The DCIT, Circle-4, Ahmedabad V. GMM Pfaulder Ltd., Ahmedabad

ITA 798/AHD/2013

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 94249 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 5 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-08-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 06-08-2015
• Assessment Year: 2003-2004
• Appeal Filed On: 19-03-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DINESH SINGH
• Keywords: Bad and doubtful debts; Block assessment; Revised return
• Section: 37(1); 15

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD A BENCH BEFORE: S H RI G. D. AGRAWAL , VICE PRESIDENT AND SHR I S. S. GODARA , JUDICIAL MEMBER THE DEPUTY COMMISSIONER OF INCOME - TAX, CIRCLE - 4, AHMEDABAD, 1 ST FLOOR, NAVJIVAN TRUST BLDG., OFF. ASHRAM ROAD, AHMEDABAD (APPELLANT) VS GMM PFAULDER LTD, 3 RD FLOOR, B JADAV CHAMBERS, ASHRAM ROAD, AHMEDABD - 380009 PAN: AABCG0563A (RESPONDENT) REVENUE BY : S H RI DINESH SINGH , SR. D . R. ASSESSEE BY: S H RI S. N. SOPARKAR , A.R. DATE OF HEARING : 06 - 08 - 2 015 DATE OF PR ONOUNCEMENT : 20 - 08 - 2 015 / ORDER P ER : S. S. GODARA , JUDICIAL MEMBER : - THIS REVENUE S APPEAL FOR BLOCK ASSESSMENT PERIOD FROM 01.04.1986 TO 27.02.1997 , ARISES FROM ORDER OF THE CIT(A) - II, SURAT DATED 09 - 05 - 2011 IN APPEAL NO. CAS - II/395/10 - 11, IN PROCEEDINGS UNDER SECTION 15 8BC R.W.S. 254 OF THE INCOME TAX ACT, 1961; IN SHORT THE ACT . I T A NO . 798 / A HD/20 13 A SSESSMENT YEAR 200 3 - 04 I.T.A NO. 798 /AHD/20 13 A.Y. 2003 - 04 PAGE NO DCIT VS. GMM PFAULDER LTD 2 2. THE REVENUE S SOLE SUBSTANTIVE GROUND CHALLENGES THE LOWER APPELLATE ORDER DELETING DISALLOWANCE/ADDITION OF ASSESSEE S CLAIM IN RESPECT OF ITS LIQUIDATED DAMAGES; MADE BY THE ASSESSING OF FICER IN ASSESSMENT O RDER DATED 10 - 10 - 2011 AFTER HOLDING THAT THERE WAS NO EVIDENCE FURNISHED ESTABLISHING THAT THE SUM IN QUESTION STOOD DEBITED BEING ONLY A PROVISION FOR EXPECTED FURTHER EXPENDITURE. 3. THE ASSESSE E FILED APPEAL. THE CIT(A ) HAS ACCE PTED ITS CLAIM AS FOLLOWS: - 4.3. THE LEARNED A.R. HAS SUBMITTED THE SUBMISSION IN THIS REGARD IS AS UNDER: - THE ASSESSEE HAS FURNISHED THE COMPLETE DETAILS OF LIQUIDATED DAMAGES TO ITS CUSTOMERS FOR LATE DELI VERY OF GOODS. SUCH DAMAGES ARE PAYABLE FOR BRE ACH OF CONTRACTUAL TERMS IN RESPECT OF DELIVERY OF GOODS. FROM THE DETAILS SUBMITTED, IT MAY BE OBSERVED THAT THE ASSESSEE IS LIABLE FOR LIQUIDATED DAMAGES FOR LATE DELIVERY OF GOODS. THE ASSESSEE HAS SOLD GOODS TO SAID PARTIES. THE ASSESSEE HAS IDENTIFIE D THE PARTIES AND ASCERTAINED THE AMOUNT OF