k koteshwar kumar (student) (42 Points)
20 August 2013hi every body,
Liquidated damages debited to the supplier which was charged by the customer on the a/c of project heldup due to delay in supply of material.whether it is in the nature of Penalty or Compensatory and whether it is allowed as deduction under income tax act or not ?
Thanks in Advance.
CA Simarpreet Singh Gulati
(Chartered Accountant)
(530 Points)
Replied 20 August 2013
Liquidated damages debited to supplier account in your case is a normal business practice as the amount is held up by the customer. It is compensatory in nature and in the normal course of business. This amount is not recoverable from the customer and it is of the same nature as bad debts.
The same shall be allowed as a business deduction under Income Tax Act.
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