TMI Blog2021 (10) TMI 696X X X X Extracts X X X X X X X X Extracts X X X X ..... person other than the one searched assumes the possession of the seized assets would be the relevant date for applying the provisions of Section 153A of the Act. We, therefore, accept the contention that in any view of the matter, assessment for AY 2003-04 and AY 2004-05 were outside the scope of Section 153C of the Act and the AO had no jurisdiction to make an assessment of the Assessee's income for that year. Assessment year was a concluded assessment on the date of search. This assessment should have been tinkered with , only if there is any incriminating material belonging to the assessee found during the course of search. We find that the ld AO has made an addition only on the basis of perusal of the profit and loss account which was already part of the assessment record earlier. Therefore, it is clear that the addition has not made on the basis of any incriminating material found during the course of search. Thus issue is squarely covered by the decision of the Hon'ble Delhi High Court in PCIT Vs. Kabul Chawla [ 2015 (9) TMI 80 - DELHI HIGH COURT] - the addition could not have been made and hence deserved to be deleted. Even on the merits of the case, the ld CI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urn of income before the AO. 3. That on the facts and in the circumstances of the case , the Ld. CIT (A) has erred in law and on facts in holding that since the above expenditure is allowed as per the Companies Act hence it is not contingent in nature as income is computed as per Income Tax Act and not as per Companies Act for the purpose of income tax assessment. 4. That the order of the CIT(A) is perverse, erroneous and is not tenable on facts and in law. 5. That the grounds of appeals are without prejudice to each other. 4. Brief facts of the case is that the assessee is a company engaged in the business of manufacturing of large switching exchange data modem and other equipments used for communication sector. It filed its return of income on 31.10.2002 at a loss of ₹ 72,69,71,970/-. Case was reopened u/s 147 of the Act and re-assessment order was framed u/s 143(3) of the Act on 31.12.2008 at a net loss of ₹ 68,57,26,919/-. 5. Subsequently, a search was carried out on 10.05.2007 in the Himachal Futuristic Communication Ltd group of company and a survey was also carried out at the business premises of the assessee. During the course of search ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it is the deemed date of search in view of the decision of the Hon'ble Delhi High Court in CIT Vs. RRJ Securities Ltd 380 ITR 612. As on the date of search the assessment was completed u/s 143(3) read with section 147 of the Act by order dated 31.12.2008 and therefore, it was a concluded assessment. He further referred to the assessment order and submitted that the addition has been made on the basis of perusal of the profit and loss account itself and without any incriminating material found during the course of search. He therefore, submitted that in view of decision of the Hon'ble Delhi High Court in PCIT Vs. Kabul Chawla as well as decision of the Hon'ble Supreme Court in case of CIT Vs. Singhadh Technical Educational Society 397 ITR 344 the addition deserves to be deleted. 9. The ld DR vehemently objected to the invocation of Rule 27 stating that assessee has not filed any appeal and therefore, same should not be admitted. Further, with respect to the merits of the case the assessee relied on the order of the ld AO. 10. We have carefully considered the rival contentions and perused the orders of the lower authorities. Honourable Delhi High court in SANJA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Appellant- assessee to raise the additional grounds, under Rule 27 of the ITAT Rules, pertaining to issues relating to the assumption of jurisdiction and the validity of the reassessment proceedings under Section 153C of the Act. 11. Thus, We find that the assessee can invoke Rule 27 when the issue has been decided against the assessee. 12. In the present case, we find that the assessment was completed u/s 143(3) of the Act read with section 148 of the Act by order dated 31.12.2 008 and the notice u/s 153C was issued on 05.11.2009, which is the date of search under the provision of 153C as per decision of the Hon'ble Delhi High Court in CIT Vs. RRJ Securities Ltd (2015) 94 CCH 0069 DelHC(2015) 128 DTR 0057 (Del), (2016) 282 CTR 0321 (Del), (2016) 380 ITR 0612 (Delhi) where in para no 24 it is held that In terms of proviso to Section 153C of the Act, a reference to the date of the search under the second proviso to Section 153A of the Act has to be construed as the date of handing over of assets/documents belonging to the Assessee (being the person other than the one searched) to the AO having jurisdiction to assess the said Assessee. Further proceedings, by virtue of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 73 (Delhi), (2015) 234 TAXMAN 0300 (Delhi) and of the Hon'ble Supreme Court in case of CIT Vs. Sinhgadh Technical Educational Society V DCIT (2018) 103 CCH 0256 ISCC Thus, the addition could not have been made and hence deserved to be deleted. 