M/s. Triune Energy Pvt. Ltd., New Delhi V. DCIT, New Delhi

ITA 95/DEL/2017

• Counselvise Citation: [2019] 112 COUNSELVISE.COM (IT) 0998 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 11 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-12-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Assessment Year: 2012-2013
• Appeal Filed On: 06-01-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SARAS KUMAR
• Assessee Lawyers: GAUTAM JAIN ADV SH LALIT MOHAN
• Keywords: Business expenditure; Bad and doubtful debts; Deemed dividend; Set aside
• Section: 2(22)(e); 37(1); 201; 113; 13; 10

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH G : NEW DELHI) BEFORE SHRI R.K.PANDA, ACCOUNTANT MEMBER AN D SHRI KULDIP SINGH, JUDICIAL MEMBER ITA NO.95/DEL./2017, A.Y. 2012-13 M/S. TRIUNE ENERGY P. LTD. VS. DCI T, B-1/H-4, MOHAN COOPERATIVE INDL. CIRCLE -25(2) ESTATE, MATHURA ROAD, NEW DELHI NEW DELHI PAN : AAKCS1045E (APPELLANT) (RESPONDENT) ASSESSEE BY : SH. GAUTAM JAIN, ADV. SH. LALIT MOHAN, CA REVENUE BY : SHRI SARAS KUMAR, SR.DR DATE OF HEARING : 27.11.2019 DATE OF ORDER : 17.12.2019 O R D E R PER KULDIP SINGH, JUDICIAL MEMBER : THE APPELLANT M/S. TRIUNE ENERGY P. LTD., NEW DELHI (HEREINAFTER REFERRED TO AS 'THE ASSESSEE) BY FILI NG THE AFORESAID APPEAL SOUGHT TO SET ASIDE THE IMPUGNED ORDER DATED 18/11/2016 PASSED BY LD. COMMISSIONER OF INCOME TAX(APPEALS)-9 , NEW ITA NO. 95/DEL./2017 2 DELHI QUA THE ASSESSMENT YEAR 2012-13 ON THE GROU NDS INTER ALIA THAT : 1. THAT THE LEARNED COMMISSIONER OF INCOME TAX (APPEA LS) HAS ERRED BOTH IN LAW AND ON FACTS IN SUSTAINING A DISALLOWANCE OF RS. 27,99,953/- REPRESENTING BAD DEBTS WRITTEN-OFF AND DEBITED UNDER THE HEAD PROVISION FOR LIQUIDATED DAMAGES IN THE FINANCIAL STATEMENT IN THE INSTANT YEAR. 1.1 THAT THE FINDING OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) THAT CLAIM OF THE BAD DEBTS U/S 36(L)(VII ) READ WITH SECTION 36(2) OF THE ACT IS AN AFTERTHOUGHT IS BASED ON MIS CONCEPTION OF FACTS AND PROVISION OF LAW AND THEREFORE UNTENABLE. 1.2 THAT FURTHERMORE, EVEN THE CONCLUSION THAT APPE LLANT HAS NOT FULFILLED THE CONDITION STATED IN THE PROVISIONS OF SECTION U/S 36(L)(VII) READ WITH SECTION 36(2) OF THE ACT IS MI SCONCEIVED AND UNTENABLE; APART FROM BEING VAGUE AND NOT APPRECIAT ING THE FACTS AND EVIDENCE ON RECORD. 1.3 THAT EVEN OTHERWISE THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) OUGHT TO HELD THAT PROVISION FOR LIQUIDAT ED DAMAGES IS AN ELIGIBLE EXPENDITURE INCURRED WHOLLY AND EXCLUSIVEL Y FOR THE PUIPOSE OF THE BUSINESS OF THE APPELLANT COMPANY AN D THEREFORE ALLOWABLE AS SUCH. 1.4 THAT ALSO THE CONCLUSION THAT THE APPELLANT HAD FAILED TO DEMONSTRATE THE LIABILITY PERTAINS TO THE YEAR UNDE R CONSIDERATION IS NOT BASED ON CORRECT APPRECIATION OF PROVISIONS OF LAW AND FACTS OF THE APPELLANT COMPANY; IN AS MUCH AS THE SAME REPRE SENTED DEBT RECEIVABLE AND WRITTEN-OFF IN THE INSTANT YEAR AND THUS ELIGIBLE FOR DEDUCTION