GE Power Services India Pvt. Ltd., New Delhi V. DCIT, Circle- 10(1), New Delhi

ITA 6708/DEL/2017

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 0495 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 1 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-12-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2011-2012
• Appeal Filed On: 06-11-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business expenditure; Non compliance; Onus to prove
• Section: 143(3); 37(1); 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, DELHI BENCH: C NEW DELHI BEFORE SHRI AMIT SHUKLA, JUDICIAL MEMBER AND SHRI O.P. KANT, ACCOUNTANT MEMBER ITA NO.6708/DEL./2017 ASSESSMENT YEAR: 2011-12 M/S. GE POWER SERVICES INDIA PVT. LTD., A-18, FIRST FLOOR, OKHLA INDUSTRIAL AREA, PHASE-II, SOUTH DELHI, NEW DELHI VS. DCIT, CIRCLE-10(1), NEW DELHI PAN :AAACG2129F (APPELLANT) (RESPONDENT) ORDER PER O.P. KANT, AM: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST ORD ER DATED 17/04/2015 PASSED BY THE LD. COMMISSIONER OF INCOME -TAX (APPEALS)-18, NEW DELHI [IN SHORT THE LD. CIT(A)] FOR ASSESSMENT YEAR 2011-12 RAISING FOLLOWING GROUNDS: 1. THAT THE COMMISSIONER OF INCOME TAX(APPEALS) [ CITA)] ERRED ON FACTS AND IN LAW IN CONFIRMING DISALLOWANCE OF RS.2 2,76,088 ON ACCOUNT OF LIQUIDATED DAMAGES INCURRED BY THE APPEL LANT IN THE ORDINARY COURSE OF BUSINESS. APPELLANT BY SHRI SACHIT JOLLY, ADV. RESPONDENT BY SHRI F.R. MEENA, SR.DR DATE OF HEARING 16.12.2020 DATE OF PRONOUNCEMENT 23.12.2020 2 ITA NO.6708/DEL./2017 1.1 THAT THE CIT(A) ERRED ON FACTS AND IN LAW IN N OT APPRECIATING THAT LIABILITY ON ACCOUNT OF AFORESAID LIQUIDATED DAMAGE S IS ALLOWABLE AS BUSINESS EXPENDITURE UNDER SECTION 37(1) OF THE INCOME-TAX ACT, 1961. 1.2 THAT THE CIT(A) ERRED ON FACTS AND IN LAW IN A LLEGING THAT THE AFORESAID LIABILITY OF LIQUIDATED DAMAGES IS NOT AL LOWABLE SINCE THE APPELLANT DID NOT FURNISH CONFIRMATION FROM THE OTH ER PARTY, WITHOUT APPRECIATING THAT THE APPELLANT HAD FURNISH ED VOLUMINOUS DOCUMENTARY EVIDENCES WHICH, INTER-ALIA, INCLUDED C OPIES OF PARTY LEDGER ACCOUNT, COPY OF THE RELEVANT CONTRACT, COPI ES OF THE INVOICES ETC. THE APPELLANT CRAVES LEAVE TO ALTER, AMEND AND/OR W ITHDRAW ALL OR ANY OF THE GROUNDS OF APPEAL HEREIN OR ADD ANY F URTHER GROUNDS AS MAY BE CONSIDERED NECESSARY AND TO SUBMIT SUCH S TATEMENTS, DOCUMENTS AND PAPERS AS MAY BE CONSIDERED NECESSARY WITHER BEFORE OR DURING THE TIME OF HEARING. 