THE ACIT., CIRCLE - 1(1), VIJAYAWADA., Vijayawada V. THE KCP LTD., Ramakrishna Buildings, Chennai

ITA 459/VIZ/2012

• Counselvise Citation: [2015] 134 COUNSELVISE.COM (IT) 0184 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 2 year(s) 11 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-11-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2008-2009
• Appeal Filed On: 14-12-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: M NARAYANA RAO

Judgement Text

ITA NO.459/VIZAG/2012 K.C.P. LIMITED, CHENNAI 1 , , IN THE INCOME TAX APPELLATE TRIBUNAL, VISAKHAPATNAM BENCH, VISAKHAPATNAM . . . . , ,, , . . . . , , , , % % % % BEFORE SHRI V. DURGA RAO, JUDICIAL MEMBER & SHRI G. MANJUNATHA, ACCOUNTANT MEMBER . .. ./ // / I.T.A.NO.459/VIZAG/2012 ( / ASSESSMENT YEAR : 2008-09 ) ACIT CIRCLE - 1(1) VIJAYAWADA VS. K.C.P. LIMITED CHENNAI [ PAN: AAACT 8046J] (, , , , / APPELLANT) (-., -., -., -., / RESPONDENT ) , / / APPELLANT BY : SHRI M. NARAYANA RAO, DR -., / / RESPONDENT BY : SHRI C. SUBRAHMANYAM, AR / 3 / DATE OF HEARING : 18.11.2015 / 3 / DATE OF PRONOUNCEMENT : 30.11.2015 / O R D E R PER G. MANJUNATHA, ACCOUNTANT MEMBER: THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAIN ST THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS), VIJAYAWAD A DATED 10.9.2012 FOR THE ASSESSMENT YEAR 2008-09. ITA NO.459/VIZAG/2012 K.C.P. LIMITED, CHENNAI 2 2. THE BRIEF FACTS OF THE CASE, IS THAT THE ASSESSE E IS A COMPANY IN WHICH THE PUBLIC ARE SUBSTANTIALLY INTERESTED, FILE D ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2008-09 DECLARING A TOTAL I NCOME OF ` 73,01,92,411/-. THE CASE WAS SELECTED FOR SCRUTINY AND ACCORDINGLY NOTICE U/S 143(2) OF THE INCOME-TAX ACT, 1961 (HERE INAFTER CALLED AS THE ACT) WAS ISSUED. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS CLA IMED AN AMOUNT OF ` 74,82,970/- TOWARDS LIQUIDATED DAMAGES AND DEBITED TO PROFIT & LOSS ACCOUNT. BEFORE THE ASSESSING OFFICER, THE ASSESSE E CONTENDED THAT IT IS INVOLVED IN THE BUSINESS OF MANUFACTURE OF MACHINER IES, ON MAKE TO ORDER BASIS FOR WHICH ENTERS INTO CONTRACT WITH THE CUSTOMERS. AS PER THE SAID CONTRACT, ONE OF THE CONDITIONS IS THAT IN CASE THE ASSESSEE FAILS TO DELIVER THE MATERIALS AS AGREED IN THE AGREEMENT , FOR THE DELAY IN SUPPLYING THE MACHINES LIQUIDATED DAMAGES IS TO BE PAID AT THE AGREED RATE. BEING SO, IN ONE OF THE CASE, THE ASSESSEE H AS PAID LIQUIDATED DAMAGES FOR BREACH OF THE TERMS OF CONTRACT AND THE SAME IS CLAIMED AS EXPENDITURE. HOWEVER, THE ASSESSING OFFICER DID NO T CONVINCED WITH THE ASSESSEES EXPLANATIONS DISALLOWED A SUM OF ` 39,15,300/-, OUT OF THE TOTAL LIQUIDATED DAMAGES OF ` 74,82,970/-, ON THE REASON THAT SUCH LIABILITY ARISES ONLY IN RESPECT OF COMPLETED CONTR ACTS ON OR BEFORE THE END OF THE EACH FINANCIAL YEAR. ITA NO.459/VIZAG/2012 K.C.P. LIMITED, CHENNAI 3 3. AGGRIEVED BY THE ASSESSMENT ORDER, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A). BEFORE