2021 (9) TMI 126 - AT - Income Tax

Advance amount received - unreported receipts from Wardha Power Co .- appellant stated that the same was part of advance money received from the party and which was subsequently assigned to M/s. Viz Projects Pvt. Ltd. as part of settlement agreement - HELD THAT - As assessee demonstrated that the assessee transferred the work and outstanding balance to M/s VIZ. Therefore, we do not find any infirmity in the order of the CIT(A) in deleting the addition being the advance amount received from Wardha Power Pvt. Ltd. and upholding the order of CIT(A), we dismiss the ground raised by the revenue on this issue. Addition u/s 40(a)(ia) - service fee paid without effecting TDS - AO considered the same as contingent liability and also disallowed it as a payment which cannot be allowed as a revenue expenditure - HELD THAT - As per the agreement dated 26/09/2005 entered into between assessee and Amongst VIZ Projects Pvt. Ltd. Sainj as per clause 7, the assessee shall pay the service at 10% on the upset amount of ₹ 50 crores to VIZ and Sainj in proportion to the amounts set up by them before end of November, 2006 - liability of 5 crores is not contingent in nature and was liability for the year under consideration and the assessee has rightly the same as revenue expenditure in view of the said agreement - No infirmity in the order of the CIT(A) in deleting the addition of ₹ 5 crores made by the AO u/s 40(a)(ia) treating it as contingent in nature. Accordingly, the ground raised by the revenue on this issue is dismissed. Addition of damages for idling of their facilities and loss of business - HELD THAT - As the assessee had foregone the claim of damages regarding idling as granted by the arbitrator vide the final agreement letter dated 11/05/2010 with HPCL. Based on this letter, the CIT(A) deleted the addition made by the AO treating the awarded claim of damages regarding idling as granted by the arbitrator, as income of the assessee, without taking into consideration the documentary evidence. Therefore, we find no reason to interfere with the order of the CIT(A) on this issue and upholding the same, we dismiss the ground raised by the revenue on this issue.

Summary

Issues Involved:
1. Addition of ?2,46,00,000 as unreported receipts from Wardha Power Co.
2. Deduction of ?5,00,00,000 as service fee paid without effecting TDS.
3. Addition of ?2,04,07,342 as idling charges awarded by an arbitrator.

Detailed Analysis:

1. Addition of ?2,46,00,000 as Unreported Receipts from Wardha Power Co.:
The Assessing Officer (AO) added ?2,46,00,000 to the assessee's income, considering it as unreported receipts from Wardha Power Co. The assessee contended that this amount was an advance received and subsequently assigned to Viz Projects Pvt. Ltd. The AO did not accept this explanation, citing lack of evidence. However, the CIT(A) deleted the addition after examining financial statements, ledger accounts, and settlement agreements, concluding that the amount was not the income of the assessee under the peculiar circumstances. The ITAT upheld the CIT(A)'s decision, noting that the reassignment of the contract to Viz Projects Pvt. Ltd. was substantiated by documentary evidence.

2. Deduction of ?5,00,00,000 as Service Fee Paid Without Effecting TDS:
The AO disallowed the deduction of ?5,00,00,000 as a service fee, treating it as a contingent liability and also disallowed it for non-deduction of TDS under section 40(a)(ia) of the Income Tax Act. The CIT(A) allowed the deduction, noting that the liability arose from an agreement and was not contingent. The CIT(A) observed that the agreement clearly stipulated the payment of a 10% service fee on an upset amount of ?50,00,00,000, and the liability was justified based on the terms of the agreement and the conduct of the parties involved. The ITAT upheld the CIT(A)'s decision, confirming that the liability was not contingent and was rightly claimed as revenue expenditure.

3. Addition of ?2,04,07,342 as Idling Charges Awarded by an Arbitrator:
The AO included ?2,04,07,342 as income, representing idling charges awarded by an arbitrator. The assessee argued that this amount was part of a mutual agreement and was assigned to Viz Projects Pvt. Ltd. The CIT(A) deleted the addition, noting that the assessee had foregone the claim for idling charges as part of a commercial decision and had not received the amount. The CIT(A) relied on the final agreement letter dated 11/05/2010 with HPCL, which indicated that the amount was waived off. The ITAT upheld the CIT(A)'s decision, agreeing that the idling charges were not the income of the assessee for the year under consideration.

Conclusion:
The ITAT dismissed the appeals filed by the Revenue, upholding the CIT(A)'s orders on all issues. The Tribunal confirmed that the reassignment of the contract receipts, the deduction of the service fee, and the waiver of the idling charges were all substantiated by appropriate documentary evidence and were in accordance with the agreements and commercial decisions made by the assessee.