TMI Blog2017 (9) TMI 811X X X X Extracts X X X X X X X X Extracts X X X X ..... k to back arrangement of liquidated damages in EPC contract as noted by the Ld. CIT-(A) in the impugned order, manifest that the primary objective behind introduction of the liquidated damages clause in EPC contract agreement was to protect the assessee from actual business losses. The act of shifting of site by the assessee and consequently non-availability of transmission lines also contributed, resulting into those business losses. In view of above discussion, we are of the opinion that order of the Ld. CIT-(A) on the issue in dispute is well reasoned and no further interference is required. Liquidated damage received/receivable by the assessee, is revenue receipt chargeable to tax. Not allowing the claim of depreciation under Income-tax Act on full cost of assets (without liquidated damages sought to be taxed as revenue receipt) - Held that:- As already held that the liquidated damages are in the nature of revenue receipt, then same cannot be reduced out of the cost of asset and hence the assessee is eligible for claiming depreciation on the full cost of the asset (without reducing the liquidated damages). In the interest of justice, we feel it appropriate to restore the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty, but it has not bifurcated the electricity generated from 6 MW plant and 4 MW plant on 31/03/2012. In absence of such bifurcations, is not possible to know whether the 6 MW plant generated any electricity on 31/03/2012 or not. In view of above facts, in the interest of Justice, we feel it appropriate to restore the issue to the file of the Assessing Officer, who is directed to examine the documentary evidences submitted by the assessee and also to verify from the respective authorities whether the solar power plants in question generated any electricity on or before 31/03/2012 and decide the issue in dispute in accordance with law. - ITA No. 2569/Del/2016 - - - Dated:- 11-9-2017 - SH . H . S . SIDHU, JUDICIAL MEMBER AND SH . O . P . KANT, ACCOUNTANT MEMBER For The Appellant : Sh . Salil Kapoor, Ms . Ananya Kapoor Ms . Saumya Singh, Advocates For The Respondent : Sh . R . C . Dandaya, Sr . DR ORDER PER O . P . KANT, A . M .: This appeal by the assessee is directed against order dated 17/02/2016 of the Commissioner of Income-tax (Appeals)-I, Gurgaon [in short the CIT-(A) ] for assessmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sallowing the depreciation claimed on the solar power plant without considering the commissioning certificate issued by Gujarat Energy Development Agency, a government of Gujarat organization . 9 . Without prejudice to the fact that the solar power plant was actually put to use during the subject AY, the learned AO has erred in disallowing depreciation on solar power plant which was ready for use during the subject AY . Issue 3 - Deduction under section 80 - IA of the Income - tax Act . 1961 ( the Act ) 10 . Without prejudice to the above, the learned AO ought to have allowed deduction under section 80 - IA of the Act on the assessed income . Issue 4 - Consequential levy of Interest . 11 . The learned AO ought to have appreciated the fact that interest under section 234C of the Act is computed on the returned income and not on the assessed income . 12 . Consequently, the levy of interest under section 234B and section 234C is erroneous and bad in law . The Appellant craves leave to add, to amend, to alter, to delete, to modify, to substitute, to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... olar power plant. According to the assessee the amount represents a payment made for sterilization of the profit earning source and thus it was capital in nature. In the alternative, the assessee claimed that if such liquidated damages are sought to be taxed as revenue in nature, then deduction under section 80I of the Act should be allowed on this amount, while computing the taxable profits. The Assessing Officer rejected the contention of the assessee holding that Delay Damages are due to delay in completion of the work, which delayed generation of the electricity and for that period of delay the company suffered loss of revenue by it from sale of electricity, and, therefore, the liquidated damages received are revenue in nature. Before the learned CIT-(A), the assessee relied on the decision of the Hon ble Supreme Court in the case of Commissioner of Income Tax Vs. Saurashtra Cement Ltd. (325 ITR 422) (SC) and submitted that damages which are directly linked with the procurement of a capital asset and attributable to delay in coming in existence of a profit-making apparatus, represents compensation for sterilization of the profit earning source and therefore capital in nature. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e question, but as often observed by the highest authorities, it is not possible to lay down any single test as infallible or any single criterion as decisive in the determination of the question, which must ultimately depend on the facts of the particular case, and the authorities bearing on the question are valuable only as indicating the matters that have to be taken into account in reaching a decision . Vide Van Den Berghs Ltd . v . Clark5 . That, however, is not to say that the question is one of fact, for, as observed in Davies ( 1935 ) 3 I . T . R . ( Eng . Cas .) 17 ( H . M . Inspector of Taxes ) v . Shell Company of China Ltd . 