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Penalty on violation of contract

Suraj S (Audit Executive) (335 Points)

13 July 2011

Can the penalty imposed by contractee on the contractor for not finishing the work on time be claimed as allowable expense for the contractor????

Plz quote any case laws in this matter......

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6 Replies

U S Sharma (glidor@gmail.com) (21063 Points)
Replied 14 July 2011

penalty imposed means deduction from contract value, so its to be treated as discount for contractor.

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hitesh (Telecom Industry) (169 Points)
Replied 14 July 2011

the same is a business expense, and hence allowable.. it is similar in nature of bad debt/debtor written off..

Suraj S (Audit Executive) (335 Points)
Replied 15 July 2011

but this is a penalty imposed on contractor.....how can it be reduction in contract value????

Sunshine (Helping All) (10575 Points)
Replied 15 July 2011

in case i give u a job to finish in 10 days and the contract amount is 10000.and u dont finish it on time ....

now do u expect me do pay u 10000 still???

Of course i won't ,...i will pay just 9000...

so this 1000 is a reduction in the contract amount.....bole to maine khud hi discount le liya...ab kya karoge bolo???

U S Sharma (glidor@gmail.com) (21063 Points)
Replied 15 July 2011

penalty imposed by conctract provider means reduction of contract value, so you have to either issue bills for reduced value or issue credit notes,

penalty provisions are business matters, there is no relation with tax on this subject. if u deny to accept the penalty you can seek legal help in local court for recovery of penalty deductedl, but it payes mental agony just, as justice is deferrred for looooooooooooong time.