2. BRIEFLY STATED FACTS OF THE CASE ARE THAT THE ASSE SSEE WAS ENGAGED IN THE BUSINESS OF REPAIR AND SERVICING OF STEAM TURBINES AND GENERATORS AND TRADING OF RELATED DISPUTE PARTS . FOR THE YEAR UNDER CONSIDERATION, THE ASSESSEE FILED RETURN OF I NCOME ON 20/11/2011 DECLARING TOTAL INCOME OF 11,19,56,303/-. THE RETURN OF INCOME FILED BY THE ASSESSEE WAS SELECTED FOR SCRUTINY ASSESSMENT AND STATUTORY NOTICES UNDER THE INCOME-T AX ACT, 1961 (IN SHORT THE ACT) WERE ISSUED AND COMPLIED WITH. IN THE SCRUTINY ASSESSMENT COMPLETED UNDER SECTION 143(3) OF THE AC T ON 27/02/2015, THE ASSESSING OFFICER DISALLOWED CLAIM OF EXPENSES OF 22,97,988/- AS LIQUIDATED DAMAGES PAID TO TWO PART IES NAMELY CHANDRAPURA THERMAL POWER STATION, DVC, J HARKHAND AND INDIAN FARMERS FERTILISERS COOPERATIVE SOCIETY LTD. (IFFCSL), BAREILLY. ACCORDING TO THE ASSESSING OFFICER, THE L IQUIDATED DAMAGES WERE SUFFERED BY THE ASSESSEE ON ACCOUNT OF NON- COMPLIANCE OF BUSINESS OBLIGATIONS, WHICH RESULTED IN LEVY OF THE PENALTY IN THE SHAPE OF UNDERPAYMENTS OR COMPENSATO RY 3 ITA NO.6708/DEL./2017 PAYMENTS, WHICH ARE NOT ALLOWABLE IN TERMS OF SECTI ON 37 OF THE ACT. ON FURTHER APPEAL, THE LD. CIT(A) CALLED FOR C ERTAIN DOCUMENTS/EVIDENCE FROM THE ASSESSEE IN SUPPORT OF THE CLAIM, HOWEVER, ACCORDING TO HIM, THE EVIDENCE PRODUCED BY THE ASSESSEE IN RESPECT OF CHANDRAPURA THERMAL POWER STATION WERE OF THE UNILATERAL NATURE AND, THEREFORE, HE SUSTAINED THE DISALLOWANCE IN RESPECT OF THIS PARTY AND DELETED THE AMOUNT OF 21,900/- IN RESPECT OF IFFCL. THE RELEVANT FINDING OF THE LD. CIT(A) IS REPRODUCED AS UNDER: 4. FINDINGS: GROUNDS 1,3 & 4 WERE CAREFULLY ANALYSED BY ME. UPON A CAREFUL CONSIDERATION I AM OF THE CONFIRMED VIEW THAT THE S AME ARE OF HIGHLY SUBJECTIVE NATURE. HENCE, I DO NOT FEEL PERSUADED T O DEAL WITH THEM. GROUND NO. 2 WAS CAREFULLY EXAMINED BY ME. BY REASO N OF THE SAID GROUND THE ASSESSEE SOUGHT TO RAISE OBJECTIONS TO T HE DISALLOWANCE OF RS.22,97,988/- OF BUSINESS EXPENSES BOOKED UNDER THE HEAD LIQUIDATED DAMAGES REJECTED BY THE AO HOLDING TH E SAME TO BE NOT ALLOWABLE UNDER SECTION 37 OF THE ACT. IN ORDER TO APPRECIATE THE FACTS OF THE MATTER, THE CONTENTIONS OF THE AO WERE GONE INTO. THE CASE OF THE AO WAS THAT LIQU IDATED DAMAGES WERE SUFFERED BY THE ASSESSEE ON ACCOUNT OF NON-COM PLIANCE OF BUSINESS OBLIGATIONS TOWARDS CERTAIN PARTIES. ACCOR DING TO THE AO THE ASSESSEE SUSTAINED THE DAMAGES DUE TO ITS NEGLI GENCE OR NON COMPLIANCE WITH ITS BUSINESS PROMISES WHICH RESULTE D IN LEVY OF PENALTY IN THE SHAPE OF UNDER PAYMENTS OR COMPENSAT ORY PAYMENTS WHICH DEPRIVED THE ASSESSEE OF THE RIGHT TO CLAIM E XPENDITURE U/S 37 OF THE ACT. PER CONTRA IT WAS CONTENDED BY THE AUTHORIZED REPRE SENTATIVE FOR THE ASSESSEE THAT THE DAMAGES SUFFERED BY IT WERE WHOLL Y AND FULLY CONNECTED WITH THE BUSINESS OF THE