M/s AES Solar Energy Gujarat Pvt. Ltd., Gurgaon V. DCIT, Gurgaon

ITA 2569/DEL/2016

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 4671 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 4 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-09-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: E
• Next Hearing Date: 20-06-2017
• Assessment Year: 2012-2013
• Appeal Filed On: 06-05-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: R C DANDAYA
• Assessee Lawyers: SALIL KAPOOR MS ANANYA KAPOOR; SAUMYA SINGH S
• Keywords: Capital asset; Depreciation; Opportunity of being heard; Capital receipt; Revenue expenditure
• Section: 143(3); 80HHC; 234B; 147; 148; 139

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH : E , NEW DELHI BEFORE SH. H.S. SIDHU, JUDICIAL M EMBER AND SH. O.P. KANT , ACCOUNTANT MEMBER ITA NO. 2569/ DE L/ 2016 ASSESSMENT YEAR : 2012 - 13 M/S. AES SOLAR ENERGY GUJARAT PVT. LTD., VISION DEVOTE BUSINESS CENTRE, 4 TH FLOOR, TIMES SQUARE, B BLOCK, SUSHANT LOK - 1, GURGAON VS. DCIT, CIRCLE - 1(1), GURGAON. PAN : AAICA5444K (APPELLANT) (RESPONDENT) APPELLANT BY SH. SALIL KAPOOR, MS. ANANYA KAPOOR & MS. SAUMYA SINGH, ADVOCATES RESPONDENT BY SH. R.C. DAND A YA, SR.DR DATE OF HEARING 12.07.2017 DATE OF PRONOUNCEMENT 11.09.2017 ORDER PER O.P. KANT , A. M. : THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST ORDER DATED 17/02/2016 OF THE COMMISSIONER OF INCOME - TAX (APPEALS) - I, GURGAON [IN SHORT THE CIT - (A) ] FOR ASSESSMENT YEAR 2012 - 13 , RAISING FOLLOWING GROUNDS: THE GROUNDS OF APPEAL LISTED BELOW ARE WITHOUT PREJUDICE TO EACH OTHER. 1. THE ORDER OF THE COMMISSION OF INCOME - TAX (APPEALS) ('CIT(A) ) IS ERRONEOUS, BAD IN LAW, PREJUDICIAL TO THE APPELLANT AND CONTRARY TO THE FACTS & CIRCUMSTANCES OF THE CASE. ISSUE 1 - TREATMENT OF LIQUIDATED DAMAGES RECEIVABLE FROM ENFINITY SOLAR SOLUTIONS PRIVATE LIMITED, ON ACCOUNT OF DELAY IN 2 ITA NO . 2569/DEL/2016 C ONSTRUCTION OF THE SOLAR POWER PLANT, AS REVENUE RECEIPT CHARGEABLE TO TAX . 2. THE LEARNED ASSESSING OFFICER ( AO ) HAS ERRED IN HOLDING THAT THE LIQUIDATED DAMAGES, AMOUNTING TO RS.7,58,05,766/ - RECEIVABLE FROM ENFINITY SOLAR SOLUTION PVT. LTD. ON ACCOUN T OF THE DELAY IN THE CONSTRUCTION OF THE SOLAR POWER PLANT IS IN THE NATURE OF REVENUE RECEIPT. 3. THE LEARNED AO HAS ERRED IN NOT APPRECIATING THE FACT THAT THE SAID LIQUIDATED DAMAGES ARE RECEIVABLE ON ACCOUNT OF DELAY IN CONSTRUCTION OF THE SOLAR POWE R GENERATING PLANT (IE THE CAPITAL ASSET) AND HENCE IS IN THE NATURE OF CAPITAL RECEIPT NOT CHARGEABLE TO TAX. 4. WITHOUT PREJUDICE TO THE FACT THAT THE LIQUIDATED DAMAGES ARE IN THE NATURE OF CAPITAL RECEIPT NOT CHARGEABLE TO TAX, THE LEARNED AO HAS ERRE D IN TREATING SUCH LIQUIDATED DAMAGES AS REVENUE RECEIPTS INSTEAD OF REDUCING THE LIQUIDATED DAMAGES FROM THE COST OF THE ASSET. 5. THE LEARNED AO, WITHOUT APPRECIATING THE FACT THAT THE APPELLANT HAS REDUCED THE LIQUIDATED DAMAGES FROM THE COST OF THE A SSET AND CLAIMED DEPRECIATION ON SUCH REDUCED COST, HAS ERRED IN NOT ALLOWING THE CLAIM OF INCOME - TAX DEPRECIATION ON THE COST OF ASSETS WITHOUT REDUCING THE LIQUIDATED DAMAGES SOUGHT TO BE TAXED AS REVENUE RECEIPT. 6. THE LEARNED AO, HAVING TREATED THE L IQUIDATED DAMAGES RECEIVABLE AS REVENUE RECEIPT CHARGEABLE TO TAX, HAS ERRED IN NOT ALLOWING DEDUCTION ON ACCOUNT OF THE LIQUIDATED DAMAGES PAYABLE BY THE APPELLANT TO ITS CUSTOMER. ISSUE 2 - DISALLOWANCE OF THE DEPRECIATION ON PLANT AND MACHINERY 7. THE LEARNED AO HAS ERRED IN DISALLOWING DEPRECIATION AMOUNTING TO RS 4,02,28,060/ - , ON SOLAR POWER PLANT WHICH WAS PUT TO USE DURING THE SUBJECT AY. THE LEARNED AO HAS ERRED IN DISALLOWING THE DEPRECIATION CLAIMED ON THE SOLAR POWER PLANT WITHOUT CONSIDERING THE COMMISSIONING CERTIFICATE ISSUED BY GUJARAT ENERGY DEVELOPMENT AGENCY, A GOVERNMENT OF GUJARAT ORGANIZATION. 9. WITHOUT PREJUDICE TO THE FACT THAT THE SOLAR POWER PLANT WAS ACTUALLY PUT TO USE DURING THE SUBJECT AY, THE LEARNED AO HAS ERRED IN 3 ITA NO . 2569/DEL/2016 DISALLO WING DEPRECIATION ON SOLAR POWER PLANT WHICH WAS READY FOR USE DURING THE SUBJECT AY. ISSUE 3 - DEDUCTION UNDER SECTION 80 - IA OF THE INCOME - TAX ACT. 1961 ( THE ACT ) 10. WITHOUT PREJUDICE TO THE ABOVE, THE LEARNED AO OUGHT TO HAVE ALLOWED DEDUCTION UNDER SECTION 80 - IA OF THE ACT ON THE ASSESSED INCOME. ISSUE 4 - CONSEQUENTIAL LEVY OF INTEREST . 11. THE LEARNED AO OUGHT TO HAVE APPRECIATED THE FACT THAT INTEREST UNDER SECTION 234C OF THE ACT IS COMPUTED ON THE RETURNED INCOME AND NOT ON THE ASSESSED INCOME. 12. CONSEQUENTLY, THE LEVY OF INTEREST UNDER SECTION 234B AND SECTION 234C IS ERRONEOUS AND BAD IN LAW. THE APPELLANT CRAVES LEAVE TO ADD, TO AMEND, TO ALTER, TO DELETE, TO MODIFY, TO SUBSTITUTE, TO WITHDRAW ALL OR ANY OF THE ABOVE GROUNDS OF APP EAL AS IT MAY BE ADVISED TO DO SO. 2. THE FACTS IN BRIEF OF THE CASE ARE THAT DURING RELEVANT PERIOD, THE ASSESSEE COMPANY ENTERED INTO THE BUSINESS OF GENERATION OF ELECTRICITY FROM SOLAR POWER PLANT IN THE STATE OF GUJARAT. THE ASSESSEE COMPANY FILED RETURN OF INCOME DECLARING LOSS OF RS.1,30,14,985/ - ON 30/11/2012. THE CASE WAS SELECTED FOR SCRUTINY AND NOTICE UNDER SECTION 143(2) OF THE INCOME T AX ACT, 1961 (IN SHORT THE ACT ) WAS ISSUED AND COMPLIED WITH. IN THE ASSESSMENT COMPLETED UNDER SECTION 143(3) OF THE ACT ON 21/01/2015, THE LD. ASSESSING OFFICER ASSESSED TOTAL INCOME AT RS.10,66,48,840/ - AFTER MAKING CERTAIN ADDITIONS/DISALLOWANCES. AGGRIEVED THE ASSESSEE, FILED APPEAL BEFORE THE LD. CIT - (A), WHO PARTLY ALLOWED THE APPEAL OF THE ASSESSEE. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL RAISING THE GROUNDS AS REPRODUCED ABOVE. 