ACIT, CIRCLE-7(1), NEW DELHI vs. DJ ENERGY PVT. LTD., NEW DELHI

ORDER

PER ANIL CHATURVEDI, AM:

ACIT vs. DJ Energy Pvt. Ltd. 2 3. Assessee is a company stated to be engaged in the business of production, collection and distribution of electricity. Assessee electronically filed its return of income for A.Y. 2016-17 on 16.10.2016 declaring loss of Rs.134,14,17,821/-. The case of the assessee was selected for scrutiny and thereafter assessment was framed u/s 143(3) wherein the total loss was assessed at Rs.119,00,86,573/-.

ACIT vs. DJ Energy Pvt. Ltd. 3 contracts and erection and commissioning contracts in respect of two parties namely Inox Wind Ltd. (IWL) and Inox Wind Infrastructure Services Ltd. (IWISL). AO noted that contract entered by assessee with those parties further provided that assessee had right to (a) set off the delay of Liquidated Damages payable by those companies against any amount payable by the assessee under the respective contracts (b) withhold any amount in dispute, in good faith, until determination of disputes. AO noted that it was further stated by the assessee in the notice that IWL and IWISL had failed to perform the duties by pre-specified dates in respective contracts and as a result, Delay Liquidated Damages was payable by them. AO also noted that assessee had notified the parties and had withheld the payments. AO further noted that on perusing the accounts of subsequent year it was seen that assessee had debited Rs.14,40,16,828/- in the account of Inox Wind Ltd. and Rs.64,88,971/- in the books of Inox Wind Infrastructure Services Ltd. According to AO, the aggregate amount of Rs.15,05,05,799/- was thus the income of the assessee which has been postponed by the assessee and has not been offered to tax in the relevant year. He accordingly made the addition of Rs.15,05,05,799/-.

ACIT vs. DJ Energy Pvt. Ltd. 4 “5.3 I have considered the facts of the case and the submission made by the AR. It has been contended that out of the total addition on account of liquidated damages of Rs. 15,05,05,799/- made by the AO, a sum of Rs. 13,74,44,912/- was on account of revenue loss recoverable from IWL relating to the period falling in FY 2016-17 and the balance amount of Rs. 1,30,60,887/- relates to the FY 2017-18. The AR has furnished the complete details of the damages computed as per the Settlement agreement dated 27.12.2016 and has provided a copy of the said agreement also. It has been stated that the appellant was entitled to receive the damages. However, the same were not finalized during the year under consideration as both the parties had also raised counter claims and the payment of damages was subject to certain conditions and the settlement agreement was finally arrived on 27.12.2016 when the amount of damages was crystallized and before that date, the amount was indeterminable and contingent. It is also observed that the appellant has duly considered the complete amount of liquidated damages adjusted by it against the payments to be made by the appellant in the ITRS filed for AY 2017-18 & 2018-19 and the details of the same have been furnished during the course of appellate proceedings. The AR has also filed the copies of debit notes raised by it in respect of the damages settled finally, which are subsequent to the year under consideration. In view of all these facts, I am of the opinion that the AO has not appreciated the facts completely and has made the addition simply on the basis of Notes on accounts and that too, without giving any opportunity to the appellant. It is clear that during the year under consideration, the settlement agreement was not entered into and the amount of damages to be received by the appellant was not finalized and the same was contingent to the counter claims made by the other parties. It also needs to be appreciated that the amount of damages finally computed has been duly shown by the appellant as income in the subsequent years. Accordingly, the addition made by the AO is deleted and the ground of appeal is allowed.”

7. Aggrieved by the order of CIT(A), Revenue is now in appeal before the Tribunal.

ACIT vs. DJ Energy Pvt. Ltd. 5 8. Before us, Learned DR supported the order of AO and further submitted that the documents shows that there has been negotiations, discussions before the amount of Liquidated Damages was arrived at and therefore, the amount was rightly held by AO to be the income in the year under consideration. He, thus, supported the order of AO.

Order pronounced in the open court on 31.03.2023