LIQUIDATED DAMAGES PAYABLE TO THEM. SINCE, THE ASSESSEE COMPANY HAS TO RECEIVE THE AMOUNT FROM THE DEBTORS AGAINST SALE OF GOODS; THERE IS NO NEED TO MAKE PAYMENT IN THIS REGARD. THE CONCERNED PARTY WILL MAKE LES S PAYMENT ACCORDINGLY. THE ASSESSEE HAS NOT TO INCUR ANY EXPENDITURE IN THIS REGARD AS THE LIQUIDATED DAMAGES REPRESENT THE COMPENSATION AGAINST LATE DELIVERY OF GOODS TO THE CUSTOMERS. THE ASSESSEE HAS SUBMITTED COPY OF THE PURCHASE ORDER IN WHICH PENALTY CLAUSE IS THERE. THE ASSESSEE HAS SUBMITTED THE COMPLETE WORKING OF THE LIQUIDATED DAMAGES FOR WHICH PROVISION IS MADE. B). IT IS FURTHER SUBMITTED THAT LIQUIDATED DAMAGES IS BUSINESS LOSS INCURRED DURING COURSE OF BUSINESS AND PROVISIONS OF SECTION 36(1 )(VII) OF THE INCOME TAX ACT, 1961 RELATING TO DEDUCTION OF BAD DEBTS ARE NOT APPLICABLE. THE ASSESSEE COMPANY HAS PROVIDED IN ITS BOOKS OF ACCOUNTS LIABILITY ON ACCOUNT OF LIQUIDATED DAMAGES PAYABLE TO CUSTOMERS AGAINST LATE DELIVERY OF GOODS SOLD. SINCE, THE DELAY IN THE DELIVERY HAS TAKEN PLACE DURING THE YEAR UNDER ASSESSMENT, THE LIABILITY HAS AROUSED DURING THE YEAR. THE ASSESSEE COMPANY IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING. THEREFORE, I.T.A NO. 798 /AHD/20 13 A.Y. 2003 - 04 PAGE NO DCIT VS. GMM PFAULDER LTD 3 SUCH CLAIM IS ALLOWABLE AS A DEDUCTION. THE LIQUIDATED DAM AGES IS PAYABLE FOR NON - FULFILLMENT OF THE CONTRACTUAL TERMS IN RESPECT OF DELIVERY OF GOODS. IT IS BUSINESS EXPENDITUR E ALLOWABLE U/S 37(1) OF THE IT ACT, 1961. IN CASE OF THE ASSESSEE IN PAST SUCH EXPENDITURE HAS BEEN ALLOWED BY HON'BLE ITAT, AHMEDABAD I N RESPECT OF ASSESSMENT YEAR 1984 - 85, 1986 - 87, 1987 - 88, 1988 - 89, 1989 - 90, 1990 - 91. IN ASSESSEE'S OWN CASE IN ASSESSMENT YEAR 1989 - 90 AND 1990 - 91 THE ASSESSING OFFICER HAD ACCEPTED THE CONTENTION OF THE ASSESSEE AND ALLOWED THE PROVISION FOR BAD DEBTS REPRE SENTING LIQUIDATED DAMAGES. THE LEARNED A.R. RELIED UPON THE DECISION OF PUNE ITAT IN CASE OF THERMAX BABCOCK & WILCOX LTD REPORTED IN 7 DTR (PUNE)(TRIB) 162. IN THE SAID DECISION IT IS HELD THAT PROVISION FOR LIQUIDATED DAMAGES, ONCE AN ASSESSEE IS MAINTA INING ITS ACCOUNTS AS PER MERCANTILE SYSTEM, ANY LIABILITY WHICH HAS ACCRUED IN A YEAR, THOUGH TO BE DISCHARGED AT FUTURE DATE, WOULD BE A PROPER DEDUCTION WHILE WORKING OUT THE PROFITS AND GAINS OF BUSINESS. 4.4. I HAVE GONE THROUGH THE ASSESSMENT ORDER AND SUBMISSIONS OF THE APPELLANT CAREFULLY. THE FINDINGS OF THE A.O. 