M/s Unicure (India) Pvt. Ltd., New Delhi V. ACIT, New Delhi

ITA 1519/DEL/2010

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 3814 (ITAT-DELHI)
• Duration Of Justice: 2 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-06-2010
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: H
• Next Hearing Date: 08-06-2010
• Assessment Year: 2006-2007
• Appeal Filed On: 07-04-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: R P MALL

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH `H: NEW DELHI BEFORE SHRI C.L.SETHI, JM & SHRI B.C. MEENA, AM I.T. A. NO.1519/DEL OF 2010 ASSESSMENT YEAR: 2006-07 M/S UNICURE (INDIA) P. LTD., ACIT, CIRCLE 18(1), C-677, NEW FRIENDS COLONY, VS NEW DELHI. NEW DELHI. APPELLANT RESPONDENT APPELLANT BY: SHRI R.P. MALL RESPONDENT BY: SHRI ANSHUMAN PATNAIK ORDER PER C.L. SETHI, JM: THE PRESENT APPEAL HAS BEEN FILED BY THE ASSESSEE B EING AGGRIEVED WITH THE ORDER DATED 15.1.2010 PASSED BY THE LEARNE D CIT(A) PERTAINING TO ASSTT. YEAR 2006-07. 2. THE ONLY ISSUE INVOLVED IN THIS APPEAL IS AS TO WHETHER THE ASSESSEES LIABILITY TOWARDS BANK GUARANTEE INVOKED BY GOVERNM ENT OF BIHAR IS CRYSTALLIZED ON 29.11.2004 OR 28.9.2005, AND CONSEQ UENTLY, THE DEDUCTION THEREOF, WHETHER SHOULD BE ALLOWED IN THE ASSTT. YE AR 2005-06 OR 2006-07 RESPECTIVELY. THE ASSESSEES CLAIM OF DEDUCTION OF RS.10,26,100/- TOWARDS BANK GUARANTEE INVOKED BY DIRECTOR OF SOCIAL WELFAR E, DEPTT. OF GOVT. OF BIHAR IN RELATION TO THE EXECUTION OF CONTRACT BY T HE ASSESSEE COMPANY HAS 2 BEEN DISALLOWED BY THE AO IN THE YEAR UNDER CONSIDE RATION BY GIVING REASON THAT THE LIABILITY HAD CRYSTALLIZED ON 29.11.2004 R ELEVANT TO THE ASSTT. YEAR 2005-06 AND NOT ON 28.9.05 RELEVANT TO THE ASSTT. Y EAR 2006-07, AS CLAIMED BY THE ASSESSEE. THE AO HAS STATED THAT DUE TO NON -EXECUTION OF THE CONTRACT WORK BY THE ASSESSEE COMPANY, DIRECTORATE OF SOCIAL WELFARE, DEPARTMENT OF THE GOVT. OF BIHAR, VIDE HIS LETTER DATED 29.11. 2004, INFORMED THE ASSESSEE TO INVOKE BANK GUARANTEE GIVEN BY THE ASSESSEE, AND , THUS, THE LIABILITY HAD CRYSTALLIZED ON 29.11.04, WHEN GOVT. OF BIHAR DECID ED AND INFORMED THE ASSESSEE TO INVOKE THE BANK GUARANTEE. ON THE OTHE R HAND, THE CASE OF THE ASSESSEE IS THAT HAVING RECEIVED THE LETTER DATED 2 9.11.04 FROM THE RESPECTIVE DEPARTMENT INTIMATING THE ASSESSEE THAT DEPARTMENT WAS INVOKING BANK GUARANTEE, THE ASSESSEE PREFERRED A WRIT PETITION B EFORE THE HONBLE HIGH COURT, AND IN PURSUANCE TO THE HONBLE