GEETA PRABHUDAS PAWANI, MUMBAI V. ITO WD 23(2)(3), MUMBAI

ITA 1915/MUM/2012

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 83878 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 6 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-09-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Next Hearing Date: 23-09-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 21-03-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R N DSOUZA
• Assessee Lawyers: SUBODH RATNAPARAKHI

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL 'G' BENCH, MUMBAI BEFORE SHRI D. MANMOHAN, VICE PRESIDENT AND SHRI D. KARUNAKARA RAO, ACCOUNTANT MEMBER ITA NO. 1915/MUM/2012 (ASSESSMENT YEAR: 2007-08) MS. GEETA PRABHUDAS PAWANI VS. INCOME TAX OFFICER, WD 23(2)(3) PAWANI PLOT, NEAR VIPUL APT. BHAKTI MARG, MULUND (W) MUMBAI 400080 ROOM NO. 24, C-10 PRATYAKSHA KAR BHAVAN, BANDRA KURLA COMPLEX, MUMBAI 400051 PAN - AAFPP8765Q APPELLANT RESPONDENT APPELLANT BY: SHRI SUBODH RATNAPARAKHI RESPONDENT BY: SHRI R.N. D'SOUZA DATE OF HEARING: 23.09.2014 DATE OF PRONOUNCEMENT: 23.09.2014 O R D E R PER D. MANMOHAN, V.P. THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 22.12.2011 PASSED BY CIT(A)-11, MUMBAI AND IT PERTA INS TO AY 2007-08. 2. FOLLOWING GROUNDS WERE RAISED BEFORE US: - 1A. THE LD. CIT (APPEALS) ERRED IN CONFIRMING THE ADDITION OF RS.6,60,238/- AS LIQUIDATED DAMAGES WORKED OUT @ 48% OF OUTSTANDING INTEREST LIABILITY BY HOLDING THE SAID AMOUNT TO BE THE INCOME OF THE APPELLANT FOR THE YEAR UNDER APPEAL . 1B. THE LD. CIT (APPEALS) ERRED IN NOT APPRECIATING THAT THE TERMS OF THE ORIGINAL LOAN AGREEMENT WERE MODIFIED BY THE PA RTIES AND THAT THE RIGHT TO LIQUIDATED DAMAGES WAS WAIVED BY THE APPELLANT IN PURSUANCE THEREOF AND THAT IN ABSENCE OF REAL I NCOME ADDITION COULD NOT BE SUSTAINED. 1C. THE LD. CIT (APPEALS) ERRED IN FOLLOWING THE OR DER OF HIS PREDECESSOR FOR EARLIER ASST. YEARS AND NOT INDEPEN DENTLY DECIDING THE GROUND BEFORE HIM. 3. FACTS NECESSARY FOR DISPOSAL OF THE APPEAL ARE AS U NDER. ASSESSEE ADVANCED A LOAN OF ` 6 CRORES TO M/S. ENTERPRISE TRADING CO. SUBJECT TO CERTAIN TERMS AND CONDITIONS. AS PER THE TERMS, IF THE BORROWER FAILS TO REPAY ITA NO. 1915/MUM/2012 MS. GEETA PRABHUDAS PAWANI 2 THE DEBTS IT WOULD AMOUNT TO DEFAULT IN WHICH EVENT THE BORROWER WAS LIABLE TO PAY LIQUIDATED DAMAGES AT THE RATE OF 48% ON THE OUTSTANDING LIABILITY. THE AMOUNT WAS REPAYABLE ON 17 TH MARCH, 1997. SINCE IT WAS NOT REPAID IT IS A CLEAR CASE OF DEFAULT AND ACCORDING TO THE AO ASS ESSEE IS ENTITLED TO LIQUIDATED DAMAGES, WHICH WAS NOT OFFERED TO TAX. 4. ON THE OTHER HAND, THE CASE OF THE ASSESSEE WAS THA T EVEN THE INTEREST AMOUNT WAS OUTSTANDING AND DOUBTFUL OF RECOVERY. TH EREFORE IT WAS CONSIDERED PRUDENT NOT TO CHARGE LIQUIDATED DAMAGES OVER AND ABOVE THE INTEREST AMOUNT OUTSTANDING. UNDER THESE CIRCUMSTAN CES THERE IS NO ACCRUAL OF