CIT(A), THE ASSES SEE REITERATED ITS STAND TAKEN BEFORE THE ASSESSING OFFICER AND CONTEN DED THAT LIQUIDATED DAMAGES PAID FOR BREACH OF CONTRACT IS AN ALLOWABLE DEDUCTION. THE CIT(A) CONSIDERED THE EXPLANATIONS OFFERED BY THE A SSESSEE AND ALSO RELIED UPON THE ITAT, HYDERABAD SPECIAL BENCH DECIS ION IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 1982-83 REPORTED I N 34 ITD 50, DELETED THE ADDITIONS MADE BY THE ASSESSING OFFICER . AGGRIEVED BY THE CIT(A) ORDER, THE REVENUE IS IN APPEAL BEFORE US. 4. THE D.R., SUBMITTED THAT THE CIT(A) WAS ERRED IN DELETING THE LIQUIDATED DAMAGES BY RELIED UPON THE ITAT SPECIAL BENCH DECISION IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 1982-83 . THE D.R. FURTHER SUBMITTED THAT THOUGH THE ITAT, IN ASSESSEES OWN C ASE DELETED THE ADDITIONS, THE DEPARTMENT HAS CHALLENGED THE ITAT O RDER BEFORE THE HONBLE A.P. HIGH COURT AND THE CASE IS PENDING FOR ADJUDICATION. SINCE, THE ISSUE HAS NOT REACHED FINALITY, THE CIT(A) WAS NOT CORRECT IN DELETING THE ADDITION MADE BY THE A.O. THEREFORE, REQUESTED TO UPHOLD THE ASSESSMENT ORDER. 5. ON THE OTHER HAND, THE A.R. OF THE ASSESSEE STRO NGLY SUPPORTING THE ORDER OF THE CIT(A) ARGUED THAT THE ISSUE INVOL VED IN THIS APPEAL IS ITA NO.459/VIZAG/2012 K.C.P. LIMITED, CHENNAI 4 SQUARELY COVERED BY THE DECISION OF THE ITAT SPECIA L BENCH IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 1982-83, REPORTED IN 34 ITD 50. THE A.R. FURTHER SUBMITTED THAT THE ITAT IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2002-03, 2005-06 & 2006-07 HAS HELD THE ISSUE IN FAVOUR OF THE ASSESSEE. THEREFORE, REQUESTED TO UP HOLD THE ORDER OF THE CIT(A). 6. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MA TERIALS AVAILABLE ON RECORD. WE HAVE ALSO GONE THROUGH THE CASE LAWS RELIED UPON BY THE PARTIES. DURING THE COURSE OF HEARING, THE A.R. OF THE ASSESSEE SUBMITTED THAT THE ISSUE INVOLVED IN THIS APPEAL, IS SQUARELY COVERED BY THE DECISION OF ITAT HYDERABAD SPECIAL B ENCH IN ASSESSEES OWN CASE FOR THE EARLIER ASSESSMENT YEARS. WE HAVE EXAMINED THE CASE LAWS RELIED UPON BY THE ASSESSEE IN THE LIGHT OF TH E FACTS OF THE PRESENT CASE AND FIND THAT THE ISSUE I.E. LIQUIDATED DAMAGE S FOR BREACH OF CONTRACT IS HELD IN FAVOUR OF THE ASSESSEE IN ASSES SEES OWN CASE IN EARLIER ASSESSMENT YEARS. THE RELEVANT PORTION IS REPRODUCED HEREUNDER: 7. THE NEXT ISSUE IN THE APPEAL RELATING TO THE AS SESSMENT YEAR 2000-01 RELATES TO THE DISALLOWANCE OF LIQUIDA TED DAMAGES. THE ASSESSEE MADE A PROVISION OF RS.2,96,006/- TOWA RDS LIQUIDATED DAMAGES. THE AO WAS OF THE VIEW THAT THE LIABILITY TO PAY LIQUIDITY DAMAGES WOULD ARISE ONLY ON COMPLETIO N OF THE CONTRACT. ACCORDINGLY, THE AO VERIFIED THE DETAILS OF CONTRACT AND IDENTIFIED THAT THE LIABILITY TOWARDS THE LIQUIDITY DAMAGES TO THE EXTENT OF RS.2,85,000/- HAS NOT CRYSTALLIZED DURING THE YEAR UNDER CONSIDERATION SINCE THE RELEVANT CONTRACT WAS NOT COMPLETED BY 31-3-2000. A CCORDINGLY HE DISALLOWED THE ITA NO.459/VIZAG/2012 K.C.P. LIMITED, CHENNAI 5 ABOVE SAID SUM OF RS.2,85,000/-. HOWEVER, THE LD CI T (A) NOTICED THAT THE PRESENT ISSUE IS SQUARELY COVERED BY THE DECISION O F ITAT HYDERABAD SPECIAL BENCH IN THE ASSESSEES OWN CASE REPORTED IN 34 LTD 50 (SB) AND ACCORDINGLY GRANTED RELIEF. 