U/S 36(1) READ WITH SECTION 36(2) OF THE ACT. 2. THAT THE LEARNED COMMISSIONER OF INCOME TAX (APP EALS) HAS ERRED BOTH IN LAW AND ON FACTS IN UPHOLDING THE ADD ITION OF RS. 34,22,140/- BEING ALLEGED DEEMED DIVIDEND BROUGHT T O TAX BY INVOKING SECTION 2(22)(E) OF THE ACT. 2.1 THAT THE LEARNED COMMISSIONER OF INCOME TAX (AP PEALS) HAS FAILED TO APPRECIATE THAT STATUTORY PRE-CONDITIONS PROVIDED IN SECTION 2(22)(E) OF THE ACT WERE NOT SATISFIED AND THEREFOR E ADDITION MADE AND UPHELD IS ILLEGAL AND UNTENABLE. 2.2 THAT THE LEARNED COMMISSIONER OF INCOME TAX (AP PEALS) HAS FAILED TO APPRECIATE THAT SALE OF PLANT AND MACHINE RY FOR CONSIDERATION ON DEFERRED BASIS DOES NOT CONSTITUTE 'LOAN' OR 'ADVANCE' AND AS SUCH SECTION 2(22)(E) WAS PERSE WH OLLY ITA NO. 95/DEL./2017 3 INAPPLICABLE. 2.3 THAT EVEN OTHERWISE SINCE THERE IS NO ACTUAL PA YMENT, SECTION 2(22)(E) WAS INAPPLICABLE AND THEREFORE INVOCATION OF SECTION 2(22)(E) IS WHOLLY MISCONCEIVED. 2.4 THAT FURTHERMORE THE LEARNED COMMISSIONER OF IN COME TAX (APPEALS) HAS FAILED TO APPRECIATE THAT EVEN OTHERW ISE WITHOUT PREJUDICE, NO ADDITION WAS WARRANTED IN THE HAND OF THE APPELLANT ON ACCOUNT OF ALLEGED DEEMED DIVIDEND U/S 2(22)(E) OF THE ACT AND AS SUCH ADDITION SUSTAINED IS PERSE MISPLACED AND U NTENABLE. IT IS THEREFORE, PRAYED THAT IT BE HELD THAT, ADDIT ION/DISALLOWANCE SUSTAINED ARE NOT IN ACCORDANCE WITH LAW AND THEREF ORE MAY KINDLY BE DELETED AND APPEAL OF THE APPELLANT COMPANY BE A LLOWED. 2. BRIEFLY STATED THE FACTS NECESSARY FOR ADJUDICAT ION OF THE CONTROVERSY AT HAND ARE: THE ASSESSEE WAS INTO TH E BUSINESS OF DESIGN, ENGINEERING AND CONSULTANCY SERVICES DURIN G THE YEAR UNDER ASSESSMENT. THE AO NOTICED FROM SCHEDULE 23 OF OPER ATING AND OTHER EXPENSES THAT PROVISION FOR LIQUIDATED DAMAGE S OF RS. 27,99,953/- HAVE BEEN CLAIMED AS EXPENSE. DECLINING THE CONTENTION RAISED BY THE ASSESSEE AO PROCEEDED TO MAKE DISALLO WANCE OF RS. 27,99,953/- ON THE GROUND THAT THE LIABILITY IN RES PECT OF THIS EXPENDITURE HAS NOT CRYSTALLIZED DURING THE YEAR UN DER ASSESSMENT. 3. AO FURTHER NOTICED FROM THE ASSESSMENT PROCEEDIN GS OF TRIUNE PROJECT PVT. LTD. (TPPL) THAT THEY HAVE RECEIVED A N AMOUNT OF RS. 34,22,140/- FROM THE ASSESSEE. NOTICING THAT SHRI B INOY JACOB WAS HAVING SUBSTANTIAL INTEREST BOTH IN TPPL AND THE AS SESSEE COMPANY, ITA NO. 95/DEL./2017 4 THE AMOUNT OF RS. 34,22,140/- IS TREATED AS DEEMED DIVIDEND U/S 2(22)(E) OF THE ACT AND THEREBY MADE DISALLOWANCE O F RS. 34,22,140/-. 4. THE ASSESSEE CARRIED THE MATTER BEFORE LD. CIT(A ) WHO HAS CONFIRMED THE DISALLOWANCE BY PARTLY ALLOWING THE A PPEAL. FEELING AGGRIEVED THE ASSESSEE HAS COME UP BEFORE THE TRIBU NAL BY WAY OF FILING THE PRESENT APPEAL. 5. WE HAVE HEARD THE LD. DR, GONE THROUGH THE DOCUM ENTS RELIED UPON AND ORDERS PASSED BY THE REVENUE AUTHOR ITIES BELOW IN THE LIGHT OF THE FACTS AND CIRCUMSTANCES OF THE CAS E. GROUND NO. 1 6. FIRST QUESTION RAISED BY ASSESSEE IS THAT LD. CI T(A) HAS ERRED IN CONFIRMING THE DISALLOWANCE OF RS. 27,99,953/- R EPRESENTING BAD DEBTS WRITTEN OFF AND DEBITED UNDER THE HEAD PROVIS ION FOR LIQUIDATED DAMAGES IN THE FINANCIAL STATEMENT OF TH E YEAR UNDER ASSESSMENT. 