6, these questions between capital and income, trading profit or no trading profit, are questions which, though they may depend no doubt to a very great extent on the particular facts of each case, do involve a conclusion of law to be drawn from those facts . It is seen from the above, that the decision of capital or revenue nature of any receipt depends upon facts of each case . No straight jacket formula can be given which can have universal application . ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n respect of delay in commissioning of the plants accordingly, but no such calculation was available on record. The Ld. Sr. DR supported the finding of the learned CIT-(A) that the clauses of liquidated damages in the EPC contracts are for hedging back-to-back losses due to liquidated damages clause in PPA contract. The Sr. DR requested that order of the Ld. CIT-(A) on the issue in dispute might be confirmed. 7. We have heard the rival submission and perused the relevant material on record including the paper book of the assessee. The assessee entered into power purchase agreement (PPA) with M/s. Gujarat Urja Vikas Nigam Ltd. (GUVNL) on 29th of May 2010 for commissioning of two solar power plants having total electricity generation capacity of 15 Megawatts at Village Bandhdi, Taluka Bhachu, District Kutch, having date of construction and scheduled commercial operation as under: S . No . Plant MW Scheduled commercial operation date Date of commencement of construction 1. 3MW 30/06/2011 31/03/2011 2. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 6 Delay Damages ( a ) Without prejudice to paragraphs ( b ) and ( c ) below, if Contractor fails to achieve Substantial Completion by the Time for Substantial Completion in accordance with Sub - Clause 8 . 2 ( Time for Substantial Completion and Time for Completion ) , Contractor shall, subject to Sub - Clause 2 . 5 ( Owner's Claims ) and when requested by Owner, pay delay damages to Owner in the amount of Rs . 1,061,281 for every day, which elapses between the Time for Substantial Completion and the date on which Substantial Completion was achieved as stated in a Substantial Completion Certificate issued in accordance with - Sub - Clause 10 . 1 ( Substantial Completion of the Works ). ( b ) Without prejudice to paragraph ( a ) above, paragraph ( c ) below, if Contractor fails to achieve Substantial Completion by 31 December 2011 in accordance with Sub - Clause 8 . 2 ( Time for Substantial Completion and Time for Completion ) , Contractor shall, subject to Sub - Clause 2 . 5 ( Owner's Claims ) and when requested by Owner, indemnify Owner for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of about 16 months time from the date of signing of PPA . Accordingly, M / s AES is solely responsible for delay of commissioning of Solar Power Project . Moreover, as per Power Purchase Agreement executed with GUVNL for supply of power from ] 15 MW Solar Power Project, Scheduled Commercial Operation Date ( SCOD ) of your solar I power project was 30th June 2011 for 3 MW and 31 December 2011 for balance 12 MW . further solar project was not ready on 31 December 2011 pending transmission line, in such / a situation stating delay on account of GETCQ is not correct - It Is also clarified that as per PPA liquidated damages is applicable for delay of each day from SCOD . In view of above, as your solar power project failed to achieve commercial operation by SCOD, as Article 4 . 3 of the PPA, you are liable to pay liquidated damages to GUVNL for delay in achieving commercial operation by SCOD . Further, without prejudice to our right to recover liquidated damages under the PPA, it is to state that your project was not ready on or before SCOD . Therefore, your submission that solar project could not com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sterilization of the profit - earning source and the same is a capital receipt . The relevant extract of the decision of the Hon'ble Supreme Court is as below : 13 It is evident that the damages to the assessee was directly and intimately linked with the procurement of a capital asset i . e . the cement plant, which would obviously lead to delay in coming into existence of the profit making apparatus, rather than a receipt in the course of profit earning process . Compensation paid for the delay in procurement of capital asset amounted to sterilization of the capital asset of the assessee as supplier had failed to supply the plant within time as stipulated in the agreement and clause No . 6 thereof came into play . The aforestated amount received by the assessee towards compensation for sterilization of the profit earning source, not in the ordinary course of their business, in our opinion, was a capital receipt in the hands of the assessee 4 . 4 In order to appreciate the entire gamut of the aforesaid judgment, it would be useful to first understand that a number of commercial contracts provide for liquidat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere delay in supply of capital goods / machinery has resulted in actual damages which are ascertainable and have been at the centre of the contract . 7.9 We have noticed that the full EPC contract agreement has not been produced before us and, therefore, we are unable to find out the terms of completion of the EPC contract specified in the agreement. The assessee has also not furnished any certificate from the supplier the date on which construction of the power plants was completed and working of daily damages. The claim of the liquidated damages of the assessee, has been examined by the lower authorities on the basis of the letters of the assessee addressed to the M/s. Enfinity, copy of which are available on pages 15-22 of the paper book. No acknowledgement of said letter by the contractor M/s Enfinity has been filed by the assessee. In the circumstances, we are adjudicating the issue of liquidated damages as capital or revenue expenditure on the basis of evidences available on record. 