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TMI Blog2019 (1) TMI 1764X X X X Extracts X X X X X X X X Extracts X X X X ..... ee has received the amount of difference as discussed above outside the books of accounts. The books of accounts of the assessee during the relevant period were audited, and no defect of whatsoever was pointed out by the auditor of the assessee. There cannot be any addition merely on account of the difference between the income shown by the assessee in its financial statements and income shown in the form 26AS. In holding so, we find support and guidance from the order of Ravindra Pratap Thareja [ 2015 (10) TMI 1487 - ITAT JABALPUR] wherein held that merely because a payment is reflected in AS-26 and is shown to have been made to the assessee, it cannot be brought to tax in his hands when the said money is not received by the assessee. Even if the said difference is treated as the income of the assessee, then also it is entitled to claim the same amount of liquidated damage as expenses under section 37(1) resulting no tax liability in the hands of the assessee. See MAZDA LTD. [ 2017 (9) TMI 1038 - GUJARAT HIGH COURT] - addition deleted - Decided in favour of assessee Disallowance of payment made to the subcontractor - notices issued under section 133(6) of the Act were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he facts of the case in confirming the action of AO in making an addition of Rs, 19,06,739/- as undisclosed contract receipt and in not appreciating that the said amount did not accrue to the appellant. 2. Alternatively and without prejudice to the above, ₹ 19,06,739/- were Liquidated Damages for belated execution of the contract and should be allowed as an expense from the alleged contract receipt of ₹ 8,23,11,478/-. 3. Both the lower authorities have erred in not appreciating that addition cannot be made merely because tax was deducted at source on the gross amount. 4. The learned CIT(A) has erred both in law and on the facts of the case in confirming the action of AO in disallowing expenses amounting to ₹ 20,38,708/- 5. Both the lower authorities have erred in law and on facts of the case in disallowing expenses for mere non-service or non-reply of notice u/s.33(6)of the Act. 6. Both the lower authorities have passed the orders without properly appreciating the facts and they further erred in grossly ignoring various submissions, explanations and information submitted by the appellant from time to time which ought to have been considered before p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an it should have claimed the TDS credit proportionate to the income accrued to it. 3. The liquidated damage deducted by the Gujarat Council of primary education is the subject matter of the dispute which is akin to retention money. Thus the same is recoverable in future like retention money. But the same has accrued in the current year. Therefore, the assessee is liable to offer the same to tax in the year under consideration as it is following a mercantile system of accounting. 4. There was also nothing mentioned in the tax audit report regarding the liquidated damages as discussed above. 4.3 Because of the above, the AO treated the difference of ₹ 19,06,739/- as discussed above as undisclosed income and accordingly added to the total income of the assessee. 5. Aggrieved assessee preferred an appeal to learned CIT (A). The assessee before the learned CIT (A) submitted as under: 1. It has not taken any action for the recovery of the liquidated damages deducted by the Gujarat Council of primary education in the subsequent years. As such the amount approved by the Gujarat Council of primary education was final, and the assessee was not entitled to recover anythi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7 : ₹ 8,74,428/- 8.1 The Ld.AR further submitted that after deducting above stated liquidated damages as well as retention money, TDS, cess, etc., net amount payable to the assessee towards above referred bills was worked out as follows, and as a matter of fact, merely such net amount (i.e. the amount after deduct: on of liquidated damages ) has been received by the assessee as is evident from assessee's bank statement: Bill No.SSAM/ACR/V AD/420 : ₹ 24,02,863/- Bill No.DIR/ACR/AND/427 : ₹ 20,69,038/- 8.2 Thus, the following aspects become crystal clear according to the Ld.AR: i) There was delay in execution of work assigned to the assessee. ii) The principal deducted liquidated charges from the bill amount. iii) Assessee has received merely net amount (i.e. after deduction of liquidated damages) from the principal; 8.3 The Ld.AR, before us submitted that since assessee never had any right to claim such sum from the principal, only the net receipts were credited to the P L. Under such circumstances, such sum could not have been taxed as undisclosed contract receipts . 