7. UNDISPUTEDLY NATURE OF THE AMOUNT DUE WHICH BECO MES UNRECOVERABLE FROM THE CUSTOMERS AGAINST VARIOUS JO BS PERFORMED BY THE ASSESSEE IN THE COURSE OF BUSINESS OF THE AS SESSEE IS NOT IN ITA NO. 95/DEL./2017 5 DISPUTE. IT IS PLEADED CASE OF THE ASSESSEE BEFORE THE LD. CIT(A) THAT AMOUNT OF RS.6,32,230/- ON ACCOUNT OF LIQUIDATED DA MAGES WAS SHORT PAID BY THE INDIAN OIL CORPORATION IN 2009 QU A WHICH DISPUTE WAS RAISED WITH THE CUSTOMER AND REMAINED UNRECOVER ABLE AS THE PROJECT WAS GOING ON. IN AY 2012-13, THE YEAR UNDER ASSESSMENT THE ASSESSEE WRITTEN OFF THE SUM BEING TIME BARRED. SIMILARLY AMOUNT OF RS. 21,53,250/- WAS SHORT PAID BY OIL IND IAN LTD. AND SAME WAS SHOWN AS UNRECOVERABLE IN ITS BOOKS PENDIN G ADJUDICATION BY THE COMMITTEE SET UP TO EXAMINE THE SAME. ON PRO NOUNCEMENT THE DECISION OF THE COMMITTEE IN 2012-13 REJECTING THE ASSESSEES CLAIM, THE AMOUNT OF RS. 21,53,250/- WAS WRITTEN OF F AS IRRECOVERABLE. SIMILARLY AMOUNT OF RS. 14,500/- WAS WRITTEN OFF BY THE ASSESSEE ON ACCOUNT OF SHORT PAYMENT BY HPCL DU RING THE YEAR UNDER ASSESSMENT AS SAME WAS IRRECOVERABLE AND AS N O ONGOING PROJECT COULD BE USED TO RECOVER THE AMOUNT. 8. THE LD. AR FOR THE ASSESSEE CONTENDED THAT THE L D. CIT(A) HAS NOT EXAMINED AFORESAID FACTS RATHER REJECTING T HE CLAIM ON THE GROUNDS INTER ALIA THAT CLAIM OF BAD DEBTS U/S 36( 1)(VII) AND 36(2) OF THE ACT IS AN AFTERTHOUGHT AS NO SUCH CLAIM WAS MADE BEFORE THE ASSESSING OFFICER; THAT THE CLAIM OF THE ASSESSEE Q UA PAYMENT OF LIQUIDATED DAMAGES IS THE NATURE OF PENALTY WHICH I S NOT ALLOWABLE ITA NO. 95/DEL./2017 6 EXPENSES AND THE ASSESSEE HAS NOT FULFILLED THE C ONDITION LAID DOWN U/S 36. 9. WE ARE OF THE CONSIDERED VIEW THAT WHEN NATURE O F THE AMOUNT DUE HAS NOT BEEN DISPUTED BY THE REVENUE AUT HORITIES BEING IRRECOVERABLE FROM THE CUSTOMERS AGAINST VARIOUS JO BS CARRIED OUT BY THE ASSESSEE IN THE COURSE OF BUSINESS NOR DISPUTED THE EXPLANATION GIVEN BY THE ASSESSEE BEFORE THE LD. CIT(A), AFORES AID DEDUCTIONS IS ELIGIBLE FOR CLAIM DURING THE YEAR UNDER ASSESSM ENT. 10. HONBLE APEX COURT IN CASE CITED AS T.R.F. LTD. VS. CIT REPORTED IN 323 ITR 397, SET AT REST THE CONTROVER SY AT HAND BY LAYING DOWN THE FOLLOWING RATIO :- AFTER 1 ST APRIL, 1989, IT IS NOT NECESSARY FOR THE ASSESSEE TO ESTABLISH THAT THE DEBT, IN FACT, HAS BECOME IRRECO VERABLE. IT IS ENOUGH IF THE BAD DEBT IS WRITTEN OFF AS IRRECOVERA BLE IN THE ACCOUNTS OF THE ASSESSEE. HOWEVER, IN THE PRESENT CASE, THE ASSESSING OFFICER HAS NOT EXAMINED WHETHER THE DEBT HAS, IN FACT, BEE N WRITTEN OFF IN ACCOUNTS OF THE ASSESSEE. WHEN BAD DEBT OCCURS, THE BAD DEBT ACCOUNT IS DEBITED AND THE CUSTOMERS ACCOUNT IS CR EDITED, THUS, CLOSING THE ACCOUNT OF THE CUSTOMER. IN THE CASE OF COMPANIES, THE PROVISION IS DEDUCTED FROM SUNDRY DEBTORS. 