TMI Blog2021 (9) TMI 447X X X X Extracts X X X X X X X X Extracts X X X X ..... essing officer, it cannot be held that there is erroneous application of provisions of law and legal position so emerging from reading of the aforesaid two decisions. During the course of assessment proceedings, we find that the matter was duly examined by the AO as evident from the notice issued u/s 143(2) wherein one of the reasons for selection of case has been stated to be claim of depreciation which was followed by specific queries raised on 11.10.2017, 7.11.2017, 10.11.2017 and 30.11.2017 and replies dated 10.11.2017 and 7.11.2017 submitted by the assessee providing the necessary information and documentation as well as the legal decisions referred supra in support of his claim. It is therefore not a case where the queries were raised and submissions were accepted on face value, rather the Assessing officer on receipt of initial submissions has examined the same and has thereafter raised further queries and sought submissions and once he was satisfied with the claim of the assessee, he has allowed the said claim - where the Assessing Officer has taken into consideration the factual and legal position and examined the matter at length and allowed the claim of the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he PCIT passed the order u/s 263 of the Act and his findings read as under:- In this regard, I am of the opinion that the order passed is based on incorrect/ mistaken assumption of the facts of the case by way of accepting the statement of the assessee without due verification/ erroneous application of provisions of the Act. I, therefore, cancel the assessment order passed by the AO u/s 143(3) on 14.12.2017 with the direction to the Assessing Officer to pass the assessment order afresh after considering the above mentioned issues, apart from other issues discussed in the assessment order dated 14.12.2017 and also the issues which may subsequently come into the notice of Assessing Officer, during the assessment proceedings u/s 143(3) r.w.s. 263 of the Income Tax Act, 1961. 4. It was submitted that on perusal of finding of the Ld. PCIT, it is crystal clear that the Ld PCIT had passed the order without due application of mind on the documentary evidence placed on record during the assessment proceeding as well as revision proceedings. However the observation of Ld. PCIT that the Ld. AO had arbitrarily relied on the statement of the assessee without proper application of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nue since the AO was alive on all these questions and he has called upon the assessee to produce relevant material in regard to areas which were stated by the PCIT in his show cause notice. It is very important to note that the ld PCIT is not specific as to the reasons why the assessment made by the AO was erroneous and prejudicial to the interest of the Revenue. The PCIT has not arrived at any independent finding for issuance of notice under section 263. Further, a thorough enquiry has been conducted by the AO which comprised of questionnaire to which the assessee has submitted his reply, thereafter there is a notice under s. 142(1) with a query letter to which again the assessee has replied to the queries, so it is evident there has been a detailed investigation and enquiry conducted by the AO. When such judicially exercise has been apparently made by ld AO, therefore the order of the AO cannot be branded as erroneous and prejudicial to the interests of the Revenue. The exercise of jurisdiction under section 263 by the PCIT is not valid in eye of law as held in following decisions: CIT vs. Girdhari Lal (2002) 258 ITR 331 (Raj), CIT vs. Shiv Hari Madhu Sudan (1998) 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the relevant paragraph of the said judgment, the Hon ble Supreme Court has held as under: The question whether a particular receipt is capital or Revenue has frequently the attention of the Courts but it has not been possible to lay down any single criterion as decisive in the determination of the question. Time and again, it has been reiterated that answer to the question must ultimately depend on the facts of a 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 conclusion. From the above finding of the Hon ble Supreme Court it is crystal clear that particular receipt is capital or Revenue depends on the facts of the case. In the instant case liquidity damage receipts cannot be accepted as capital receipts, hence amount of liquidity damages were required to be reduced as per section 43(1) of the I.T. Act. In this regard, it is stated that section 43(1) of the Income Tax Act does not differentiate between a Capital or A Revenue receipt to determine actual cost of the asset. Section 43(1) provides that unless the context otherwise requires actual cost means, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the windmill for the purposes of claiming depreciation. 11. As per the ld PCIT, the amount of liquidated damages was directly relatable to the procurement of windmill as per the decision of the Hon ble Supreme Court in case of Saurashtra Cements (supra) and was required to be reduced from the actual cost of windmill as per provisions of section 43(1) of the Act and on the balance amount, the depreciation should have been claimed and allowed, however, the Assessing officer in a routine and perfunctory manner without proper examination and verification of the facts of the case has allowed excess claim of depreciation and the order so passed is thus found to be erroneous in so far as prejudicial to the interest of Revenue. 