M/s.Project Engineering Corpn Ltd, Cochin V. DCIT, Ernakulam

ITA 790/COCH/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 73922 (ITAT-COCHIN)
• Duration Of Justice: 3 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-03-2014
• Appeal Filed By: Assessee
• Bench Allotted: DB
• Next Hearing Date: 13-03-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 16-12-2013
• Court: TRIBUNAL
• Department Lawyers: K K JOHN; LATHA V KUMAR
• Assessee Lawyers: SM MATHUR
• Keywords: Revised return
• Section: 142(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN BEFORE S/SHRI N.R.S.GANESAN, JM AND B.R.BASKARAN, AM I.T.A. NO. 790/COCH/2013 ASSESSMENT YEAR : 2007-08 M/S. PROJECT ENGINEERING CORPN. LTD., 908, PIONEER TOWERS, MARINE DRIVE, ERNAKULAM, KOCHI-31 VS. THE DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE-1(3), ERNAKULAM, KOCHI. (ASSESSEE-APPELLANT) (REVENUE-RESPONDENT ) ASSESSEE BY SHRI S.M. MATHUR, CA REVENUE BY SHRI K.K. JOHN, SR. DR AND SMT. LATHA V. KUMAR, JR. DR DATE OF HEARING 13/03/2014 DATE OF PRONOUNCEMENT 28/03/2014 O R D E R PER B.R.BASKARAN, ACCOUNTANT MEMBER: THE APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER DATED 26.09.2013 PASSED BY LD CIT(A)-II, KOCHI AND IT RELA TES TO THE ASSESSMENT YEAR 2007-08. THE ASSESSEE IS ASSAILING THE DECISION OF LD CIT(A) IN CONFIRMING THE ADDITION OF RS.71,85,000/- RELATING TO THE CLAIM MA DE UNDER THE HEAD PROVISION MADE FOR LIQUIDATED DAMAGES. 2. THE FACTS RELATING TO THE ISSUE ARE STATED IN BR IEF. THE ASSESSEE COMPANY WAS PREVIOUSLY KNOWN AS KERALA PROJECT ENGINEERING CORPORATION LIMITED (ALSO REFERRED AS KEPEC). IT OBTAINED A SUB CONTRACT FR OM M/S MECON LIMITED FOR UNLOADING, STORAGE, CIVIL CONSTRUCTION, FABRICATION , ERECTION, TESTING, COMMISSIONING AND PERFORMANCE GUARANTEE OF IMPORTED AND INDIGENOUS PLANT AND MACHINERY REQUIRED BY ANOTHER COMPANY NAMED M/ S INDIAN RARE EARTHS LIMITED. THE ABOVE SAID M/S INDIAN RARE EARTHS LI MITED (IREL) IS HAVING BEACH SAND MINING AND MINERAL PLANT AT CHAVARA, KOL LAM. ACCORDING TO LD A.R, I.T.A. NO. 790/COCH/2013 2 M/S IREL HAD APPOINTED M/S ROCHE MINING (MT) PTY. LI MITED FOR MODERNIZING AND UPGRADING THE PLANT. M/S ROCHE ENGAGED THE SER VICES OF M/S MECON LIMITED FOR CARRYING OUT SITE WORK OF THE PROPOSED PROJECT. M/S MECON LIMITED IN TURN GAVE THE WORK ON SUB-CONTRACT TO THE ASSESS EE HEREIN. 