The ACIT, Circle-4, Ahmedabad V. Hitachi Hi-Rel Power Electronics Ltd., Ahmedabad

ITA 2035/AHD/2012

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 94383 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-09-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 28-08-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 10-09-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: NARENDRA SINGH
• Keywords: Business expenditure
• Section: 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD B BENCH AHM E DABAD , BEFORE: SHRI ANIL CHATURVEDI, ACCOUNTANT MEMBER SHRI KUL BHARAT, JUDICIAL MEMBER I T A NO. 2035 /AHD/ 20 1 2 ASSESSMENT YEAR : 200 9 - 1 0 THE ASST. COMMISSIONER OF INCOME TAX, CIRCLE - 4, AHMEDABAD V/S . HITACHI HI - REL POWER ELECTRONICS LIMITED, B - 52, 5 TH FLOOR CORPORATE HOUSE, JUDGES BUNGLOW ROAD, AHMEDABAD - 380054 PAN NO. A A ACH3875M (APPELLANT) .. (RESPONDENT) / BY REVENUE SHRI NARENDRA SINGH, SR. D.R. / BY ASSESSEE SHRI SANJAY R. SHAH, A.R. / DATE OF HEARING 28 . 0 8 .201 5 / DATE OF PRONOUNCEMENT 10 .0 9 .201 5 O R D E R PER : KUL BHARAT, JUDICIAL MEMBER THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF CIT(A) - VIII , AHMEDABAD , DATED 2 9 .0 6 .201 2 PERTAINING TO ASSESSMENT YEARS 200 9 - 1 0 . THE REVENUE HAS RAISED FOLLOWING GROUNDS OF APPEAL: I TA NO. 2035 /AHD/ 1 2 A.Y. 0 9 - 1 0 ( ACIT VS. HITACHI HI - REL POWER ELECTRONICS LTD.) PAGE 2 1. THE LD.CIT( A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS. 24,66,317/ - ON ACCOUNT OF THE CLAIM OF THE ASSESSEE FOR LIQUIDATED DAMAGES AS A BUSINESS EXPENDITURE WITHOUT APPRECIATING FACT THAT THE CLAIM OF THE ASSESSEE FOR LIQUIDATED DAMAGES BEING THE SHORT PAYMENT BY THE ASSESSEE'S CUSTOMER FOR NOT DELIVERING THE GOODS WITHIN SPECIFIED DATE. THE SAID EXPENSES WERE IN THE NATURE OF PENALTY AND THE AO DISALLOWED THE SAME BY INVOKING PROVISIONS OF SECTION 37 OF THE ACT. 2. ON THE FACTS AND IN THE CIRCUMS TANCES OF THE CASE, THE LD. CIT(A) OUGHT TO HAVE UPHELD THE ORDER OF THE ASSESSING OFFICER. 3. IT IS, THEREFORE, PRAYED THAT THE ORDER OF THE LD. CIT(A) MAY BE SET ASIDE AND THAT OF THE ASSESSING OFFICER MAY BE RESTORED TO THE ABOVE EXTENT. 2 . BRIEFLY STATED FACTS ARE THAT THE CASE OF THE ASSESSEE WAS TAKEN UP FOR SCRUTINY ASSESSMENT AND ASSESSMENT U/S.143(3) OF THE INCOME TAX ACT, 1961, HEREINAFTER REFERRED TO AS THE ACT WAS FRAMED VIDE ORDER DATED 1 6.12.20 11 . WHILE FRAMING ASSESSMENT ASSESSING OFFICER MADE DISALLOWANCE OF LIQUIDATED DAMAGES OF RS.24,66,317/ - DISALLOWANCE U/S.14A OF THE ACT AMOUNTING TO RS.7,574/ - AND DISALLOWANCE MADE U/S.40(A)(IA) OF THE ACT AMOUNTING TO RS.4,0 2 , 210 / - . 3. AGAINST THIS ASSESSEE PREFERRED APPEAL BEFORE THE CIT( A) WHO AFTER CONSIDERING THE SUBMISSIONS PARTLY ALLOWED THE APPEAL. WHILE PARTLY ALLOWING THE APPEAL, LD. CIT(A) ALLOWED THE LIQUIDITY DAMAGES OF RS.24,66,317/ - AND CONFIRMED THE DISALLOWANCE OF RS.7,574/ - AND DISALLOWANCE MADE ON ACCOUNT OF NON - DEDUCTION OF TAX WAS ALLOWED SUBJECT TO VERIFICATION. 