ASSESSEE AND HAD NO PERSONAL OR EXTRANEOUS ELEMENT. RELIANCE WAS PLACED BY IT ON A CATENA OF DECISIONS OF MONBLE COURTS TO SUBSTANTIATE ITS CLA IM. THE SUM AND SUBSTANCE OF THE ASSESSEES CONTENTIONS WAS THAT AS A NORMAL BUSINESS PRACTICE AND IN LINE WITH THE GENERAL CONT RACTUAL ARRANGEMENTS ENTERED BY THE APPELLANT WITH ITS CUSTOMERS/SUPPLIERS, IT WAS REQUIRED TO PAY/RECEIVE COMPENSATION FROM PARTIES IN CASE THE ORDER WAS NOT COMPLETED WI THIN THE STIPULATED TIME SCHEDULE. IN THE ULTIMATE ANALYSIS THE ASSESSEES 4 ITA NO.6708/DEL./2017 CONTENTIONS WERE AS UNDER IN REGARD TO THE ELIGIBIL ITY CONDITIONS FOR CLAIMING EXPENDITURE U/S 37: - THE EXPENDITURE MUST HOT BE GOVERNED BY ANY OTHER P ROVISIONS OF THE ACT. - THE EXPENDITURE MUST HAVE BEEN LAID OUT WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF THE BUSINESS OF THE ASSESSEE. - THE EXPENDITURE MUST NOT BE CAPITAL IN NATURE - THE EXPENDITURE MUST NOT BE PERSONAL IN NATURE - THE EXPENDITURE MUST NOT BE INCURRED FOR A PURPOSE WHICH IS AN OFFENCE OR WHICH IS PROHIBITED BY ANY LAW - THE EXPENDITURE MUST NOT BE INCURRED ON ADVERTISEME NT IN ANY SOUVENIR, BROCHURE, ETC. PUBLISHED BY A POLITICAL P ARTY AS A TOKEN OF PROOF THE ASSESSEE ALSO FURNISHED A L IST OF THE PARTIES WHO HAD MADE SHORT PAYMENTS TO THE ASSESSEE BY WAY OF LIQUIDATED DAMAGES. THE SUM OF RS. 22,97,988/- REPRESENTED THE LIQUIDATED DAMAGES FROM TWO PARTIES I.E. CHANDRAPUR A THERMAL POWER STATION. DVC JHARKHAND AND INDIAN FARMERS FER TILIZERS CO- OPERATIVE LTD. BAREILLY. DURING THE APPELLATE PROCEEDINGS, THE ASSESSEE WAS CALLED UPON TO ELABORATE ON THE VALIDITY OF CLAIM OF EXPENDITURE A S LIQUIDATED DAMAGES BY PRODUCING DOCUMENTARY EVIDENCE LIKE BILL S, COMMUNICATIONS/CONFIRMATIONS BY THE PARTIES WHO CHA RGED LIQUIDATED DAMAGES FROM THE ASSESSEE. THE AR FOR TH E ASSESSEE PRODUCED THE COPIES OF THE AGREEMENTS AND THE TEXTS OF VARIOUS CASE LAWS TO DEFEND ITS POSITION. THE CORRESPONDENCES E NTERED INTO BETWEEN THE ASSESSEE AND THE AFORESAID TWO PARTIES WERE PRODUCED BEFORE ME ON 17 AUGUST 2017. THE DETAILS COMPRISED THE COPIES OF ACCOUNT OF M/S INDIAN FARMERS FERTILIZERS CO-OPERAT IVE LTD., BAREILLY, INVOICE AND CHALLAN DATED 16.07.2010 ISSUED IN FAVO UR OF 1FFCL , CONFIRMATION OF IFFCL BAREILLY UP, REGARDING WITHHO LDING OF RS.21,900 AGAINST ADVOCATES LEGAL CHARGES, LETTER D ATED 09.09.2010 ISSUED BY THE ASSESSEE TO CHANDRAPURA THERMAL POWER STATION, DVC JHARKHAND REQUESTING THE LATTER TO RELEASE WITH HELD LIQUIDATED CHARGES AMOUNTING TO RS. 10,00,692, RS.3,40,442/-, RS. L,66,266/- AND RS. 1,17,500/- AGAINST JOBS DONE VIDE CTPS, WO NO. DATED 20.04.2009 AND 30.07.2009 