HIGH COURT O RDER DATED 26.5.2005, THE ASSESSEE SUBMITTED ITS REPLY TO THE DIRECTORATE OF ICDS, PATNA, WHO FINALLY REJECTED THE ASSESSEES REQUEST VIDE ORDER DATED 28.9.2005, AND, THUS, ACCORDING TO THE ASSESSEE, THE LIABILITY WAS CRYSTA LLIZED ON 28.9.2005, WHEN FINAL ORDER WAS PASSED BY THE DIRECTORATE OF ICDS, PATNA, WHICH WAS NOT FURTHER CHALLENGED BY THE ASSESSEE. THE ASSESSEES CLAIM HAS BEEN REJECTED BY THE AO BY OBSERVING THAT SUBSEQUENT LITIGATION T AKEN UP BY THE ASSESSEE BY WAY OF FILING WRIT PETITION BEFORE THE HONBLE H IGH COURT MAKES NO 3 DIFFERENCE AS TO THE TIME AT WHICH THE LIABILITY HA D CRYSTALLIZED INASMUCH AS THE DECISION OF THE GOVT. OF BIHAR TO INVOKE THE BA NK GUARANTEE IS THE RELEVANT DETERMINING FACTOR FOR DECIDING THE TIME A S TO WHEN THE LIABILITY HAD ACTUALLY CRYSTALLIZED. THE AO, THEREFORE, TAKEN A V IEW THAT THE ASSESSEES LIABILITY TOWARDS BANK GUARANTEE HAD CRYSTALLIZED O N 29.11.04, RELEVANT TO THE ASSTT. YEAR 2005-06, AND, THEREFORE, THE SAME CANNO T BE ALLOWED IN THE PRESENT ASSTT. YEAR I.E. ASSTT. YEAR 2006-07. 3. ON AN APPEAL, LD. CIT(A) CONFIRMED AOS ORDER BY HOLDING THAT THE AMOUNT IN QUESTION GOT CRYSTALLIZED ON 29.11.2004, WHEN GOVT. OF BIHAR DECIDED AND INFORMED THE ASSESSEE ABOUT INVOCATION OF BANK GUARANTEE, AND MERE SUBSEQUENT ACT OF FILING OF WRIT PETITION DOES NOT HAVE MATERIAL BEARING ON THAT EVENT OR MAKES THE AMOUNT DISPUTED. 4. STILL AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFOR E US. 5. BOTH THE PARTIES WERE HEARD AND THE ORDERS OF TH E AUTHORITIES BELOW HAVE BEEN CAREFULLY PERUSED. 6. FROM THE FACTS EMERGING FROM THE ORDERS OF THE A UTHORITIES BELOW, IT IS CLEAR THAT THE ASSESSEE HAD ENTERED INTO A CONTRACT WITH THE DIRECTORATE OF SOCIAL WELFARE DEPARTMENT OF THE GOVT. OF BIHAR FOR EXECUTING CERTAIN CONTRACT WORKS. THERE WAS SOME DEFAULT ON THE PART OF THE ASSESSEE, WHICH 4 PROMPTED THE DEPTT. OF SOCIAL WELFARE, GOVT. OF BIH AR TO INVOKE THEIR RIGHT TO REVOKE THE BANK GUARANTEE GIVEN BY THE ASSESSEE FOR DUE PERFORMANCE OF THE CONTRACT WORK. IT IS, THUS, A CASE WHERE LIABI LITY TO THE ASSESSEE HAD ARISEN AS A RESULT OF CONTRACT BETWEEN THE ASSESSEE AND TH E DEPARTMENT OF SOCIAL WELFARE, GOVT. OF BIHAR. IN OTHER WORDS, THE LIABI LITY ARISING TO THE ASSESSEE IS IN THE NATURE OF A CONTRACTUAL LIABILITY AND NOT A STATUTORY LIABILITY. IN THE CASE OF CIT VS. SWADESHI COTTON AND FLOUR MILLS P. LTD. (1964) 53 ITR 134 (SC), THE HONBLE APEX COURT HAS HELD