Nestor Pharmaceuticals Pvt. Ltd., New Delhi V. DCIT, New Delhi

CO 192/DEL/2013

• Counselvise Citation: [2015] 123 COUNSELVISE.COM (IT) 0540 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 4 month(s) 24 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 01-04-2015
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: E
• Next Hearing Date: 16-03-2015
• Assessment Year: 2004-2005
• Appeal Filed On: 07-11-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: P DAM KANUNJHA
• Assessee Lawyers: AMIT GOEL
• Section: 37(1); 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL DELHI DELHI DELHI DELHI BENCH BENCH BENCH BENCH E EE E : NEW DELHI : NEW DELHI : NEW DELHI : NEW DELHI BEFORE SHRI G.C. GUPTA BEFORE SHRI G.C. GUPTA BEFORE SHRI G.C. GUPTA BEFORE SHRI G.C. GUPTA, VICE , VICE , VICE , VICE PRESIDENT AND PRESIDENT AND PRESIDENT AND PRESIDENT AND SHRI SHRI SHRI SHRI T.S. KAPOOR T.S. KAPOOR T.S. KAPOOR T.S. KAPOOR, , , , ACCOUNTANT ACCOUNTANT ACCOUNTANT ACCOUNTANT MEMBER MEMBER MEMBER MEMBER ITA NO ITA NO ITA NO ITA NO. .. .3133/DEL/2013 3133/DEL/2013 3133/DEL/2013 3133/DEL/2013 ASSESSMENT YEAR ASSESSMENT YEAR ASSESSMENT YEAR ASSESSMENT YEAR : : : : 2004 2004 2004 2004- -- -05 0505 05 DEPUTY COMMISSIONER OF DEPUTY COMMISSIONER OF DEPUTY COMMISSIONER OF DEPUTY COMMISSIONER OF INCOME TAX, INCOME TAX, INCOME TAX, INCOME TAX, CIRCLE CIRCLE CIRCLE CIRCLE- -- -13(1), 13(1), 13(1), 13(1), NEW DELH NEW DELH NEW DELH NEW DELHI. I.I. I. VS. VS. VS. VS. M/S NESTOR PHARMACEUTICALS M/S NESTOR PHARMACEUTICALS M/S NESTOR PHARMACEUTICALS M/S NESTOR PHARMACEUTICALS PVT.LTD., PVT.LTD., PVT.LTD., PVT.LTD., B BB B- -- -24/3, OKHLA INDUSTRIAL AREA, 24/3, OKHLA INDUSTRIAL AREA, 24/3, OKHLA INDUSTRIAL AREA, 24/3, OKHLA INDUSTRIAL AREA, PHASE PHASE PHASE PHASE- -- -II, II,II, II, NEW DELHI NEW DELHI NEW DELHI NEW DELHI 110 020. 110 020. 110 020. 110 020. PAN : AAACN1574Q. PAN : AAACN1574Q. PAN : AAACN1574Q. PAN : AAACN1574Q. (APPELLANT) (RESPONDENT) CROSS OBJECTION CROSS OBJECTION CROSS OBJECTION CROSS OBJECTION NO NONO NO.192/DEL/2013 .192/DEL/2013 .192/DEL/2013 .192/DEL/2013 ASSESSMENT YEAR : ASSESSMENT YEAR : ASSESSMENT YEAR : ASSESSMENT YEAR : 2004 2004 2004 2004- -- -05 0505 05 M/S NESTOR PHARMACEUTICALS M/S NESTOR PHARMACEUTICALS M/S NESTOR PHARMACEUTICALS M/S NESTOR PHARMACEUTICALS PVT.LTD., PVT.LTD., PVT.LTD., PVT.LTD., B BB B- -- -24/3, OKHLA INDUSTRIAL AREA, 24/3, OKHLA INDUSTRIAL AREA, 24/3, OKHLA INDUSTRIAL AREA, 24/3, OKHLA INDUSTRIAL AREA, PHASE PHASE PHASE PHASE- -- -II, II,II, II, NEW DELHI NEW DELHI NEW DELHI NEW DELHI 110 020. 110 020. 110 020. 110 020. PAN : AAACN1574Q. PAN : AAACN1574Q. PAN : AAACN1574Q. PAN : AAACN1574Q. VS. VS. VS. VS. DEPUTY COMMISSIONER OF DEPUTY COMMISSIONER OF DEPUTY COMMISSIONER OF DEPUTY COMMISSIONER OF INCOME TAX, INCOME TAX, INCOME TAX, INCOME TAX, CENTRAL CIRCLE CENTRAL CIRCLE CENTRAL CIRCLE CENTRAL CIRCLE- -- -13, ROOM NO.406, 13, ROOM NO.406, 13, ROOM NO.406, 13, ROOM NO.406, C.R. BUILDING, I.P. ESTATE, C.R. BUILDING, I.P. ESTATE, C.R. BUILDING, I.P. ESTATE, C.R. BUILDING, I.P. ESTATE, NEW