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Income Tax Appellate Tribunal, “A” BENCH: KOLKATA
Before: Shri P.M. Jagtap, AM & Shri A. T. Varkey, JM]
ORDER Per Shri A.T.Varkey, JM
Both these appeals preferred by the revenue are against the separate orders of Ld. CIT(A)-15 and Ld. CIT(A)-4, Kolkata dated 16.11.2016 and 09.12.2016 for Assessment Years 2010-11 and 2011-12 respectively.
At the outset itself, we take note that for AY 2011-12 the department has challenged the deletion of addition of Rs.46,17,438/- as well as deletion of addition of Rs.1,39,794/- which means the tax effect of both the additions deleted by the Ld. CIT(A) will not surpass Rs.20 lacs, therefore, as per the CBDT Circular No. 3/2018 which mandates that the department not to file appeals before Tribunal in which tax effect is less than Rs. 20 lacs is attracted and, therefore, we are inclined to dismiss the appeal of the revenue on this score alone.
Coming to AY 2010-11. We note that the revenue is aggrieved by the order of the Ld. CIT(A) in deleting the addition made by the AO terming the liquidated damages claimed by the assessee as provision for bad and doubtful debt. At the outset, it has been brought to our notice that this issue is no longer res integra, Tribunal vide order dated 08.11.2017 for AY 2011-12 has decided the issue and drew our attention to page nos. 2 to 5
2 259/Kol/2017 Bridge & Roof Co. (India). Ltd., AYs- 2010-11 & 2011-12 of the paper book wherein we note that the Tribunal has discussed the issue for AY 2011-2 at para 8 wherein Tribunal has held as under:
8 Heard both and perused material available on record. We notice that AO added the said amount for non-submission of any evidence showing that the clients of assessee deducted damages from the payments required to be paid to the assessee under agreement. The CIT(A) examined the said agreement and invoice filed by the assessee during the First Appellate proceedings and found a clause enabling the client to deduct moneys from the payment for any breach of contract specifically for not supplying the goods in time. The AO also opined that said liquidated damages also contains VAT and Service Tax for which assessee claimed deduction u/s 43B of the Act for which CIT found said taxes were accounted by assessee separately. Therefore, we are of the view that no evidence was before the AO showing the clients deducting said amount. Therefore in the light of circumstances and in the interest of justice we deem it proper to remit the issue to the file of AO for his consideration taking into consideration the new evidence as reflected at page 9 of order of CIT(A) filed by assessee in support its claim. The assessee at liberty to file evidences before the AO and AO shall consider the same and pass order in accordance with law.
We note from a perusal of page 33 of the paper book which is a sample contract which the assessee had with a client/customer from which it is discerned that in case the assessee fails to deliver the railway wagons by the due date given by the customers, then the customer was entitled to deduct as liquidated damages @ 2% of cost of each vehicles for each and every month for which delivery is delayed beyond the delivery dates specified under the contract. We note from page 146 of the paper book that the assessee had given the break-up of Rs.748.01 lacs which was withheld/deducted by customers from bills of account for delay in completion of jobs. We note that the assessment order was passed by the AO vide order dated 21.03.2013 and the assessee had explained in letter dated 09.03.2013 the details of the liquidated damages before the AO. It was brought to our notice that these are deductions made by the customers/clients from bills of account of delay in completion of jobs, substandard workmanship, work not as per design/specification and so on but mainly these are for delay in completion of contract and this fact is recorded at page 38 of printed accounts vide note 16 wherein the liquidated damages of Rs.748.01 lacs has been duly reflected. It was brought to our notice that even though the amount is written off (liquidated damages) attempts were made by the assessee to convince the client and recover the money by explaining reason for delay and at times the clients later on condone the delay thereby certain amount of money is recovered. So, when there is recovery of amount, the same is offered for taxation. It was brought to our notice that in the case of M/s. BORL, Bina site Rs.211.50 lacs was received and was offered for taxation in FY 2010- 11 i.e. AY 2011-12. Similarly, Rs.36.70 lacs has been offered for taxation in FY 2012-13
3 259/Kol/2017 Bridge & Roof Co. (India). Ltd., AYs- 2010-11 & 2011-12 i.e. AY 2013-14. We note that the Hon’ble Bombay High Court in the case of CIT Vs. R. B. Sharma & Co. (1982) 137 ITR 333 (Bom) has held that the delay in completion of contract is incidental to the business and liability of compensation arisen because of delay is an allowable deduction under the Act. In the case in hand, admittedly, the assessee company claimed liquidated damages deducted by the Railway Department and other Government Undertakings/Private Enterprises as per contract, due to the delay in completion of the supply contract/construction contract. Therefore, in our considered opinion, this is an allowable expenditure and we are inclined to hold that the Ld. CIT(A) was justified in allowing the same. However, the only grievance of the Ld. DR was that the assessee did not produce any sample contracts before the AO to support the claim. Therefore, the issue may be sent for verification as done in AY 2011-12. We note that AO did not allow the claim of the assessee because assessee failed to produce any sample contracts during the assessment proceedings. Therefore, we are inclined to set aside the order of the Ld. CIT(A) only for verification of the liquidated damages in the year under consideration. The assessee is directed to produce sample contracts to convince the AO that for delay in completion of the contract the liquidated damages was provided for in the contracts itself. With the aforesaid discussions, we remit the issue back to the file of the AO for verification after affording reasonable opportunity of being heard to the assessee in accordance to law.
In the result, revenue’s appeal for AY 2011-12 is dismissed and the appeal for AY 2010-11 is allowed for statistical purposes.
Order is pronounced in the open court on 14th August, 2018 Sd/- Sd/- (P. M. Jagtap) (Aby. T. Varkey) Accountant Member Judicial Member Dated :14th August, 2018 Jd.(Sr.P.S.)
4 259/Kol/2017 Bridge & Roof Co. (India). Ltd., AYs- 2010-11 & 2011-12 Copy of the order forwarded to:
1. 1. Appellant – DCIT, Circle-10(1), Kolkata. Respondent – Bridge & Roof Co. (India) Ltd., Kankaria Centre, 5th floor, 2 2/1, Russel Street, Kolkata-700 071. .
3. The CIT(A)-15 and 4, Kolkata. (sent through e-mail)