M/S. VLCC HEALTH CARE LTD.,NEW DELHI vs. DCIT, NEW DELHI

Brief facts of this case are that the assessee company is engaged in the business of maintaining and running beauty, slimming, fitness and health centres at various locations and also provide vocational training in various institutes. During the scrutiny of return of income for the assessment year 2012-13, Ld. Assessing Officer made additions, inter alia, on account of compensation received for delay in project to the tune of Rs.14,73,079/- and disallowance of Rs.6,62,799/-, which are relevant for the purpose of this appeal. In appeal, ld. CIT(A) deleted other additions, but confirmed the additions on account of these two factors.

Ground No. 1 & 2 of the appeal relate to addition of Rs.14,73,079/-, which amount was received by the assessee from the contractors who delayed in execution of the work to make fit the rented premises for conducting business. It was the case of the assessee before the authorities below that the contract shows that the amount of liquidated damages was fixed at Rs.20,000/- per day irrespective of contract value and since the contract relates to bring the profit making apparatus into existence, any damage received on account of such delay amounts to capital receipt. Before the authorities below, the assessee placed reliance on the decision of Hon’ble Apex Curt in CIT vs. Saurashtra Cement Ltd. 325 ITR 422(SC).

It is an admitted that that the assessee has been conducting their business at various places in India and in that process for carrying out their business they have taken premises on rent which require certain interior work for bringing the premises to use for the purpose of assessee’s business; that the assessee entered into an agreement with a contractor for effecting such changes to make the premises useful to start of the business with a stipulation that irrespective of the value of contract, if any delay occurred in execution of work, the contractor must pay Rs.20,000/- per day towards liquidated damages.

It is also not in dispute that the assessee submitted before the authorities below that such amounts received from the contractor were debited to the account of the contractor as penalty while making the final payments and thus the payments to the contractors were made short by the amounts of liquidated damages, thereby bringing down the cost of project.

It is, therefore, clear that the assessee reduced the cost of project by the amount of liquidated damages received and the cost of the project remained only at balance figure. It is also clear that until and unless the contractor carried out the desired modification, the premises was not fit to commence the business of the assessee and thereby related to bringing the profit making apparatus into existence. We, therefore, are of the opinion that inasmuch as the assessee credited the amounts received to the capital asset and treated it as capital receipts, the same cannot be brought to tax. Hence, this addition is directed to be deleted.

Now coming to ground No.3 as to the disallowance of Rs.6,62,799/-, according to the Assessing Officer, this disallowance is the result of assessee not producing the books of account. However, the fact remains that even in such contingency, Assessing Officer allowed other deductions. It is submitted on behalf of the assessee that the operational revenue of the assessee is around Rs.258 crores on all India basis and in so far as this particular expenditure of Rs.6,62,799/- is concerned, this relates to the expenditure of giving gifts to the VIPs and Celebrities which would boost the business of the assessee. Having regard to the magnitude of the business of the assessee and the quantum of expenditure, we are of the considered opinion that such an expenditure could be allowed. Accordingly, the grounds raised

8. For this year, the facts and grounds are substantially the same as involved in earlier assessment year. Following our view for the earlier assessment year 2012-13, we allow the grounds raised by the assessee in this appeal for the assessment year 2013-14.

In the result, both the appeals are allowed.