DELHI. NEW DELHI. NEW DELHI. NEW DELHI. (APPELLANT) (RESPONDENT) REVENUE BY : SHRI P. DAM KANUNJHA, SR.DR. ASSESSEE BY : SHRI AMIT GOEL, FCA. DATE OF HEARING : 16.03.2015 16.03.2015 16.03.2015 16.03.2015 DATE OF PRONOUNCEMENT : 01.04.2015 01.04.2015 01.04.2015 01.04.2015 ORDER ORDER ORDER ORDER PER G.C. GUPTA PER G.C. GUPTA PER G.C. GUPTA PER G.C. GUPTA, VP , VP , VP , VP : :: : THE APPEAL BY THE REVENUE AND THE CROSS-OBJECTION BY THE ASSESSEE FOR THE ASSESSMENT YEAR 2004-05 ARE DIRECT ED AGAINST THE ORDER OF LEARNED CIT(A)-XVI, NEW DELHI DATED 26 TH FEBRUARY, 2013. THESE ARE BEING DISPOSED OF WITH THIS CONSOLIDATED ORDER. ITA-3133/D/2013 & C.O.-192/D/2013 2 ITA NO.3133/DEL/2013 ITA NO.3133/DEL/2013 ITA NO.3133/DEL/2013 ITA NO.3133/DEL/2013 REVENUES APPEAL : REVENUES APPEAL : REVENUES APPEAL : REVENUES APPEAL :- -- - 2. THE GROUNDS OF APPEAL OF THE REVENUE ARE AS UNDE R:- 1. THE LD.CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION MADE ON ACCOUNT OF LIQUIDATE D DAMAGES OF RS.46,29,219/-. 2. THE LD.CIT(A) HAS ERRED IN LAW AND ON FACTS IN N OT APPRECIATING THE PROVISION LAID DOWN IN EXPLANATION TO SEC. 37(1) WHICH CLEARLY STATES THAT ANY AMOUNT PAI D FOR THE PURPOSE WHICH IS AN OFFENCE OR PROHIBITED BY AN Y LAW SHALL NOT BE ALLOWED AS EXPENDITURE INCURRED FO R BUSINESS PURPOSE. 3. THE LD.CIT(A) HAS ERRED IN LAW AND FACTS IN NOT APPRECIATING THE FACT THAT ANY COMPENSATION PAID BY THE PERSON FOR BREACH OR NON-FULFILLMENT OF CONTRACT IS A PENALTY ITSELF WITHIN THE PURVIEW OF CONTRACT ACT V IZ-A- VIZ INCOME TAX ACT. 3. LEARNED DR SUBMITTED THAT THERE WAS A VIOLATION OF THE TERMS OF CONTRACT FOR SUPPLY OF GOODS ON THE PART OF THE ASS ESSEE AND THEREFORE, THE EXPLANATION TO SECTION 37(1) CLEARLY APPLIES TO THE CASE OF THE ASSESSEE. HE SUBMITTED THAT COMPENSATION PAID BY T HE ASSESSEE FOR BREACH OR NON-FULFILLMENT OF THE CONTRACT IS IN ITS ELF A PENALTY AND THEREFORE, NOT ALLOWED AS PER THE SCHEME OF THE ACT . HE RELIED ON THE ORDER OF THE ASSESSING OFFICER. 4. LEARNED COUNSEL FOR THE ASSESSEE HAS OPPOSED THE SUBMISSIONS OF THE LEARNED DR. HE SUBMITTED THAT SIMILAR PAYME NTS MADE BY THE ASSESSEE FOR LIQUIDATED DAMAGES WERE ALLOWED BY THE ASSESSING OFFICER THROUGHOUT THE PRECEDING ASSESSMENT YEARS. HE SUBM ITTED THAT THE LIQUIDATED DAMAGES ARE NOT IN THE NATURE OF EXPENSE S MENTIONED IN EXPLANATION TO SECTION 37(1) OF THE INCOME-TAX ACT, 1961. HE RELIED ON THE ORDER OF LEARNED CIT(A). ITA-3133/D/2013 & C.O.-192/D/2013 3 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PER USED THE ORDER OF THE ASSESSING OFFICER AND THE LEARNED CIT(A). W E FIND THAT THE BASIC FACTS OF THE CASE ARE NOT IN DISPUTE. THE DISALLOW ANCE WAS MADE ON ACCOUNT OF LIQUIDATED DAMAGES. THESE WERE DUE TO N UMEROUS DEDUCTIONS AND FORFEITURES MADE BY DIFFERENT PURCHA SERS OF PHARMACEUTICAL GOODS ON ACCOUNT OF FAILURE OF THE A SSESSEE COMPANY TO DELIVER ALL OR ANY OF THE GOODS OR TO PERFORM SP ECIFIED TERMS AND CONDITIONS WITHIN THE SPECIFIED PERIOD IN THE CONTR ACT. WE FIND THAT THESE LIQUIDATED DAMAGES MADE BY THE