Mr. Akil Kureshi, J. - (1.) Both the appeals are filed by the Revenue concerning the same assessee. While taking up admission hearing of Tax Appeal No. 647 of 2017 we noticed that Tax Appeal No. 949 of 2013 involving similar issue has been admitted for consideration of following substantial question of law: "Whether the Appellate Tribunal has substantially erred in law in deleting the disallowance of liquidated damages of Rs. 26,12,269/- by overlooking the fact that the same is contrary to the explanation given to section 37(1) of the Income Tax Act, 1961 and cannot form part of expenditure?"
(2.) We therefore admit Tax Appeal No. 647 of 2017 for consideration of following question of law proposed by the Revenue: "Whether the Appellate Tribunal has erred in law and on facts in deleting the disallowance of Rs. 75,36,037/- on account of liquidated damages, without properly appreciating the facts of the case and the material brought on record?" Counsel for the assessee waived notice of admission. We have heard both the tax appeals for final disposal.
(3.) Issues being identical, we may record facts from Tax Appeal No. 647 of 2017. The respondent-assessee is a company registered under the Companies Act and is engaged in the business of manufacturing and trading of machinery and machinery parts and manufacturing of drink concentrates. For the assessment year 2010-11, the assessee had filed a return of income on 29.09.2010 declaring total income of Rs. 14,53,78,210/-. During the scrutiny assessment, the Assessing Officer noticed that the assessee had claimed business expenditure of Rs. 75,36,037/- by way of liquidated damages in the profit and loss account under the head 'administrative and selling expenses'. The Assessing Officer called for the details of such expenditure in response to which, the assessee stated as under: "Point No. 17-Liquidated Damages are expenses in the nature of penalty imposed by different parties of the assessee company for delaying delivery or late completion of terms and conditions of the orders. Thus, this expenditure for liquidated damages is very much a business expense. The assessee company only sells specialized products which are tailir made as per specifications received from the parties. The terms of the purchase order specify that any delay will be charged parties of the assessee company at percentage value of order and hence it is parts of the purchase order. The delay in delivery occurs due to delay in drawing approvals by the customer, delay in inspection and performance test of the equipments by the customer or other authorized inspector. Thus, these are normal features inherent in the business in which assessee deals.";