3. IN GROUNDS NO. 1 TO 6, THE ASSESSEE IS AGGRIEVED WITH FINDING OF THE LD. ASSESSING OFFICER AND THE LD. CIT - (A) THAT THE LIQUIDATED DAMAGE 4 ITA NO . 2569/DEL/2016 RECEIVED/RECEIVABLE BY THE ASSESSEE , IS REVENUE RECEIPT CHARGEABLE TO TAX. 4. THE FACTS IN RESPECT OF ISSUE IN DISPUTE ARE THAT THE ASSESSEE ENTERED INTO A POWER PURCHASE AGREEMENT W ITH THE GOVERNMENT OF GUJARAT ( IN SHORT THE PPA ) ON 29/05/2010 FOR SUPP LY OF POWER IN A TIME BOUND MANNER AND DATE OF COMMISSIONING OF POWER PLANTS WERE FIXED AS 30/06/2011 FOR 3MW AND 31/12/2011 FOR 12MW. THE PPA CONTRACT AGREEMENT WAS CONTAINING A CLAUSE FOR LI ABILITY OF LIQUIDATED DAMAGES I.E. IF THE PLANT WAS NOT COMMIS SIONED ON SCHEDULE DATES. FO R COMMISSIONING OF THESE PLANTS , THE ASSESSEE ENTERED INTO AN ENGINEERING, PROCUREMENT, CONSTRUCTION (EPC) CONTRACT WITH M/S. ENFINITY SOLAR S OLUTIONS PRIVATE L IMITED ( IN SHORT THE ENFINITY ). THE EPC CONTRACT ALSO CONTAINED CONDITION FOR LIABILITY OF LIQUIDATED DAMAGES PAYABLE TO THE ASSESSEE IN CASE OF DELAY IN COMPLETION OF THE EPC CONTRACT. DURING THE ASSESSMENT YEAR UNDER CONSIDERATION, IN ACCORDANCE WITH THE EPC CONTRACT, AN AMOUNT OF RS.7, 58,05, 766/ - WAS RECEI VABLE AS LIQUIDATED DAMAGES BY THE ASSESSEE COMPANY FROM M/S ENFINITY FOR DELAY IN CONSTRUCTION OF THE SOLAR POWER PLANTS. THE ASSESSEE ADJUSTED THE LIQUIDATED DAMAGES RECEIVABLES AGAINST THE COST OF SOLAR POWER PLANT ON THE GROUND THAT SUCH LIQUIDATED D AMAGES ARE RELATED TO THE CONSTRUCTION OF THE SOLAR POWER PLANT. ACCORDING TO THE ASSESSEE THE AMOUNT REPRESENTS A PAYMENT MADE FOR STERILIZATION OF THE PROFIT EARNING SOURCE AN D THUS IT WAS CAPITAL IN NATURE. IN THE ALTERNATI VE, THE ASSESSEE CLAIMED THAT IF SUCH LIQUIDATED DAMAGES ARE SOUGHT TO BE TAXED AS REVENUE IN NATURE, THEN DEDUCTION UNDER SECTION 80 I OF THE ACT SHOULD BE ALLOWED ON THIS AMOUNT, WHILE COMPUTING THE TAXABLE PROFITS. THE ASSESSING OFFICER REJECTED THE CONTENTION OF THE ASSESSEE HOLDING THAT DELAY DAMAGES ARE DUE TO DELAY IN COMPLETION OF THE WORK, WHICH DELAYED GENERATION OF THE ELECTRICITY AND FOR THAT PERIOD OF DELAY THE COMPANY SUFFERED LOSS OF 5 ITA NO . 2569/DEL/2016 REVENUE BY I T FROM SALE OF ELECTRICITY, AND, THEREFORE , THE LIQUIDATED DAMAGES RECEIVED ARE REVENUE IN NATURE. BEFORE THE LEARNED CIT - (A) , THE ASSESSEE RELIED ON THE DECISION OF THE HON BLE SUPREME COURT IN THE CASE OF COMMISSIONER OF INCOME T AX VS. SAURASHTRA C EMENT LTD . (325 ITR 422) (SC) AND SUBMITTED THAT DAMAGES WHICH ARE DIRECTLY LINKED WITH THE PROCUREMENT OF A CAPITAL ASSET AND ATTRIBUTABLE TO DELAY IN COMING IN EXISTENCE OF A PROFIT - MAKING APPARATUS, REPRESENTS COMPENSATION FOR STERILIZATION OF THE PROFIT EARNING SOURCE AND THER EFORE CAPITAL IN NATURE. THE LD. CIT - (A) , HOWEVER , OBSERVED THAT THE ASSESSEE ALSO ENTERED INTO A PPA CONTRACT WITH THE G OVERNMENT OF GUJARAT WHICH CONTAIN ED CLAUSES PROVIDING PER DAY AND PER MEGAWATT COMPENSATION/DAMAGES FOR ANY DELAY IN COMMISSIONING O F THE PLANT. THE LD. CIT - (A) DISTINGUISHED THE FACTS OF THE INSTANT CASE FROM THE FACTS OF THE CASE OF COMMISSIONER OF INCOME TAX VERSUS SAURASHTRA CEMENT LTD . (SUPRA). THE RELEVANT FINDING OF THE LD. CIT - (A) ON THE ISSUE IN DISPUTE IS REPRODUCED AS UNDER: 4.6 THUS, IN THE PRESENT CASE, THERE IS A CONTRACT BETWEEN THE APPELLANT AND THE GOVERNMENT (PPA) WHICH CONTAIN IS BACKED UP BY (HEDGED BY) ANOTHER CONTRACT BETWEEN THE APPELLANT AND THE SUPPLIER OF THE MACHINERY THAT IS AFFINITY* SOLAR. BOTH THESE CONTRACTS A RE BACK - TO - BACK AND THE NEED TO BE READ ALONG WITH EACH OTHER AND THESE CONTRACTS WERE PART OF THE BUSINESS PROCESS OF THE APPELLANT. NONE OF THESE CONTRACTS WOULD HAVE WORKED INDEPENDENTLY BECAUSE THEY WERE INTERCONNECTED AND INTERLINKED. UNDER SUCH CIRCU MSTANCES, ANY DEFAULT HAPPENING IN ANY PART OF EPC CONTRACT WOULD HAVE RESULTED IN CONSEQUENCES INTO THE OTHER ONE. THE ABOVE MENTIONED SPECIAL CIRCUMSTANCES MAKE THIS CASE DISTINGUISHABLE FROM THE FACTS OF THE CASE AS QUOTED BY THE APPELLANT ABOVE. THE RA TIO GIVEN IN THE ABOVE - MENTIONED JUDGMENT APPLIES TO THE PRESENT CASE IN DIFFERENT MANNER BECAUSE HON'BLE SUPREME COURT IN THE CASE OF COMMISSIONER OF INCOME TAX SAURASHTRA CEMENT LTD . (325 ITR 422) (SC) HAS OBSERVED AS UNDER: 6 ITA NO . 2569/DEL/2016 THE QUESTION WHETHER A PARTI CULAR RECEIPT IS CAPITAL OR REVENUE HAS FREQUENTLY ENGAGED THE ATTENTION OF THE COURTS BUT IT HAS NOT BEEN POSSIBLE TO LAY DOWN ANY SINGLE CRITERION AS DECISIVE IN THE DETERMINATION OF THE QUESTION. TIME AND AGAIN, IT HAS BEEN REITERATED THAT ANSWER TO THE QUESTION MUST ULTIMATELY DEPEND ON THE FACTS OF A PARTICULAR CASE, AND THE AUTHORITIES BEARING ON THE QUESTION ARE VALUABLE ONLY AS INDICATING THE MATTERS THAT HAVE TO BE TAKEN INTO ACCOUNT IN REACHING A CONCLUSION. IN RAI BAHADUR JAIRAM VALJI (SUPRA), IT WAS OBSERVED THUS: 'THE QUESTION WHETHER A RECEIPT IS CAPITAL OR INCOME HAS FREQUENTLY COME UP FOR DETERMINATION BEFORE THE COURTS. VARIOUS RULES HAVE BEEN ENUNCIATED AS FURNISHING A KEY TO THE SOLUTION OF THE QUESTION, BUT AS OFTEN OBSERVED BY THE HIGHE ST AUTHORITIES, IT IS NOT POSSIBLE TO LAY DOWN ANY SINGLE TEST AS INFALLIBLE OR ANY SINGLE CRITERION AS DECISIVE IN THE DETERMINATION OF THE QUESTION, WHICH MUST ULTIMATELY DEPEND ON THE FACTS OF THE PARTICULAR CASE, AND THE AUTHORITIES BEARING ON THE QUES TION ARE VALUABLE ONLY AS INDICATING THE MATTERS THAT HAVE TO BE TAKEN INTO ACCOUNT IN REACHING A DECISION. VIDE VAN DEN BERGHS LTD. V. CLARK5. THAT, HOWEVER, IS NOT TO SAY THAT THE QUESTION IS ONE OF FACT, FOR, AS OBSERVED IN DAVIES (1935) 3 I.T.R. (ENG. CAS.) 17 (H.M. INSPECTOR OF TAXES) V. SHELL COMPANY OF CHINA LTD. 6, 'THESE QUESTIONS BETWEEN CAPITAL AND INCOME, TRADING PROFIT OR NO TRADING PROFIT, ARE QUESTIONS WHICH, THOUGH THEY MAY DEPEND NO DOUBT TO A VERY GREAT EXTENT ON THE PARTICULAR FACTS OF EA CH CASE, DO INVOLVE A CONCLUSION OF LAW TO BE DRAWN FROM THOSE FACTS.' IT IS SEEN FROM THE ABOVE, THAT THE DECISION OF CAPITAL OR REVENUE NATURE OF ANY RECEIPT DEPENDS UPON FACTS OF EACH CASE. NO STRAIGHT JACKET FORMULA CAN BE GIVEN WHICH CAN HAVE UNIVERSAL APPLICATION. EACH CASE HAS TO BE CONSIDERED ON ITS OWN MERITS. 