2019 (3) TMI 1909 - AT - Income Tax

Liquidated damages paid towards incomplete contracts - HELD THAT - In the instant case on identical facts on the same issue the Special Bench has decided the issue in favour of the assessee and the Hon ble High Court has upheld the order of the Tribunal and dismissed the appeal of the revenue. During the appeal hearing the AR argued that the liability regarding the liquidity damages arose by virtue of terms of contract between the assessee and the customer and the delay in supply would attract the damages and the liability is ascertainable each year and the assessee is required to make payment of damages to the contractee. Such liability is debited to the Profit Loss account under the head liquidity damages . Since the issue is settled in favour of the assessee by Special Bench and also by Hon ble High Court of Andhra Pradesh in the assessee s own case the assessee has requested to allow the same as deduction. On identical issue for the A.Y.2010-11 . 2016 (9) TMI 1603 - ITAT VISAKHAPATNAM this Tribunal has deleted the addition and dismissed the appeal of the revenue. Therefore respectfully following the view taken by this Tribunal Special Bench and Hon ble High Court of Andhra Pradesh we uphold the order of the Ld.CIT(A) and dismiss the appeal of the revenue on this ground. Rental income and excess depreciation - CIT(A) given finding that the difference amount was offered as income from business in the Engineering Unit - HELD THAT - From the above order of the Ld.CIT(A) and from the explanation of the assessee it is found that the assessee had already admitted the rental income under the head business in Engineering Unit and there was no difference. The department has not brought any material to controvert the finding of the Ld.CIT(A). Therefore we do not find any reason to interfere with the order of the Ld.CIT(A) and the same is upheld. The appeal of the revenue on this ground for the A.Y.2011-12 is dismissed. Depreciation @50% on cars stated to be for commercial use - HELD THAT - For the A.Y. 2009-10 and 2010-11 the assessee had claimed the depreciation @50% and the AO allowed the depreciation as claimed by the assessee. In the instant assessment year the AO restricted the depreciation holding that the cars are not put to commercial use. No evidence has been brought on record by the AO to establish that the cars were not being put to commercial use. During the appeal hearing also no material was placed before the Tribunal to controvert the finding of the CIT(A). Therefore we do not find any reason to interfere with the order of the Ld.CIT(A) and the same is upheld.

Summary

Issues involved:
1. Liquidated damages paid towards incomplete contracts for A.Y. 2011-12 and 2012-13.
2. Discrepancy in rental income and excess depreciation for A.Y. 2011-12.
3. Disallowance of excess depreciation for A.Y. 2011-12 and 2012-13.

Issue 1: Liquidated damages paid towards incomplete contracts for A.Y. 2011-12 and 2012-13:
The appeals by the revenue concerned the addition of liquidated damages paid towards incomplete contracts. The assessee, a public limited company, debited liquidated damages to the Profit & Loss account yearly on an accrual basis. The department disallowed damages related to incomplete contracts. The Special Bench and the High Court of Andhra Pradesh ruled in favor of the assessee, emphasizing the accrual of income and the permissibility of the provision under the mercantile system of accounting. The Tribunal upheld the CIT(A) order, citing consistency in the assessee's accounting method and previous judgments, dismissing the revenue's appeal.

Issue 2: Discrepancy in rental income and excess depreciation for A.Y. 2011-12:
The AO noted a variance in rental income reported by the assessee and TDS certificates. The CIT(A) found that the difference was offered as income from business, leading to the deletion of the addition. The Tribunal upheld the CIT(A) decision, as the department failed to refute the explanation provided by the assessee, confirming that the rental income was correctly reported under the business income category.

Issue 3: Disallowance of excess depreciation for A.Y. 2011-12 and 2012-13:
The AO disallowed excess depreciation on cars claimed for commercial use, restricting it to 15% without fresh evidence. The CIT(A) overturned the disallowance, stating that if an asset is eligible for a specific depreciation rate, subsequent years should follow the same percentage unless specified otherwise in the law. The Tribunal upheld the CIT(A) decision, highlighting the lack of evidence to support the AO's claim that the cars were not used commercially, maintaining the depreciation claim at 50% as in previous years.

In conclusion, the Tribunal dismissed the revenue's appeals for A.Y. 2011-12 and 2012-13, upholding the CIT(A) decisions on the issues of liquidated damages, rental income discrepancy, and excess depreciation. The judgments were based on the consistency of the assessee's accounting practices, legal provisions, and the absence of new evidence to support the revenue's contentions.