11. FURTHERMORE LD. AR FOR THE ASSESSEE DREW OUR AT TENTION TOWARD CIRCULAR DATED 30.05.2016 ISSUED BY CBDT TO CLARIFY AS TO HOW THE ISSUE OF ALLOWABILITY OF BAD DEBT THAT ARE WRITTEN OFF AS A UNRECOVERABLE IN THE ACCOUNTS OF THE ASSESSEE IS TO BE DECIDED WHICH IS EXTRACTED AS UNDER :- ITA NO. 95/DEL./2017 7 PROPOSALS HAVE BEEN RECEIVED BY THE CENTRAL BOARD OF DIRECT TAXES REGARDING FILING OF APPEALS/PURSUING LITIGATI ON ON THE ISSUE OF ALLOWABILITY OF BAD DEBT THAT ARE WRITTEN OFF AS IRRECOVERABLE IN THE ACCOUNTS OF THE ASSESSEE. THE DISPUTE RELATES T O CASES INVOLVING FAILURE ON THE PART OF ASSESSEE TO ESTABLISH THAT T HE DEBT IS IRRECOVERABLE. 2. DIRECT TAX LAWS (AMENDMENT) ACT, 1987 AMENDED THE PROVISIONS OF SECTIONS 36(L)(VII) AND 36(2) OF THE INCOME TAX ACT 1961, (HEREAFTER REFERRED TO AS THE ACT) TO RATIONA LIZE THE PROVISIONS REGARDING ALLOWABILITY OF BAD DEBT WITH EFFECT FROM THE 1ST APRIL, 1989. 3. THE LEGISLATIVE INTENTION BEHIND THE AMENDMENT WAS TO ELIMINATE LITIGATION ON THE ISSUE OF THE ALLOWABILI TY OF THE BAD DEBT BY DOING AWAY WITH THE REQUIREMENT FOR THE ASSESSEE TO ESTABLISH THAT THE DEBT, HAS IN FACT, BECOME IRRECOVERABLE. H OWEVER, DESPITE THE AMENDMENT, DISPUTES ON THE ISSUE OF ALLOWABILIT Y CONTINUE, MOSTLY FOR THE REASON THAT THE DEBT HAS NOT BEEN ES TABLISHED TO BE IRRECOVERABLE. THE HON'BLE SUPREME COURT IN THE CASE OF TRF LTD. I N CA NOS. 5292 TO 5294 OF 2003 VIDE JUDGMENT DATED 9-2-2010-, HAS STATED THAT THE POSITION OF LAW IS WELL SETTLED. 'AFTER 1- 4-1989, FOR ALLOWING DEDUCTION FOR THE AMOUNT OF ANY BAD DEBT O R PART THEREOF UNDER SECTION 36(1) (VII) OF THE ACT, IT IS NOT NEC ESSARY FOR ASSESSEE TO ESTABLISH THAT THE DEBT, IN FACT HAS BECOME IRRE COVERABLE; IT IS ENOUGH IF BAD DEBT IS WRITTEN OFF AS IRRECOVERABLE IN THE BOOKS OF ACCOUNT OF ASSESSEE. ' 4. IN VIEW OF THE ABOVE, CLAIM FOR ANY DEBT OR PART T HEREOF IN ANY PREVIOUS YEAR, SHALL BE ADMISSIBLE UNDER SECTIO N 36(L)(VII) OF THE ACT, IF IT IS WRITTEN OFF AS IRRECOVERABLE IN T HE BOOKS OF ACCOUNT OF THE ASSESSEE FOR THAT PREVIOUS YEAR AND IT FULFI LLS THE CONDITIONS STIPULATED IN SUB-SECTION (2) OF SUB-SECTION 36(2) OF THE ACT. 5. ACCORDINGLY, NO APPEALS MAY HENCEFORTH BE FILED ON THIS GROUND AND APPEALS ALREADY FILED, IF ANY, ON THIS I SSUE BEFORE VARIOUS COURTS/TRIBUNALS MAY BE WITHDRAWN/NOT PRESS ED UPON. 6. THIS MAY BE BROUGHT TO THE NOTICE OF ALL CONCERNED . 12. SO FAR AS QUESTION OF TREATING THE CLAIM OF PAY MENT OF LIQUIDATED DAMAGES IN THE NATURE OF PENALTY IS CONC ERNED, WHEN AFORESAID DAMAGES ARE UNDISPUTEDLY BUSINESS EXPENDI TURE INCURRED ITA NO. 95/DEL./2017 8 ON ACCOUNT OF CONTRACTUAL DEFAULT, THE CONTRACTUAL LIABILITY CANNOT BE TREATED AS A PENAL LIABILITY. 