ACIT, Circle-7(1), New Delhi V. DJ Energy Pvt. Ltd., New Delhi

ITA 7893/DEL/2019

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The case revolves around the dispute concerning the taxability of liquidated damages amounting to Rs.15,05,05,799 claimed by DJ Energy Pvt. Ltd. from Inox Wind Ltd. and Inox Wind Infrastructure Services Ltd. The Assessing Officer (AO) added this amount to the income of DJ Energy Pvt. Ltd. for the Assessment Year 2016-17, considering it as income which had been postponed and not offered to tax. However, the CIT(A) reversed this decision, noting that the damages were contingent and not finalized until a settlement agreement was reached on 27.12.2016, post the relevant assessment year. The Tribunal upheld the CIT(A)'s decision, agreeing that the income was not determinable in the assessment year in question due to the contingent nature of the damages.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 116017 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 6 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-03-2023
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 22-03-2023
• Assessment Year: 2016-2017
• Appeal Filed On: 26-09-2019
• Other Referred Cases: M/s. Ffe Minerals India Pvt. Ltd. vs. Joint Commissioner of Income tax
• Laws Referred To: Income Tax Act
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH ‘B’, NEW DELHI BEFORE SH. ANIL CHATURVEDI, ACCOUNTANT MEMBER AND SH. NARENDER KUMAR CHOUDHRY, JUDICIAL MEMBER ITA No. 7893/Del/2019 (Assessment Year : 2016-17) ACIT Circle – 7(1) New Delhi PAN No. AACCD 9286 G Vs. DJ Energy Pvt. Ltd. A-2, East of Kailash, New Delhi-110 065 (APPELLANT) (RESPONDENT) Assessee by Shri K. Sampath Shri V. Rajakumar, Adv. Revenue by Shri T. James Singson, CIT-D.R. Date of hearing: 23.03.2023 Date of Pronouncement: 31.03.2023 ORDER PER ANIL CHATURVEDI, AM: This appeal filed by the Revenue is directed against the order dated 19.07.2019 passed by the Commissioner of Income Tax (Appeals)-3 New Delhi relating to Assessment Year 2016-17. 2. Brief facts of the case as culled out from the material on record are as under :- ITA No.7893/Del/2019 ACIT vs. DJ Energy Pvt. Ltd. 2 3. Assessee is a company stated to be engaged in the business of production, collection and distribution of electricity. Assessee electronically filed its return of income for A.Y. 2016-17 on 16.10.2016 declaring loss of Rs.134,14,17,821/-. The case of the assessee was selected for scrutiny and thereafter assessment was framed u/s 143(3) wherein the total loss was assessed at Rs.119,00,86,573/-. 4. Aggrieved by the order of AO, assessee carried the matter before CIT(A) who vide order dated 19.07.2019 in Appeal No.3/10240/2018-19 granted substantial relief to the assessee. Aggrieved by the order of CIT(A), Revenue is now in appeal before the Tribunal and has raised the following effective ground : 1. “On the facts and in the circumstances of the case and in law, the Ld CIT(A) has erred in deleting the addition of Rs.15,05,05,799/- on account of liquidated damages, ignoring the fact that when no past event has been placed before the AO to show that there is every probability that the expenditure will be incurred, then the assessee is not entitled to the deduction on this issue as held by Madras High Court in the case of M/s. Ffe Minerals India Pvt. Ltd. vs. Joint Commissioner of Income tax on 13st, August (2018) 98 Taxman.com 170 (Madras).” 5. During the course of assessment proceedings, AO noticed that in the note of Financial Statements, a sum of Rs.26,10,69,653/- was shown as payable to Capital Creditors. On analyzing the note given in the Financial Statement, AO noted that assessee was entitled to Liquidated Damages of Rs.47,84,60,000/- and Rs.1,88,00,000/- towards supply ITA No.7893/Del/2019 ACIT vs. DJ Energy Pvt. Ltd. 3 contracts and erection and commissioning contracts in respect of two parties namely Inox Wind Ltd. (IWL) and Inox Wind Infrastructure Services Ltd. (IWISL). AO noted that contract entered by assessee with those parties further provided that assessee had right to (a) set off the delay of Liquidated Damages payable by those companies against any amount payable by the assessee under the respective contracts (b) withhold any amount in dispute, in good faith, until determination of disputes. AO noted that it was further stated by the assessee in the notice that IWL and IWISL had failed to perform the duties by pre-specified dates in respective contracts and as a result, Delay Liquidated Damages was payable by them. AO also noted that assessee had notified the parties and had withheld the payments. AO further noted that on perusing the accounts of subsequent year it was seen that assessee had debited Rs.14,40,16,828/- in the account of Inox Wind Ltd. and Rs.64,88,971/- in the books of Inox Wind Infrastructure Services Ltd. According to AO, the aggregate amount of Rs.15,05,05,799/- was thus the income of the assessee which has been postponed by the assessee and has not been offered to tax in the relevant year. He accordingly made the addition of Rs.15,05,05,799/-. 