2021 (7) TMI 1137 - AT - Income Tax

Allowability of the claim of liquidated damages - HELD THAT - We find that CIT(A) after considering the submission made by the assessee had given a finding that the amount did not constitute the provision for liquidated damages but in fact it was the deductable expenditure as the aforesaid amount of liquidated damages were actually deducted by BSNL/MTNL. Before us, Revenue has not pointed to any fallacy in the findings of CIT(A). In such a situation, we find no reason to interfere with the order of CIT(A). Thus the grounds of the Revenue are dismissed.

Summary

Issues:
1. Allowability of claim of liquidated damages as deductible expenditure.

Analysis:
The appeal was filed by the Revenue against the order of the Commissioner of Income Tax (Appeals) related to Assessment Year 2008-09. The assessee, a company engaged in the business of telecommunication equipment, filed its return of income declaring a total taxable income. The assessment was framed, and subsequently, a notice was issued under section 148 of the Act. The case was taken up for scrutiny, and the assessment was framed again, determining the total income. The CIT(A) granted substantial relief to the assessee, leading to the Revenue filing the appeal before the ITAT Delhi.

The grounds of appeal raised by the Revenue primarily revolved around the allowability of the claim of liquidated damages as deductible expenditure from the assessee's income. The AO had disallowed a significant portion of the claimed liquidated damages, stating that the claim was unproved and unsubstantiated. However, the CIT(A) found that the deducted amount of liquidated damages was actually incurred by the assessee due to deductions made by BSNL/MTNL for contract execution. The CIT(A) held that these damages were in the nature of expenses and were deductible from the assessee's income. The Revenue, dissatisfied with the CIT(A)'s decision, brought the matter before the ITAT Delhi.

During the proceedings, the Revenue solely contested the allowability of the claim of liquidated damages. The ITAT Delhi noted that the CIT(A) had correctly analyzed the situation and found no fault in the CIT(A)'s decision. As the Revenue failed to point out any errors in the CIT(A)'s findings, the ITAT Delhi dismissed the grounds of appeal raised by the Revenue. Consequently, the appeal of the Revenue was dismissed, upholding the decision of the CIT(A) regarding the deductibility of liquidated damages as expenses from the assessee's income.

In conclusion, the ITAT Delhi upheld the decision of the CIT(A) regarding the allowability of the claim of liquidated damages as deductible expenditure, dismissing the appeal filed by the Revenue.