4.7 I HAVE NO HESITATION IN HOLDING THAT THE LIQUIDATED DAMAGES RECEIVED BY THE APPELLANT FROM EPC ON ACCOUNT OF DELAY IN RAISING OF SOLAR PLANT ARE IN THE NATURE OF RECEIPTS OF R EVENUE NATURE. THESE CANNOT BE CHARACTERIZED AS A RECEIPTS FOR STERILIZATION OF PROFIT APPARATUS. THE GROUND OF APPEAL IS DISMISSED. 7 ITA NO . 2569/DEL/2016 5. LD. COUNSEL OF THE ASSESSEE FILED A PAPER BOOK CONTAINING PAGES 1 TO 79 . HE RELIED ON THE SUBMISSION MADE BEFORE TH E LD. CIT - (A) AND SUBMITTED THAT THE FINDING OF THE LD. CIT - (A) THAT LIQUIDATED DAMAGES CLAUSE IN EPC CONTRACT AGREEMENT WAS FOR HEDGING THE LIQUIDATED DAMAGES CLAUSE IN PPA AGREEMENT WITH G OVERNMENT OF GUJARAT, IS IN COMPLETE IGNORANCE OF THE RELEVANT AGREEMENTS. HE SUBMITTED THAT IN EPC CONTRACT, THE LIQUIDATED DAMAGES ARE ON PER DAY BASIS HAVING MAXIMUM CAP OF 10% OF CONTRACT VALUE WHEREAS LIQUIDATED DAMAGES IN PPA CONTRACT ARE ON PER MEGAWATT BASIS AND THERE IS NO MAXIMUM CAP. HE REFERRED TO PAGES 15 TO 2 2 OF THE PAPER BOOK, WHICH ARE COPY OF CORRESPONDENCE BETWEEN THE ASSESSEE AND M/S. ENFINITY REGARDING LIQUIDATED DAMAGES . HE ALSO REFERRED TO EXTRACT OF EPC CONTRACT AVAILABLE ON PAGES 9 TO 14 OF THE PAPER BOOK . HE FURTHER SUBMITTED THAT THE CONDITION OF LIQUIDATED DAMAGES IN PPA CONTRACT WITH G OVERNMENT CANNOT DETERMINE THE NATURE OF LIQUIDATED DAMAGES IN RESPECT OF EPC CONTRACT WITH THE SUPPLIER. IN VIEW OF THE ARGUMENTS, THE LD. COUNSEL REQUESTED TO TREAT THE LIQUIDATED DAMAGES AS CAPITAL IN NATURE. ALTERNATIVELY HE ARGUED THAT IN CASE THE LIQUIDATED DAMAGES ARE CONSIDERED AS REVENUE IN NATURE, THEN THE COST OF THE ASSET SHOULD BE DIRECTED TO BE ENHANCED ACCORDINGLY AND DEPRE CIATION MAY BE ALLOWED ON ENHANCED WRITTEN DOWN VALUE OF THE ASSET. 6. ON THE CONTRARY, T HE LD. SR. DR RELIED ON THE FINDING OF THE LEARNED CIT - (A) . HE REFERRED TO PAGE 13 OF THE PAPER BOOK, WHICH CONTAIN ED CLAUSE RELATED TO D ELAY DAMAGES IN EPC CONTRAC T AND SUBMITTED THAT LIQUIDATED DAMAGES IN THE EPC CONTRACT HAVE BEEN SPECIFIED TO COMPENSATE LOSS IN EARNING PER DAY. HE FURTHER SUBMITTED THAT LIQUIDATED DAMAGES IN THE PPA CONTRACT WITH G OVERNMENT OF GUJARAT ARE ALSO IN TERMS OF PER DAY PER MEGAWATT. SINCE IN THE CASE OF THE ASSESSEE THERE ARE TWO POWER PLANTS HAVING CAPACITY OF 3 MW AND 12 MW AND THE PER 8 ITA NO . 2569/DEL/2016 DAY LIQUIDATED DAMAGES WAS TO BE CALCULATED IN RESPECT OF DELAY IN COMMISSIO NING OF THE PLANTS ACCORDINGLY, BUT NO SUCH CALCULATION WAS AVAILABLE ON RECORD. THE LD. SR. DR SUPPORTED THE FINDING OF THE LEARNED CIT - (A) THAT THE CLAUSES OF LIQUIDATED DAMAGES IN THE EPC CONTRACTS ARE FOR HEDGING BACK - TO - BACK LOSSES DUE TO LIQUIDATED DAMAGES C LAUSE IN PPA CONTRACT. THE SR . DR REQUESTED THAT ORDER OF THE LD. CIT - (A) ON THE ISSUE IN DISPUTE MIGHT BE CONFIRMED. 7. WE HAVE HEARD THE RIVAL SUBMISSION AND PERUSED THE RELEVANT MATERIAL ON RECORD INCLUDING THE PAPER BOOK OF THE ASSESSEE. THE ASSESSEE ENTERED INTO POWER PURCHASE AGREEMENT (PPA) WITH M/S. GUJARAT URJA VIKAS NIGAM LTD . (GUVNL) ON 29 TH OF MAY 2010 FOR COMMISSIONING OF TWO SOLAR POWER PLANTS HAVING TOTAL ELECTRICITY GENERATION CAPACITY OF 15 MEGAWATTS AT V ILLAGE BANDHDI, TALUKA BHACHU, D ISTRICT KUTCH, HAVING DATE OF CONSTRUCTION AND SCHEDULED COMMERCIAL OPERATION AS UNDER: S.NO. PLANT MW SCHEDULED COMMERCIAL OPERATION DATE DATE OF COMMENCEMENT OF CONSTRUCTION 1 . 3MW 30/06/2011 31/03/2011 2 . 12MW 31/12/2011 30/09/2011 7.1 THIS PPA AGREEMENT CONTAINED A CLAUSE FOR LIQUIDATED DAMAGES FOR DELAY IN COMMISSIONING OF THE PROJECT. THE SAID CLAUSE AVAILABLE ON PAGES 31 OF THE PAPER BOOK READS AS UNDER: 4.3 LIQUIDATED DAMAGES FOR DELAY IN COMMISSIONING THE PROJECT / SOLAR PHOTOVOL TAIC GRID INTERACTIVE POWER RANT BEYOND SCHEDULED COMMERCIAL OPERATION DATE IF THE PROJECT IS NOT COMMISSIONED BY ITS SCHEDULED COMMERCIAL OPERATION DATE OTHER THAN THE REASONS MENTIONED BELOW, THE POWER PRODUCER SHALL PAY TO THE GUVNL LIQUIDATED DAMAGES FOR DELAY AT THE RATE OF RS. 10000 PER DAY PER MW FOR DELAY OF FIRST 60 DAYS AND RS 15000 PER DAY PER MW THEREAFTER. LIQUIDATED DAMAGE 9 ITA NO . 2569/DEL/2016 IS PAYABLE UPTO DELAY PERIOD OF 1 YEAR FROM SCHEDULED COMMERCIAL OPERATION DATE. IF THE POWER PRODUCER FAILS TO MAKE PAYMENT OF THE L IQ UIDATED DAMAGES FOR A PERIOD EXC EEDING 30 DAYS, GUVNL SHALL BE ENTITLED TO INVOKE THE BANK GUARANTEE TO RECOVER THE LIQUIDATED DAMAGES AMOUNT IN CASE OF DELAY MORE THAN 1 YEAR, GUVNL ASSUMES NO OBLIGATION AND HAS RIGHT TO TERMINATE THE POWER PURCHASE AGREEMENT BY GIVING 1 MONTH TERMINATION NOTE. 1. THE PROJECT CANNOT BE COMMISSIONED BY SCHEDULED COMMERCIAL OPERATION DATE BECAUSE OF FORCE MAJEURE EVENT; OR 2. THE POWER PRODUCER IS PREVENTED FROM PERFORMING ITS OBLIGATIONS BECAUSE OF MATERIAL DEFAULT ON PART OF GUVNL 3. POWER PRODUCER IS UNABLE TO ACHIEVE COMMERCIAL OPE RATION ON SCHEDULED COMMERCIAL OPERATION DATE B ECAUSE OF DELAY IN TRANSMISSION FACILITIES/EVACUATION SYSTEM FOR REASONS SOLELY ATTRIBUTABLE TO THE GETCO. 