4. THE ONLY GROUND IN THIS APPEAL IS AGAINST DELETION OF DISALLOWANCE OF RS.24,66,317/ - QUA THE LIQUIDATED DAMAGES . LD. DR VEHEMENTLY ARGUED THAT LD. CIT( A) WAS NOT JUSTIFIED IN DELETING THIS DISALLOWANCE. HE HEAVILY SUPPORTED THE ORDER OF THE ASSESSING OFFICER AND SUBMITTED THAT ASSESSING OFFICER HAS RECORDED IN THE ASSESSMENT ORDER THAT THE ASSESSEE HAS CLAIMED AN AMOUNT OF RS.24,66,317/ - ON ACCOUNT OF L IQUIDATED DAMAGES. THE ASSESSING OFFICER HAS RECORDED THAT THE ASSESSEE FAILED TO DEMONSTRATE THAT THE EXPENDITURE WAS I TA NO. 2035 /AHD/ 1 2 A.Y. 0 9 - 1 0 ( ACIT VS. HITACHI HI - REL POWER ELECTRONICS LTD.) PAGE 3 INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. HE SUBMITTED THAT IT IS NOT THE NORMAL INCIDENT OF THE ASSESSEE TO INVOLVE INTO GOODS AND DELAY IN SUPPLY OF GOODS AND PAY THE DAMAGES OF BREACH OF THE CONTRACT AS BUSINESS EXPENDITURE. ON THE CONTRARY, LD. COUNSEL FOR THE ASSESSEE SUPPORTED THE ORDER OF LD. CIT(A) AND SUBMITTED THAT THERE IS NO ILLEGALITY INTO ORDER OF LD. CIT (A). HE SUBMITTED THAT THE EXPENDITURE WAS INCURRED IN THE NORMAL COURSE OF BUSINESS. HE SUBMITTED THAT THE PENALTY WAS PAID UNDER A CONTRACT. THERE WAS NO STATUTORY PENALTY AS SUCH. HE SUBMITTED THAT OWING TO THE UNFORESEEN CIRCUMSTANCES, THE GOODS WE RE DELAYING IN SUPPLY THERE. AS PER THE CONTRACT, ASSESSEE WAS REQUIRED TO PAY DAMAGES TO SUCH PARTIES. HE SUBMITTED THAT THE ASSESSING OFFICER HAS COMPLETELY MIS - DIRECTED HIMSELF AND MADE DISALLOWANCE. 5 . WE HAVE HEARD THE RIVAL CONTENT IONS AND PERUSED THE MATERIAL ON RECORD AND GONE THROUGH THE ORDERS OF AUTHORITIES BELOW . THERE IS NO DISPUTE WITH REGARD TO THE FACT THAT THE GOODS WERE REQUIRED TO BE SUPPLIED DURING THE NORMAL COURSE OF BUSINESS. IT IS NOT DISPUTED BY THE REVENUE THAT AS PER CONTRACT, IN CASE ASSESSEE FAILS TO DELIVER THE GOODS IN TIME, ASSESSEE WAS REQUIRED TO PAY PENALTY ON SUCH DELAY. NOW THE QUESTION IS WHETHER ASSESSEE IS ENTITLED TO GET DEDUCTION OF SUCH PAYMENTS MADE IN PURSUANCE OF THE CONTRACT OR NOT. THIS FACT IS NOT DISPUTED BY THE ASSESSING OFFICER THAT GOODS WERE REQUIRED TO BE SUPPLIED BY THE ASSESSEE. THEREFORE, SUPPLY OF GOODS IS BUSINESS OF ASSESSEE. IN A COMMERCIAL CONTRACT, IF ASSESSEE FAIL S TO COMPLY WITH TIME LIMIT, HE WOULD BE LIABLE TO PAY PENALTY TO THE PARTY TO WHOM SUCH GOODS WERE SUPPLIED BELATEDLY. AS IN THE NORMAL COURSE OF BUSINESS DELAY IN SUPPLY OF GOODS MAY CAUSE LOSS TO RE CEIVER OF THE GOODS. THEREFORE, THIS ARRANGEMENT IS PURELY ON THE BASIS OF THE CONTRACT OF THE PARTIES. IN OUR CONSIDERED VIEW THE PENALTY PAID FOR DELAY IN SUPPLY OF GOODS IN AGREED TIME IS AN EXPENDITURE RELATED TO THE BUSINESS OF THE ASSESSEE. UNDISP UTEDLY, UNDER NORMAL ROUTINE SUCH DELAY OCCUR DUE TO TRANSPORTATION HAZARDS ETC., THEREFORE, SUCH PAYMENTS ARE NOTHING BUT LIQUIDATED I TA NO. 2035 /AHD/ 1 2 A.Y. 0 9 - 1 0 ( ACIT VS. HITACHI HI - REL POWER ELECTRONICS LTD.) PAGE 4 DAMAGES PAID DUE TO FAILURE TO MEET THE DEADLINE OF CONTRACT. THE ASSESSING OFFICER HAS NOT BROUGHT OUT ANY MATERIAL ON RE CORD THAT THE PAYMENTS MADE CAME BACK TO THE ASSESSEE OR IT WAS ONLY SHAM TRANSACTION. UNDER THE S E FACTS, WE DO NOT SEE ANY REASON TO INTERFERE INTO THE ORDER OF LD. CIT(A). SAME IS HEREBY CONFIRMED. THE GROUND RAISED IN THIS APPEAL IS REJECTED. 6. GRO UND NOS. 2 & 3 ARE GENERAL IN NATURE AND NEEDS NO SEPARATE ADJUDICATION. 7 . IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMISSED . TH I S ORDER PRONOUNCED IN OPEN COURT ON 10 TH SEPTEMBER 2015 SD/ - SD/ - (A NIL CHATURVEDI ) ( KUL BHARAT ) ACCOUNTANT MEMBER JUDICIAL MEMBER TRUE COPY S.K.SINHA / COPY OF ORDER FORWARDED TO: - 1. / APPELLANT 2. / RESPONDENT 3. / CONCERNED CIT 4. - / CIT (A) 5. , , / DR, ITAT, AHMEDABAD 6. / GUARD FILE. BY ORDER/ , / ,