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2016 (4) TMI 705 - ITAT CHENNAI

2016 (4) TMI 705 - ITAT CHENNAI - TMI - Nature of receipt - compensation for loss of profit - capital or revenue - Held that:- As compensation received by the assessee is for the loss of earnings only it is revenue receipt exigible to tax and not a capital receipt - I.T.A.Nos.2514 & 2515/Mds. /2014 - Dated:- 26-2-2016 - SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND Shri Duvvuru RL Reddy, JUDICIAL MEMBER For The Appellant : Ms. K.C.Aarthy,Advocate For The Respondent : Mr. B.Nischal,JCIT, D.R ORDER .....

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d against the principles of natural justice. 2. Liquidated damages- Capital receipt 2.1. The Commissioner of Income tax (Appeals) erred in holding that compensation received by the appellant through waiver of Supplier s credit is revenue receipt liable to tax. 2.2. Commissioner of Income tax (Appeals) ought to have appreciated that the compensation received by the appellant through waiver of supper s credit is for the impairment of the capital asset and therefore ought to have treated the same a .....

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n that the said amount received is only a compensation for loss of profit since the said amount was received for the failure to generate the required units of electricity by the wind mills and therefore is a revenue receipt liable for tax. 4. Against this, the assessee is in appeal before the CIT(A). On appeal, the ld.CIT(A) observed that the claim of receipt of compensation as capital receipt was negatived by the AO for assessment year 2010-11 in assessee s own case and the same was upheld by t .....

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receipt by the AO but the same has to be considered for deduction u/s.80-IA of the Act by the AO. Therefore, CIT(A) confirmed the order of the AO on this issue in treating the windmill compensation as revenue receipt. 5. At the outset, the ld. D.R drew our attention to the fact that this issue is squarely covered by the decision of co-ordinate Bench in assessee s own case for assessment year 2009-10 in ITA No.1652/Mds./2012 vide order dated 21th February, 2013. The ld.A.R could not controvert th .....

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assessee entered into agreements with the suppliers for supply, erection and commissioning of the wind mills. In the agreement entered into by the assessee with the suppliers, there is a clause containing performance guarantee of the machineries supplied by the suppliers. As per this clause in the agreement, the wind mills shall generate guaranteed units per annum. In case the wind mills fail to generate the guaranteed number of units per annum, the supplier shall forego suppliers credit advance .....

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neration at the rate, which shallbe thrice of the prevailing TNEB rates. In the same manner, if the actual generation is only 4,00,000 units, then No.1 shall adjust for the shortfall of 1,25,000 units at rate, which shall be thrice of the prevailing TNEB rates, against the above supplier credit. 4. Notwithstanding anything mentioned hereinabove No.2 shall not under any circumstances be entitled to claim any amount more than J.25,00,000/- from No.1 towards generation loss. SWFL - Windmill V : 2.N .....

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000 units at rate, which shall be thrice of the prevailing TNEB rates, against the above supplier credit. 4. Notwithstanding anything mentioned hereinaboveNo.2 shall not under any circumstances be entitled to claim any amount more than J.30,00,000/- from No.1 towards generation loss. 23. As can be seen from the above clauses of agreement with SWFL for wind mill IV & V, the supplier has guaranteed a minimum generation of 5.25 lakh units and 5.00 lakh units per annum respectively. Of this 5.25 .....

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inked to TNEB rates and it is not a lump sum compensation paid for non performance of the asset or break down of the asset. The compensation paid to the assessee is only for the loss of generation of electricity and the compensation is for loss of earnings. Had the wind mill generated the guaranteed units of electricity, the assessee would have earned revenue out of such units, which is revenue receipt. 24. In the case of CIT v. Bombay Burmah Trading Corporation (supra), the assessee was given f .....

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preme Court held that the forest lease affected the very structure of the operation of the assessee company and therefore constituted capital assets of the assessee company and the payments made for cancellation or sterilization of the rights under the leases would be capital receipts. In the present case, this is not the situation. The assessee has not received the compensation for termination of any agreement. The assessee received compensation only for the loss of generation of electricity. I .....

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very of machinery, the assessee was to be compensated at 5% of the price of the machinery without proof of actual loss and the total amount of damages shall not exceed 5% of the total price of the machinery. The supplier could not supply the machinery within the stipulated time and the assessee received Liquidated Damages from the supplier. The Hon'ble Supreme Court held that the damages to the assessee were directly and intimately linked with the procurement of capital asset ie., cement pla .....

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