ONLY. AFTER GOING THROUGH THE ABOVE EVIDENCE I AM COMPELL ED TO HOLD THAT THE ABOVE DOCUMENTS WERE NOT SUFFICIENT TO PROVE TH E FACT THAT WHAT THE ASSESSEE CLAIMED WAS CORRECT. THE ABOVE DOCUMEN TS REPRESENTED UNILATERAL CORRESPONDENCES AND BOOK ENT RIES ONLY. IN ORDER TO CHECK THE VERACITY OF THE ASSESSEES CLAIM THE AR FOR THE ASSESSEE WAS THEREFORE, REQUESTED ON 27.07.2017 BY THE UNDERSIGNED TO SUBMIT CONCRETE PROOF OF THE FACT TH AT THE LIQUIDATED DAMAGES CLAIMED BY THE ASSESSEE WERE CONFIRMED /CER TIFIED BY THE 5 ITA NO.6708/DEL./2017 ABOVE SAID TWO PARTIES ALSO. IN OTHER WORDS, CONFIR MATIONS FOR THE SUBSTANTIATION OF THE ABOVE CLAIM WERE SPECIFICALLY DEMANDED BY ME. ON 17.08.2017 THE AFORE STATED DOCUMENTS ONLY W ERE PRODUCED BEFORE ME. IN MY CONSIDERED VIEW, THE MATERIALS PRODUCED DO NO T SATISFY THE REQUIREMENT OF THE LAW OF BURDEN OF PROOF. WHATEVER THE ASSESSEE PRODUCED IN THE FORM OF CORRESPONDENCES WERE SELF S ERVING EVIDENCE AND OF UNILATERAL NATURE. IN A NUT SHELL THE ASSESS EE BADLY FAILED TO PRODUCE THE CONFIRMATION OF CHANDRAPURA THERMAL POW ER STATION, DVC JHARKHAND AND ITS COPY OF ACCOUNT IN ITS LEDGER TO THE EFFECT THAT ANY SUM OF MONEY WAS WITHHELD BY IT IN THE FOR M OF LIQUIDATED CHARGES IN THE CASE OF THE ASSESSEE. IN SUCH A SCEN ARIO THE CLAIM OF LIQUIDATED DAMAGES BY THE ASSESSEE CANNOT BE REGARD ED AS IN CONGRUENCE WITH LAW AND FACTS. THEREFORE, THE SO CA LLED LIQUIDATED CHARGES ALLEGEDLY RECOVERED BY CHANDRAPURA THERMAL POWER STATION, DVC JHARKHAND WERE RIGHTLY DISALLOWED BY T HE AO. THE DISALLOWANCE IS UPHELD IN FULL IN THE CASE OF THIS PARTY. AS REGARDS IFFCL CONFIRMATION OF RETENTION OF ONLY RS.21,900/- BY THIS PARTY WAS PRODUCED BY THE ASSESSEE BEFORE ME. REGARDING THE BALANCE AMOUNT THE ASSESSEE COULD NOT PRODUCE ANY E VIDENCE OF BILATERAL NATURE. IN THE SAID CIRCUMSTANCES, RS.21, 900/- ONLY IS DELETED AND THE REMAINING AMOUNT IS SUSTAINED. 2.1 AGGRIEVED, THE ASSESSEE IS BEFORE THE TRIBUNAL BY WAY OF RAISING THE GROUNDS AS REPRODUCED ABOVE. 3. BEFORE US, THE PARTIES APPEARED THROUGH VIDEOCONFE RENCING FACILITY. THE LEARNED COUNSEL OF THE ASSESSEE REFER RED TO THE ORDER OF THE LOWER AUTHORITIES AND SUBMITTED THAT LIQUIDA TED DAMAGES ARE AS A RESULT OF CONTRACTUAL OBLIGATION BETWEEN T WO PARTIES AND NOT IN THE NATURE OF STATUTORY PENALTIES LIABLE FOR DISALLOWANCE IN TERMS OF SECTION 37 OF THE ACT. HE SUBMITTED THAT T HE ASSESSEE HAS FILED ALL THE DOCUMENTS INCLUDING BILLS, COPY OF AG REEMENTS AND CORRESPONDENCE AS ASKED BY THE LOWER AUTHORITIES AN D, THEREFORE, THE LD. CIT(A) IS NOT JUSTIFIED IN SUSTAINING THE D ISALLOWANCE. 