7.2 ON 20/07/2011, THE ASSESSEE REQUESTED FOR CHANGE OF LOCATION OF THE PROJECT FROM THE VILLAGE BANDHDI , TALUKA BHACHU , DISTRUCT KUTCH TO GUJARAT S OLAR PARK AT VILLAGE CHARANKA, TALUKA SANTHALPUR, DISTRICT PATAN. 7.3 ON 09/08/2011, THE ASSESSEE ENTERED INTO EPC CONTRACT AGREEMENT FOR COMMISSIONING OF SOLAR POWER PLANTS WITH M/S. ENFINITY . IN TH E PAPER BOOK THE ASSESSEE HAS SUBMITTED ONLY THE PAGES 1, 35 AND 36 OF THE SAID AGREEMENT. THEREFORE , THE TERMS OF COMPLETION OF THE CONTRACT SPECIFIED IN THE AGREE MENT ARE NOT AVAILABLE BEFORE US . THE CLAUSE CONTAINING DELAY DAMAGES AS MENTIONED ON PAGE 35 OF THE SAID AGREEMENT ( PAGE 13 OF THE PAPER BOOK) READS AS UNDER: 8.6 DELAY DAMAGES (A) WITHOUT PREJUDICE TO PARAGRAPHS (B) AND (C) BELOW, IF CONTRACTOR FAILS TO ACHIEVE SUBSTANTIAL COMPLETION BY THE TIME FOR SUBSTANTIAL COMPLETION IN ACCORDANCE WITH SUB - CLAUSE 8.2 (TIME FOR SUBSTANTIAL COMPLETION AND TIME FOR COMPLETION), CONTRACTOR SHAL L, SUBJECT TO SUB - CLAUSE 2.5 (OWNER'S CLAIMS) AND WHEN REQUESTED BY OWNER, 10 ITA NO . 2569/DEL/2016 PAY DELAY DAMAGES TO OWNER IN THE AMOUNT OF RS. 1,061,281 FOR EVERY DAY, WHICH ELAPSES BETWEEN THE TIME FOR SUBSTANTIAL COMPLETION AND THE DATE ON WHICH SUBSTANTIAL COMPLETION WAS A CHIEVED AS STATED IN A SUBSTANTIAL COMPLETION CERTIFICATE ISSUED IN ACCORDANCE WITH - SUB - CLAUSE 10.1 (SUBSTANTIAL COMPLETION OF THE WORKS). (B) WITHOUT PREJUDICE TO PARAGRAPH (A) ABOVE, PARAGRAPH (C) BELOW, IF CONTRACTOR FAILS TO ACHIEVE SUBSTANTIAL COMPLE TION BY 31 DECEMBER 2011 IN ACCORDANCE WITH SUB - CLAUSE 8.2 (TIME FOR SUBSTANTIAL COMPLETION AND TIME FOR COMPLETION), CONTRACTOR SHALL, SUBJECT TO SUB - CLAUSE 2.5 (OWNER'S CLAIMS) AND WHEN REQUESTED BY OWNER, INDEMNIFY OWNER FOR THE NET PRESENT VALUE OF ANY REDUCTION IN THE TARIFF RECEIVED BY THE PLANT AS A RESULT OF CONTRACTOR'S FAILURE TO ACHIEVE SUBSTANTIAL COMPLETION BY 31 DECEMBER 2011, SUCH NET PRESENT VALUE TO BE CALCULATED OVER A PERIOD OF 25 YEARS AT A DISCOUNT RATE OFL 1%. (C) WITHOUT PREJUDICE TO PARAGRAPHS (A) AND (B) ABOVE, IF CONTRACTOR FAILS TO ACHIEVE COMPLETION BY THE TIME FOR COMPLETION IN ACCORDANCE WITH SUB - CLAUSE 8.2 (TIME FOR SUBSTANTIAL COMPLETION AND TIME FOR COMPLETION), CONTRACTOR SHALL, SUBJECT TO SUB - CLAUSE 2.5 (OWNER'S CLAIMS) AN D WHEN REQUESTED BY .OWNER, PAY DELAY DAMAGES TO OWNER IN THE AMOUNT OF RS.1,061,281 FOR EVERY DAY WHICH ELAPSES BETWEEN THE TIME FOR COMPLETION AND THE TIME OF COMPLETION SPECIFIED IN THE TAKING - OVER CERTIFICATE. 7.4 IN VIEW OF THE REQUEST OF THE ASSESS EE FOR CHANGE OF LOCATION, THE POWER PURCHASE AGREEMENT WAS MODIFIED ON 21/09/2011 BY THE GUVNL WITH THE CONDITION THAT THE ASSESSEE HAS CHANGED THE LOCATION OF THE SOLAR POWER PROJECT AFTER LAPSE OF SIGNIFICANT TIME, THE NON - AVAILABILITY OF TRANSMISSION SYSTEM SHALL NOT BE CONSIDERED AS A GROUND FOR NON - LEVY OF LIQUIDATED DAMAGES AND THE ASSESSEE SHALL PAY LIQUIDATED DAMAGES EVEN IN CASE OF NON - AVAILABILITY OF TRANSMISSION SYSTEM FOR EVACUATION OF POWER BY SCHEDULED COMMERCIAL OPERATION D ATE (SCOD). 7.5 THE LD. COUNSEL DRAWN OUR ATTENTION TOWARDS FOUR LETTERS AVAILABLE FROM PAGES 15 TO 22 OF THE PAPER BOOK. THESE LETTERS HAVE BEEN ADDRESSED BE TWEEN 17/02/2012 TO 18/04/2012 BY THE ASSESSEE TO M/S 11 ITA NO . 2569/DEL/2016 ENFINITY CONVEYING THE AMOUNT OF LIQUIDATED DAMAGES. THE RE IS NO EVIDENCE ON RECORD WHETHER THOSE LETTERS WERE ACKNOWLEDGED BY M/S ENFINITY . IN THE LETTERS , THE ASSESSEE HAS PROPOSED TO ADJUSTED LIQUIDATED DAMAGES OF RS. 7,58,05, 766/ - FROM THE INVOICES RAISED BY ENFINITY . 7.6 THE LEARNED COUNSEL ALSO DRAWN OUR ATTENTION TO PAPER BOOK PAGES 55 TO 56, WHICH IS A LETTER ISSUED BY GUVNL TO THE ASSESSEE ABOUT LIQUIDATED DAMAGES PROPOSED TO BE CHARGED TO THE ASSESSEE. THE RELEVANT PARA OF THE LETTER READS AS UNDER: IT IS FURTHER TO CLARIFY THAT THE DELAY IN COMMISSIONING OF THE PROJECT IS NOT ATTRIBUTABLE TO GETCO AS M/S. AES HAS FAILED TO IDENTIFIED SOLAR POWER PROJECT SITE IN TIMELY MANNER AND CHANGED THE LOCATION OF SOLAR POWER PROJECT AFTER LAPSE OF ABOUT 16 MONTHS TIME FROM THE DATE OF SIGNING O F PPA. ACCORDINGLY, M/S AES IS SOLELY RESPONSIBLE FOR DELAY OF COMMISSIONING OF SOLAR POWER PROJECT. MOREOVER, AS PER POWER PURCHASE AGREEMENT EXECUTED WITH GUVNL FOR SUPPLY OF POWER FROM ] 15 MW SOLAR POWER PROJECT, SCHEDULED COMMERCIAL OPERATION DATE (S COD) OF YOUR SOLAR I POWER PROJECT WAS 30TH JUNE 2011 FOR 3 MW AND 31 DECEMBER 2011 FOR BALANCE 12 MW. FURTHER SOLAR PROJECT WAS NOT READY ON 31 DECEMBER 2011 PENDING TRANSMISSION LINE, IN SUCH / A SITUATION STATING DELAY ON ACCOUNT OF GETCQ IS NOT CORRE CT - IT IS ALSO CLARIFIED THAT AS PER PPA LIQUIDATED DAMAGES IS APPLICABLE FOR DELAY OF EACH DAY FROM SCOD. IN VIEW OF ABOVE, AS YOUR SOLAR POWER PROJECT FAILED TO ACHIEVE COMMERCIAL OPERATION BY SCOD, AS ARTICLE 4.3 OF THE PPA, YOU ARE LIABLE TO PAY LIQU IDATED DAMAGES TO GUVNL FOR DELAY IN ACHIEVING COMMERCIAL OPERATION BY SCOD. FURTHER, WITHOUT PREJUDICE TO OUR RIGHT TO RECOVER LIQUIDATED DAMAGES UNDER THE PPA, IT IS TO STATE THAT YOUR PROJECT WAS NOT READY ON OR BEFORE SCOD. THEREFORE, YOUR SUBMISSION T HAT SOLAR PROJECT COULD NOT COMMISSIONED DUE TO NON AVAILABILITY OF TRANSMISSION LINE IS WITHOUT ANY MERIT AND NOT RELEVANT ACCORDINGLY, M/A AES IS LIABLE TO PAY LIQUIDATED DAMAGES FOR DELAY IN COMPLETION OF PROJECT ON OR BEFORE SCOD EVEN IN CASE TRANSMISS ION LINE IS NOT AVAILABLE. YOU ARE THEREFORE REQUESTED TO PAY LIQUIDATED DAMAGES FROM SCOD TO LIKELY COMMERCIAL OPERATION DATE AT THE RATE OF RS. 10000 /DAY /MW FOR DELAYED OF FIRST 60 DAYS AND THEREAFTER RS 15000 ID AY /MW TOWARDS DELAYED COMMERCIAL 12 ITA NO . 