X X X X X Extracts X X X X ..... or something prohibited by law. As such, the assessee could not meet the deadline to fulfill the criteria laid down by the contractee being the NHAL and therefore the damages were levied by NHAL. The Hon ble Gujarat High Court in the case of PCIT vs. Mazda Ltd. [ 2017 (9) TMI 1038 - GUJARAT HIGH COURT] has held that the deduction on account of liquidated damages cannot be disallowed under the provision of section 37(1). The amount of damage crystallized in the year under consideration as evident from the various letters written by NHAL - Thus, it cannot be said that such damages are prior period expenses. Assessee is entitled to the damages incurred by it as a deduction. As such, we do not find any infirmity in the order of the Ld. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... found that the assessee has claimed the deduction of certain expenditure which were representing in the nature of penalty. Therefore, the AO was of the view that such a penalty cannot be allowed as deduction under the explanation of section 37 of the Act. Besides the above, the AO also found that such damage charges were pertaining to the earlier year, therefore the same cannot be allowed as deduction on this count as well, being prior period expenses. Thus, the AO disallowed the same and added to the total income of the assessee. 4. On appeal before the Ld. CIT(A), deleted the same. The relevant extract of the order is reproduced as under: I have given my careful consideration to the rival submissions, perused the material on recor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ustries Ltd. vs. CIT (1995) 78 Taxman 455 (Cal), the Hon'ble High Court has held that expenditure will be allowed in the year when the same is crystallized. In view of he provisions of section 37(1), Explanation 1 to section 1, Circular No. 722 dated 23/12/1998 of CBDT and the decisions discussed above. I agree with the contention of the appellant that the payment of damages is not for an offence and is not prohibited by law has crystallized during the year hence, allowable as business expenditure. Accordingly. the AO is directed to delete the addition. The ground of appeal is 'Allowed'. 5. Being aggrieved by the order of the Ld. CIT(A), the revenue is in appeal before us. 6. The Ld. DR before us reiterated the findings c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 250 taxman 0510 has held that the deduction on account of liquidated damages cannot be disallowed under the provision of section 37(1) of the Act. The relevant extract of the order is reproduced as under: 10. Section 37 of the Act is the residuary provision granting deduction of an expenditure not being expenditure of the nature of capital expenditure or personal expenses of the assessee, which is laid out or expended wholly and exclusively for the purposes of business or profession and not specified in the preceding sections 30 to 36 of the Act. Explanation to section 37(1) would clarify that any expenditure incurred by an assessee for any purpose which is an offence or which is prohibited by law shall not be deemed to have been in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d as under: 7. With regard to ground no. 2 of the appeal, the appellant has submitted that it had not claimed any deduction u/s 80IA of the Act. In support copy of statement of income and ITR acknowledgment is filed. AO is directed to verify from records and delete the addition if the contention is found correct. The ground of appeal is treated as 'Allowed'. 12. The Ld. DR appearing on behalf of the Revenue could not controvert the findings of the Ld. CIT(A). Accordingly, we concur with the finding of the Ld. CIT(A), on the reasoning that once no deduction has been claimed by the assessee u/s 80-IA of the Act, the question of making any disallowance does not arise. Hence, the ground of appeal of the revenue is hereby dismiss ..... X X X X Extracts X X X X X X X X Extracts X X X X
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