13. IDENTICAL ISSUE HAS BEEN DECIDED BY HONBLE PUN JAB AND HARYANA HIGH COURT IN CASE OF CIT VS. S.A.BUILDERS (P) LTD. BY RETURNING FOLLOWING FINDINGS :- 5. WHILE CONSIDERING A SIMILAR ISSUE, HON'BLE THE SUPREME COURT IN PRAKASH COTTON MILLS' CASE (SUPRA) HELD THAT DEDUCTION IS TO BE ALLOWED WHERE THE AMOU NT IS WHOLLY COMPENSATORY IN NATURE AND WHERE THE AMOUNT IS COMPOSITE WHICH CONTAINS ELEMENTS OF COMPENSATION A ND PENALTY THEN IT IS ONLY THE COMPENSATORY PART WHICH IS ALLOWABLE AS A DEDUCTION AND NOT THE PENAL PART. TH IS COURT IN MURARI LAL AHUJA'S CASE (177 ITR 228 (P&H) HELD THAT WHERE AN ASSESSEE, ENGAGED IN THE BUSINES S OF SALE OF COTTON, HAVING FAILED TO FULFIL THE CONTRAC T FOR SUPPLY OF COTTON TO CERTAIN MILLS, SETTLED THE DEAL BY PAYING A SUM AS COMPENSATION, THE AMOUNT OF COMPENSATION PAID BY THE ASSESSEE WAS HELD TO BE AN ALLOWABLE DEDUCTION. SIMILAR VIEW WAS EXPRESSED BY A DIVISION BENCH OF THIS COURT IN INDO ASIAN SWITCH- GEARS' CASE (SUPRA) WHERE THE AMOUNT OF PENALTY PAI D BY THE ASSESSEE THEREIN TO PUNJAB STATE ELECTRICITY BO ARD ON ACCOUNT OF LATE DELIVERY OF GOODS WAS HELD NOT TO B E ON ACCOUNT OF INFRINGEMENT OF LAW BUT BREACH OF A CONTRACTUAL OBLIGATION AND, ACCORDINGLY, DEDUCTIBLE AS BUSINESS EXPENSE. 14. HONBLE SUPREME COURT IN CASE OF PRAKASH COTTON MILLS LTD. VS. CIT 201 ITR 684 (SC) ALSO DECIDED THE ISSUE AS TO WHEN THE AMOUNT PAID BY ASSESSEE AS INTEREST OR DAMAGES OR P ENALTY COULD BE REGARDED AS COMPENSATORY IN CHARACTER AS WOULD ENTI TLE SUCH ASSESSEE TO CLAIM IT AS AN ALLOWABLE EXPENDITURE U/ S 37(1) OF THE ACT BY RETURNING FOLLOWING FINDINGS :- ITA NO. 95/DEL./2017 9 THE DECISION OF THIS COURT IN MAHALAKSHMI SUGAR MI LLS CO. ( 1980 ) 123 ITR 429 AND THE DECISION OF THE DI VISION BENCH OF THE ANDHRA PRADESH HIGH COURT IN HYDERABAD ALLWYN METAL WORKS LTD. ( 1988 ) 172 ITR 113 WITH T HE VIEWS OF WHICH WE ARE IN COMPLETE AGREEMENT, ARE, I N OUR OPINION, DECISIONS WHICH SETTLE THE LAW ON THE QUES TION AS TO WHEN AN AMOUNT PAID BY AN ASSESSEE AS INTEREST O R DAMAGES OR PENALTY COULD BE REGARDED AS COMPENSATOR Y (REPARATORY) IN CHARACTER AS WOULD ENTITLE SUCH ASS ESSEE TO CLAIM IT AS AN ALLOWABLE EXPENDITURE UNDER SECTION 37(1) OF THE INCOME-TAX ACT. THEREFORE, WHENEVER ANY STAT UTORY IMPOST PAID BY AN ASSESSEE BY WAY OF DAMAGES OR PEN ALTY OR INTEREST IS CLAIMED AS AN ALLOWABLE EXPENDITURE UNDER SECTION 37(1) OF THE INCOME-TAX ACT, THE ASSESSING AUTHORITY IS REQUIRED TO EXAMINE THE SCHEME OF THE PROVISIONS OF THE RELEVANT STATUTE PROVIDING FOR PA YMENT OF SUCH IMPOST NOTWITHSTANDING THE NOMENCLATURE OF THE IMPOST AS GIVEN BY THE STATUTE, TO FIND WHETHER IT IS COMPENSATORY OR PENAL IN NATURE. THE AUTHORITY HAS TO ALLOW DEDUCTION UNDER SECTION 37(1) OF THE INCOME-T AX ACT, WHEREVER SUCH EXAMINATION REVEALS THE CONCERNE D IMPOST TO BE PURELY COMPENSATORY IN NATURE. WHEREVE R SUCH IMPOST IS FOUND TO BE OF A COMPOSITE NATURE, T HAT IS, PARTLY OF COMPENSATORY NATURE AND PARTLY OF PENAL N ATURE, THE AUTHORITIES ARE OBLIGATED TO BIFURCATE THE TWO COMPONENTS OF THE IMPOST AND GIVE DEDUCTION TO THAT COMPONENT WHICH IS COMPENSATORY IN NATURE AND REFUS E