'THAT THE APPELLANT HAS NOT FURNISHED ANY EVIDENCES FROM WHICH IT CAN BE ESTABLISHED THAT THE APPELLANT HAS DEB ITED AN AMOUNT OF RS. 26,76,000/ - TOWARDS LIQUIDATED DAMAGES, IS NOT CORRECT . AS PER DIRECTION OF THE HON'BLE INCOME TAX APPELLATE TRIBUNAL, THE APPELLANT HAS SUBMITTED THE INDIVIDUAL ACCOUNTS OF PARTIES ALONG WITH CONTRACTS AND THE RELEVANT INVOICES BEFORE THE AO AND BEFORE THE UNDERSIGNED. ON VERIFICATION OF THE SAME IT IS FOUND THAT THE LIQUIDATED DAMAGES BECOME PAYABLE TO CUSTOMERS FOR MAKING LATE DELIVERY OF GOODS. THE CONTRACTS CONTAIN THE TERMS OF PENALTY (LIQUIDATED DAMAGES) IN CASE OF NON - DELIVERY OF GO ODS WITHIN THE SPECIFIED PERIOD. THE LIABILITY OF LIQUIDATED DAMAGES FOR EACH INDIVIDUAL CUSTOMER HAS BEEN ASCERTAINED AND ACCORDINGLY THE ACCOUNTING ENTRY HAS BEEN PASSED IN THE BOOKS OF ACCOUNTS. FROM THE PAST RECORDS OF THE APPELLANT IT I S OBSERVED THAT SUCH EXPENDITURE HAS BEEN ALLOWED BY HON'BLE ITAT, AHMEDABAD IN / RESPECT OF AS SESSMENT YEAR 1984 - 85, 1086 - 87, 1987 - 88, 1988 - 89 1989 - 90 AND 1990 - 91. THEREFORE, IN VIEW OF THE DIRECTIONS OF THE ITA T AND FOLLOWING THE FINDINGS OF THE ITAT IN THE APPELLANT'S CASE IN EARLIER YEARS, I HOLD THAT PROVISION FOR LIQUIDATED DAMA GES IS ALLOWABLE EXPENDITURE IN THIS YEAR AND THE A.O. IS DIRECTED TO DELE TE THE ADDITION OF RS. 26,76,000 / - . 5. GROUND NO 4 RELA TES TO ADDITION OF RS. 26,76,000 / - IN COMPUTATION OF INCOME, THOUGH THE SAME WAS ADDED IN THE RETURN OF INCOME. I.T.A NO. 798 /AHD/20 13 A.Y. 2003 - 04 PAGE NO DCIT VS. GMM PFAULDER LTD 4 5.1. THE APPE LLANT HAS SUBMITTED THAT AS DISCUSSED ABOVE THE APPELLANT HIMSELF HAS ADDED PROVISION FOR LIQUIDATED DAMAGES IN THE STATEMENT OF TOTAL INCOME AND HAD CLAIMED DEDUCTION BY WAY OF LETTER. THEREFORE, THOUGH THE A.O. HAS NOT ACCEPTED THE CLAIM OF THE APPELLANT NO SEPARATE ADDITION IS CALLED FOR. 5.2. I HAVE GONE THROUGH THE ASSESSMENT ORDER AND THE SUBMISSION OF THE APPELLANT. I FOUND THAT THE CONTENTION OF THE LEARNED A.R. IS CORRECT AND THEREFORE, THE A.O. IS DIRECTED TO DELETE THE ADDITION IF IT IS FOUND AD DED IN COMPUTATION OF INCOME WITH RETURN OF INCOME. 4. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE CASE FILE. THE REVENUE REFERS ABOVE STATED BACKDROP OF FACTS AND INTER ALIA ARGUES THAT THE ASSESSEE OUGHT TO HAVE FILED A REVISED RETURN, ITS C LAIM WAS ONLY IN THE NATURE OF A PROVISION AND NO SUBSTANTIVE EVIDENCE WAS LED IN SUPPORT OF THESE LIQUIDATED DAMAGES. THE ASSESSEE STRONGLY SUPPOR TS THE CIT(A) S APPEAL ORDER. T HIS IS SECOND ROUND OF PROCEEDINGS IN THE TRIBUNAL. A CO - ORDINATE BENCH IN ASSESSEE S APPEAL NO. 2002/AHD/2007 DECIDED ON 11 - 02 - 2011 DIRECTED THE ASSESSING OFFICER TO ALLOW THE ASSES