8.4 As regards AO's observation Ld.AR submitted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... payer from the bill amounts and has never been received by the assessee at all. If that is done, there would still be no impact on the profit of the assessee. Reliance is placed on PCIT vs. Mazda Ltd. - (2017) 86 taxmann.com 27 (Guj.) (Annexure A ) wherein it has been held that liquidated damages in the nature of penalty imposed for late completion of terms and conditions of order is a business expense. 9. On the other hand the learned DR vehemently supported the order of the authorities below. 10. We have heard the rival contentions and perused the materials available on record. The issue in the instant case relates to the difference observed by the AO between the income declared by the assessee and income represented in form 26AS. The AO found a difference of ₹ 19,06,739/- which was treated as undisclosed income of the assessee. The view taken by the AO was subsequently confirmed by the learned CIT (A). 10.1 From the preceding discussion we note that the difference is arising on account of liquidated damages deducted by the Gujarat Council of primary education. The assessee raised bills to Gujarat Council of primary education amounting to ₹ 37,71,684/- a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hen also it is entitled to claim the same amount of liquidated damage as expenses under section 37(1) resulting no tax liability in the hands of the assessee. 10.9 In holding so, we find support and guidance from the judgment of Hon ble Gujarat high court in case of Principal CIT vs. Mazda Ltd (250 taxman 510) wherein it was held as under: 11. As noted, the expenditure in question was purely in relation to the assessee's normal business activity and was inherent part of its business transactions. The expenditure was certainly not incurred for any purpose which is an offence or which is prohibited by law. The Tribunal therefore was perfectly justified in granting such expenditure. 10.11 Accordingly, we are inclined to reverse the order of lower authorities and direct the AO to delete the addition made by him for ₹ 19,06,739/-. Hence the ground of appeal of the assessee is allowed. 11. The 2nd issue raised by the assessee in the ground no. 4 to 6 is that learned CIT (A) erred in confirming the order of the AO by sustaining the disallowance of ₹ 20,38,708/- on account of the payment made to the subcontractor. 12. The assessee during the year has made c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. ii. The assessee has not furnished contra confirmation from the parties about the payment made to it. Mahmmed Husen Syed i. The assessee failed to file the complete bank statement of the subcontractor. The assessee filed only front-page of the bank passbook which is not sufficient enough to prove the genuineness of the payment made to it. ii. The computation of income filed by the assessee is incomplete if it is not accompanied with the return of income. As such the assessee has failed to file the return of income of the subcontractor. Nimesh Builders i. The assessee was in a position to collect the details such as medical reports and discharge summary. Thus it can be inferred that the assessee could have taken the necessary details regarding the payment made to it along with confirmation. But the assessee failed to do so. ii. The proprietor was hospitalized only for one day as per the medical report furnished by the assessee. 12.5 In view of the above, the AO concluded that the assessee failed to prove the genuineness of the payment made to the subcontractor for ₹ 20,38,708.00 only. Accordingly, the AO disallowed the same and added to the total inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mentary pieces of evidence had been placed on record to prove the genuineness of such expenses. The mere fact that notices u/s 133(6) remained unserved on Mahammad Saiyed and RCG Transport and no reply was received from Nimesh Builders cannot be a ground to disallow the expenses after brushing aside all the documentary evidences placed on record which amply proves that the concerned parties are genuine and are also assessed to tax. The Ld.AR, also submitted that AO had not found any fault with the work that has been carried out through the concerned persons which show that the work has admittedly been carried out and corresponding income has been duly offered to tax. 15.2 The Ld.AR before us submitted that when AO is not disputing completion of underlying work as well as corresponding income , AO could not have doubted expenses incurred for carrying out such work since without incurring such expenses, assessee would not have been in a position to carry out such work and earn income. Thus, AO is not justified in disallowing whole of such expenses. 16. On the other hand, the learned DR vehemently supported the order of authorities below. 16.1 We have heard the riva ..... X X X X Extracts X X X X X X X X Extracts X X X X
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