THAT AN EMPLO YER, WHO FOLLOWS THE MERCANTILE SYSTEM OF ACCOUNTING, INCURS A LIABILITY TOWARDS PROFIT BONUS ONLY WHEN THE CLAIM, IF MADE, IS SETTLED AMICABLY OR BY JUDICIAL ADJUDICATION. THIS DECISION HAS BEEN FOLLOWED BY THE HONBLE GUJA RAT HIGH COURT IN THE CASE OF ALEMBIC CHEMICAL WORKS LTD. VS DCIT, (2004) 266 ITR 47, WHERE THE HONBLE COURT HAS HELD THAT THE SETTLED POSITIO N IN LAW IS THAT IN CASE OF AN ASSESSEE FOLLOWING THE MERCANTILE SYSTEM OF ACCO UNTING, THE LIABILITY IS SAID TO BE PROPERLY INCURRED WHEN THE DISPUTE BETWE EN THE PARTIES IS AMICABLY SETTLED OR FINALLY ADJUDICATED, WHERE THE LIABILITY IN QUESTION IS NOT A STATUTORY LIABILITY. IN THAT CASE, IT WAS APPARE NT THAT THE LIABILITY WAS PENDING ADJUDICATION BY WAY OF APPEAL IN THE SUPREM E COURT, AND TILL THE POINT OF TIME THE SAME IS FINALLY ADJUDICATED, THE LIABILITY IN QUESTION WOULD REMAIN A CONTINGENT LIABILITY. FROM THE SAID DECIS ION, IT IS THUS, CLEAR THAT IN 5 CASE OF A CONTRACTUAL LIABILITY OTHER THAN THE CASE OF A STATUTORY LIABILITY, A LIABILITY IS SAID TO BE PROPERLY INCURRED, WHEN THE DISPUTE BETWEEN THE PARTIES IS AMICABLY SETTLED OR FINALLY ADJUDICATED, IF THE ASSESSEE HAS BEEN FOLLOWING THE MERCANTILE SYSTEM OF ACCOUNTING. THE PRESENT C ASE IS A CASE OF A CONTRACTUAL LIABILITY ARISING TO THE ASSESSEE. IT IS NOT THE CASE WHERE THE QUESTION ABOUT CRYSTALLIZATION OF ANY STATUTORY LIA BILITY IS INVOLVED. WE, THEREFORE, HAVE TO DECIDE THIS CASE HAVING REGARD T O THE NATURE OF LIABILITY, WHICH, IN THE PRESENT CASE, IS UNDOUBTEDLY A CONTRA CTUAL IN NATURE ARISING FROM A CONTRACT AGREEMENT FOR EXECUTING SOME WORK B Y THE ASSESSEE COMPANY. AS PER THE CONTRACT AGREEMENT, THE CONTRA CTEE I.E. THE DEPARTMENT OF SOCIAL WELFARE, GOVT. OF BIHAR, DECIDED TO INVOK E THE BANK GUARANTEE CLAUSE, WHEN IT WAS FOUND THAT THE ASSESSEE HAD FAI LED TO EXECUTE THE CONTRACT WORK AS PER THE TERMS AND CONDITIONS OF THE CONTRAC T AGREEMENT. THE DEPARTMENT INFORMED THE ASSESSEE ABOUT THEIR INTENT ION VIDE THEIR LETTER DATED 29.11.2004. BEING NOT SATISFIED WITH THE DECISION OF THE DEPARTMENT INTIMATED TO THE ASSESSEE VIDE LETTER DATED 29.11.2 004, THE ASSESSEE FILED A WRIT PETITION BEFORE THE HONBLE PATNA HIGH COURT, AND THE HONBLE HIGH COURT VIDE ORDER DATED 26.5.2005 ALLOWED THE ASSESS EE TO SUBMIT ITS REPLY TO THE DIRECTORATE OF ICDS, PATNA, WHICH WOULD BE CONS IDERED BY THE AUTHORITY CONCERNED IN ACCORDANCE WITH THE LAW. THE ASSESSEE THEN SUBMITTED ITS REPLY 