SEE S CLAIM ON ACTUAL BASIS AND THAT WHEREVER THE OTHER PARTY HAD CLAIMED LIQUIDATED DAMAGES IN CURRENT ASSESSMENT YEAR, IT WO ULD BE ALLOWED. IT WAS FURTHER OF THE VIEW THAT THE ASSESSEE HAS TO SUBMIT INDIVIDUAL ACCOUNT OF ITS CUSTOMER S AS PER LAW. THE ASSESSEE HAS S UCCEEDED IN THE PREVIOUS ROUND OF PROCEEDINGS. THUS, THE REVENUE S ARGUMENT ON THE IS SUE OF REVISED RETURN ACCORDING FAIL S . 5. WE COM E TO CONSEQUENTIAL PROCEEDINGS NOW. A PERUSAL OF THE CASE FILE PAGES 42 TO 160 REVEALS THAT THE ASSESSEE FILED ALL DETAILS OF LIQUIDATED DAMAGES IN QUESTION IN THE SHAPE OF INDIVIDUAL LEDGER ACCOUNT S FROM 01 - 04 - 2002 T O 31 - 03 - 2003. THE SAME CONTAIN CERTIF ICATION AS PER RULES TO I.T.A NO. 798 /AHD/20 13 A.Y. 2003 - 04 PAGE NO DCIT VS. GMM PFAULDER LTD 5 HAVE BEEN FILED IN THE COURSE OF ASSESSMENT. THE ASSESSING OFFICER STILL QUOTED LACK OF EVIDENCE AND HELD THAT THIS CLAIM WAS ONLY IN THE NATURE OF A PROVISION . THIS VOLUMINOUS EVIDENCE WAS NOWHERE EVEN ADVERTED TO . THE REVENUE S SECOND ARGUMENT QUOTING LACK OF EVIDENCE ALSO STANDS REJECTED BECAUSE OF THE SUFFICIENT SUPPORTIVE MATERIAL REGARDING THE IMPUGNED CLAIM OF LIQUIDATED DAMAGES. 6. THIS LEAVES US WITH THE REVENUE S THIRD AND FINAL ARGUMENT THAT THESE LIQUIDATED DAMAGES AR E ONLY IN THE NATURE OF A PROVISION. WE FIND THAT THE CIT(A) ON THIS ISSUE HAS FOLLOWED SIMILAR ORDERS PASSED IN EARLIER ASSESSMENT YEAR IN ASSESSEE S OWN CASE ON THE VERY ISSUE. IT HA S COME ON RECORD THAT THESE CLAIMS HAVE ARISEN FROM LATE DELIVERY OF G O ODS BEYOND THE SPECIFIED PERIOD IN THE RELEVANT PREVIOUS YEAR. THE ASSESSEE PASSED THESE AMOUNTS IN THE BOOKS AFTER ASCERTAINING THE CLAIM IN CASE OF EACH CUSTOMER. WE FIND THAT THE ASSESSING OFFICER HIMSELF IN A CONSEQUENTIAL ORDER DATED 26 - 03 - 2003 FOR ASSESSMENT YEAR 1990 - 91 HAS FOLLOWED A SIMILAR COURSE OF ACTION. VARIOUS ORDERS OF THE TRIBUNAL IN ASSESSEE S OWN CASE IN ASSESSMENT YEAR 1984 - 85, 86 - 87, 89 - 90,90 - 91 HAVE ALREADY DECIDED THE VERY ISSUE IN ASSESSEE S FAVOUR. THE REVENUE FAILS TO POINT OU T ANY DISTINCTION ON FACTS. WE ADOPT JUDICIAL CONSISTENCY AND REJECT ITS THIRD ARGUMENT AS WELL. 7. THIS REVENUE S APPEAL IS DISMISSED. ORDER PR ONOUNCED IN THE OPEN C OURT ON 20 - 08 - 2015 SD/ - SD/ - ( G.D. AGRAWAL ) ( S. S. GODARA ) VICE PRESIDENT JUDICIAL MEMBER AHMEDABAD : DATED 20 /08 /2015 I.T.A NO. 798 /AHD/20 13 A.Y. 2003 - 04 PAGE NO DCIT VS. GMM PFAULDER LTD 6 AK / COPY OF ORDER FORWARDED TO: - 1. ASSESSEE 2. REVENUE 3. CONCERNED CIT 4. CIT (A) 5. DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER/ , / ,