14. Even on the merits of the case, the ld CIT(A) has categorically held that the expenditure crystallized during the year and therefore, they are allowable as business expenditure during the year. The decision of the ld CIT(A) is also based on several decisions of the Hon'ble jurisdictional high court. The ld DR did not show us any infirmity in the order of the ld CIT(A) in deleting of the above addition or to state that expenses did not crystallize during this relevant financial year. We also do not find any reason to disturb the order of the ld CIT(A). Accordingly, even on the merits of the case the order of the ld CIT(A) is deserves to be upheld. 15. Therefore, all the grounds of the appeal of the ld AO are dismissed, and the appeal of the assessee is also allowed for the reason that the addition has been made in absence of any incriminating documents in case of concluded assessment and as well on the merits expanses cry ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... utiny and assessment u/s 143(3) and assessment was made at a net loss of ₹ 3,39,67,803/- wherein, disallowance of ₹ 13,17,09,870/- was made. Subsequently, an order u/s 154 was also passed on 24.04.2006 where the loss was determined finally at ₹ 10,60,77,803/-. 20. Search took place at HFCL Group of companies on 10.05.2007. Therefore, proceedings u/s 153C were initiated by issue of notice u/s 153C of the Act on 09.10.2009 against which the assessee filed return of income on 05.11.2009 declaring loss or ₹ 16,56,77,673/- as originally declared. The order u/s 153C read with section 153A was passed by the ld AO on 18.12.2009 accepting the above loss of ₹ 10,60,77,803/-. 21. The assessee preferred an appeal before the ld CIT(A). The grievance of the assessee is that the ld AO has disallowed the following:- a. Provision of non moving obsolete items of inventory of ₹ 4,11,02,000/-, b. Delayed payment of provident fund of ₹ 1,69,90,870/-, c. downward price revision in sales of ₹ 13,01,000/- d. prior period expenses of ₹ 2,06,000/- 22. The assessee challenged as per ground No. 1 validity of the assessmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not show us any infirmity in the order of the ld CIT(A). With respect to the first ground of appeal of ₹ 4,11,02,000/- where the provision was made for obsolete inventory is identical to the provision made by the assessee for earlier years which was allowed by the ld AO in earlier years. Even otherwise, the assessee has made the provision for non moving inventories by reducing the carrying value of such inventories. It is not the claim of the ld AO that it is an ad hoc provision. These obsolete inventories are written off by reducing the carrying cost of inventory. In view of this, we do not find any infirmity in the order of the ld CIT(A) and dismiss ground No. 1 and 2 of the appeal of the ld AO. 28. Ground No. 3 with respect to the deletion of addition of ₹ 13,01,000/- on account of price difference. The fact shows that this revision in the sale price which is determined by the BSNL for subsequent year the assessee also accounted same in the subsequent year and offered for taxation. The ld CIT(A) held that as the income accrued in the subsequent year and offered for taxation in the subsequent year there is no reason to make any addition in this year. Thus, we fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the case shows that the assessee filed return of income on 28.10.2004 declared loss of ₹ 26,26,30,920/-. This return was not picked up for scrutiny however, the last date of issue of notice u/s 143((2) of the Act expired on 30.09.2005. A search took place on HFCL Group on 10.05.2007 and a notice came to be issued u/s 153C of the Act on the assessee on 05.11.2009. Subsequently, the assessment u/s 153C read with section 153A was passed on 18.12.2009 determining net loss of ₹ 13,84,88,497/-. The ld CIT(A) made following three disallowances:- a. Disallowances on account of provision of obsolete inventory ₹ 10,47,31,000/- b. Disallowance of inadmissible expenditure u/s 40(a) of ₹ 30,47,423/- c. Disallowance on account of prior period expenditure of ₹ 1,63,64,000/-. 34. The assessee preferred an appeal before the ld CIT(A), who deleted all the above three disallowances and therefore, the ld AO is in appeal before us. 35. At the time of hearing the ld AR invoked Rule 27 of the ITAT Rules and stated that the above assessment year is concluded assessment as on the date of search . Therefore, any addition which requires to the total ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) has erred in law and on facts in deleting the addition of ₹ 5,00,21,000/-, made by the AO on account of provision for inventory by holding that the provision for inventory was contingent in nature, without appreciating the fact that the assessee had not written off the inventory and had only made provision. 