9911796707
TMI Blog1990 (9) TMI 145X X X X Extracts X X X X X X X X Extracts X X X X ..... d was to be without prejudice to its rights under the law including the right to cancel the contract, forfeit the deposit and/or recover damages for breach of contract. The penalty, however, was not supposed to apply for delays proved to be arising out of force majeure conditions beyond reasonable control of the assessee. It was also stipulated as one of the terms of contract that in case the supplier had not adhered to the delivery schedule, the Board reserved the right to purchase the balance quantity from the open market and recover the extra expenditure thus incurred, from the supplier. This was to be in addition to the rights of the Board mentioned in other parts of the contract. 2. The assessee is stated to have failed to supply the contracted material in time with the result that APSEB by its letter dated 21-9-1983 (the accounting year of the assessee being the year ending 30th September 1983) demanded payment of a sum of Rs. 4,53,241.90 arrived at in the following manner Additional expenditure incurred by the Board due to risk purchase Rs. 5,09,229.90 Recoveries already made by way of encashment of bank guarantees Rs. 55,988.00 -------------------------- Net extra e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... make deliveries and inspection of the equipment manufactured. The assessee had intimated to the Chief Engineer, Electricity Projects, by its letter dated 11-1-1982, the revised programme regarding submission of drawings, commencement of production and when the first unit would be offered for inspection. Thereafter, there were some delays due to technical difficulties with the result that the assessee could not successfully manufacture the required equipment within the time limit. Though it is true that the APSEB by its letter dated 21-9-1983 had demanded the above amount as damages on account of the fact that it had to purchase the equipment by incurring additional expenditure, the assessee by its letter dated 8-11-1983 had clearly denied any liability for the amount claimed by APSEB. It was also claimed by the assessee that the bank guarantee amount was wrongly deducted and should not have been encashed by APSEB. Once again, by a letter dated 24-7-1985, the assessee disclaimed any liability on account of the alleged damages stated to have been incurred by APSEB. On 25-7-1985, the assessee had also written to APSEB stating that they had entered into a collaboration agreement with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 134 (SC) ; Shree Sajjan Mills Ltd. v. CIT [1985] 156 ITR 585 (SC) ; CIT v. Phalton Sugar Works Ltd. [1986] 162 ITR 622 (Bom.) ; Swadeshi Cotton Mill Co.Ltd. v. CIT [1980] 125 ITR 33 (All.); M.S.P. Senthikumara Nadar Sons v. CIT [1957] 32 ITR 138 (Mad.). 5. Sri G. Satyanarayana, learned representative for the assessee, on the other hand, claims that it is not correct to say that there is no ascertained liability in respect of this amount during the accounting year. The liability arose as soon as there was a breach of contract and the quantum of damage was ascertained and a claim was made by APSEB by its letter dated 21-9-1983 claiming a sum of Rs. 4,53,241. Since this amount was ascertained on the basis of extra expenditure incurred by APSEB for purchase of the contracted equipment from the open market and as the breach of contract had already occurred, he contended that the amount had become an ascertained liability and is allowable as a deduction. The fact that the assessee might have denied its liability without any basis whatsoever does not postpone the accrual of such liability, or the fact that the Board had agreed to permit the assessee to supply the equipment in 1985 doe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roperly attributed to calendar year 1949 and not earlier. The Allahabad High Court in the case of Swadeshi Cotton Mills Co. Ltd. held that where the liability is based on some contractual obligation, it arises only when it is ascertained. Unless the liability has become an ascertained sum of money, it no doubt exists but proceedings have yet to be taken to determine the exact amount. A vague liability to make a payment cannot be entered in the accounts. The Bombay High Court in the case of Phalton Sugar Works Ltd. held that where a liability arising out of a contractual obligation is disputed, the assessee is entitled, in the assessment year relevant to the previous year in which the dispute is finally adjudicated upon or settled, to claim a deduction in that behalf 7. From the above decisions, it will be clear that in respect of contractual obligations, unlike in cases of statutory liabilities, the liability can be allowed as a deduction only after it is ascertained. Before that time it will only be a contingent liability. In case such liability is disputed, deduction can be allowed only when the dispute is finally adjudicated upon or settled and not earlier. A mere claim by one ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s not been ascertained and is being disputed and it had not become final uptil 1990. Though it is true that the Board was able to recover the above amount from out of the amounts due to the assessee in 1990, it is not known whether the assessee had accepted at that time the liability. Thus, it is clear that during the accounting yew relevant to the assessment year 1984-85, the amount claimed by APSEB was only a claim which was disputed by the assessee. It was not ascertained. It has not become final so that it can be said to have accrued as a liability to be allowed as deduction in computing the assessee's income. 8. The decisions sought to be relied upon by the learned representative for the assessee are clearly distinguishable. The decision of the Tribunal in the case of Radiant Cables (P.) Ltd. is a case where there was no dispute about the liability. Similarly, the decision of the Allahabad High Court in CIT v. Sugar Dealers [1975] 100 ITR 424, is also a case where the claim under consideration was towards a business loss. It was a case of forfeiture of security deposit on account of non-adherence to the terms of the contract which was claimed as a trading loss. The court acc ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