4. ON THE CONTRARY, THE LD. DR RELIED ON THE ORDER OF THE LOWER AUTHORITIES AND SUBMITTED THAT DISALLOWANCE HAS BEE N SUSTAINED 6 ITA NO.6708/DEL./2017 MAINLY ON THE GROUND OF FAILURE ON THE PART OF THE ASSESSEE TO PRODUCE CONFIRMATION FROM THE PARTY STATING THE SUM OF MONEY WITH HELD IN THE FORM OF THE LIQUIDATED DAMAGES. 5. WE HAVE HEARD RIVAL SUBMISSION OF THE PARTIES AND PERUSED RELEVANT MATERIAL ON RECORD, INCLUDING THE ORDER OF THE LOWER AUTHORITIES. WE FIND THAT THE ASSESSING OFFICER HAS ORIGINALLY MADE DISALLOWANCE IN RESPECT OF EXPENDITURE OF LIQUIDATE D DAMAGES IN RELATION TO TWO PARTIES, HOLDING THE SAME AS PENAL IN NATURE. BUT THE LD. CIT(A) HAS IN PRINCIPLE AGREED THAT EXPENSE S TOWARDS LIQUIDATED DAMAGES ARE NOT PENAL IN NATURE AND ON P RODUCTION OF CONFIRMATION FROM ONE PARTY I.E. M/S IFFCL DELETED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER. THE LD. CIT(A) HAS HELD THAT THE ASSESSEE WAS ASKED TO PRODUCED CONFIR MATION FROM ANOTHER PARTY I.E. M/S CHANDRAPURA THERMAL POWER STATION, DVC JHARKHAND BUT THE ASSESSEE ONLY PRODUCED LETTER ISSUED BY IT TO THE SAID COMPANY REQUESTING TO RELEASE THE LI QUIDATED CHARGES AMOUNTING TO 10,00,692; 3,40,442; 1,66,266/- AND 1,17,500/-. THOUGH, THE LD. CIT(A) IN ABSENCE OF R ECONCILIATION OF AMOUNT OF THE LIQUIDATED DAMAGES CLAIMED, HAS RE JECTED THE CLAIM OF THE ASSESSEE, HOWEVER, IN OUR OPINION, IT IS MATTER OF VERIFICATION FROM THE THIRD-PARTY ONLY AND THE INTE REST OF THE JUSTICE, ONE MORE OPPORTUNITY CAN BE ALLOWED TO THE ASSESSEE TO PRODUCE CONFIRMATION OF THE LIQUIDATED DAMAGES CHAR GED BY SAID COMPANY TO THE ASSESSEE. IF THE ACCOUNTS OF BOTH TH E ASSESSEE AND THE SAID PARTY CAN BE RECONCILED, THEN MATTER ENDS AND NO DISALLOWANCE WOULD BE REQUIRED IN THE CASE OF THE A SSESSEE. ACCORDINGLY, WE FEEL IT APPROPRIATE TO RESTORE THIS ISSUE BACK TO THE FILE OF THE LD. CIT(A) WITH THE DIRECTION TO THE AS SESSEE TO PRODUCE 7 ITA NO.6708/DEL./2017 DOCUMENT IN SUPPORT OF ITS CLAIM OF LIQUIDATED DAMA GES INCLUDING CONFIRMATION OF CHANDRAPURA THERMAL POWER STATION AND COPY OF LEDGER ACCOUNT OF THE ASSESSEE IN THEIR BOOKS OF AC COUNTS SPECIFYING MONEY WITHHELD IN THE FORM OF LIQUIDATED CHARGES. IT IS NEEDLESS TO MENTION THAT BOTH THE ASSESSEE AND THE ASSESSING OFFICER SHALL BE PROVIDED ADEQUATE OPPORTUNITY OF B EING HEARD. 6. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOW ED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 23 RD DECEMBER, 2020. SD/- SD/- (AMIT SHUKLA) (O.P. KANT) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 23 RD DECEMBER, 2020. RK/- (D.T.D.S.) COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ASST. REGISTRAR, ITAT, NEW DELHI