2569/DEL/2016 OPERA TION DATE AS PER OUR LETTER DATED 10.2.2012, FAILING WHICH GUVNL SHALL ENCASH YOUR PERFORMANCE BANK GUARANTEE WITHOUT FURTHER NOTICE. 7.7 IN BACKGROUND OF THE ABOVE FACTS, THE ISSUE FOR DETERMINATION BEFORE US IS WHETHER THE LIQUIDATED DAMAGES OF RS.7,5 8,05, 766/ - ADJUSTED BY THE ASSESSEE AGAINST THE COST OF THE PLANT, IS A CAPITAL RECEIPT OR REVENUE RECEIPT. THE LD. COUNSEL IN SUPPORT OF HIS CONTENTION HAS RELIED ON THE D ECISION OF THE COMMISSIONER OF INCOME T AX VS. SAURASHTRA C EMENT LTD . (SUP RA) . IN THE SAID DECISION, THE HON BLE SUPREME COURT HELD THAT THE AMOUNT RECEIVED BY THE ASSESSEE TOWARDS COMPENSATION WAS FOR STERILIZATION OF THE PROFIT EARNING SOURCE AND NOT AN ORDINARY COURSE OF THEIR BUSINESS AND , THEREFORE , IT WAS A CAPITAL RECEIPTS I N THE HAND S OF THE ASSESSEE. THE HON BLE SUPREME COURT , HOWEVER , IN EARLIER PARA - 11 OF THE DECISION SAID THAT IT HAS NOT BEEN POSSIBLE TO LAY DOWN ANY SINGLE CRITERIA AS DECISION IN THE DETERMINATION OF THE QUESTION WHETHER A PARTICULAR RECEIPT IS CAPITA L OR REVENUE IN NATURE AND IT DEPENDS ULTIMATELY ON THE FACTS OF PARTICULAR CASE. 7.8 IN THE INSTANT CASE, THE LD. CIT - (A) HAS ANALYZED THE FACTS AND ARRIVED AT A CONCLUSION THAT LIQUIDATED DAMAGES CLAUSE IN THE EPC CONTRACT AGREEMENT WAS AS A RESULT OF L IQUIDATED DAMAGES CLAUSE IN THE PPA AGREEMENT BETWEEN THE ASSESSEE AND GUVNL AS UNDER: 4.3 I HAVE GIVEN CAREFUL CONSIDERATION TO THE CONTENTION OF THE APPELLANT AND PRIMARILY THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF COMMISSIONER OF INCOME TAX VS SAURASHTRA CEMENT LTD (325 ITR 422) (SC) AS QUOTED BY THE APPELLANT, WHEREIN IT WAS HELD THAT DAMAGES WHICH ARE DIRECTLY LINKED WITH THE PROCUREMENT OF A CAPITAL ASSET AND ARE ATTRIBUTABLE TO DELAY IN COMING INTO EXISTENCE OF A PROFIT - MAKING APPARATUS R EPRESENTS COMPENSATION FOR STERILIZATION OF THE PROFIT - EARNING SOURCE AND THE SAME IS A CAPITAL RECEIPT. THE RELEVANT EXTRACT OF THE DECISION OF THE HON'BLE SUPREME COURT IS AS BELOW: 13 ITA NO . 2569/DEL/2016 '13 IT IS EVIDENT THAT THE DAMAGES TO THE ASSESSEE WAS DIRECTLY AND INTIMATELY LINKED WITH THE PROCUREMENT OF A CAPITAL ASSET I.E. THE CEMENT PLANT, WHICH WOULD OBVIOUSLY LEAD TO DELAY IN COMING INTO EXISTENCE OF THE PROFIT MAKING APPARATUS, RATHER THAN A RECEIPT IN THE COURSE OF PROFIT EARNING PROCESS. COMPENSATION PAID F OR THE DELAY IN PROCUREMENT OF CAPITAL ASSET AMOUNTED TO STERILIZATION OF THE CAPITAL ASSET OF THE ASSESSEE AS SUPPLIER HAD FAILED TO SUPPLY THE PLANT WITHIN TIME AS STIPULATED IN THE AGREEMENT AND CLAUSE NO. 6 THEREOF CAME INTO PLAY. THE AFORE - STATED AMOU NT RECEIVED BY THE ASSESSEE TOWARDS COMPENSATION FOR STERILIZATION OF THE PROFIT EARNING SOURCE, NOT IN THE ORDINARY COURSE OF THEIR BUSINESS, IN OUR OPINION, WAS A CAPITAL RECEIPT IN THE HANDS OF THE ASSESSEE' 4.4 IN ORDER TO APPRECIATE THE ENTIRE GAMUT OF THE AFORESAID JUDGMENT , IT WOULD BE USEFUL TO FIRST UNDERSTAND THAT A NUMBER OF COMMERCIAL CONTRACTS PROVIDE FOR LIQUIDATED DAMAGES AND UNDER INDIAN CONTRACT ACT, SUCH DAMAGES ARE ASCERTAINABLE BEFORE BREACH OF CO NTRACT. THERE IS NO QUARREL ABOUT TAXABILITY OF LIQUIDATED DAMAGES EMERGING FROM GENERAL COMMERCIAL CONTRACT ENTERED IN BUSINESS BECAUSE THESE ARE CLEARLY TAXABLE AS REVENUE RECEIPTS. THE DIFFICULTY EMERGES WHEN THE LIQUIDATED DAMAGES ARE RELATED TO A CONT RACT OF SUPPLY OF CAPITAL GOODS OR EQUIPMENT. ANY BREACH OF SUCH CONTRACT IF RESULT INTO LIQUIDATED DAMAGES, THE NATURE OF RECEIPTS OF SUCH LIQUIDATED DAMAGES HAS BEEN CATEGORIZED AS: A) STERILIZATION OF THE PROFIT - EARNING SOURCE OR B) RECEIPT IN THE COU RSE OF PROFIT EARNING PROCESS THE FIRST CATEGORY OF RECEIPTS IS RELATED TO STERILIZATION OF THE PROFIT EARNING SOURCE AND IN SIMPLE TERMS IT CAN BE EXPLAINED AS A SITUATION WHERE THE BREACH OF CONTRACT HAS RESULTED IN DIMINISHING THE VERY SOURCE OF PROFI T EARNING. FOR EXAMPLE, A ENTERS INTO A CONTRACT WITH B FOR SUPPLY OF MACHINERY FOR BOTTLING PLANT WHICH WAS TO BE USED FOR THE REPACKAGING OF BULK MEDICINE. AND ASSUMING THAT SUCH A CONTRACT CONTAINS A CLAUSE THAT ANY DELAY IN SUPPLY OF THE MACHINERY WOUL D RESULT INTO LIQUIDATED DAMAGES, THE RECEIPT OF SUCH LIQUIDATED DAMAGES WOULD BE CAPITAL RECEIPT BECAUSE ANY DELAY IN SUPPLY OF BOTTLING PLANT HAS RESULTED IN DIMINISHING OFF BUSINESS OPPORTUNITIES OF A, THE LIQUIDATED DAMAGES ARE MEANT FOR COMPENSATION O F THE BUSINESS OPPORTUNITIES WHICH COULD BE EXISTING AT THAT POINT OF TIME. 14 ITA NO . 2569/DEL/2016 HOWEVER, THE SITUATION IS DIFFERENT IF THE SUPPLIER OF BOTTLING PLANT IS MADE AWARE THAT A HAS ALREADY A SIMULTANEOUS EXPORT COMMITMENTS FOR SUPPLY OF MEDICINE WHICH NEED TO BE F ULFILLED BY A PARTICULAR TIME AND IN CASE THOSE COMMITMENTS ARE NOT FULFILLED, THERE IS LIKELY INCIDENCE OF ACTUAL DAMAGES. IN ORDER TO HEDGE THOSE ACTUAL DAMAGES, A CLAUSE OF LIQUIDATED DAMAGES IS ENSHRINED IN THE CONTRACT, IN SUCH SITUATION THAT LIQUIDAT ED DAMAGES ARE NOT RELATED TO GENERAL STERILIZATION OF PROFIT APPARATUS BUT ARE INTRICATELY LINKED WITH THE ACTUAL DAMAGES SUFFERED/LIKELY TO BE SUFFERED ON ACCOUNT ON ACCOUNT OF DELAY OF PROVIDING BOTTLING PLANT. IT IS EVIDENT FROM THE ABOVE, THAT NOT A LL LIQUATED DAMAGES CONNECTED TO THE CONTRACT OF SUPPLY OF CAPITAL GOODS WOULD RESULT INTO CAPITAL RECEIPT. THERE CAN BE A SITUATION WHERE DELAY IN SUPPLY OF CAPITAL GOODS/MACHINERY HAS RESULTED IN ACTUAL DAMAGES WHICH ARE ASCERTAINABLE AND HAVE BEEN AT TH E CENTRE OF THE CONTRACT. 