6 TO THE DIRECTORATE OF ICDS, PATNA, WHO HEARD THE AS SESSEES CONTENTIONS AND SUBMISSIONS ON 19.8.2005, AND THEN FINALLY PASSED T HE ORDER ON 28.9.2005 REJECTING THE ASSESSEES CLAIM. THE ASSESSEE DID N OT FILE ANY FURTHER APPEAL AGAINST THE AFORESAID ORDER DATED 28.9.2005. IT IS , THUS, CLEAR THAT DISPUTE BETWEEN THE ASSESSEE AND THE DEPARTMENT OF SOCIAL W ELFARE WAS FINALLY ADJUDICATED WHEN THE DIRECTORATE OF ICDS, PATNA PAS SED ITS ORDER ON 28.9.2005 REJECTING THE ASSESSEES CLAIM. IT IS FU RTHER CLEAR THAT THOUGH THE DIRECTORATE OF ICDS, PATNA DECIDED TO INVOKE BANK G UARANTEE VIDE THEIR LETTER DATED 29.11.2004, BUT THE SAID DECISION WAS PENDING ADJUDICATION BY WAY OF WRIT FILED BY THE ASSESSEE BEFORE THE HONB LE HIGH COURT, AND TILL THE ASSESSEES REPRESENTATION WAS FINALLY DECIDED OR AD JUDICATED ON 28.9.2005, THE LIABILITY IN QUESTION COULD NOT BE SAID TO HAVE BEEN CRYSTALLIZED PRIOR TO 28.9.2005. WE, THEREFORE, HOLD THAT ASSESSEES LIAB ILITY TO PAY RS.10,26,100/- BY WAY OF REVOCATION OF BANK GUARANTEE ENCASHED BY THE GOVT. OF BIHAR HAD CRYSTALLIZED ON 28.9.2005 FALLING WITHIN THE PERIOD RELEVANT TO THE ASSTT. YEAR 2006-07. IN THIS VIEW OF THE MATTER, WE, THEREFORE , HOLD THAT THE ASSESSEE HAS RIGHTLY CLAIMED THE DEDUCTION TOWARDS THE LIABILITY IN QUESTION IN ASSTT. YEAR 2006-07, AND THAT IS TO BE ALLOWED. BE IT STATED H ERE THAT IT IS NOT IN DISPUTE THAT THIS LIABILITY WAS DEDUCTIBLE. THE DISPUTE WA S ONLY WITH REGARD TO WHETHER THE LIABILITY HAD CRYSTALLIZED ON 29.11.200 4, WHEN LETTER WAS ISSUED 7 BY THE DEPTT. OF SOCIAL WELFARE OR WHETHER ON 28.9. 2005, WHEN DIRECTORATE OF ICDS, PATNA FINALLY REJECTED THE ASSESSEES REQU EST IN PURSUANCE TO THE DIRECTIONS GIVEN BY THE HONBLE PATNA HIGH COURT. WE HAVE ALREADY TAKEN A VIEW THAT THE MATTER WAS FINALLY ADJUDICATED UPON O NLY ON 28.9.2205 WHEN A FINAL DECISION WAS TAKEN BY THE DIRECTORATE OF ICDS , PATNA AGAINST WHICH NO FURTHER APPEAL OR WRIT PETITION WAS FILED BY THE AS SESSEE. WE, THEREFORE, ALLOW THE ASSESSEES CLAIM BY REVERSING THE ORDERS OF THE AUTHORITIES BELOW ON THIS ISSUE. THE AO SHALL MODIFY THE ASSESSMENT ORDER ACCORDINGLY. 7. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. 8. THIS DECISION WAS PRONOUNCED IN THE OPEN COURT O N 11 TH JUNE, 2010. (B.C. MEENA) (C.L. SETHI) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 11 TH JUNE, 2010 VIJAY COPY TO: 1. APPELLANT. 2. RESPONDENT. 3. CIT 4. CIT(A)-XXI, NEW DELHI 5. DR ASSISTANT REGISTRAR