2. That on the facts and in the circumstances of the case, the Ld. CIT (A) has erred in law and on facts in holding that since the above expenditure is allowed as per the Companies Act and hence is not contingent in nature as income is computed as per Income Tax Act and not as per the Companies Act for the purpose of Income Tax Assessment. 3. That on the facts and in the circumstances of the case , the Ld. CIT (A) has erred in law and on facts in deleting the disallowance of ₹ 19,20,44,000/- made by AO holding that the provision for liquidating damages was contingent in nature, without appreciating the fact that the above expenditure was not ascertained liability and was contingent in nature. 4. That on the facts and in the circumstance of the case , the Ld CIT(A) has erred in law and on facts in deleting the disallowance of prior period expenses of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 30.09.2006. He stated that as none of the addition/ disallowances made by the ld AO is based on any incriminating material those have been correctly deleted by the ld CIT(A). On the merits of the case he submitted that the ld CIT(A) has correctly deleted the addition. The ld CIT DR vehemently objected to the arguments of the ld AR and further on the merits of the issue relied upon the orders of the ld AO. 46. Coming to the ground of the ld AR under Rule 27 of the ITAT Rules we find that search took place on 10.05.2007 on HFCL Group of companies and notice u/s 153C of the Act was issued on 05.11.2009. Therefore, on 05.11.2009 is date of search in case of the assessee for impugned assessment year . The assessee filed its return of income on 29.10.2005 and the last date for issuing notice u/s 143(2) was available up to 30.09.2006. 47. Honourable Delhi High court in CHINTELS INDIA LTD Vs DEPUTY COMMISSIONER OF INCOME TAX - CIRCLE-8 2017-TIOL-1366-HC-DEL-IT has held that in the present case the present case, the facts speak for themselves. The Assessee filed its return on 21st October, 2008. The return was processed under Section 143(1) of the Act on 27th March, 2010. It has h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reasons we have upheld the order of the ld CIT(A) in deleting the above additions. For the similar reasons, as there is no change in the facts, we confirm the order of the ld CIT(A) deleting the disallowances made on provision for non moving items of ₹ 5,00,21,000/-. Accordingly, ground Nos. 1 and 2 of the appeal are dismissed. 50. Coming to the ground No. 4 of the appeal with respect to disallowance of prior period expenditure of ₹ 1,48,63,000/- we find that these disallowances are similar to the disallowances made in the case of the assessee for earlier years. The ld CIT(A) has deleted the disallowance in those years and we have upheld the order of the ld CIT(A) deleting the above disallowances. There is no change in the facts and circumstances of the case with respect to these disallowances. The reason for the disallowances that these expenditure have crystallized during the year and therefore those are incurred during the year and hence they are allowable as an expenditure u/s 37 (1) of the act. Therefore, for the similar reason given in earlier years, we upheld the order of the ld CIT(A) in deleting the disallowance of ₹ 148,63,000/- on account of prior ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,20,44,000/- is hereby made. '' The appellant has submitted detailed submission against the additions made in the assessment order, gist of which is given below : The Liquidated Damages debited to the Profit and Loss Account amounts to ₹ 1920.64 lakhs. The details are as follows: Rs. In lakhs 1. Actual LD recovered by BSNL 677.70 2. Provision for LD for NIB Project s upplies to BSNL 1150.97 3. Provision for LD for EWSD Switching equipments 91.97 TOTAL 1920.64 Supplies to BSNL The Liquidated Damages debited to the Profit and Loss Account represents damages levied and recovered by BSNL, for delay in delivery of the goods beyond the delivery date specified in the PO. As per the terms of the PO wherein, it is stated that if deliveries to be made after the expiry of the contracted delivery period, the purchaser shall recover LD at 0.5% of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der: Rs. In lakhs 1. Actual LD recovered by BSNL 677.70 2. Provision for LD for NIB Project supplies to BSNL 1150.97 3. Provision for LD for EWSD Switching equipments Supplies to BSNL 91.97 TOTAL 1920.64 Vide Clause 18 of BSNL Purchase order dated 03.08.2004, copy enclosed as Annexure A2 in the submission, it is stated that appellant shall be liable for liquidated damage as per clause 18 of Annexure A2 of Purchase order. Liquidated damages are leviable for delay in supply of the goods. The rate of liquidated damage is specified in Clause 18(b) of the purchase order. As per clause 18(b) liquidated