3. BOTH M/S MECON AND THE ASSESSEE HEREIN ENTER ED INTO TWO CONTRACTS NUMBERED AS 11-51-Q651-7717 AND 11-51-Q651-7716, BO TH DATED 9 TH MARCH 2005, TO CARRY OUT THE WORKS AT THE PROJECT SITE OF M/S INDIAN RARE EARTH LIMITED. THE COPIES OF AGREEMENTS ARE PLACED IN PAGES 43 TO 49 OF THE PAPER BOOK FILED BY THE ASSESSEE. IN TERMS OF ARTICLE 3 OF BOTH THE CONTRACTS, THE EFFECTIVE DATE OF CONTRACTS WAS FIXED AS 9 TH FEBRUARY, 2005 AND THE COMPLETION PERIOD FOR FULFILLING ALL THE OBLIGATIONS OF THE CONTRACT WAS FIXED AS 18 MONTHS FROM THE EFFECTIVE DATE. FURTHER AS PER CLAUSE 4, THE ASSES SEE WOULD BE LIABLE TO PAY LIQUIDATED DAMAGES IN CASE OF DELAY. SINCE THE PRE SENT CONTROVERSY SURROUNDS AROUND CLAUSE 4, WE EXTRACT THE SAME BELOW, FOR THE SAKE OF CONVENIENCE:- LIQUIDATED DAMAGES, PENALTIES AND ANY OTHER DEDUCT IONS, WHICH WILL BE RECOVERED BY IREL FROM THE INVOICES OF MECON AS PER CONTRACT NO. IRE/CH/EXP-1/01/C-02 DATED 9-02-2005 SHALL BE TO TH E ACCOUNT OF KEPEC AND SHALL BE RECOVERED FROM ANY PAYMENT DUE / BECOM ING DUE TO KEPEC**. (** THE ASSESSEE HEREIN) 4. AS PER ARTICLE 3 OF THE AGREEMENT, THE WORK IS REQUIRED TO BE COMPLETED BY 08-08-2006 (WITHIN 18 MONTHS). HOWEVER, THE ASS ESSEE COMPLETED THE WORK ONLY ON 10.11.2006 RESULTING IN A DELAY OF 13 WEEKS. ACCORDING TO THE ASSESSEE, THE LIQUIDATED DAMAGE WAS FIXED AS UNDER IN THE ORIGINAL CONTRACT ENTERED BETWEEN M/S IREL AND M/S ROCHE. ON INDIGENOUS SUPPLY OF PLANT AND MACHINERY / MANDATORY SPARES:- INR 7,18,500/- PER WEEK FOR EACH WEEK OF DELAY AFTER SCHEDULED EX-WORKS DISPATCH SUBJECT TO MAXIMUM OF RS.71,85,00 0/-. SINCE THERE WAS A DELAY OF ABOUT 13 WEEKS IN COMPLE TION OF THE WORK, THE ASSESSEE WAS REQUIRED TO PAY THE LIQUIDATED DAMAGES FOR 13 WEEKS. HOWEVER, THE SAME SHALL BE RESTRICTED TO RS.71,85,000/- AS P ER THE MAXIMUM CEILING I.T.A. NO. 790/COCH/2013 3 STATED IN THE CONTRACT BETWEEN M/S IREL AND M/S ROC HE. 5. IN VIEW OF THE ABOVE, THE ASSESSEE HEREIN MA DE A PROVISION OF RS.71,85,000/- TOWARDS LIQUIDATED DAMAGES IN ITS BO OKS OF ACCOUNT IN THE ACCOUNTING YEAR ENDING 31.3.2007, I.E., YEAR RELATI NG TO THE ASSESSMENT YEAR UNDER CONSIDERATION AND CLAIMED THE SAME AS DEDUCTI ON. THE AO NOTICED THAT THE SCHEDULED DATE FOR COMPLETION OF CONTRACT WAS SUBSEQUENTLY EXTENDED TO 18.01.2007 BY M/S IREL. SINCE THE ASSESSEE HAD COM PLETED THE CONTRACT ON 10.11.2006, I.E., BEFORE THE EXPIRY OF THE EXTENDED DATE, THE AO NOTICED THAT THE ASSESSEE WAS NOT REQUIRED TO PAY LIQUIDATED DAM AGES. ACCORDINGLY, THE AO TOOK THE VIEW THAT THE PROVISION FOR LIQUIDATED DA MAGES OF RS.71,85,000/- CLAIMED BY THE ASSESSEE IS ONLY A CONTINGENT LIABIL ITY, SINCE IT GOT EXTINGUISHED SUBSEQUENTLY. ACCORDINGLY, THE AO DISALLOWED THE C LAIM AND ADDED THE SAME TO THE TOTAL INCOME OF THE ASSESSEE. 