7.1 THE FACTS RELATING TO THE ISSUE ARE STATED IN B RIEF. THE ASSESSEE ENTERS INTO CONTRACT FOR SUPPLY OF MACHINERY. ACCORDING TO THE TERMS OF CONTRACT, IF THE MACHINERY IS NOT SUPPLIED WITHIN THE SCHEDULED DATE , THE ASSESSEE HAS TO PAY COMPENSATION TO THE BUYER IN THE FORM OF LIQUIDATED DAMAGES CALCULATED ON THE BASIS OF AN AGREED RATE. AT THE END OF EVERY FINANC IAL YEAR, THE ASSESSEE COMPANY IDENTIFIES THE CONTRACTS IN WHICH THE SCHED ULED DATE HAS EXPIRED AND ALSO QUANTIFIES THE LIQUIDATED DAMAGES PAYABLE. ACC ORDINGLY THE ASSESSEE COMPANY MAKES PROVISIONS IN THE ACCOUNTS. ACCORDING TO THE ASSESSEE THE POINT OF ACCRUAL OF LIQUIDITY DAMAGES IS THE POINT WHEN THE BREACH OF SCHEDULED DATE OCCURRED. HOWEVER, THE AD WAS OF THE VIEW THAT THE POINT OF ACCRUAL IS THE DATE OF COMPLETION OF RELEVANT CONTRACT. 7.2 AS NOTICED BY THE LD CIT(A), THE ISSUE REGARDIN G THE POINT OF ACCRUAL OF LIQUIDITY DAMAGES HAS BEEN SETTLED BY THE DECISION OF THE HYDERABAD SPECIAL BENCH IN THE ASSESSEES OWN CASE REFERRED SUPRA, WHE RE IN IT WAS HELD THAT THE CLAIM FOR DAMAGES AROSE AT THE POINT OF BREACH AND AT THAT POINT OF TIME, THE LIABILITY ACCRUED AND HENCE THE PROVISION FOR LIQUI DATED DAMAGES WAS TO BE ALLOWED AS DEDUCTION. SINCE THE LD CIT (A) HAS FOLLOWED THE DECISION OF THE SPECIAL BENCH OF THE ITAT, WE DO NOT FIND ANY REASON TO INTERFERE WITH HIS DECISION. 6. CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE C ASE AND ALSO APPLYING THE RATIOS OF THE COORDINATE BENCH OF THIS TRIBUNAL, WE ARE OF THE OPINION THAT THE CIT(A) RIGHTLY DELETED THE ADD ITION. WE DO NOT FIND ANY ERROR OR INFIRMITY IN THE ORDER OF CIT(A). THER EFORE, WE DIRECT THE A.O. TO DELETE THE ADDITIONS MADE ON ACCOUNT OF LIQ UIDATED DAMAGES AND UPHELD THE CIT(A) ORDER. ITA NO.459/VIZAG/2012 K.C.P. LIMITED, CHENNAI 6 7. IN THE RESULT, THE APPEAL FILED BY THE REVENUE I S DISMISSED. THE ABOVE ORDER WAS PRONOUNCED IN THE OPEN COURT ON 30 TH NOV15. SD/- SD/- ( (( ( . .. . ) ) ) ) ( (( ( . . . . ) ) ) ) ( (( ( V. DURGA RAO ) )) ) ( (( ( G. MANJUNATHA) / // / JUDICIAL MEMBER / // / ACCOUNTANT MEMBER /VISAKHAPATNAM: 6 / DATED : 30.11.2015 VG/SPS / - 7 / COPY OF THE ORDER FORWARDED TO :8 1. , / THE APPELLANT THE ACIT, CIRCLE-1(1), VIJAYAWADA 2. -., / THE RESPONDENT THE K.C.P. LIMITED, RAMAKRISHNA BUILDINGS, NO.2, DR . P.V. CHERIAN CRESCENT, EGMORE, CHENNAI-600 008. 3. : / THE CIT, VIJAYAWADA 4. : () / THE CIT (A), VIJAYAWADA 5. -, , / // / DR, ITAT, VISAKHAPATNAM 6 . . . . / GUARD FILE / BY ORDER // TRUE COPY // @A ( SR.PRIVATE SECRETARY ) , / // / ITAT, VISAKHAPATNAM