LIQUIDATED DAMAGES. THE AO REJECTED THE CONTENTI ON OF THE ASSESSEE AND BROUGHT TO TAX A SUM OF ` 6,60,238/- REFERABLE TO LIQUIDATED DAMAGES NOT OFFERED TO TAX. ASSESSEE CHALLENGED THE ORDER PASSE D BY THE AO AND CONTENDED BEFORE THE CIT(A) THAT BASED ON REAL INCO ME PRINCIPLE LIQUIDATED DAMAGES, AS PER TERMS OF THE AGREEMENT, SHOULD NOT HAVE BEEN BROUGHT TO TAX. THE LEARNED CIT(A) REJECTED THE CONTENTION OF THE ASSESSEE BY OBSERVING AS UNDER: - 3.2 DURING APPAL, THE LD. AR HAS REITERATED THE SU BMISSION MADE BEFORE THE AO AND HAS ARGUED THAT THE APPEAL BE ALL OWED. IT IS SEEN THAT IN A CASE OF THE ASSESSEE IN ASSESSMENT YEARS 2002-03, 2004-05 AND 2005-06, CIT(A)-33, MUMBAI, VIDE ORDER NO. CIT( A)-33/IT/1375, 1477 & 378/09-10 DT. 16.11.2010, IN SECOND GROUND O F APPEAL HAS DECIDED THE ISSUE OF TAXABILITY OF LIQUIDATED DAMAG ES BEING TAXABLE AS INCOME AND IN PARA 4.4 ONWARDS HAD EXAMINED THE FAC TS AND HAS HELD AS UNDER: - IN VIEW OF THIS, THE ACTION OF THE ASSESSING OFFIC ER FOR THE ADDITION MADE FOR LIQUIDATED DAMAGES @48% OF OUTSTANDING LIA BILITY, AN AMOUNT OF RS.63,87,752/- FOR A.Y.2002-03, RS.63,87, 752/- FOR A.Y. 2004-05 AND RS.25,38,496/- FOR A.Y. 2005-06 WHICH W AS ENVISAGED IN THE ORIGINAL AGREEMENT DT. 19,09.1996 AND HENCE ACCRUED TO THE APPELLANT IS UPHELD. THUS, THE ASSESSEE IS IN APPEAL BEFORE US. 5. AT THE TIME OF HEARING THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ITAT G BENCH, MUMBAI, IN ASSESSEES OWN CASE FOR ASSESSMENT YEARS 2002-03 TO 2005-06, OBSERVED THAT AS PER THE REVISED TERMS AND CONDITIONS, AGREED BETWEEN THE PARTIES, ASSESSEE HA D FOREGONE THE LIQUIDATED DAMAGES AND HENCE NO INCOME CAN BE STATED TO HAVE B EEN ACCRUED ON ITA NO. 1915/MUM/2012 MS. GEETA PRABHUDAS PAWANI 3 ACCOUNT OF LIQUIDATED DAMAGES. (ITA NO. 1578, 1579 & 1580/MUM/2011 FOR AY 2002-03, 2004-05 & 2005-06 & ITA NO. 4633/MUM/20 11 FOR AY 2003- 04). THE LEARNED COUNSEL SUBMITTED THAT THE ISSUE S TANDS SQUARELY COVERED BY THE DECISION OF THE ITAT IN ASSESSEES OWN CASE CITED SUPRA. 6. THE LEARNED D.R., ON THE OTHER HAND, RELIED UPON TH E ORDERS PASSED BY THE TAX AUTHORITIES. 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND CAREFULLY P ERUSED THE RECORD. CONSISTENT WITH THE VIEW TAKEN BY THE ITAT G BENC H, MUMBAI IN ASSESSEES OWN CASE FOR EARLIER ASSESSMENT YEARS WE ARE OF THE VIEW THAT THE AO IS NOT JUSTIFIED IN BRINGING TO TAX THE ALLEGED LIQUIDATED DAMAGES IN THE YEAR UNDER CONSIDERATION. WE, THEREFORE, SET ASIDE THE ADDITIO N AND ALLOW THE APPEAL FILED BY THE ASSESSEE. ORDER PRONOUNCED IN THE OPEN COURT ON 23 RD SEPTEMBER, 2014. SD/- SD/- ( D. KARUN AKARA RAO ) (D. MANMOHAN) ACCOUNTANT MEMBER VICE PRESIDENT MUMBAI, DATED: 23 RD SEPTEMBER, 2014 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) 11, MUMBAI 4. THE CIT 23, MUMBAI CITY 5. THE DR, G BENCH, ITAT, MUMBAI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI N.P.