AI Drafter 
TaxTMI 
TaxTMI 
2019 (1) TMI 1764
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....d without prejudice to the above, Rs. 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 Rs. 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 Rs. 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 passing the impugned order. This action of the lower authorities is in clear breach of law and Principles of Natural Justice and therefore deserves to be quashed. 7. The learned CIT(A) has erred in law and....
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.... 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 Rs. 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 anything over and above the amount approved. 2. The form 26AS is used to provide information about the deduction of TDS and corresponding income. But the same cannot be treated as sa....
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....ount 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 : Rs. 24,02,863/- Bill No.DIR/ACR/AND/427 : Rs. 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 that assessee has not furnished copy of contract entered into with the principal, it is submitted that the mere fact that there was ....
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.... 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 Rs. 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 Rs. 37,71,684/- and 32,35,027/-. 10.2 However, the Gujarat Council of primary education approved such bills for an amount of Rs. 24,02,863/- and Rs. 20,69,038/- re....
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....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 Rs. 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 Rs. 20,38,708/- on account of the payment made to the subcontractor. 12. The assessee during the year has made certain payments to the subcontractors for the execution of the work assigned to it by Gujarat Council of primary education amounting to Rs. 20,38,708/- only. The detai....
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....gh 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 Rs. 20,38,708.00 only. Accordingly, the AO disallowed the same and added to the total income of the assessee 13. Aggrieved, assessee preferred an appeal to learned CIT (A). The assessee in the case of Mahammed Husen Syed & Nimesh Builders before the learned CIT (A) submitted that these parties were located in the district of Baroda and Anand. As such these parti....
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....xpenses 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 rival contentions and perused the materials available on record. In the instant case, the assessee has made payment to subcontractors which was not allowed by the AO on the ground that the notices issued under section 133(6) of the Act were not either served to them or there ....