7.10 We have observed that in the case of CIT Vs. Saurashtra Cement Ltd. (supra) the assessee was to be paid compensation at a rate of 0.5% of the price of the respective portion ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... M/s Enfinity , the cost of asset charged to the assessee and liquidated damages. The assessee shall be afforded adequate opportunity of being heard. The ground No. 5 of the appeal is accordingly allowed for statistical purposes. 8.2 The Ground No. 6 and 10 are in respect of allowing deduction under section 80I of the Act on enhanced income due to treating liquidated damages as revenue receipt and depreciation disallowed. 8.3 The learned counsel of the assessee submitted that the assessee is eligible for deduction under section 80IA of the Act, if the liquidated damages are held as revenue receipts. He further submitted that nonfiling of form No. 10CCB, cannot be a ground for declining the deduction under section 80IA of the Act. In support of the contention, the learned counsel relied on the decision of the ITAT, Ahmadabad bench in the case of Eagle Synthetics Private Limited Vs. Income Tax Officer, (2010) 29 CCH 0137 (Ahd.) (Trib.) and filed copy of the said decision. The Ld. counsel also referred to the CBDT Circular No. 37/2016 and submitted that deduction under Chapter VI of the Act are admissible on enhancement of the profit of the eligible business. 8.4 On the ot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r, particularly, under the facts and circumstances of the case when, in the original return, the assessee had shown loss and subsequently, after the AO passed an order under s . 147 of the Act which resulted in profit, at which point of time the assessee claimed deduction under s . 80HHC based on the audit report in Form 10CCAC, in view of the specific provisions available under the statute, the assessee should not be denied the opportunity to file audit report for the purpose of claiming benefit under s . 80HHC . Respectfully, following the above decision of Hon'ble Madras High Court, we direct the AO to grant the opportunity to assessee company to file the audit report in Form No . 10CCB on the basis of enhanced income after giving effect to this order and if on the basis of details and evidences furnished it is found that the assessee is eligible for deduction u / s . 80IB ( 4 ) then A . O . is directed to grant such deduction in accordance with the provisions of law . 8.6 The second ground of rejection of the reduction of section 80IA deduction by the Ld. CIT-(A), is that income was not derived from the un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtaking and the receipt from liquidated damages, and thus, assessee is not eligible for deduction under section 80IA of the Act on the said receipt. Since the enhancement of the profit is not as a result of the eligible business, the CBDT Circular (supra) cited by the Ld. counsel is also not applicable over the facts of the instant case. Accordingly, we uphold the finding of the Ld. CIT-(A) on the issue in dispute and dismiss grounds No. 6 of the appeal. 9. In ground Nos. 7 to 9 of the appeal assessee challenged disallowance of depreciation amounting to ₹ 4,02,28,060/- on solar power plants. According to the Assessing Officer, the assessee has given certificate of commissioning of the solar power plants and no evidence supporting that actual power was generated was given by the assessee. The Assessing Officer has in the assessment order has mentioned that in case of another assessee of having similar nature of income, the authority issuing certificate clearly mentioned that work of power generation was started on the date mentioned in the certificate. 9.1 Further, the Assessing Officer observed that first invoice was raised by the assessee in the month of August, 2012 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2012. 9.4 In view of these evidences, the learned counsel submitted that solar plants were put to use and the assessee is entitled for depreciation on said power plants as per rules. 9.5 On the contrary, the Ld. Sr. DR submitted that there is an apparent inconsistency in the latter dated 14/03/2012 of GUVNL which is available on pages 55 of the paper book and the supplementary PPA dated 19/07/2012 and other evidences cited by the assessee. Accordingly, he requested that matter may be restored back to the Assessing Officer for allowing depreciation as per low after verification of the documentary evidences submitted by the assessee. 9.6 We have heard the submission of the parties and perused the relevant material on record. The claim of the assessee is that the 4 megawatt (MW) plant was commissioned on 04/03/2012 and 6 MW plant was commissioned on 31/03/2012. The assessee supported its contention with the supplementary PPA signed on 19/07/2012. The Revenue on the other hand, referred the letter dated 14/03/2012 of GUVNL, according to which the solar power project of the assessee was delayed due to unavailability of the transmission facilities. Further we find that the as ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
