Assessee claimed a sum of Rs. 2.38cr by way of expenses in the nature of liquidated damages as such liability arose out of execution of a contract with HPCL. The contract contained a clause of payment where vendor was liable to pay 0.5% of the total contract value for every week subject to maximum of 5% of the total contract value in case execution of work got delayed. AO disallowed the claim treating the liability as contingent. The tribunal relying on Bharat Earth Movers Ltd. v. CIT (2000) 245 ITR 425 (SC) allowed the claim of the assessee. The HC held that delay being on the assessee’s part the liability had crystalized and it cannot be said to be contingent in nature. Further, section 74 of the Indian Contract Act (‘ICA’) does not limit its applicability to penalty stipulated in the contract but would cover cases where amount is paid in case of a breach of contract and reference to section 73 of ICA would not apply at all as the issue is covered by section 74 of the ICA. Hence, revenue’s appeal was dismissed.  (ITA No. 1534 of 2016 dt. 23-01-2019) (AY. 2007-08)