6. BEFORE LD CIT(A), THE ASSESSEE SUBMITTED THA T THE LIQUIDATED DAMAGES PROVIDED FOR IN THE YEAR UNDER CONSIDERATION HAS SI NCE BEEN REVERSED IN THE SUCCEEDING YEAR, I.E., IN ASSESSMENT YEAR 2008-09 A ND IT HAS BEEN OFFERED FOR TAXATION IN THAT YEAR. THE LD CIT(A) TOOK THE VIEW THAT THE ASSESSEE HAS REVERSED THE PROVISION IN THE SUCCEEDING YEAR ONLY FOR THE REASON THAT THE AO HAS REFUSED TO ALLOW THE CLAIM IN THE INSTANT YEAR. THE LD CIT(A) ALSO TOOK THE VIEW THAT THE ASSESSEE HAS ONLY TRIED TO POSTPONE I TS TAX LIABILITY BY CLAIMING THE PROVISION FOR LIQUIDATED DAMAGES AS DEDUCTION IN AS SESSMENT YEAR 2007-08 AND THEN OFFERING THE SAME AS INCOME IN THE SUCCEEDING YEAR, THUS SAVING INTEREST LIABILITY UNDER THE INCOME TAX ACT. ACCORDINGLY, T HE LD CIT(A) CONFIRMED THE VIEW TAKEN BY THE AO THAT IT IS A CONTINGENT LIABIL ITY AND IT IS NO LONGER PAYABLE, SINCE THE CONTRACT WAS COMPLETED PRIOR TO THE EXTEN DED DATE OF COMPLETION OF CONTRACT. AGGRIEVED, THE ASSESSEE HAS FILED THIS A PPEAL BEFORE US. 7. THE LD A.R SUBMITTED THAT THE OBSERVATIONS MA DE BY LD CIT(A) SUFFERS FROM MANY FACTUAL ERRORS. HE SUBMITTED THAT THE LD CIT(A) HAS OBSERVED THAT THE ASSESSEE HAS FURNISHED A REVISED RETURN FOR ASS ESSMENT YEAR 2008-09, I.E., I.T.A. NO. 790/COCH/2013 4 FOR THE SUCCEEDING YEAR AND OFFERED THE PROVISION A MOUNT OF RS.71.85 LAKHS IN THAT YEAR. THE LD A.R SUBMITTED THAT THE ASSESSEE HAS NOT FILED ANY REVISED RETURN FOR ASSESSMENT YEAR 2008-09. THE LD COUNSEL FURNISHED FOLLOWING DETAILS TO CONTEND THAT THE OBSERVATIONS MADE BY LD CIT(A) ARE NOT CORRECT. 1. DATE OF COMPLETION OF AUDIT OF ACCOUNTS FO R FINANCIAL YEAR 2006-07 : 05/09/2007 FINANCIAL YEAR 2007-08 : 09/08/2008 2. NOTICE U/S 143(2) ISSUED FOR A.Y 2007-08 : 22.09.2008 3. NOTICE U/S 142(1) ISSUED FOR AY 2007-08 : 24.06.2009 4. DATE OF FILING OF RETURNS OF INCOME FOR ASSESSMENT YEAR 2007-08 : 31.10.2007 ASSESSMENT YEAR 2008-09 : 30-09-2008 THE LD COUNSEL SUBMITTED THAT THE AUDIT OF ACCOUNTS FOR THE YEAR RELATING TO THE ASSESSMENT YEAR 2008-09 WAS COMPLETED ON 09.8.2008, I.E., MUCH BEFORE THE DATE OF ISSUING OF NOTICES U/S 143(2) AND 142(1) OF THE ACT FOR THE ASSESSMENT YEAR 2007-08. ACCORDINGLY HE SUBMITTED THAT THE LD CIT(A) WAS NOT CORRECT IN PRESUMING THAT THE ASSESSEE HAS OFFERED THE AMOUNT OF RS.71.85 LAKHS AS ITS INCOME IN AY 2008-09 ONLY FOR THE REASON THAT THE A O PROPOSED TO DISALLOW THE CLAIM MADE IN AY 2007-08. HE FURTHER SUBMITTED THA T THE DATES OF FILING OF RETURNS MENTIONED IN THE ORDER OF LD CIT(A) ALSO SU FFERS FROM ERRORS. 