7.9 WE HAVE NOTICED THAT THE FULL EPC CONTRACT AGREEMENT HAS NOT BEEN PRODUCED BEFORE US AND , THEREFORE , WE ARE UNABLE TO FIND OUT THE TERMS OF COMPLETION OF THE EPC CONTRACT SPECIFIED IN THE AGREEMENT. THE ASSESSEE HAS ALSO NOT FURNISHED ANY CERTIFICATE FROM THE SUPPLIER THE DATE ON WHICH CONSTRUCTION OF THE POWER PLANTS WAS COMPLETED AND WORKING OF DAILY DAMAGES . THE CLAIM OF THE LIQUIDATED DAMAGES OF THE ASSESSEE, HAS BEEN EXAMINED BY THE LOWER AUTHORITIES ON THE BASIS OF T HE LETTERS OF THE ASSESSEE ADDRESSED TO THE M/S. ENFINITY, COPY OF WHICH ARE AVAILABLE O N PAGES 15 - 22 OF THE PAPER BOOK . NO ACKNOWLEDGEMENT OF SAID LETTER BY THE CONTRACTOR M/S ENFINITY HAS BEEN FILED BY THE ASSESSEE. IN THE CIRCUMSTANCES , WE ARE ADJUD ICATING THE ISSUE OF LIQUIDATED DAMAGES AS CAPITAL OR REVENUE EXPENDITURE ON THE BASIS OF EVIDENCES AVAILABLE ON RECORD. 7.10 WE HAVE OBSERVED THAT I N THE CASE OF CIT VS. SAURASHTRA C EMENT LTD . (SUPRA) THE ASSESSEE WAS TO BE PAID COMPENSATION AT A RATE OF 0.5% OF THE PRICE OF THE RESPECTIVE PORTION OF THE MACHINERY FOR EACH MONTH OF DELAY BY WAY OF LIQUIDATED DAMAGES FROM THE SUPPLIER, WITHOUT PROOF OF 15 ITA NO . 2569/DEL/2016 ACTUAL LOSS. WHEREAS, I N THE INSTANT CASE DAMAGES IN THE EPC CONTRACT AGREEMENT BETWEEN THE ASSESSEE AND SUPPLIERS, HAVE BEEN COMPUTED AT RS. 10,61,281 / - ON PER DAY BASIS. THE LIQUIDATED DAMAGES PAYABLE TO GUV NL ARE ALSO ON PER DAY BASIS. 7.11 FURTHER, WE FIND THAT THE ASSESSEE ITSELF IN ITS LETTER DAT ED 17/02/2012 ADDR ESSED TO M/S. ENFINITY WHICH IS AVAILAB LE ON PAGE 15 OF THE PAPER BOOK , HAS REFERRED CLAUSE 8.6 (B) OF THE EPC CONTRACT AGREEMENT WHICH STATES THAT CONTACTOR SHOULD INDEMNITY THE ASSESSEE FOR THE NET PRESENT VALUE FOR ANY REDUCTION IN THE TARIFF RECEIVED BY THE PLANT AS A RESULT OF CONTACTORS FAILURE TO ACHIEVE SUBSTANTIAL COMPLETION BY 31ST DECEMBER 2011. 7.12 THE BACK TO BACK ARRANGEMENT OF LIQUIDATED DAMAGES IN EPC CONTRACT AS NOTED BY THE LD. CIT - (A) IN THE IMPUGNED ORDER, MANIFEST THAT THE PRIMARY OBJECTIVE BEHIND INTRODUCTION OF THE LIQUIDATED DAMAGES CLAUSE IN EPC CONTRACT AGREEMENT WAS TO PR OTECT THE ASSESSEE FROM ACTUAL BUSINESS LOSSES . T HE ACT OF SHIFTING OF SITE BY THE ASSESSEE AND CONSEQUENTLY NON - AVAILABILITY OF TRANSMISSION LINES ALSO CONTRIBUTED , RESULTING INTO THOSE BUSINESS LOSSES. 7.13 IN VIEW OF ABOVE DISCUSSION, WE ARE OF THE OPINION THAT ORDER OF THE LD. CIT - (A) ON THE ISSUE IN DISPUTE IS WELL REASONED AND NO FURTHER INTERFERENCE IS REQUIRED. ACCORDINGLY , WE UPHOLD THE FINDING OF THE LEARNED CIT - (A) ON THE ISSUE IN DISPUTE AND GROUNDS NO . 1 TO 4 O F THE APPEAL ARE DISMISSED. 8. THE GROUND NO. 5, RELATES TO GRIEVANCE OF THE ASSESSE E OF NOT ALLOWING THE CLAIM OF DEPRECIATION UNDER INCOME - TAX ACT ON FULL COST OF ASSETS (WITHOUT LIQUIDATED DAMAGES SOUGHT TO BE TAXED AS REVENUE RECEIPT). 8.1 SINCE WHILE ADJUDICATING THE GROUND NO. 1 TO 4 OF THE APPEAL, WE HAVE ALREADY HELD THAT THE LIQUIDATED DAMAGES ARE I N THE NATURE OF 16 ITA NO . 2569/DEL/2016 REVENUE RECEIPT , THEN SAME CANNOT BE REDUCED OUT OF THE COST OF ASSET AND HENCE THE ASSESSEE IS ELIGIBLE FOR CLAIMING D EPRECIATION ON THE FULL COST OF THE ASSET ( WITHOUT REDUCING THE LIQUIDATED DAMAGES). IN THE INTEREST OF J USTICE, WE FEEL IT APPROPRIATE TO RESTORE THE ISSUE TO THE FILE OF THE ASSESSING OFFICER WITH THE DIRECTION TO ALLOW THE DEPRECIATION ON THE COST OF TH E ASSET WITHOUT REDUCING THE LIQUIDATED DAMAGES. WE ALSO DIRECT THE ASSESSING OFFICER TO VERIFY FROM THE SUPPLIER M/S ENFINITY , THE COST OF ASSET CHARGED TO THE ASSESSEE AND LIQUIDATED DAMAGES. THE ASSESSEE SHALL BE AFFORDED ADEQUATE OPPORTUNITY OF BEING HEARD. THE GROUND NO. 5 OF THE APPEAL IS ACCORDINGLY ALLOWED FOR STATISTICAL PURPOSES. 8.2 THE GROUND NO. 6 AND 10 ARE IN RESPECT OF ALLOWING DEDUCTION UNDER SECTION 80I OF THE ACT ON ENHANCED INCOME DUE TO TREATING LIQUIDATED DAMAGES AS REVENUE RECEIPT AND DEPRECIATION DISALLOWED. 8.3 THE LEARNED COUNSEL OF THE ASSESSEE SUBMITTED THAT THE ASSESSEE IS ELIGIBLE FOR DEDUCTION UNDER SECTION 80 I A OF THE ACT, IF THE LIQUIDATED DAMAGES ARE HELD AS REVENUE RECEIPTS. HE FURTHER SUBMITTED THAT NON - FILING OF FORM NO. 10 CCB , CANNOT BE A GROUND FOR DECLINING THE DEDUCTION UNDER SECTION 80I A OF THE ACT. IN SUPPORT OF THE CONTENTION , THE LEARNED COUNSEL RELIED ON THE DECISION OF THE ITAT , AHMADA BAD BENCH IN THE CASE OF EAGLE S YNTHETICS PRIVATE L IMITED VS. INCOME TAX O F FICER , (2010) 29 CCH 0137 ( AHD .) ( TRIB .) AND FILED COPY OF THE SAID DECISION. THE LD. COUNSEL ALSO REFERRED TO THE CBDT C IRCULAR NO. 37/2016 AND SUBMITTED THAT DEDUCTION UNDER CHAPTER VI OF THE ACT ARE ADMISSIBLE ON ENHANCEMENT OF THE PROFIT OF THE ELIGIBLE BUSINESS. 8.4 ON THE OTHER HAND, LD. S ENIOR DR SUBMITTED THAT THE AMOUNT IN QUESTION IS NOT DERIVED FROM THE OPERATIONS ELIGIBLE AS PER SE CTION 80 I A OF THE ACT AND , THEREFORE , NO DEDUCTION COULD BE ALLOWED TO THE ASSESSEE ON SAID AMOUNT OF RECEIPT . 17 ITA NO . 2569/DEL/2016 8. 5 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. WE FIND THAT THE LD. CIT - (A) HAS DENIED THE DEDUCTION UNDER SECTIO N 80 IA OF THE ACT ON TWO GROUNDS. THE FIRST GROUND BEING NON - FILING OF FORM NO. 10 CCB IN RESPECT OF THE AMOUNT OF INCOME AND THE SECOND GROUND BEING THE INCOME NOT DERIVED FROM THE OPERATIONS OF THE UNDERTAKING ELIGIBLE FOR DEDUCTION UNDER SECTION 80 IA OF THE ACT. AS FAR AS FIRST GROUND OF REJECTION IS CONCERNED, WE ARE NOT AGREED WITH THE LD. CIT - (A) IN VIEW OF THE DECISION OF THE TRIBUNAL IN THE CASE OF EAGLE S YNTHETICS (P VT. ) LTD . (SUPRA) WHEREIN THE TRIBUNAL DIRECTED THE ASSESSING OFFICER TO GRANT OPPORTUNITY TO FILE THE AUDIT REPORT IN FORM NO. 10 CCB ON THE BASIS OF ENHANCED INCOME. THE RELEVANT FIND ING OF THE TRIBUNAL IS REPRODUCED AS UNDER: 22 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD ALONG WITH THE ORDERS OF THE AUTHORITIES BELOW. WE FIND THAT HON'BLE MADRAS HIGH COURT IN THE CASE OF VALLI COTTON TRADERS PVT. LTD. (SUPRA) HAVE HELD AS UNDER: - '6.6 .... IN THE INSTANT CASE, IT IS CLEAR FROM THE RECORDS THAT IT IS THE AO, WHO REFUSED TO ACCEPT THE ORIGINAL RETURN FILED BY THE ASSESSEE, IN WHICH THE ASSESSEE HAD SHOWN A LOSS AND AFTER ISSUING NOTICE UNDER S. 148 OF THE ACT, COMPLETED THE ASSESSMENT UNDER S. 147 OF THE ACT, WHICH RESULTED IN PROFIT. THEREFORE, AT THAT POINT OF TIME, THE AO OUGHT TO HAVE INFORMED THE ASSESSEE THAT THE NON - FURNISHING OF THE AUDIT REPORT IN FORM 10CCAC TO CLAIM DEDUCTION UNDER S. 80HHC IS A DEFECT.' 