43(5)(a)

Tax queries 274 views 3 replies

Akshita Goyal CA

Practice

44 Points Joined December 2008

Under the given clause..

As per sec 43(5)(a) of income tax act, a contract in respect of raw materials or merchandise entered into by a person in the course of his manufacturing or merchanting business to guard against loss through future price fluctuations in respect of his contracts for actual delivery of goods manufactured by him or merchandise sold by him.

if manufacturer enter into a contract of sale of commodity(cotton) later he could not deliver the goods on time..

On that he had to pay cancellation charges

(Charges- buyer purchased the same from other manufacturer and the amount he paid in excess of contracted value with original manufacturer.)

Such charges were debited by original manufacturer in RATE DIFFERENCE a/c..whether such rate difference shall be allowed as deduction?

Thanks.

Replies (3)

Kuldipsinh Jadeja

Job

357 Points Joined April 2012

The charges are not in the nature of future price fluctuation. As the contract has not even taken place as it has been cancelled how can an assessee claim such charges as price fluctuation. So as per my view such deduction would not be allowed.

Akshita Goyal CA

Practice

44 Points Joined December 2008

CAN WE CLAIM DEDUCTION U/S 37(1)-BREACH OF CONTRACT..SINCE WE COULDN'T DELIVER GOODS ON TIME?

Kuldipsinh Jadeja

Job

357 Points Joined April 2012

U/s 37(1) you can claim deduction for the same. You can refer to Jamna Auto Industries v. CIT [2008] (Punjab & Har.), where court held that damages paid by an assesse on account of breach of commercial contract is not a libility incurred for contravention of any law and it is an expense incurred for the purpose of business and an allowable expenditure.