12. Per contra, the contention of the assessee is that when the damages was directly and intimately linked with the procurement of windmill, then as per the terms of the agreement, the same is in nature of compensation for delayed delivery and has nothing to do with the cost of the windmill and the amount received from the supplier of windmill was in nature of capital receipt and not required to be reduced from the actual cost of windmill as per provisions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proceedings, a question arose whether the said amount received by the assessee as damages was a capital or a revenue receipt. The Assessing Officer treated the same as a capital receipt which was confirmed by the ld CIT(A). On further appeal, the Tribunal held that the said amount could not be treated as a revenue receipt. According to the Tribunal, the payment of liquidated damages to the assessee by the supplier was intimately linked with the supply of machinery i.e., a fixed asset on capital account, which could be said to be connected with the source of income or profit-making apparatus rather than a receipt in course of profit-earning process and, therefore, it could not be treated as part of receipt relating to a normal business activity of the assessee. The Tribunal also observed that the said receipt had no connection with loss or profit because the very source of income viz., the machinery was yet to be installed. Accordingly, the Tribunal allowed the appeal and deleted the addition made on this account. 15. On behalf of the Revenue, the reference to High Court was again decided in favour of the assessee and on appeal by the Revenue, the Hon ble Supreme Court referri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... achines which it was liable to pay under the first agreement. In other words, the amount of compensation which was settled between the parties was to be adjusted against the cost of machinery agreed to be supplied by the suppliers. The contention of the assessee-company before the ITO was that the amount of compensation of ₹ 5,72,216 did not in any way reduce the price of the machinery which it had agreed to purchase from the suppliers. In other words, according to the assessee-company, compensation paid to it for the delay in supply of machinery had no relation or connection with the cost of machinery and, therefore, payment of such compensation would not reduce the cost or price of the machinery. The ITO, however, rejected this contention holding that the combined effect of the agreements dated 17-8-1960 and 12-7-1963 was that the price of the machinery stood reduced to the extent of ₹ 5,72,216. According to the ITO, payment of compensation was incidental to the acquisition of machinery and such payment would in effect and substance reduce or decrease the price of machinery. Consequently, the ITO deducted ₹ 5,72,216 out of the total price of the machinery and al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s Fifty Eight Thousand only) 4,03,58,000/- 1 4,03,58,000/- 3. Price basis The above prices are on basis of delivery at our site. (Ex-Factory basis plus transportation and transit insurance which is included in price). The above prices include taxes, duties, cess, other levies etc. at the prevailing rates. In the event of introduction of GST and/or any increase in or introduction of new taxes, duties and levies, these will be payable extra. The period for Lodha Street, 1st A Road, Sardarpura, Jodhpur-342001 (Rajasthan) considering these additional incidences of taxes (including GST), duties, levies, etc. will be from the date of this Purchase Order till the supplies/services are over. We agree to register under the Local Sales tax/VAT regime for this Supply and will inform the Sales Tax/VAT Authorities about (i) commencement of business of generation of electricity with the use of Wind Turbine Generator at the proposed Wind Farm Site and shall inform you about the Local Sales Tax/VAT/CST No. as applicable. You will commence delivery only after communication of Sales Tax/VAT Re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... odge claim for LD, if we are able to achieve the end result i.e., commissioning of the WTG through our erection commissioning agency, on or before their committed date of commissioning. 18. On combined reading of the aforesaid clauses of the purchase order placed by the assessee with M/s Suzlon Energy Limited and the acceptance thereof by the latter vide letter dated 12.09.2013 and thus mutually agreed between the two parties, we find that liquidated damages have been provided to ensure that there is timely delivery and commissioning of the windmill project and where the delivery is delayed beyond 30.09.2013 resulting in delayed commissioning, the liquidated damages of 15% of total project cost of ₹ 120 lacs has been provided. The same is thus in nature of compensation for the delayed delivery and consequent delayed commissioning of windmill project. Thereafter, vide letter dated 3.10.2013, the assessee has raised a claim towards liquidated damages on M/s Suzlon Energy Limited as per clause 12 of the aforesaid agreement stating that timelines for timely delivery and commencing of windmill project has elapsed and M/s Suzlon Energy Limited is liable to pay liquidated d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eating the liquidated damages as capital receipts and not reducing the same from the cost of the windmill in terms of section 43(1) for the purposes of claim of depreciation and where such a claim is allowed by the Assessing officer, it cannot be held that there is erroneous application of provisions of law and legal position so emerging from reading of the aforesaid two decisions. 21. During the course of assessment proceedings, we find that the matter was duly examined by the Assessing officer as evident from the notice issued u/s 143(2) wherein one of the reasons for selection of case has been stated to be claim of depreciation which was followed by specific queries raised on 11.10.2017, 7.11.2017, 10.11.2017 and 30.11.2017 and replies dated 10.11.2017 and 7.11.2017 submitted by the assessee providing the necessary information and documentation as well as the legal decisions referred supra in support of his claim. It is therefore not a case where the queries were raised and submissions were accepted on face value, rather the Assessing officer on receipt of initial submissions has examined the same and has thereafter raised further queries and sought submissions and once he ..... X X X X Extracts X X X X X X X X Extracts X X X X
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