TEKFAB ENGINEERS,MUMBAI vs. DCIT, CIRCLE 3, THANE

Briefly stated facts necessary for consideration and adjudication of the issues at hand are: the assessee’s firm is an engineering industry manufacturing engineering goods having facilities for fabrication using welding and gas cutting. Assessee’s firm’s clients are Apollo Tyres, Balakrishna Industries, MRF Tyres, etc. During the scrutiny proceedings, the AO noticed that the assessee has claimed liquidated damages of Rs.14,94,626/- during the year under consideration. For which, the assessee was called upon to furnish the details. Assessee filed details. Declining the contention raised by the assessee, the AO proceeded to hold that from the perusal of the assessee’s reply, it has come on record that there is no clarity in regard to the year in which sales were affected. Then, assessee submitted further details. The AO by disagreeing with the submissions made by the assessee proceeded to hold that the assessee has not furnished the reasons for delay in delivery of materials to prove whether the delay was due to the fault of the assessee or it was on account of fault of its clients. So, the AO after disallowing the claim of the assessee for liquidated damages made addition thereof to the total income of the assessee, and thereby, framed the assessment u/s.143(3) of the Act.

The assessee carried the matter before the Ld.CIT(A) by way of filing appeal who has confirmed the addition by dismissing the appeal. Feeling aggrieved with the impugned order of the ld.CIT(A), the assessee has come up before the Tribunal by way of filing present appeal.

We have heard the Ld. Authorized Representatives of the parties to the appeal, perused the orders passed by the Ld. Lower Revenue Authorities and documents available on record in the light of the facts and circumstances of the case and law applicable thereto.

Undisputedly, assessee being an engineering industry manufacturing goods is catering to Apollo Tyres and Balakrishna Industries, MRF Tyres, etc.

In the back drop of the aforesaid undisputed fact when we examined the claim of the assessee to the tune of Rs.14,94,626/- on account of liquidated damages, both the AO as well as the ld.CIT(A), decided the issue against the assessee on the ground that there is no clarity to determine the liquidated damages as to in which year sales were affected. Then, assessee filed the details before the AO as under: 7. Even after furnishing these details, the AO proceeded to decide the issue against the assessee on the ground that liquidated damages is allowable only in the year in which the damages are deducted by the clients. The assessee has not produced any documentary evidence to prove that the delay in delivery of materials is caused due to reasons attributed to the assessee only.

The ld.AR for the assessee stated that from Purchase Order placed by the different parties with the assessee, the details sought for by the AO is decipherable and drew our attention towards the Purchase Order filed by the different parties regarding year under consideration available from Page Nos.1-

However, in the Purchase Order, Annexure-1 is annexed in which clause as to liquidated damages has been agreed upon between the parties to the contract. From the Purchase Order, the AO could have easily decided the issue as to which of the year liquidated damages are pertaining to and it can also be worked out as to whether the delay was attributed to the assessee or to the parties on the other hand. However, all these facts are required to be examined and verified by the AO to reach the logical conclusion. Under these circumstances, we are of the considered view that for factual examination and verification, the issue is required to be re-examined by the AO after providing opportunity of being heard to the assessee. 9. In view of what has been discussed above, impugned order passed by the ld.CIT(A) is set aside and case is remanded back to the AO to decide afresh in light of observation made hereinabove by examining the fresh evidence, necessary to decide the issue in controversy by providing opportunity of being heard to the assessee. 10. Resultantly, the appeal filed by the assessee is allowed for statistical purposes.