TMI Blog2020 (2) TMI 1452X X X X Extracts X X X X X X X X Extracts X X X X ..... es to the applicant. MAT Computation u/s 115JB - Applicability of the provisions of sections 115JB and 43B of the Income-tax Act have also become inconsequential as there is no question of crediting any amount to the profit and loss account when there is no receipt of liquidated damages. Trade receivables written off in the accounts of the applicant for the year ended March 31, 2015 - whether allowable as deduction under section 36(1)(vii) read with section 36(2) of the Act ? - HELD THAT:- AR has elaborated the reason for the difference in figure. The former figure is the amount invoiced to SPL along with service tax and forex fluctuation difference whereas the latter figure is exclusive of foreign rate fluctuation difference amount. As explained from the financial statement that the invoiced amount and the foreign rate fluctuation difference was declared as income in the financial year 2014-15 and the service tax though not recovered from SPL was paid to the credit of Government to avoid demand and penalty and is therefore claimed as business expenditure under section 37. It is also alternately urged that the same is also allowable as trading loss or bad debt. The aut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ectual Property Licence and US Service Agreement (IP and Service Agreement) with NACC US dated April 1, 2011 for receiving services and a non-exclusive licence of Intellectual Right from NACC US. 5. NACC US, in the initial phase of mine development and later the applicant, rendered services to SPL under the above-mentioned agreements which contributed to the progress of the project in Sasan. According to the applicant, in 2013, SPL curtailed the activities of the applicant and engaged its in-house international consultants. The last invoice paid by SPL pertained to the period up to September, 2013 and it stopped making payment of invoices of the applicant pertaining to services performed after October 1, 2013. 6. The applicant claims that even after several written and in person requests, SPL did not honour its obligations under the agreement, therefore, the applicant was constrained to terminate the said agreement. The applicant is claiming to have terminated the agreement under section 6.2(c) read with section 8.1 of Association agreement for Mine Development and Operations between NACC and SPL. The applicant had sent a notice for termination of the Association agreement on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t again form part of the 'book profits' for the purpose of section 115JB of the Act in the year in which the said amount shall be accounted for in the books of account of the applicant ? 4. Whether on the facts, in law and in the circumstances of the case where for any reason it is held that the liquidated damages are subject to service tax under Service Tax Laws, the provisions of section 43B of the Act are applicable for non-deposit of service tax on liquidated damages, given that service tax has not been routed through the profit and loss account for the year ended March 31, 2015 nor any deduction in respect of the same has been claimed by the applicant ? 5. Whether on the facts and as per law, trade receivables amounting to ₹ 51,938,309 written off in the accounts of the applicant for the year ended March 31, 2015 are allowable as deduction under section 36(1)(vii) read with section 36(2) of the Act ? Applicant's contentions 8. In this regard, it is most respectfully submitted that the applicant had raised a claim on Sasan Power Limited (SPL) for liquidated damages (LD) to the tune of USD 17 million for termination of association agreement for min ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 46,81,328 2014-15 Total 5,03,11,856 5,19,38,309 The amount mentioned in column No. 3 of the above table is the amount of unpaid invoices claimed by the company in its notes forming part of the financial statement in para 25 under the headings development fees and expense reimbursements. However, while claiming bad debts, the applicant is claiming the amount mentioned in column No. 4 vide its notes forming part of amount in the column No. 4 as the unpaid invoices for the financial year 2014-15 rested at March 31, 2015. But, the reason behind the difference in the amounts in column Nos. 3 and 4 is not clear. As the interest on unpaid invoices is already claimed by the company, there seems no purpose in claiming separate amounts, one for the period from April 1, 2014 to July 23, 2014 and another, or the year ended in March 31, 2015. Thus, how the applicant has arrived at the amount of ₹ 5,19,38,309 as bad debts is not clear. 14. Further, according to section 36(2)(i) bad debt is admissible as reduction only if it is taken into account in computing th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been satisfied. 17. It is urged that both the aforesaid observations of the Revenue are factually incorrect and are based on misappreciation of documents on record. 18. As regards the first reason, it would be observed from a perusal of note 25 of the applicant's financials that, the amount of ₹ 5,19,38,309 represents the amount restated as at March 31, 2015 as against ₹ 5,03,11,856 which is the actual amount invoiced to SPL during the financial year 2014-15. The said restatement is on account of difference in foreign exchange (forex) rate fluctuation on amounts invoiced to SPL in USD and which were recorded at closing exchange rate. The description/break-up of the aforesaid amounts invoiced to SPL is provided as follows : Particulars. Amount invoiced (Rs.) Forex Difference (Rs.) Amount restated as at 31st March 2015 (Rs.) Development fees 2,38,83,207 8,09,051 2,46,92,258 Expense reimbursement 2,19,76,892 5,87,831 2,25,64,723 Interest on un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h service tax recovery from SPL was of tax which was to be paid further by the applicant to the Government treasury, the applicant had to pay it out of its own pockets either physically through its bank or by way of ITC. 21. Thus, considering that the entire amount of ₹ 5,19,38,309 (including the service tax of ₹ 55,34,481) has been considered as a part of debt due to SPL and has been written off during the year under consideration, the same is allowable, as deduction under section 36(2) of the Act. 22. Even otherwise, as the applicant has duly considered the amount of ₹ 4,47,77,356 and ₹ 16,26,453 in its profit and loss account for the financial year 2014-15 and accounted for in computing the income of the applicant in the financial year 2014-15. Thus, both the aforesaid amounts are allowable as deduction under section 36(2) of the Act. 23. As regards the balance amount of ₹ 55,34,481 due from SPL towards service tax and which could not be recovered by the applicant, the same if not considered as allowable under section 36(2) of the Act should be otherwise be allowed under section 37 of the Act. Reliance in this regard is placed on the deci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ould be under a duty, to grant that relief. The right of the assessee to relief is not restricted to the plea raised by him. Decision : 25. We have carefully considered the facts of the case and the submissions of the applicant and the Revenue. After the arbitration award of ICC London the claim of the applicant of USD 17 mn. towards liquidated damages have been dismissed and the applicant is not entitled to receive any liquidated damages. It was also confirmed in the hearing before AAR on January 22, 2020 that there is no appeal against the award and that it has become final. Thus, question No. 1 as to the character of the liquidated damage qua revenue or capital is inconsequential. 26. In regard to question No. 2, it is held that in view of the arbitration award nothing accrues to the applicant. 27. Question Nos. 3a, 3b and 4 on applicability of the provisions of sections 115JB and 43B of the Income-tax Act have also become inconsequential as there is no question of crediting any amount to the profit and loss account when there is no receipt of liquidated damages. 28. As regards, question No. 5 the learned authorised representative has elaborated the reason for th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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