Allowability of compensation paid as a expense
This query is : Resolved
27 August 2013
Dear All,
ABC Pvt. Ltd Co entered into a Joint Venture with Mr X. But ABC Pvt Ltd was unable to execute the activities as per the JV and hence the Joint venture was cancelled. As per the JV agreement ABC Pvt Ltd was liable to pay compensation in the form of Interest on outstanding Deposit amounting to Rs 60 Lakhs.
The same was in kind (land was transferred to the Mr X by ABC Pvt Ltd's Partnership firm and the same debited to ABC's Current Account) Will this compensation be allowed as an expense to ABC Pvt Ltd?
ABC Pvt. Ltd Co entered into a Joint Venture with Mr X. But ABC Pvt Ltd was unable to execute the activities as per the JV and hence the Joint venture was cancelled. As per the JV agreement ABC Pvt Ltd was liable to pay compensation in the form of Interest on outstanding Deposit amounting to Rs 60 Lakhs.
The same was in kind (land was transferred to the Mr X by ABC Pvt Ltd's Partnership firm and the same debited to ABC's Current Account) Will this compensation be allowed as an expense to ABC Pvt Ltd?
28 August 2013
If it is penal in nature then will be disallowed and if compensatry in nature then may be allowed.
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