TO GIVE DEDUCTION TO THAT COMPONENT WHICH IS PENAL IN NATURE. THE FACTS OF THE CASE UNDER OUR CONSIDERATION DISCL OSE THAT THE INCOME TAX OFFICER AND THE APPELLATE AUTHO RITIES HAVE REFUSED TO ALLOW THE CLAIMS MADE BY THE ASSESS EE UNDER SECTION 37(1) OF THE INCOME-TAX ACT, WITHOUT ANY EXAMINATION OF THE SCHEME OF THE PROVISIONS OF THE BOMBAY SALES TAX ACT, TO FIND WHETHER IMPOST OF THE INTEREST PAID BY THE ASSESSEE FOR DELAYED PAYMENT O F SALES TAX WAS COMPENSATORY IN NATURE AS WOULD ENTITLE IT FOR DEDUCTION UNDER SECTION 37(1) OF THE INCOME-TAX ACT . THE SAME IS THE POSITION AS REGARDS THE IMPOST OF DAMAG ES PAID BY THE ASSESSEE UNDER THE EMPLOYEES' STATE INSURANCE ACT, 1948, FOR DELAYED PAYMENT OF CONTRIB UTION THEREUNDER. HENCE, WE CONSIDER IT NECESSARY TO REMI T THE QUESTION TO THE CONCERNED TRIBUNAL FOR DECIDING THE ASSESSEE'S CLAIMS FOR DEDUCTION OF INTEREST AND DAM AGES UNDER SECTION 37(1) OF THE INCOME-TAX ACT. THE FIRS T QUESTION IS ANSWERED ACCORDINGLY. ITA NO. 95/DEL./2017 10 15. SO IN VIEW OF WHAT HAS BEEN DISCUSSED ABOVE AND FOLLOWING THE DECISION RENDERED BY HONBLE SUPREME COURT AND HONBLE HIGH COURT, WE ARE OF THE CONSIDERED VIEW THAT WHEN THE DAMAGES PAID BY THE ASSESSEE ARE BUSINESS EXPENDITURE INCURRED O N ACCOUNT OF CONTRACTUAL LIABILITY THE SAME CANNOT BE TREATED AS PENAL LIABILITY AS HAS BEEN HELD BY LD. CIT(A). MOREOVER, ONCE IT HAS COME ON RECORD THAT THE AMOUNT IN QUESTION IS IRRECOVERABLE FROM T HE CUSTOMER AND HAS BEEN WRITTEN OFF IN THE BOOKS OF ACCOUNTS DURIN G THE YEAR UNDER ASSESSMENT THE AMOUNT IS ELIGIBLE FOR DEDUCTION U/S 36(1)(VII) OF THE ACT AS CLAIMED BY THE ASSESSEE. CONSEQUENTLY ADDITI ON MADE BY THE AO AND SUSTAINED BY THE LD. CIT(A) IS ORDER TO BE D ELETED. GROUND NO. 2 16. AO MADE ADDITION OF RS. 34,22,140/- ON ACCOUNT OF DEEMED DIVIDEND SO AS TO TAX THE SAME U/S 2(22)(E) OF THE ACT WHICH HAS BEEN SUSTAINED BY LD. CIT(A). UNDISPUTEDLY SHRI BIN OY JACOB WAS THE COMMON DIRECTOR HAVING SUBSTANTIAL INTEREST BOT H IN ASSESSEE COMPANY AS WELL AS IN TPPL. THE LD. AR FOR THE ASSE SSEE CONTENDED THAT THE AMOUNT OF RS. 34,22,140/- WAS PA ID TO TPPL BY THE ASSESSEE COMPANY NOT AS A LOAN BUT BEING THE SA LE PROCEEDS OF PLANT AND MACHINERY SOLD BY TPPL TO THE ASSESSEE CO MPANY. LD. ITA NO. 95/DEL./2017 11 AR FOR THE ASSESSEE FURTHER CONTENDED THAT HE HAS M ADE DUE DISCLOSURE OF THIS INFORMATION IN CLAUSE (D) OF POI NT NO. 37 UNDER THE HEAD RELATED PARTY DISCLOSURE OF THE AUDITED F INANCIAL STATEMENT FOR THE PERIOD 2011-12 WHICH ARE AVAILABLE AT PAGE 19 TO 20 OF THE PAPER BOOK, WHICH IS EXTRACTED AS UNDER FOR READY P ERUSAL :- SR. NO. PARTICULARS AMOUNT PAGE NO OF PAPER BOOK 1 PURCHASE OF FIXED ASSET FROM TRIUNE PROJECTS PVT. LTD. 36,12,751 20 2 EXPENSES INCURRED BY TRIUNE PROJECTS PVT. LTD. ON BEHALF OF ASSESSEE 2,71,286 20 TOTAL-(A) 38,84,037 3 SALE OF FIXED ASSETS TO TRIUNE PROJECTS PVT. LTD. 4,39,967 20 4 EXPENSES INCURRED BY ASSESSEE ON BEHALF OF TRIUNE PROJECTS