TaxTMI 
TaxTMI 
2018 (9) TMI 357
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....ed damages on the close of the respective previous years and therefore, the assessee is not entitled to assert for the deduction of these amounts as if they are liquidated damages. The other four appeals arose out of the following situation. 3.The assessee filed miscellaneous petition before the Tribunal to revise the order dated 12.12.2002, which is impugned in T.C.(A) Nos.170 and 171 of 2007. The said petition was dismissed by order dated 24.09.2003. The assessee filed second miscellaneous petition to revise and to sustain their claim for deduction. This miscellaneous petition was allowed by order dated 21.07.2004, accepting the claim made by the assessee for deduction of those amounts as liquidated damages. Therefore, the assessee withdrew T.C.(A) Nos.170 and 171 of 2004. 4.The Revenue challenged the common order passed by the Tribunal on the second miscellaneous petition vide order dated 21.07.2004 in T.C.(A) Nos.501 and 502 of 2007. For the assessment years 1999-2000 and 2000-01, the Tribunal followed the order in the second miscellaneous petition dated 21.07.2004. Therefore, the Revenue has filed T.C.(A) Nos.1450 and 1451 of 2007. By our order dated 25.07.2018, we have rest....
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....h of the covenants of the contract. It is submitted that the assessee is engaged in the business of turnker projects, in which, time is the essence of contract, and one of the conditions enumerated in the contract was delivery of equipment in time, which if not done within the stipulated time, leads to liquidated damages. It is further submitted that the said provision is an ascertained liability and not contingent liability. 9.It is further submitted that as when there is a delay in delivery of the machinery, liability to pay damages accrues and it is an ascertained liability and in case of purchase, where there has been delay in delivery, the purchasers have withheld the amount of liquidated damages and the assessee has also not denied the liability. 10.The learned counsels have drawn the attention of this Court to the order passed by the CIT(A) dated 09.10.2000, in which the quantum of liquidated damages payable on account of failure to meet the performance of guarantees have been stipulated. It is submitted that individual liquidated damages on account of failure to meet the performance guarantees shall be maximum of 2.5% of the contract value and shall be applicable for dewa....
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....rred to the decision of the Hon ble Supreme Court in Calcutta Co. Limited vs. CIT reported in (1959) 37 ITR 1. By referring to the said decision, it is submitted that liability already accrued on the date when the contract was entered into and though that liability was to be discharged on a future date, it is an accrued liability and the estimated expenditure, which would be incurred in discharging the same could very well be deducted from the profits and gains of the business. 14.Reliance was placed on the decision of the Hon ble Supreme Court Rotork Controls India (P) Ltd. vs. Commissioner of Income Tax reported in (2009) 314 ITR 0062 wherein the provision for warranty claims on the basis of past experience was held to be an allowable as deduction under Section 37 of the Income Tax Act, 1961 (hereinafter referred to as the Act ). 15.Reliance was also placed on the decision of the Hon ble Supreme Court in the case of Bharat Earth Movers vs. Commissioner of Income Tax reported in (2000) 245 ITR 0428. By referring to the said decision, it is submitted that the provision for meeting the liability for encashment of earned leave by the employees was held to be admissible deduction. ....
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....ny scientific method, cannot place reliance on the decision of the Hon'ble Supreme Court in Rotork Controls India (P) Ltd. (supra). 21.The learned counsel also referred to the decision of the High Court of Calcutta in Commissioner of Income-tax vs. Burlop Commercial (P.) Ltd. [(1993) 200 ITR 605]. 22.After we have elaborately heard the learned counsels for the parties, we are required to consider the aspect as to whether the assessee is entitled for deduction under Section 37(1) of the Act in respect of provision made towards damages that the assessee is liable to pay to the organisation for whom they have already done turnkey projects, which has been provided by them in their books of accounts. We may note that Section 37 of the Act uses the word any expenditure . Therefore, an expenditure, which is referred to therein, viz., Section 37(1), would be entitled for being claimed as a deduction. Thus, the test to be satisfied by the assessee to claim a provision to be an expenditure in terms of Section 37(1) of the Act, the onus is heavily on the assessee and the assessee has to necessarily discharge the obligations, which have been laid down by the Hon'ble Supreme Court in ....
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....low. In this regard, various contracts entered into with the contracting parties were referred to. 26.The Hon'ble Supreme Court while laying down the three tests, has used the expression probable in the second test. The 'Black's Law Dictionary' defines probable consequences to mean an effect or result that is more likely to follow its supposed cause than not to follow it. Possibility has been defined as an event that may or may not happen. Thus, degree of proof required to show that there is a probability of outflow of resource is higher, as the effect is which is more likely to happen than not to happen as to where possibility is an event, which may or may not happen. Therefore, the assessee has to definitely show that there is every probability that an outflow of resources will be required to settle. 27.The documents placed before the Court will clearly show that there has been negotiations, discussions before the liquidated damages was arrived at, which was much after the subject assessment years. These documents are in fact strengthening the case of the Revenue and the findings rendered by the CIT(A) as well as the Tribunal, which had held that there is no asc....