Liquidated damages paid towards late delivery of goods are allowable as business expenditure:

AO disallowed certain liquidated damages incurred by the assessee paid towards late delivery of goods. Hon’ble ITAT observed that amount in respect of liquidated damages was deducted on account of delay in terms of purchase order. Delay in delivery had occurred due to delay in terms of purchase order, delay in approvals of drawings by the customers and performance tests of the equipment, etc. In light of such facts, it was held that amounts paid as damages towards late delivery of goods are allowable as business expenditure.

[ACIT Vs. MAZDA LTD. – ITA Nos.1106 & 1750/Ahd/2012]