PVT. LTD. 21,929 20 TOTAL-(B) 4,61,8 96 AMOUNT PAYABLE BY ASSESSEE TO TRIUNE PROJECTS (P) LTD. 34,22,141 17. LD. AR FOR THE ASSESSEE ALSO RELIED UPON CIRCUL AR NO. 19/2017 DATED 12.06.2017 ISSUED BY CBDT. LD. DR FO R THE REVENUE ON THE OTHER HAND RELIED UPON THE ORDER PASSED BY L D. CIT(A). ITA NO. 95/DEL./2017 12 18. WHEN IT IS CATEGORIC CASE OF ASSESSEE COMPANY T HAT TPPL AS A GROUP COMPANY HAD INSTALLED PLANT AND MACHINERY WHI CH HAS BEEN RENTED OUT TO THE ASSESSEE WHO HAS BEEN PAYING RENT INCLUDING THE RENT FOR PLANT AND MACHINERY IN THE PRECEDING YEARS AND THEN ASSESSEE PURCHASE THE PLANT AND MACHINERY FROM TPPL AT ITS BOOK VALUE THE SAME CANNOT BE TREATED AS A LOAN, RATHER IT IS A COMMERCIAL TRANSACTION BETWEEN THE ASSESSEE COMPANY AND TPPL W HICH DOES NOT FALL WITHIN THE AMBIT OF SECTION 2(22)(E) OF TH E ACT. THIS ISSUE HAS BEEN CLARIFIED BY THE CBDT VIDE CIRCULAR NO. 19 /2017 DATED 12.06.2017 EXTRACTED AS UNDER :- I) CIRCULAR NO. 19/2017 DATED 12.6.2017 ISSUED BY CENTRAL BOARD OF DIRECT TAXES N SECTION 2(22) CLAUSE (E) OF THE INCOME-TAX AC T, 196) (THE ACT) PROVIDES THAT 'DIVIDEND' INCLUDES ANY PAYMENT BY A COMPANY, NOT BEING A COMPANY IN WHICH THE PUBLIC ARE SUBSTAN TIALLY INTERESTED, OF ANY SUM BY WAY OF ADVANCE OR LOAN TO A SHAREHOLDER, BEING A PERSON WHO IS THE BENEFICIAL O WNER OF SHARES (NOT BEING SHARES ENTITLED TO A FIXED RATE O F DIVIDEND WHETHER WITH OR WITHOUT A RIGHT TO PARTICIPATE IN P ROFITS HOLDING NOT LESS THAN TEN PER CENT OF THE VOTING POWER, OR TO ANY CONCERN IN WHICH SUCH SHAREHOLDER IS A MEMBER OR A PARTNER AND IN WHICH HE HAS A SUBSTANTIAL INTEREST (HEREAFTER IN T HIS CLAUSE REFERRED TO AS THE SAID CONCERN) OR ANY PAYMENT BY ANY SUCH COMPANY ON BEHALF, OR FOR THE INDIVIDUAL BENEFIT, O F ANY SUCH SHAREHOLDER, TO THE EXTENT TO WHICH THE COMPANY IN EITHER CASE POSSESSES ACCUMULATED PROFITS. 2. THE BOARD HAS OBSERVED THAT SOME COURTS IN THE RECE NT PAST HAVE HELD THAT TRADE ADVANCES IN THE NATURE OF COMM ERCIAL TRANSACTIONS WOULD NOT FALL WITHIN THE AMBIT OF THE PROVISIONS OF SECTION 2(22) (E) OF THE ACT. SUCH VIEWS HAVE ATTAI NED FINALITY. 2.1 SOME ILLUSTRATIONS/EXAMPLES OF TRADE ADVAN CES/COMMERCIAL TRANSACTIONS HELD TO BE NOT COVERED UNDER SECTION 2 (22) (E) OF THE ACT ARE AS FOLLOWS: ITA NO. 95/DEL./2017 13 I. ADVANCES WERE MADE BY A COMPANY TO A SISTER CONC ERN AND ADJUSTED AGAINST THE DUES FOR JOB WORK DONE BY THE SISTER CONCERN. IT WAS HELD THAT , AMOUNTS ADVANCED FOR BU SINESS TRANSACTIONS DO NOT TO FALL WITHIN THE DEFINITION O F DEEMED DIVIDEND UNDER SECTION 2(22) (E) OF THE ACT. (CIT V . CREATIVE DYEING & PRINTING PVT. LTD. 1 , DELHI HIGH COURT), I) ADVANCE WAS MADE BY A COMPANY TO ITS SHAREHOLDER T O INSTALL PLANT AND MACHINERY AT THE SHAREHOLDERS PREMISES T O ENABLE HIM TO DO JOB WORK FOR THE COMPANY SO THAT THE COMPANY COULD FULFIL AN EXPORT ORDER. IT WAS HELD THAT AS THE ASSESSEE P ROVED BUSINESS EXPEDIENCY, THE ADVANCE WAS NOT COVERED BY SECTION 