6. Aggrieved by the order of AO, assessee carried the matter before CIT(A). CIT(A) after considering the submissions made by assessee and the material on record deleted the addition by noting as under: ITA No.7893/Del/2019 ACIT vs. DJ Energy Pvt. Ltd. 4 “5.3 I have considered the facts of the case and the submission made by the AR. It has been contended that out of the total addition on account of liquidated damages of Rs. 15,05,05,799/- made by the AO, a sum of Rs. 13,74,44,912/- was on account of revenue loss recoverable from IWL relating to the period falling in FY 2016-17 and the balance amount of Rs. 1,30,60,887/- relates to the FY 2017-18. The AR has furnished the complete details of the damages computed as per the Settlement agreement dated 27.12.2016 and has provided a copy of the said agreement also. It has been stated that the appellant was entitled to receive the damages. However, the same were not finalized during the year under consideration as both the parties had also raised counter claims and the payment of damages was subject to certain conditions and the settlement agreement was finally arrived on 27.12.2016 when the amount of damages was crystallized and before that date, the amount was indeterminable and contingent. It is also observed that the appellant has duly considered the complete amount of liquidated damages adjusted by it against the payments to be made by the appellant in the ITRS filed for AY 2017-18 & 2018-19 and the details of the same have been furnished during the course of appellate proceedings. The AR has also filed the copies of debit notes raised by it in respect of the damages settled finally, which are subsequent to the year under consideration. In view of all these facts, I am of the opinion that the AO has not appreciated the facts completely and has made the addition simply on the basis of Notes on accounts and that too, without giving any opportunity to the appellant. It is clear that during the year under consideration, the settlement agreement was not entered into and the amount of damages to be received by the appellant was not finalized and the same was contingent to the counter claims made by the other parties. It also needs to be appreciated that the amount of damages finally computed has been duly shown by the appellant as income in the subsequent years. Accordingly, the addition made by the AO is deleted and the ground of appeal is allowed.” 7. Aggrieved by the order of CIT(A), Revenue is now in appeal before the Tribunal. ITA No.7893/Del/2019 ACIT vs. DJ Energy Pvt. Ltd. 5 8. Before us, Learned DR supported the order of AO and further submitted that the documents shows that there has been negotiations, discussions before the amount of Liquidated Damages was arrived at and therefore, the amount was rightly held by AO to be the income in the year under consideration. He, thus, supported the order of AO. 9. Learned AR on the other hand reiterated the submissions made before the lower authorities and supported the order of CIT(A). 10. We have heard the rival submissions and perused the material available on record. The issue in the present ground is about the taxability of the Liquidity Damages. It is the case of the Revenue that assessee should have offered the amount of liquidated damages in the year under consideration. We find that while deciding the issue, CIT(A) has given a finding that the amount of Liquidated Damages was not finalized during the year under consideration as both the parties has also raised counter claims and the payment of damages was subject to certain conditions and the settlement agreement was finally arrived on 27.12.2016 when the amount of damages was crystallized and prior to that date the amount of indeterminable and contingent. CIT(A) has further given a finding that the amount of damages finally computed has been duly shown by the assessee as income in the subsequent years. Before us, Revenue has not pointed to ITA No.7893/Del/2019 ACIT vs. DJ Energy Pvt. Ltd. 6 any fallacy in the findings of CIT(A) and in such a situation, we do not find any reason to interfere with the order of CIT(A) and thus the ground of Revenue is dismissed. 11. In the result, appeal of Revenue is dismissed. Order pronounced in the open court on 31.03.2023 Sd/- Sd/- (NARENDER KUMAR CHOUDHRY) (ANIL CHATURVEDI) JUDICIAL MEMBER ACCOUNTANT MEMBER Date:- 31.03.2023 PY* Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI