9911796707
TMI Blog1999 (5) TMI 47X X X X Extracts X X X X X X X X Extracts X X X X ..... t with M/s. J.K International Pvt. Ltd., Australia based company for import of 1575 metric tonne of yellow gram at the rate of 310 US Dollars per metric tonne from Australia. As per the terms of the contract, the assessee was required to open an irrevocable letter of credit with an Indian Bank on or before 14-8-1986. This date was subsequently extended to 1-10-1986 by the Australian party. The assessee however failed to open the letter of credit even by the extended date and in fact repudiated the contract through their letter dated 29-8-1986 to the brokers M/s. Vaidehi Spices Agency, Bombay. Arbitration proceedings were initiated by the Australian party before the Grain and Feed Trade Association (GAFTA). However the assessee objected to the jurisdiction of GAFTA and claimed that no written agreement exist with the Australian party and there was no occasion to refer any dispute between the parties to Arbitration within GAFTA and that GAFTA have no competence or jurisdiction to proceed to make any award or decision in the matter. The assessee further submitted that the failure to open the letter of credits due to the fact that the brokers failed to furnish copies of credit notes du ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment year 1988-89 are regarding the validity of revisional order of the CIT and the date when the liability on account of damages accrues. 5. Assailing the impugned order of the CIT, Shri A.C. Shah, the ld. counsel for the assessee argued that the essential conditions for the assumption of jurisdiction by the CIT under section 263 are not fulfilled in the instant case since the issue of admissibility of damages for breach of contract has been duly considered by the Assessing Officer while making the original assessment and the conclusion arrived at by the Assessing Officer cannot be construed as erroneous. The ld. counsel further submitted that during the course of assessment proceedings a brief factual note regarding the damages paid by the assessee was submitted and the deduction was duly allowed by the Assessing Officer after proper consideration of the facts contained therein. The ld. counsel argued that the CIT cannot revise the order of the Assessing Officer merely because he disagrees with the conclusion arrived in the assessment order. The ld. counsel placed reliance on the decision of Bombay High Court in CIT v. Gabriel India Ltd [1993] 203 ITR 108. Further relianc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ad resulted in prejudice to the interest of the revenue. According to the ld. D.R. the damages of Rs. 7,14,824 did not crystallise into an ascertained final liability with the passing of the arbitration award by the GAFTA since the assessee did not accept the said award and carried the matter to the Board of Appeal and the Appellate order of the Board of Appeal has been passed on 22-3-1989 which is well beyond the accounting year for assessment year 1988-89 under reference. The ld. D.R. further submitted that the liability arisen from breach of contract would crystallise as final liability only when both the parties accept the liability or else the protracted litigation is concluded finally after arbitration and adjudication. The ld. D.R. argued that the order of the CIT under section 263 is within jurisdiction and that the liability of Rs. 7,14,824 by way of damages has not accrued for assessment year 1988-89 and has therefore been rightly disallowed by the Assessing Officer vide order dated 22-3-1995 and the order of the CIT(A) dated 31-7-1995 deleting the disallowance is liable to be reversed on the issue. 7. We have carefully considered the rival submissions, perused the fact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on account of damages was inchoate and contingent in nature during the assessment year 1988-89 inasmuch as the assessee challenged the arbitration award on substantial grounds and the protracted litigation had not concluded during the year under appeal. For the detailed reasons, which we shall presently discuss the liability on account of damages did not accrue or arise during the assessment year 1988-89 and therefore the original order of the Assessing Officer was not in accordance with law and was patently erroneous and prejudicial to the interest of revenue. The CIT has therefore rightly exercised his jurisdiction under section 263 and set aside the order of the Assessing Officer on the limited issue of deduction of Rs. 7,14,824. 8. The decision of Bombay High Court in Gabriel India Ltd.'s case relied upon by the ld. counsel in support of his contentions is entirely distinguishable on facts. In that case detailed enquiries had been made by the Assessing Officer in regard to the nature of the expenditure incurred by the assessee and the claim was allowed after proper application of mind to the facts and material brought on record as well as the detailed explanation furnished b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elevant for assessment year 1988-89 under appeal. 11. On perusal of facts on record, we find that the contracts dated 23-7-1986 for the supply of 1575 Metric Tonne of Australian Yellow Gram at the rate of US Dollars 310 per metric tonne were acknowledged by the assessee on 24-7-1986. Under the contract letter of credits were to be opened latest by 14-8-1986. The Australian party agreed to extend the date for opening of the letters of credit until 1st October, 1986. The assessee however failed to open the letters of credit. Protracted litigation ensued. The Australian party claimed damages for breach of contract by the assessee. The assessee disputed the claim on the ground that the letters of credit could not be opened due to the failure of the Australian party to forward duly signed contracts for obtaining registration with the National Agricultural Co-operative Marketing Federation of India. There is no stipulation in the contract notes regarding the damages to be paid by the party breaching the terms of the contract. The damages amounting to Rs. 7,14,824 awarded by the GAFTA under the arbitration award were therefore unliquidated damages for breach of contract. As indicated ea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d and finally fixed by a Court or any other mutually agreed forum. In the instant case on the basis of available materials it is clear that the contract did not provide for payment of any particular amount as damages in case of breach of the contract and the claim by the Australian party was for unliquidated damages. It was not the case where the quantum of damages alone was referred to the arbitrator by the GAFTA but it was a case where the very question as to whether the assessee is liable to pay damages was referred to arbitration. Arbitration award dated 25-8-1987 was not accepted by the assessee inasmuch as the very jurisdiction of GAFTA was challenged by the assessee and the assessee declined to nominate an arbitrator. The entire dispute ultimately travelled to the Board of Appeal which gave its decision finally on 20-3-1989 concluding the litigation. It is in the backdrop of these facts that we have held that the liability for the damages is not a liability in praesenti during the assessment year under question. 12. We have carefully gone through the various judicial authorities cited by the ld. Counsel and find that these decisions do not in any manner support the case of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and when the supply of gas was received and the issue involved only the quantification of the liability which has been settled by the Supreme Court. The facts and issues involve in this case were entirely different. There was no dispute regarding the payment of purchase price as well as royalty by the assessee and the dispute was confined only to the matter of quantification of the purchase price as well as the royalty. The decision does not help the assessee. 17. For the reason discussed above, we hold that the liability on account of damages for breach of contract amounting to Rs. 7,14,824 did not arise or accrue during the period relevant for assessment year 1988-89 under appeal and therefore the ld. CIT(A) is not justified in deleting the disallowance made by the Assessing Officer on this ground. The order of the CIT(A) on this issue is therefore reversed and the appeal of the revenue is allowed. 18. Before parting with this order we may note that we have considered the various judicial authorities cited before us by both the sides even if these are not specifically mentioned in the order. 19. In the result, the appeal of the assessee is dismissed and the appeal of the ..... 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