damage will be payable for delay in supply i.e. at the rate of 0.5% for each week or part there of upto 10 weeks and thereafter at the rate of 0.7% for each week and part thereof. During the year the appellant has decided to accrue the liquidated damages against the supp'y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vt. Ltd. Vs. DCIT ITA No.4750/Del/2011 34 taxmann.com 149 and held as under: Section 37(1) of the Income-tax Act, 1961 - Business expenditure - Allowability of [Damages] - Assessment year 2007-08 - Whether where assessee-company was under obligation to deliver ordered goods to purchasers within period fixed for delivery in contract and on failure to deliver goods within stipulated period was liable to pay liquidated damages to purchaser, payment of such liquidated damages was allowable as revenue expenditure - Held, yes [Paras 16 17] [In favour of assessee] Reliance is also placed on Bombay High Court judgment in the case of CIT Vs. R.D. Sharma Co. 11 taxman 137 and held as under: Section 145 of the income-tax act, 1961-Method of accounting-Year in which liability/expenditure deductible-During assessment year 1967-68, notices served on assessee by military authorities for levying penalty for non-completion of contract in time- assessee following mercantile system of accounting, accepted liability and made a provision for it in its profit and loss account of assessment year 1967-68-Whether liability was deductible in assessment year 1967-68-Held, on facts, yes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d said claim on ground that provision was unascertained liability - Whether since assessee made reliable estimate based on performance capacity and quality and materials relating to machinery, assessee's claim towards liquidated damages was to be allowed - Held, yes - Whether when provision for rectification expenses was based on information that some of equipments supplied by company required repair and replacement and technical team estimated such expenses for making provision in account, claim being based on materials and information of technical team, would certainly be allowable - Held, yes [Para 11] [In favour of assessee] The ratio of these judgments is squarely applicable to the appellant's case and the liquidated damages have been incurred by the appellant wholly and exclusively for the business purpose and same is allowable as an business expenditure on the basis of crystallization during the year. This ground of appeal is allowed. 52. The ld DR could not show us any reason that the liquidated damages are not incurred wholly and exclusively for the business purpose of business during the year. We also noted that the liquidated damages has been allowed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... back u/s 43 B in the return of income before the AO. 3. That the order of the CIT(A) is perverse, erroneous and is not tenable on facts and in law. 4. That the grounds of appeals are without prejudice to each other. 57. Brief facts of the case shows that the assessee filed its return of income declaring loss of ₹ 6,07,142/- on 28.11.2006 which was processed u/s 143(1) on 14.02.2008. Subsequently, the assessment was famed u/s 143(3) of the Act on 31.12.2008 at the return income of ₹ 4,10,08,858/-.. 58. Search took place on HFCL Group of companies on 10.05.2007 and notice u/s 153C of the Act was issued to the assessee on 05.11.2009. Subsequently, assessment u/s 153C read with section 153A of the Act was passed by the ld AO on 18.12.2009, wherein, the total loss of the assessee was determined at ₹ 4,10,08,858/-. The ld AO made three disallowance as under:- a. Addition on account of provision of none obsolete inventory of ₹ 43,67,000/- b. Disallowances of prior period expenditure of ₹ 1,48,63,000/- c. Addition on account liquidated damages of ₹ 2,23,86,000/-. 59. The assessee preferred an appeal before the ld ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment order the ld AO has mentioned incorrect figures however, the ld CIT(A) while dealing ground No. 2 at para 7 of the appeal is dealt with correct figures. Therefore, the grievance of the ld AO also do not survive on this count. 65. Accordingly, we dismiss the appeal of the ld AO for the twin reasons that the additions/ disallowances were made without any incriminating found during the course of search in this concluded assessment and further on the merits of the case of the disallowances same are covered against revenue by the orders of the earlier years. 66. In the result, appeal No. 3956/Del/2016 filed by the ld AO for Assessment Year 2006-07 is dismissed. ITA No. 3957/Del/2016 Assessment Year 2008-09 67. This appeal is filed by the ld AO against the order of the ld CIT(A)-1, New Delhi dated 29.04.2016. 