2(22)(E) OF THE ACT. II) A FLOATING SECURITY DEPOSIT WAS GIVEN BY A COMPANY TO ITS SISTER CONCERN AGAINST THE USE OF ELECTRICITY GENER ATORS BELONGING TO THE SISTER CONCERN. THE COMPANY UTILISED GAS AVA ILABLE TO IT FROM GAIL TO GENERATE ELECTRICITY AND SUPPLIED IT T O THE SISTER CONCERN AT CONCESSIONAL RATES. IT WAS HELD THAT THE SECURITY DEPOSIT MADE BY THE COMPANY TO ITS SISTER CONCERN W AS A BUSINESS TRANSACTION ARISING IN THE NORMAL COURSE OF BUSINES S BETWEEN TWO CONCERNS AND THE TRANSACTION DID NOT ATTRACT SECTIO N 2(22) (E) OF THE ACT. (CIT, AGRA V. ATUL ENGINEERING UDYOG, ALLA HABAD HIGH COURT) 3. IN VIEW OF THE ABOVE IT IS, A SETTLED POSITION THAT TRADE ADVANCES, WHICH ARE IN THE NATURE OF COMMERCIAL TRA NSACTIONS WOULD NOT FALL WITHIN THE AMBIT OF THE WORD 'ADVANC E' IN SECTION 2(22)(E) OF THE ACT. ACCORDINGLY, HENCEFORTH, APPEA LS MAY NOT BE FILED ON THIS GROUND BY OFFICERS OF THE DEPARTMENT AND THOSE ALREADY FILED, IN COURTS/TRIBUNALS MAY BE WITHDRAWN /NOT PRESSED UPON. 4.THE ABOVE MAY BE BROUGHT TO THE NOTICE OF ALL CON CERNED. 19. IN VIEW OF THE FACTS BROUGHT ON RECORD BY THE A SSESSEE COMPANY BEFORE AO AS WELL AS THE LD. CIT(A) THAT AM OUNT OF RS. 34,22,140/- PAID BY ASSESSEE COMPANY TO TPPL WAS ON ACCOUNT OF SALE OF PLANT AND MACHINERY AND NOT ON ACCOUNT OF L OAN AND IN VIEW OF CBDT CIRCULAR NO. 19/2017 OF 12.06.2017 THE SAME IS A COMMERCIAL TRANSACTIONS AND PROVISIONS CONTAINED U/ S 2(22)(E) ARE NOT ATTRACTED. ITA NO. 95/DEL./2017 14 20. SO, WE ARE OF THE CONSIDERED VIEW THAT TAX, IF ANY, IS TO BE PAID ON THIS AMOUNT BY THE SHAREHOLDER AS THE AMOUNT IS NOT ADVANCE BUT A BUSINESS TRANSACTION BEING SALE PROCE EDS OF THE SALE OF PLANT AND MACHINERY BY TPPL TO THE ASSESSEE COMPANY . CONSEQUENTLY ADDITION MADE BY AO AND SUSTAINED BY L D. CIT(A) IS ORDER TO BE DELETED. SO GROUND NO. 2 IS DETERMINED IN FAVOUR OF THE ASSESSEE. 21. IN VIEW OF WHAT HAS BEEN DISCUSSED ABOVE WE ARE OF THE CONSIDERED VIEW THAT LD. CIT(A) ERRED IN SUSTAINING THE ADDITION MADE BY AO WHICH HAS BEEN ORDERED TO BE DELETED. CO NSEQUENTLY APPEAL FILED BY THE ASSESSEE IS HEREBY ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON THIS 17 TH DECEMBER, 2019. SD/- SD/- (R.K.PANDA) (KULDIP SINGH) ACCOUNTANT MEMBER JUDICIALMEMBER D ATED : 17/12/ 2019 *BR* COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A)-19, NEW DELHI. 5. CIT(ITAT), NEW DELHI. AR, ITAT NEW DELHI ITA NO. 95/DEL./2017 15 DATE OF DICTATION 4/12/2019 DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 06/12/2019 DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE OTHER MEMBER DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. PS/PS DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR. PS/PS DATE ON WHICH THE FINAL ORDER IS UPLOADED ON THE WEBSITE OF ITAT DATE ON WHICH THE FILE GOES TO THE BENCH CLERK DATE ON WHICH THE FILE GOES TO THE HEAD CLERK THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER DATE OF DISPATCH OF THE ORDER