8.... THEREFORE, IT IS CLEAR THAT THE SPIRIT BEHIND SUB - SS (5) AND (9) OF S. 139 R/W S. 80HHC OF THE ACT IS THAT THE ASSESSEE SHOULD BE GIVEN A FAIR AND REASONABLE OPPORTUNITY TO CLAIM THE BENEFIT AS AVAILABLE UNDER THE STATUTE; ANY DENIAL ON T ECHNICAL GROUND IS NOT JUSTIFIED. MERELY BECAUSE THE ASSESSEE SEEKS TO CLAIM DEDUCTION UNDER S. 80HHC BASED ON THE AUDIT REPORT IN FORM 10CCAC AFTER SETTING ASIDE OF THE ORIGINAL ASSESSMENT ORDER AND AT THE STAGE OF REMITTANCE OF THE MATTER, PARTICULARLY, UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE WHEN, IN THE ORIGINAL RETURN, THE ASSESSEE HAD SHOWN LOSS AND SUBSEQUENTLY, AFTER THE AO PASSED AN ORDER 18 ITA NO . 2569/DEL/2016 UNDER S. 147 OF THE ACT WHICH RESULTED IN PROFIT, AT WHICH POINT OF TIME THE ASSESSEE CLAIMED DEDUCTION UNDER S. 80HHC BASED ON THE AUDIT REPORT IN FORM 10CCAC, IN VIEW OF THE SPECIFIC PROVISIONS AVAILABLE UND ER THE STATUTE, THE ASSESSEE SHOULD NOT BE DENIED THE OPPORTUNITY TO FILE AUDIT REPORT FOR THE PURPOSE OF CLAIMING BENEFIT UNDER S. 80HHC .' RESPECTFULLY, FOLLOWING THE ABOVE DECISION OF HON'BLE MADRAS HIGH COURT, WE DIRECT THE AO TO GRANT THE OPPORTUNITY TO ASSESSEE COMPANY TO FILE THE AUDIT REPORT IN FORM NO. 10CCB ON THE BASIS OF ENHANCED INCOME AFTER GIVING EFFECT TO THIS ORDER AND IF ON THE BASIS OF DETAILS AND EVIDENCES FURNISHED IT IS FOUND THAT THE AS SESSEE IS ELIGIBLE FOR DEDUCTION U/S. 80IB(4) THEN A.O. IS DIRECTED TO GRANT SUCH DEDUCTION IN ACCORDANCE WITH THE PROVISIONS OF LAW. 8. 6 T HE SECOND GROUND OF REJECTION OF THE REDUCTION OF SECTION 80 I A DEDUCTION BY THE LD. CIT - (A) , IS THAT INCOME WAS NOT DERIVED FROM THE UNDERTAKING. IT IS RELEVANT TO REPRODUCE SECTION 80 I A(1) OF THE ACT IN OPERATION DURING THE PERIOD UNDER CONSIDERATION AS UNDER: 80 - IA. [(1) WHERE THE GROSS TOTAL INCOME OF AN ASSESSEE INCLUDES ANY PROFITS AND GAINS DERIVED BY AN UNDERTAKING OR AN ENTERPRISE FROM ANY BUSINESS REFERRED TO IN SUB - SECTION (4) (SUCH BUSINESS BEING HEREINAFTER REFERRED TO AS THE ELIGIBLE BUSINESS), THERE SHALL, IN ACCORDANCE WITH AND SUBJECT TO THE PROVISIONS OF THIS SECTION, BE ALLOWED, IN COMPUTING TH E TOTAL INCOME OF THE ASSESSEE, A DEDUCTION OF AN AMOUNT EQUAL TO HUNDRED PER CENT OF THE PROFITS AND GAINS DERIVED FROM SUCH BUSINESS FOR TEN CONSECUTIVE ASSESSMENT YEARS.] 8. 7 AS PER THE PLAIN READING OF THE ABOVE PROVISION, IT IS CLEAR THAT ANY PROFIT AND GAINS DERIVED BY AN UNDERTAKING OR ENTERPRISE FROM ELIGIBLE BUSINESS IS THE ONLY ALLOWED FOR DEDUCTION UNDER SECTION 80 IA OF THE ACT. IN THE CASE OF CIT VS. STERLING FOODS , 237 ITR 579, THE HON'BLE SUPREME COURT HAS HELD THAT FOR THE PROFIT TO BE DERIVED FROM THE ELIGIBLE BUSINESS THERE SHOULD BE NEXUS OF FIRST - DEGREE BETWEEN THE PROFIT AND THE ELIGIBLE BUSINESS. THE RELEVANT PARA OF THE JUDGMENT IS AS UNDER: '9. WE DO NOT THINK THE SOURCE OF THE I MPORT ENTITLEMENTS CAN BE SAID TO BE THE INDUSTRIAL UNDERTAKING OF THE ASSESSEE. THE SOURCE OF THE IMPORT ENTITLEMENTS CAN IN THE CIRCUMSTANCES, ONLY BE SAID TO BE THE EXPORT PROMOTION SCHEME OF THE CENTRAL GOVERNMENT WHERE UNDER 19 ITA NO . 2569/DEL/2016 THE EXPORT ENTITLEMENTS BE COME AVAILABLE. THERE MUST BE, FOR THE APPLICATION OF THE WORDS 'DERIVED FROM', A DIRECT NEXUS BETWEEN THE PROFITS AND GAINS AND THE INDUSTRIAL UNDERTAKING. IN THE INSTANT CASE THE NEXUS IS NOT DIRECT BUT ONLY INCIDENTAL. THE INDUSTRIAL UNDERTAKING EXPORTS PROCESSED SEA FOOD. BY REASON OF SUCH EXPORT, THE EXPORT PROMOTION SCHEME APPLIES. THERE UNDER, THE ASSESSEE IS ENTITLED TO IMPORT ENTITLEMENTS, WHICH IT CAN SELL. THE SALE CONSIDERATION THERE FROM CANNOT, IN OUR VIEW, BE HELD TO CONSTITUTE A PROFIT AND G AIN DERIVED FROM THE ASSESSEE'S INDUSTRIAL UNDERTAKING.' 8. 8 IN THE INSTANT CASE, THE RECEIPT IS FROM LIQUIDATED DAMAGES AS A RESULT OF CONTRACTUAL OBLIGATION BETWEEN THE ASSESSEE AND EPC CONTRACTOR. IN OUR OPINION , THERE IS NO DIRECT NEXUS BETWEEN THE PR OFIT AND GAINS OF THE UNDERTAKING AND THE RECEIPT FROM LIQUIDATED DAMAGES, AND THUS , ASSESSEE IS NOT ELIGIBLE FOR DEDUCTION UNDER SECTION 80IA OF THE ACT ON THE SAID RECEIPT. SINCE THE ENHANCEMENT OF THE PROFIT IS NOT AS A RESULT OF THE ELIGIBLE BUSINESS , THE CBDT C IRCULAR (SUPRA) CITED BY THE LD. COUNSEL IS ALSO NOT APPLICABLE OVER THE FACTS OF THE INSTANT CASE. ACCORDINGLY, W E UPHOLD THE FINDING OF THE LD. CIT - (A) ON THE ISSUE IN DISPUTE AND DISMISS GROUNDS NO. 6 OF THE APPEAL. 9 . IN GROUND NOS. 7 TO 9 OF THE APPEAL ASSESSEE CHALLENGED DISALLOWANCE O F DEPRECIATION AMOUNTING TO RS.4,02,28, 060/ - ON SOLAR POWER PLANTS. ACCORDING TO THE ASSESSING OFFICER, THE ASSESSEE HAS GIVEN CERTIFICATE OF COMMISSIONING OF THE SOLAR POWER PLANTS AND NO EVIDENCE SU PPORTING THAT ACTUAL POWER WAS GENERATED WAS GIVEN BY THE ASSESSEE. THE ASSESSING OFFICER HAS IN THE ASSESSMENT ORDER HAS MENTIONED THAT IN CASE OF ANOTHER ASSESSEE OF HAVING SIMILAR NATURE OF INCOME, THE AUTHORITY ISSUING CERTIFICATE CLEARLY MENTIONED THA T WORK OF POWER GENERATION WAS STARTED ON THE DATE MENTIONED IN THE CERTIFICATE. 