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TMI Blog2020 (2) TMI 1452X X X X Extracts X X X X X X X X Extracts X X X X ..... reating a right of the applicant - In regard to question No. 2, it is held that in view of the arbitration award nothing accrues to the applicant. MAT Computation u/s 115JB - Applicability of the provisions of sections 115JB and 43B of the Income-tax Act have also become inconsequential as there is no question of crediting any amount to the profit and loss account when there is no receipt of liquidated damages. Trade receivables written off in the accounts of the applicant for the year ended March 31, 2015 - whether allowable as deduction under section 36(1)(vii) read with section 36(2) of the Act ? - HELD THAT:- AR has elaborated the reason for the difference in figure. The former figure is the amount invoiced to SPL along with service tax and forex fluctuation difference whereas the latter figure is exclusive of foreign rate fluctuation difference amount. As explained from the financial statement that the invoiced amount and the foreign rate fluctuation difference was declared as income in the financial year 2014-15 and the service tax though not recovered from SPL was paid to the credit of Government to avoid demand and penalty and is therefore claimed as business expenditure un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onsent of SPL. Further, the applicant has entered into an Intellectual Property Licence and US Service Agreement (IP and Service Agreement) with NACC US dated April 1, 2011 for receiving services and a non-exclusive licence of Intellectual Right from NACC US. 5. NACC US, in the initial phase of mine development and later the applicant, rendered services to SPL under the above-mentioned agreements which contributed to the progress of the project in Sasan. According to the applicant, in 2013, SPL curtailed the activities of the applicant and engaged its in-house international consultants. The last invoice paid by SPL pertained to the period up to September, 2013 and it stopped making payment of invoices of the applicant pertaining to services performed after October 1, 2013. 6. The applicant claims that even after several written and in person requests, SPL did not honour its obligations under the agreement, therefore, the applicant was constrained to terminate the said agreement. The applicant is claiming to have terminated the agreement under section 6.2(c) read with section 8.1 of Association agreement for Mine Development and Operations between NACC and SPL. The applicant had s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wer to question No. 3 is negative, the said amount shall not again form part of the 'book profits' for the purpose of section 115JB of the Act in the year in which the said amount shall be accounted for in the books of account of the applicant ? 4. Whether on the facts, in law and in the circumstances of the case where for any reason it is held that the liquidated damages are subject to service tax under Service Tax Laws, the provisions of section 43B of the Act are applicable for non-deposit of service tax on liquidated damages, given that service tax has not been routed through the profit and loss account for the year ended March 31, 2015 nor any deduction in respect of the same has been claimed by the applicant ? 5. Whether on the facts and as per law, trade receivables amounting to ₹ 51,938,309 written off in the accounts of the applicant for the year ended March 31, 2015 are allowable as deduction under section 36(1)(vii) read with section 36(2) of the Act ?" Applicant's contentions 8. In this regard, it is most respectfully submitted that the applicant had raised a claim on Sasan Power Limited (SPL) for liquidated damages (LD) to the tune of USD ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... headings development fees and expense reimbursements. However, while claiming bad debts, the applicant is claiming the amount mentioned in column No. 4 vide its notes forming part of amount in the column No. 4 as the unpaid invoices for the financial year 2014-15 rested at March 31, 2015. But, the reason behind the difference in the amounts in column Nos. 3 and 4 is not clear. As the interest on unpaid invoices is already claimed by the company, there seems no purpose in claiming separate amounts, one for the period from April 1, 2014 to July 23, 2014 and another, or the year ended in March 31, 2015. Thus, how the applicant has arrived at the amount of ₹ 5,19,38,309 as bad debts is not clear. 14. Further, according to section 36(2)(i) bad debt is admissible as reduction only if it is taken into account in computing the total income of the assessee of the previous year in which it is written off or an earlier year and the deduction under section 36(1)(vii) is available subject to the provisions of section 36(2). In the present case, the receipts which are accrued to the applicant and which are now written off as bad debt were not included in the income of the applicant for th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s against ₹ 5,03,11,856 which is the actual amount invoiced to SPL during the financial year 2014-15. The said restatement is on account of difference in foreign exchange (forex) rate fluctuation on amounts invoiced to SPL in USD and which were recorded at closing exchange rate. The description/break-up of the aforesaid amounts invoiced to SPL is provided as follows : Particulars. Amount invoiced (Rs.) Forex Difference (Rs.) Amount restated as at 31st March 2015 (Rs.) Development fees 2,38,83,207 8,09,051 2,46,92,258 Expense reimbursement 2,19,76,892 5,87,831 2,25,64,723 Interest on unpaid invoices 44,51,757 2,29,571 46,81,328 Total 5,03,11,856 16,26,453 5,19,38,309 19. Further, as regards the second reason, it is alleged that the applicant has not included the aforesaid amount of ₹ 5,19,38,309 as income in the financial year 2014-15. In this regard, the break-up of ₹ 5,19,38,309 is as follows : Particulars. Amount (Rs.) Remarks Amount invoiced to SPL (A) 4,47,77,356 Considered as income under the head "Revenue from operations" in profit and loss account. Add : Service Tax invoiced on aforesaid amount (B) 55,34,481 Paid by the applica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 36(2) of the Act should be otherwise be allowed under section 37 of the Act. Reliance in this regard is placed on the decision of the hon'ble Bombay High Court in the case of CIT v. Prime Broking Co. (I) Ltd. [2016] 76 taxmann.com 211 (Bom) wherein it has been held that service tax not paid by the client of the assessee in terms of invoice raised for onward payment to Government and paid by the assessee out of its own resources is allowable as deductible expenditure under section 37(1) of the Act. The relevant findings of the hon'ble Bombay High Court are reproduced as under : "It is undisputed that the obligation under the Finance Act, 1994 to pay the service tax is on the respondent-assessee being the service provider. This obligation has to be fulfilled by the service provider whether or not if he receives the service tax from its clients/customers. Non-payment of such service tax into the treasury would normally result in demand and penalty proceedings under the Finance Act, 1994. Therefore, as rightly found by the Commissioner of Income-tax (Appeals) and the Tribunal the payment is on account of expediency, exclusively and wholly incurred for the purposes of b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ceipt of liquidated damages. 28. As regards, question No. 5 the learned authorised representative has elaborated the reason for the difference in figure of ₹ 5,19,38,309 and ₹ 5,03,11,586. The former figure is the amount invoiced to SPL along with service tax and forex fluctuation difference whereas the latter figure is exclusive of foreign rate fluctuation difference amount. It has also been explained from the financial statement that the invoiced amount and the foreign rate fluctuation difference was declared as income in the financial year 2014-15 and the service tax though not recovered from SPL was paid to the credit of Government to avoid demand and penalty and is therefore claimed as business expenditure under section 37. It is also alternately urged that the same is also allowable as trading loss or bad debt. The authorities cited in this regard have been perused by us and we are in agreement with the contention of the learned authorised representative on this issue. The Revenue may, however, verify these figures from the financial statements and the return of income filed by the applicant. 29. In view of the foregoing the questions raised are answered as unde ..... X X X X Extracts X X X X X X X X Extracts X X X X
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