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If work is related to contracts, whether of capital or revenue nature, the liquidated damages deducted as per provisions of the contract is recorded under the account-head ‘provisional liability’ until final decision if the matter regarding charge of penalty is finally decided by the competent authority for recovery from the contractor, during the year, the amount laying under the account-head ‘Provisional liability’ is debited and asset account is credited in the case of capital jobs. If the job is revenue nature, the credit is given to the account-head ‘Repairs & Maintenance’. However, in case the competent authority decides to refund the penalty/liquidated damages amount recovered, the provisional liability account is debited by making payment to the contractor.
