The Tax Publishers2021 TaxPub(DT) 0037 (Del-Trib)

INCOME TAX ACT, 1961

Section 37(1)

Allowability of liquidity damages was a matter of verification from the third-party only and in the interest of the justice, one more opportunity could be allowed to the assessee to produce confirmation of said liquidity damages charged by two parties from the assessee.

Business expenditure - Allowability - Liquidity damages paid on account of non-compliance of business obligations -

AO disallowed claim of expenses as liquidity damages paid by assessee to two parties on the ground that liquidity damages were suffered by assessee on account of non-compliance of business obligations, which resulted in levy of the penalty in the shape of underpayments or compensatory payments, which are not allowable in terms of section 37(1). Held: Allowability of liquidity damages was a matter of verification from the third-party only and in the interest of the justice, one more opportunity could be allowed to the assessee to produce confirmation of the liquidity damages charged by two parties from the assessee. If the accounts of both the assessee and the said party could be reconciled, then matter ends and no disallowance would be required in the case of the assessee. Accordingly, it was appropriate to restore this issue back to CIT(A) for reconsideration afresh.

REFERRED :

FAVOUR : Matter remanded.

A.Y. : 2011-12



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