2017 (9) TMI 1351 - AT - Income Tax

Claim of the liquidated damages - in case of delay in delivery the contract intra parties prescribes liquidated damages - assessee is a manufacturer of underground cable and its major customers are State Electricity Boards - Held that - As brought to the notice of the Ld. CIT(A) that even though the liquidated damages are deducted by the customers, the assessee takes up the matter with the customer for waiver of liquidated damages and whenever the customer agrees and waives the liquidated damages then the assessee credited the same to the P&L Account as has been done in the relevant previous year as well and brought to the notice of the Ld. CIT(A) that ₹ 5,95,864/- out of ₹ 7,68,775/- for provision no longer required written back in other income and drew our attention to Schedule 10 page 33 of the Annual Report which relates to the liquidated damages deducted in the earlier years as confirmed by the Note no. 2 of Schedule 10. It was brought to the notice of the Ld. CIT(A) that out of total sum of ₹ 5,48,012/- being the liquidated damages deducted during the year, the biggest deduction of liquidated damages during the relevant year is ₹ 3,70,501/- which was done by Himachal Pradesh State Electricity Board. Taking into consideration all these facts, the Ld. CIT(A) has given relief to the assessee which order we find to be just and reasonable and, therefore, we do not find any reason to interfere with the same. Therefore, we confirm the order of the Ld. CIT(A) and dismiss this ground of appeal of revenue. Addition on suppressed sales - AO has not specifically rejected the books - Held that - It is well settled that even if it is proved that the suppression of sales has taken place, then also the entire suppressed sales cannot be taxed and only the profit component can be taxed. In any event without finding defects in the books of account maintained by the assessee and without rejecting the books, which is audited, the AO erred in making estimation without giving any credence to the assessee s explanation why the profit margin decreased, so the action of the Ld. CIT (A) is upheld. Therefore, we do not find any infirmity in the action of the ld. CIT(A) in deleting the addition and we uphold the same Addition u/s 68 - Held that - The assessee is a company which is having business with the PSUs and big corporate and all the transactions are accounted, audited and through banking channels and just because assessee could not produce the confirmation from the parties, its claim for deduction of ₹ 45,21,363/- as payment towards bill discounting was not accepted by both the authorities below. Since now the assessee is able to get hold of the confirmation from the parties, albeit late the claim if found to be true cannot be disallowed and therefore in the interest of justice, we are inclined to admit the additional evidence filed before us to substantiate the claim. In the interest of justice and fair play we set aside the order of Ld. CIT(A) and remand the matter along with the entire evidence to the AO to adjudicate this issue afresh. Addition being 10% incurred on account of car hire charges, car maintenance and fuel expenses - addition u/s 40A - Held that - AR before us could not bring any evidence to counter the finding made by the Ld. CIT(A) as to the related party transaction which made him disallow 10% and thereby sustaining ₹ 88,722/-. We do not find any evidence to contradict the finding made by the Ld. CIT(A) which made him sustain the disallowance. In the light of the above, we dismiss this ground of cross objection of the assessee and confirm the Ld. CIT(A) s order.

Summary

Issues:
1. Liquidated damages deduction
2. Disallowance of interest on unsecured loan
3. Relief granted on suppressed sales
4. Addition of bill discounting charges
5. Addition on car hire charges, maintenance, and fuel expenses

Issue 1: Liquidated damages deduction
The appeal concerned the allowance of liquidated damages deduction claimed by the assessee. The AO disallowed the claim due to lack of documentary evidence supporting it. However, the assessee explained the deduction process involving negotiations with customers for waiving liquidated damages. The CIT(A) allowed the deduction considering the circumstances. The ITAT upheld the CIT(A)'s decision, emphasizing the rigorous procedures followed by customers, the negotiation process, and past practices of crediting waived amounts. The ITAT found the CIT(A)'s order just and reasonable, confirming the deduction.

Issue 2: Disallowance of interest on unsecured loan
The AO disallowed interest on unsecured loans due to non-compliance with Rule 46A. The ITAT remitted the matter to the AO for fresh adjudication, citing a violation of Rule 46A. The ITAT emphasized the need for the AO to follow proper procedures and provide a reasonable opportunity for the assessee to be heard. The ground of appeal was allowed for statistical purposes.

Issue 3: Relief granted on suppressed sales
The AO estimated suppressed sales based on a ratio method, which the CIT(A) deleted due to the absence of book rejection or defects. The ITAT upheld the CIT(A)'s decision, highlighting the AO's failure to reject audited books or identify defects. The ITAT emphasized the need for proper procedures and rejected the revenue's appeal, confirming the deletion of suppressed sales.

Issue 4: Addition of bill discounting charges
The AO disallowed bill discounting charges due to lack of confirmation from parties. The CIT(A) confirmed the disallowance, and the ITAT remanded the matter for fresh adjudication. The ITAT allowed the additional evidence submitted by the assessee, emphasizing fair play and justice in admitting the evidence for substantiating the claim.

Issue 5: Addition on car hire charges, maintenance, and fuel expenses
The AO disallowed a portion of expenses related to car hire, maintenance, and fuel on an estimate basis. The CIT(A) sustained the disallowance, citing related party transactions. The ITAT confirmed the CIT(A)'s order, noting the lack of evidence to counter the related party transaction finding. The ground of cross objection was dismissed, upholding the CIT(A)'s decision.

In conclusion, the ITAT partly allowed the revenue's appeal and the assessee's cross objection for statistical purposes, addressing various issues related to deductions, disallowances, and additions in a detailed and comprehensive manner.