68. The revenue has raised the following grounds of appeal in ITA No. 3957/Del/2016 for Assessment Year 2008-09:- 1. That on the facts and in the circumstances of the case, the Ld. CIT(A) has erred in law and on facts in deleting the disallowance of ₹ 76,92,000/-, made by AO by holding that the provision for inventory was contin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act was expired on 30.09.2009 whereas notice u/s 153C was issued on 05.11.2009 and therefore as on the date of search i.e. date of issue of notice u/s 153C on 05.11.2009 this was a completed assessment which could have been disturbed only on the basis of any incriminating material found during the course of search. He submitted that the ld AO did not refer to any incriminating material and therefore, even otherwise the ld CIT(A) has deleted the addition correctly. On the merits of disallowances he relied upon the order of the ld CIT(A). 72. The ld DR supported the order of the ld AO and objected to the invocation of Rule 27 of ITAT Rules by the ld AO. 73. We have carefully considered the rival contentions and perused the orders of the lower authorities. Admittedly in this case as in earlier years the last date of issue of notice u/s 143(3) was 30.09.2009 and the notice u/s 153C as agreed by the party was issued on 05.11.2009. Therefore, as on the date of issue of notice u/s 153C this is a concluded assessment. This assessment could have been disturbed only on the basis of incriminating material found during the course of search. We do not find any reference to incrim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the disallowances of ₹ 3,76,61,278/- on account of liquidated damages. 78. The revenue has raised the following grounds of appeal in ITA No. 3958/Del/2016 for Assessment Year 2009-10:- 1. That on the facts and in the circumstances of the case, the Ld. CIT(A) has erred in law and on Acts in deleting the disallowance of ₹ 3,76,61.287/-. made by AO by holding that the provision for liquidated damages was contingent in nature, without appreciating the fact that the above expenditure as not ascertained liability and was contingent in nature. 2. That the order of the CIT(A) is perverse, erroneous and is not tenable on facts and in law. 3. That the grounds of appeals are without prejudice to each other. 79. Briefly stated the facts of the case shows that the assessee filed its return of income u/s 139(1) on 30.09.2009 declaring loss of ₹ 67,12,07,667/-. The ld AO passed the assessment order u/s 143(3) of the Act on 12.12.2011 assessing the loss of ₹ 63,35,46,380/- by making a disallowances of ₹ 3,76,61,287/- on account of liquidated damages. 80. The assessee preferred an appeal before the ld CIT(A) who deleted the above disallow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No. Description P.O. Date PO Value Rs. Lakhs LD Amount Rs./Lakhs Remarks 1 STM-1 ADM CPE Equipments 15 April, 2008 1071.73 121.46 Refer Caluse 6.1 of PO (copy enclosed- Annex.-I) 2 IFWT Equipments 27 Dec.2007 5217.35 136.81 Refer Clause 16.1 16.2 ofAnnex- C9copy enclosed - Annex. II) 3 Carded Equipment 21 Feb. 2003 7340.56 71.06 Refer Clause 16.1 16.2 ofLD of Annex-C of PO (copy enclosed - Annex-Ill) 4 Digital Loop Carrier 16 Aug. 2002 2466.65 9.12 Refer Clause 16.1 16.2 ofAnnex-B of PO (copy enclosed- Annex. IV) 5 Other equipments 46 P.O. as per list encl. ~ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... curred liabilities, allowable as business expenditure in computation of the income. The details of LD accounted for in the books of Accounts for AY 2009-10 are as follows: SNo DOC NO DOC DATE DESCRIPTION (Rs/ lakhs) (1) 70571 31-Mar-09 STM-1 ADM CPE Equipments 12,146,278.00 (2) 76573 31-Mar-09 IFWT Equipments 13,681,013.00 (3) 76573 31-Mar-09 CORDECT Equipments 71,06,018.00 (4) 76573 31-Mar-09 Digital Loop Carrier Equipments 9,12,025.00 (5) 76573 31-Mar-09 Other Products 38,15,953.00 3,76,61,287.00 The Liquidated damages debited to the Profit and Loss Account repres ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch provides for compensation in case of breach. The Liquidated Damages have been deducted by BSNL from the payments made by them and is thus less realization of Sales. Further, no addition can be made for the amount which was never realized by the Appellant. The addition amounts to taxing a notional income which is contrary to the provisions of Income Tax Act, unless specifically provided for. BSNL does not have the practice of issuing written communication with regard to deduction of LD etc. with any customer. When the payment is collected from the paying authority, details of deductions are noted by the Assessee and accordingly, accounted for in the Books of Accounts. In view of the above, it is submitted that the liquidated damages levied and recovered by BSNL for the delay in delivery of goods as per the contractual terms are allowable as business expenditure. The Appellant may be permitted to file additional grounds as may be required. For these grounds and for such other grounds, that may be adduced at the time of hearing, it is prayed that the order of the Assessing Officer, be modified accordingly. Decision I have gone through the