8. THE LD A.R SUBMITTED THAT THE DATE OF EXTENS ION OF THE SCHEDULED DATE FOR COMPLETION OF WORK WAS KNOWN TO THE ASSESSEE ON LY WHEN THE LETTER DATED 27-09-2008 WRITTEN BY M/S IREL TO M/S DOWNER EDI MIN ING WAS FORWARDED TO THE ASSESSEE. HE SUBMITTED THAT THE DECISION TO EX TEND THE DATE WAS COMMUNICATED ONLY BY THAT DATE. HOWEVER, THE ASSES SEE HAS FINALIZED THE ACCOUNTS FOR THE FINANCIAL YEAR 2006-07 RELATING TO THE ASSESSMENT YEAR 2007-08 ON SEPTEMBER 5, 2007. AS ON THAT DATE THE ASSESSEE WAS VERY MUCH AWARE OF ITS LIABILITY TO PAY THE LIQUIDATED DAMAGE S, SINCE THERE WAS A DELAY OF ABOUT 13 WEEKS IN COMPLETION OF THE WORK. THE LD A .R SUBMITTED THAT THE SAID LIABILITY CANNOT BE CONSIDERED AS A CONTINGENT LIA BILITY AS PRESUMED BY THE TAX AUTHORITIES, SINCE THE LIABILITY HAD GOT CRYSTALLIZ ED ON 10.11.2006 ITSELF. HENCE, THE ASSESSEE HAS PROVIDED FOR THE LIABILITY, WHICH IS KNOWN TO IT IN THE FINANCIAL I.T.A. NO. 790/COCH/2013 5 YEAR 2006-07 RELEVANT TO THE ASSESSMENT YEAR 2007-0 8 AND CLAIMED THE SAME AS DEDUCTION. HE FURTHER SUBMITTED THAT THE ASSESS EE WAS, HOWEVER, PURSUING WITH M/S MECON FOR WAIVER OF THE LIQUIDATED DAMAGES , SINCE THE DELAY IN COMPLETION OF PROJECT WAS NOT ATTRIBUTABLE TO IT. SINCE M/S MECON DID NOT INVOKE THE LIABILITY CLAUSE AND DID NOT PRESSURIZE THE ASSESSEE, THE SAID PROVISION WAS REVERSED BY THE ASSESSEE IN THE SUCCEEDING YEAR . ACCORDINGLY HE SUBMITTED THAT THE ASSESSEE HAD MADE THE PROVISION IN AY 2007-08 AS PER ACCOUNTING PRINCIPLES AND REVERSED THE SAME IN THE SUCCEEDING YEAR FOR SUFFICIENT REASONS. THE ASSESSEE ALSO CAME TO KNOW OF THE EXTENSION OF THE SCHEDULED DATE ONLY SUBSEQUENTLY. ACCORDINGLY HE S UBMITTED THAT THE LD CIT(A) WAS NOT RIGHT IN PRESUMING THAT THE ASSESSEE HAD MADE THE CLAIM IN AY 2007-08 AND REVERSED THE SAME IN THE SUCCEEDING YEA R ONLY WITH THE PURPOSE OF POSTPONING THE TAX LIABILITY AND TO SAVE INTEREST. 