ASSESSEE WERE IN THE NORMAL COURSE OF BUSINESS AND WERE INCIDENTAL TO CARRYING ON OF THE BUSINESS BY THE ASSESSEE. THE REVENUE COULD NOT SHOW A SING LE ITEM OF LIQUIDATED DAMAGES WHICH MAY HAVE BEEN INCURRED BY THE ASSESSEE IN VIOLATION OF THE PUBLIC POLICY OR IN THE FORM OF SO ME ILLEGAL PAYMENT MADE BY THE ASSESSEE. IN FACT, THE DAMAGES PAID TO THE PURCHASER FOR FAILURE OF THE ASSESSEE TO DELIVER WITHIN THE SPECI FIED TIME AND AS PER THE SPECIFIED TERMS AND CONDITIONS OF THE CONTRACT WERE COMPENSATION FOR FAILURE TO COMPLETE SPECIFIC TERMS OF THE CONTR ACT AND WERE VERY MUCH INCIDENTAL TO THE BUSINESS AND ALLOWABLE AS A DEDUCTION. LEARNED CIT(A) HAS REFERRED TO VARIOUS JUDICIAL PRONOUNCEME NTS ON THIS ISSUE. HE HAS ALSO REFERRED TO THE EARLIER ASSESSMENT YEAR 2003-04 AND SUBSEQUENT ASSESSMENT YEAR 2008-09 WHEREIN SIMILAR EXPENSES WERE ALLOWED AS A DEDUCTION. IN THESE FACTS, WE HOLD TH AT THERE IS NO MISTAKE IN THE ORDER OF LEARNED CIT(A) IN ALLOWING THE DEDUCTION OF LIQUIDATED DAMAGES AND, ACCORDINGLY, THE ORDER OF L EARNED CIT(A) ON THIS ISSUE IS CONFIRMED AND GROUNDS OF APPEAL OF TH E REVENUE ARE DISMISSED. ASSESSEES CROSS ASSESSEES CROSS ASSESSEES CROSS ASSESSEES CROSS- -- -OBJECTION NO.192/DEL/2013 : OBJECTION NO.192/DEL/2013 : OBJECTION NO.192/DEL/2013 : OBJECTION NO.192/DEL/2013 :- -- - 6. THE ONLY GROUND RAISED BY THE ASSESSEE IN ITS CR OSS-OBJECTION IS AS UNDER:- ITA-3133/D/2013 & C.O.-192/D/2013 4 ON THE FACTS AND CIRCUMSTANCES OF CASE AND IN LAW, THE COMMISSIONER OF INCOME TAX (APPEAL) ERRED IN NOT HOLDING THAT NOTICE U/S 148 ISSUED IN THIS CASE WAS ILLEGAL, VOID, WITHOUT JURISDICTION AND BARRED BY LIMITATION AND ACCORDINGLY ASSESSMENT ORDER PASSED ON THE FOUNDATION OF SUCH NOTICE WAS LIABLE TO BE QUAS HED. 7. THE LEARNED COUNSEL FOR THE ASSESSEE HAS NOT PRE SSED THIS GROUND OF THE CROSS-OBJECTION AND, ACCORDINGLY, THE SAME I S DISMISSED. 8. IN THE RESULT, THE APPEAL OF THE REVENUE AND THE CROSS-OBJECTION OF THE ASSESSEE ARE DISMISSED. DECISION PRONOUNCED IN THE OPEN COURT ON 1 ST APRIL, 2015. SD/- SD/- ( (( (T.S. KAPOOR T.S. KAPOOR T.S. KAPOOR T.S. KAPOOR) )) ) (G. (G. (G. (G.C. GUPTA C. GUPTA C. GUPTA C. GUPTA) )) ) ACCOUNTANT ACCOUNTANT ACCOUNTANT ACCOUNTANT MEMBER MEMBER MEMBER MEMBER VICE PRESIDENT VICE PRESIDENT VICE PRESIDENT VICE PRESIDENT VK. COPY FORWARDED TO: - 1. REVENUE : DEPUTY COMMISSIONER OF INCOME TAX , DEPUTY COMMISSIONER OF INCOME TAX, DEPUTY COMMISSIONER OF INCOME TAX, DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE CIRCLE CIRCLE CIRCLE- -- -13(1), NEW DELHI. 13(1), NEW DELHI. 13(1), NEW DELHI. 13(1), NEW DELHI. 2. ASSESSEE : M/S NESTOR PHARMACEUTICALS PVT.LT D., M/S NESTOR PHARMACEUTICALS PVT.LTD., M/S NESTOR PHARMACEUTICALS PVT.LTD., M/S NESTOR PHARMACEUTICALS PVT.LTD., B BB B- -- -24/3, OKHLA INDUSTRIAL AREA, 24/3, OKHLA INDUSTRIAL AREA, 24/3, OKHLA INDUSTRIAL AREA, 24/3, OKHLA INDUSTRIAL AREA, PHASE PHASE PHASE PHASE- -- -II, NEW DELHI II, NEW DELHI II, NEW DELHI II, NEW DELHI 110 020. 110 020. 110 020. 110 020. 3. CIT 4. CIT(A) 5. DR, ITAT ASSISTANT REGISTRAR