submiss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2) in the table above, the appellant has paid liquidated damages of Rs, 1,36,81,013/-. This liquidated damage has been paid for delay in supply of IFWT equipments In support of its contention, the appellant has filed copy of the purchase order of BSNL dated 27.12.2007 which is annexed as Annexure 2 of the submission filed by the appellant. As per this order, the appellant was liable to pay liquidated damages for delay in supply of the material. As per Clause 16.1 16.2 of Section III of the purchase order dated 27.12.2007. As per these clause, the appellant was liable to pay liquidated damages @ 0.5% for delay in supply upto 10 weeks and thereafter, @ .7% for another 10 weeks. Accordingly, the liquidated damages for this purchase order of ₹ 1,36,81,013/- has been paid / payable by the appellant. For supply of items mentioned at S.No (3) Cordect Equipments appellant has paid or had made provision for liquidated damages of ₹ 71,06,018/- for delay in supply of the items. These liquidated damages have been paid or payable as per clause 16.1 and 16.2 of Section III of the purchase order dated 21.02.2003. As per these clause, the appellant was liable to pay liquidated d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... L levied and recovered the damages which is an allowable expenditure. The AR further submitted that aforesaid expenses are not for any violation of lav, f delivery is not made in time as per order the purchaser has a right to decuc: the sum, as per the terms of the order to compensate the loss which may occur to re buyer. This is a general accepted practice in all types of industries and hence in the nature of normal business expenditure. It is further pertinent to mention here that amount paid on account of delay in delivery cannot be said a penalty, because penalty is levied for violation of law and not for violation of a contractual term which provides for compensation in case of breach. These liquidated damages have been deducted by the buyer from payments made to the appellant. Thus, appellant has realized | less sale, amounts from the sales affected. It is also submitted by the appellant that BSNL simply deduct the amount from sale proceeds but does not communicate for such deductions in writing. When the payment is collected from the payee authority, details of such deductions are noted down by the appellant and accordingly, accounted for in the books of accounts. The A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tile system of accounting ; and (Hi) that the amount was shown as liability accrued on account of non-completion of work in time, held that the assessee was entitled to deduct this liability from the profits and gains of the business. On reference. Held 1. Undoubtedly, the assessee had accepted the impugned liability and made a provision for it in its profit and loss account. The Tribunal also seemed to have proceeded on the footing that the work was not completed in time, resulting in accrual of the impugned liability. Such a liability which had accrued was clearly a permissible deduction. 2. It is no doubt true that the amount of which deduction was sought, was described by the Tribunal as a penalty but in effect it was really compensation payable by the contractor to the Government and the nature thereof was wholly different from penalty which arises from a breach of a statutory provision. The Tribunal was, thus, justified in allowing the said amount as deduction. Reliance is also placed on Madras High Court judgment in the case of F.L. Smidth Minerals Pvt. Ltd. Vs. DCIT 36 taxmann.com 72 (Mad.) Section 37(1) of the Income-tax Act, 1961 - Busines ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rred in law and on facts in deleting the disallowance of ₹ 1,42,88,000/-, made by AO. 2 That the order of the CIT(A) is perverse, erroneous and is not tenable on facts and in law. 3. That the grounds of appeals are without prejudice to each other. 87. The brief fact of the case shows that the assessee filed its return of income on 30.09.2010 declaring loss of ₹ 14,24,61,649/-. The case of the assessee was picked up for scrutiny and the assessment u/s 143(3) of the Act was passed on 20.03.2013 making the disallowance of ₹ 1,42,88,000/- on account of liquidated damages holding to be penal in nature. The assessee preferred appeal before the ld CIT(A), who deleted the disallowances. The ld AO is aggrieved with the same and has preferred this appeal on this solitary ground. 88. Both the parties confirmed that the identical facts are also in the appeal of the assessee for Assessment Year 2009-10 and their arguments for this year are also same. 89. We have carefully considered the rival contentions and find that the issue is identical to the appeal of the ld AO for Assessment Year 2009-10. In that year we have upheld the order of the ld CIT(A) a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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