9.1 FURTHER, THE ASSESSING OFFICER OBSERVED THAT FIRST INVOICE WAS RAISED BY THE ASSESSEE IN THE MONTH OF AUGUST , 2012 ONLY. KEEPING IN VIEW OF THESE FACTS, THE ASSESSING OFFI CER HELD THAT PLANT WAS NOT PUT TO USE FOR 20 ITA NO . 2569/DEL/2016 GENERATION OF POWER DURING THE RELEVANT PREVIOUS YEAR AND HE DISALLOWED THE CLAIM OF DEPRECIATION ON THESE PLANTS. 9.2 BEFORE THE LEARNED CIT - (A) , THE ASSESSEE SUBMITTED THAT FACT OF SOLAR POWER PLANT PUT TO USE WAS EVIDENT FROM THE MONTHLY INJECTIO N REPORT ISSUED BY THE GUJARAT ENERGY T RANSMISSION CORP ORATION L IMITED FOR THE MONTH OF MARCH 2012, ACCORDING TO WHICH BETWEEN PERIOD FROM 04/03/2012 TO 30/03/2012, ELECTRICITY OF 572.146 MWH UNITS WAS GENERATED FROM 4 MW PLANT AND ON 31 ST MARCH 2012, ELECTRICITY OF 52.976 MWH UNITS WAS GENERATED FROM 10 MW PLANTS (4 MW PLANTS +6 MW PLANTS). THE LEARNED CIT - (A) , REFERRED TO THE LETTER DATED 14/03/2012 OF GUVNL , ACCORDING TO WHICH , DUE TO CHANGE OF THE POWER PLANT SITE THE TRANSMISSION LINES MAY NOT BE AVAILABLE FOR TRANSFER OF POWER FROM THE NEW SITE AND IF THE PROJECT WAS NOT COMMISSIONED ON THE SCHEDULED COMMISSIONING DATE DUE TO DELAY IN ARRANGING TRANSMISSION SYSTEM IT WOULD BE THE SOLE RESPONSIBILITY OF THE ASSESSEE. IN VIEW OF THE SAID LETTER IT WAS CLEAR THAT THE SOLAR POWER PLANTS WERE NOT COMMISSIONED TILL 14 TH OF MARCH 2012 I.E. DATE OF ISSUING LETTER, WHEREAS THE ASSESSEE CLAIMED THAT 4 MW PLANT WAS OPERATIONAL ON 04/03/2 012 AND OTHER PART WAS OPERATIONAL ON 12/03/2012. IN VIEW OF THESE FACTS THE LEARNED CIT - (A) CONCURRED WITH THE FINDING OF THE ASSESSING OFFICER THAT PLANT AND MACHINERY WAS NOT PUT TO USE FOR BUSINESS PURPOSE DURING THE YEAR UNDER CONSIDERATION AND UPHELD THE DISALLOWANCE OF DEPRECIATION. 9.3 BEFORE US , THE LD. COUNSEL REFERRED TO PAGES 52 AND 53 OF THE PAPER BOOK, WHICH IS A SUPPLEMENTARY POWER PURCHASE AGREEME NT DATED 19.07.2012 BETWEEN THE ASSESSEE AND GUV NL . THE LD. COUNSEL REFERRED TO CLAUSE 2 OF THE SAID AGREEMENT AND SUBMITTED THAT PLANT OF 4 MW CAPACITY WAS COMMISSION ED ON 04/03/2012 AND PLANT OF 6 MW CAPACITY WAS COMMISSION ED ON 31/03/2012. THE LD. COUNSEL ALSO REFERRED TO INVOICE DATED 01/08/2012 WHICH IS AVAILABLE ON PAGE 59 OF THE PAPER 21 ITA NO . 2569/DEL/2016 BOOK AND ACCORDING TO WHICH BOTH PLANTS 4 MW AND 6 MW CAME INTO OPERATION W.E.F. 04/03/2012 AND 31/03/2012 RESPECTIVELY. THE LD. COUNSEL ALSO REFERRED TO THE CERTIFICATE ISSUED BY GUJARAT ENERGY T RANSMISSION CORPORATION LIMITED DATED 26/05/2012 ACCORDING T O WHICH THE ASSESSEE GENERATED 625.122 UNITS OF ELECTRICITY FOR THE MONTH OF MARCH , 2012. 9.4 IN VIEW OF THESE EVIDENCES, THE LEARNED COUNSEL SUBMITTED THAT SOLAR PLANTS WERE PUT TO USE AND THE ASSESSEE IS ENTITLED FOR DEPRECIATION ON SAID POWER PLANTS A S PER RULES. 9.5 ON THE CONTRARY, THE LD. SR. DR SUBMITTED THAT THERE IS AN APPARENT INCONSISTENCY IN THE LATT ER DATED 14/03/2012 OF GUVNL WHICH IS AVAILABLE ON PAGES 55 OF THE PAPER BOOK AND THE SUPPLEMENTARY PPA DATED 19/07/2012 AND OTHER EVIDENCES CIT ED BY THE ASSESSEE. ACCORDINGLY , HE REQUESTED THAT MATTER MAY BE RESTORED BACK TO THE ASSESSING OFFICER FOR ALLOWING DEPRECIATION AS PER LOW AFTER VERIFICATION OF THE DOCUMENTARY EVIDENCES SUBMITTED BY THE ASSESSEE. 9.6 WE HAVE HEARD THE SUBMISSION OF THE PARTIES AND PERUSED THE RELEVANT MATERIAL ON RECORD. THE CLAIM OF THE ASSESSEE IS THAT THE 4 MEGAWATT (MW) PLANT WAS COMMISSION ED ON 04/03/2012 AND 6 MW PLANT WAS COMMISSION ED ON 31/03/2012. THE ASSESSEE SUPPORTED ITS C ONTENTION WITH THE SUPPLEMENTARY PPA SIGNED ON 19/07/2012. THE R EVENUE ON THE OTHER HAND, REFERRED THE LETTER DATED 14/03/2012 OF GUVNL , ACCORDING TO WHICH THE SOLAR POWER PROJECT OF THE ASSESSEE WAS DELAYED DUE TO UNAVAILABILITY OF THE TRANSMISSION FACILI TIES. FURTHER WE FIND THAT THE ASSESSEE HAS SUBMITTED POWER GENERATION ON 31/03/2012 AS 52.976 UNIT FROM COMBINED 10 MW CAPACITY, BUT IT HAS NOT BIFURCATED THE ELECTRICITY GENERATED FROM 6 MW PLANT AND 4 MW PLANT ON 31/03/2012. IN ABSENCE OF SUCH BIFURCA TIONS, IS NOT POSSIBLE TO KNOW WHETHER THE 6 MW PLANT GENERATED ANY ELECTRICITY ON 31/03/2012 OR NOT . IN VIEW OF ABOVE FACTS, IN 22 ITA NO . 2569/DEL/2016 THE INTEREST OF JUSTICE, WE FEEL IT APPROPRIATE TO RESTORE THE ISSUE TO THE FILE OF THE ASSESSING OFFICER, WHO IS DIRECTED TO E XAMINE THE DOCUMENTARY EVIDENCES SUBMITTED BY THE ASSESSEE AND ALSO TO VERIFY FROM THE RESPECTIVE AUTHORITIES WHETHER THE SOLAR POWER PLANTS IN QUESTION GENERATED ANY ELECTRICITY ON OR BEFORE 31/03/2012 AND DECIDE THE ISSUE IN DISPUTE IN ACCORDANCE WITH LA W. IT IS NEEDLESS TO MENTION THAT ASSESSEE SHALL BE AFFORDED ADEQUATE OPPORTUNITY OF BEING HEARD. THE GROUNDS OF THE ASSESSEE ARE ACCORDINGLY ALLOWED FOR STATISTICAL PURPOSES. 9.7 THE ISSUE RAISED BY THE ASSESSEE IN GROUND NO. 10 FOR ALLO WING DEDUCTION UNDER SECTION 80 IA OF THE ACT IN RESPECT OF THE DEPRECIATION DISALLOWED ALSO STANDS ALLOWED FOR STATISTICAL PURPOSES. 10. THE GROUNDS NO. 11 TO 12 OF THE APPEAL ARE CONSEQUENTIAL IN NATURE AND, THEREFORE , NOT REQUIRED TO ADJUDICATE UPON SPECIFICALLY. ACCORDINGLY , SAME ARE DISMISSED AS INFRUCTUOUS. 11. IN THE RESULT, APPEAL THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. THE DECISION IS PRONOUN CED IN THE OPEN COURT ON 1 1 T H SEPT. , 201 7 . S D / - S D / - ( H.S. SIDHU ) ( O.P. KANT ) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 1 1 T H SEPTEMBER , 201 7 . RK / - (D.T.D) COPY FORWARDED TO: 1 . APPELLANT 2 . RESPONDENT 3 . CIT 4 . CIT(A) 5 . DR ASST. REGISTRAR, ITAT, NEW DELHI