9. ON THE CONTRARY, THE LD D.R STRONGLY SUPPORT ED THE ORDER PASSED BY LD CIT(A). THE LD D.R SUBMITTED THAT THE LIABILITY GO T ULTIMATELY EXTINGUISHED AND HENCE THE PROVISION MADE FOR LIQUIDATED DAMAGES WAS RIGHTLY CONSIDERED AS A CONTINGENT LIABILITY. THE LD D.R SUBMITTED THAT THE CONTINGENT LIABILITY CANNOT BE ALLOWED AS DEDUCTION UNDER THE INCOME TAX ACT AND IN THIS REGARD, THE LD D.R PLACED RELIANCE ON THE DECISION RENDERED BY HONBLE GUJARAT HIGH COURT IN THE CASE OF ALEMBIC CHEMICAL WORKS LTD VS. DCIT (2004)(266 ITR 0047). 10. WE HAVE HEARD THE RIVAL CONTENTIONS AND CAREFU LLY PERUSED THE RECORD. WE NOTICE THAT BOTH THE TAX AUTHORITIES HAVE TAKEN THE VIEW THAT THE PROVISION FOR LIQUIDATED DAMAGES IS A CONTINGENT LIABILITY IN THE HANDS OF THE ASSESSEE. WE NOTICE THAT THE TERM CONTINGENT LIABILITY IS D EFINED AS UNDER IN THE ACCOUNTING STANDARD AS-29 RELATING TO THE PROVISIO NS, CONTINGENT LIABILITIES AND CONTINGENT ASSETS ISSUED BY THE INSTITUTE OF CHART ERED ACCOUNTANTS OF INDIA: A CONTINGENT LIABILITY IS: (A) A POSSIBLE OBLIGATION THAT ARISES FROM PAS T EVENTS AND THE I.T.A. NO. 790/COCH/2013 6 EXISTENCE OF WHICH WILL BE CONFIRMED ONLY BY THE OC CURRENCE OR NON-OCCURRENCE OF ONE OR MORE UNCERTAIN FUTURE EVEN TS NOT WHOLLY WITHIN THE CONTROL OF THE ENTERPRISE; OR (B) A PRESENT OBLIGATION THAT ARISES FROM PAST EVENTS BUT IS NOT RECOGNIZED BECAUSE: (I) IT IS NOT PROBABLE THAT AN OUTFLOW OF RESOURCES EMBODYING ECONOMIC BENEFITS WILL BE REQUIRED TO SETTLE THE OB LIGATION; OR (II) A RELIABLE ESTIMATE OF THE AMOUNT OF THE OBLIG ATION CANNOT BE MADE. WE SHALL EXAMINE AS TO WHETHER THE LIABILITY CLAIME D BY THE ASSESSEE FALLS IN THE CATEGORY OF CONTINGENT LIABILITY OR NOT. WE HAVE A LREADY NOTICED THAT THE LIABILITY TO PAY LIQUIDATED DAMAGES WAS IMPOSED UPO N THE ASSESSEE BY ARTICLE 4 OF THE AGREEMENT ENTERED BETWEEN THE ASSESSEE AND M /S. MECON. WE HAVE ALSO NOTICED THAT THE ASSESSEE COULD COMPLETE THE C ONTRACT WORK ON 10-11-2006 AS AGAINST THE SCHEDULED DATE OF 08-08-2006. HENCE THE LIABILITY ABOUT THE LIQUIDATED DAMAGES IS VERY MUCH KNOWN TO THE ASSESS EE BY 10.11.2006 ITSELF. IN ORDER TO CATEGORIZE A LIABILITY AS CONTINGENT LIA BILITY, THE EXISTENCE OF THE SAME HAS TO BE CONFIRMED ONLY BY OCCURRENCE OR NON-OCCUR RENCE OF ONE OR MORE UNCERTAIN FUTURE EVENTS NOT WHOLLY WITHIN THE CONTR OL OF THE ENTERPRISE. HOWEVER, IN THE INSTANT CASE, THE LIABILITY WAS VER Y MUCH KNOWN TO THE ASSESSEE AND IT GOT CRYSTALLIZED BY 10.11.2006 ITSELF. FURT HER, AS PER THE CONTRACT ENTERED BY M/S. IREC, THE QUANTUM OF LIQUIDATED DAMA GES IS FIXED AND HENCE, IT WILL ALSO NOT FALL IN THE CATEGORY OF LIABILITIES W HICH CANNOT BE ASCERTAINED BY A RELIABLE ESTIMATE. IN VIEW OF THE FOREGOING, IN OUR VIEW, THE LIABILITY FOR LIQUIDATED DAMAGES DO NOT FALL IN THE CATEGORY OF C ONTINGENT LIABILITY IN TERMS OF THE DEFINITION GIVEN IN THE ACCOUNTING STANDARD 2 9. 11. THE LD. CIT(A) HAS TAKEN THE VIEW THAT THE AS SESSEE HAS POSTPONED THE TAX LIABILITY AND IN THAT PROCESS SAVED THE PAYMENT OF INTEREST TO THE INCOME TAX DEPARTMENT, I.E., THE LD. CIT(A) HAS ATTACHED A MOT IVE UPON THE ASSESSEE. HOWEVER, FROM THE DETAILS OF VARIOUS DATES FURNISHE D BY THE ASSESSEE, WE NOTICE THAT THE AUDIT OF ACCOUNTS RELATING TO ASSESSMENT Y EAR 2007-08 AND 2008-09 I.T.A. NO. 790/COCH/2013 7 WAS COMPLETED ON 05-09-2007 AND 09-08-2008 RESPECTI VELY, I.E., MUCH BEFORE THE ISSUE OF NOTICE UNDER SECTIONS 143(2) AND 142(1 ) OF THE ACT BY THE ASSESSING OFFICER FOR ASSESSMENT YEAR 2007-08. THUS, IT IS S EEN THAT THE ASSESSEE HAS PROVIDED FOR THE LIABILITY IN AY 2007-08 AND REVERS ED THE SAME IN AY 2008-09 MUCH BEFORE KNOWING THE VIEW OF THE ASSESSING OFFIC ER. HENCE, THE VIEW ENTERTAINED BY THE LD CIT(A) THAT THE ASSESSEE CAME FORWARD TO OFFER THE AMOUNT OF RS.71.85 LAKHS AS ITS INCOME IN THE ASSES SMENT YEAR 2008-09 ONLY BECAUSE OF THE REJECTION OF THE CLAIM IN AY 2007-08 IS, IN OUR VIEW, NOT BASED ON ANY MATERIAL. ACCORDINGLY, IN OUR VIEW, IT MAY NOT BE CORRECT TO SAY THAT THE ASSESSEE HAS ATTEMPTED TO POSTPONE ITS TAX LIABILIT Y, AS OBSERVED BY THE LD CIT(A). 12. NOW WE SHALL EXAMINE AS TO WHETHER THE ASSESS EE HAS GOT ANY BASIS TO MAKE PROVISION FOR LIQUIDATED DAMAGES. WE HAVE ALR EADY NOTICED THAT HE LIABILITY TO PAY THE LIQUIDATED DAMAGES WAS VERY MU CH KNOWN TO THE ASSESSEE SINCE THE COMPLETION OF CONTRACT WORK GOT DELAYED B Y 13 WEEKS. THE WORK WAS COMPLETED ON 10.11.2006 AND THE LIABILITY WAS KNOWN TO THE ASSESSEE BY THAT DATE. THE LD A.R SUBMITTED THAT THE ASSESSEE IS FO LLOWING MERCANTILE SYSTEM OF ACCOUNTING. AS PER THE ACCOUNTING STANDARDS AND ACCOUNTING PRINCIPLES, IT IS MANDATORY TO MAKE PROVISION FOR ALL KNOWN LIABILITI ES AND LOSS. HENCE, AS PER THE ACCOUNTING SYSTEM ADOPTED, THE ASSESSEE HAS PRO VIDED FOR A KNOWN LIABILITY. HENCE, WE DO NOT FIND ANY INFIRMITY OR ULTERIOR OBJ ECTIVE IN MAKING PROVISION FOR LIABILITY OF LIQUIDATED DAMAGES IN THE YEAR RELEVAN T TO THE ASSESSMENT YEAR 2007-08. WE ALSO NOTICE THAT THE ASSESSING OFFICER HAS ALSO ACCEPTED ABOUT THE EXISTENCE OF THE LIABILITY TO PAY THE LIQUIDATE D DAMAGES AS PER THE ORIGINALLY FIXED DATE FOR COMPLETION OF CONTRACT WORK. SINCE THE AO CAME TO KNOW ABOUT THE EXTENSION OF THE SCHEDULED DATE, HE HAS TAKEN T HE VIEW THAT THERE EXISTS NO LIABILITY OR THE LIABILITY, IF ANY, HAS ALREADY GOT EXTINGUISHED. ACCORDING TO THE ASSESSEE, THE EXTENSION OF DATE WAS KNOWN TO IT ONL Y IN SEP., 2008, I.E., MUCH AFTER THE FINALIZATION OF THE ACCOUNTS RELATING TO THE YEAR RELEVANT TO THE ASSESSMENT YEAR 2007-08. HENCE, THERE IS MERIT IN THE CONTENTION OF THE ASSESSEE THAT IT COULD NOT HAVE VISUALIZED ABOUT TH E EXTENSION AT THAT POINT OF I.T.A. NO. 790/COCH/2013 8 TIME, I.E., AT THE TIME WHEN IT MADE PROVISION FOR LIQUIDATED DAMAGES. THE LD A.R SUBMITTED THAT THE ASSESSEE REVERSED THE PROVIS ION IN THE SUCCEEDING YEAR AND OFFERED THE SAME FOR TAXATION. IT WAS SUBMITTE D THAT IT WAS PURSUING M/S MECON FOR WAIVER OF THE PAYMENT OF LIQUIDATED DAMAG ES, SINCE THE REASON FOR THE DELAY IN EXECUTION OF THE CONTRACT WORK WAS NOT ATTRIBUTABLE TO THE ASSESSEE. THE LD A.R ALSO SUBMITTED THAT M/S MECON DID NOT PR ESS THE PAYMENT OF LIQUIDATED DAMAGES AND HENCE IT REVERSED THE PROVIS ION IN THE YEAR ENDING 31.3.2008, I.E., MUCH BEFORE THE RECEIPT OF LETTER DATED 27-09-2008. BE THAT AS IT MAY, WE NOTICE THAT THERE IS A BASIS WITH THE AS SESSEE IN MAKING PROVISION FOR LIQUIDATED DAMAGES. FURTHER, WE HAVE ALSO SEEN THA T THE LIABILITY DID ACCRUE TO THE ASSESSEE BY 10.11.2006 AND HENCE THE ASSESSEE H AS PROVIDED FOR THE SAME IN THE ACCOUNTS RELATING TO THE FINANCIAL YEAR ENDI NG 31.3.2007 RELEVANT TO THE ASSESSMENT YEAR 2007-08. ACCORDINGLY, WE FIND NO J USTIFICATION IN DISALLOWING THE SAID CLAIM. ACCORDINGLY, WE SET ASIDE THE ORDE R OF LD CIT(A) ON THIS ISSUE AND DIRECT THE ASSESSING OFFICER TO DELETE THE DISA LLOWANCE OF PROVISION FOR LIQUIDATED DAMAGES CLAIMED BY THE ASSESSEE. 13. IN THE RESULT, THE APPEAL FILED BY THE ASSES SEE IS ALLOWED. PRONOUNCED ACCORDINGLY ON 28-03-2014. SD/- S D/- (N.R.S.GANESAN) (B.R.BAS KARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER PLACE: KOCHI DATED: 28 TH MARCH, 2014 GJ I.T.A. NO. 790/COCH/2013 9 COPY TO: 1. M/S. PROJECT ENGINEERING CORPN. LTD., 908, PIONE ER TOWERS, MARINE DRIVE, ERNAKULAM, KOCHI-31. 2. THE DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE-1( 3), ERNAKULAM, KOCHI. 3. THE COMMISSIONER OF INCOME-TAX(APPEALS)-II, KOCHI. 4. THE COMMISSIONER OF INCOME-TAX, KOCHI. 5. D.R., I.T.A.T., COCHIN BENCH, COCHIN. 6. GUARD FILE. BY ORDE R (ASSISTANT RE GISTRAR) I.T.A.T, C OCHIN