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2021 (9) TMI 447
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....capital receipt in the books of accounts. In response to such query, the assessee had furnished the explanation & documentary evidence supported by judicial decisions from time to time which are evident from Order Sheet. The details of documentary evidence furnished during the assessment proceeding are a copy of purchase order, Certificate of commissioning of plant & machinery, Confirmation of account of Sulzon Pvt.Ltd and bills & invoices. Further, reliance was placed on the decision of the Hon'ble Supreme Court in case of CIT v/s Saurashtra Cement Ltd 325 ITR 422 and Hon'ble Gujarat High Court in the case of Shri Digvijay Cement Company Ltd. 138 ITR 45. The Ld. AO after due examination and verification of facts from documentary evidence and in the light of the decisions of Hon'ble Supreme Court and Hon'ble Gujarat High Court had accepted that the amount received as liquidated damages due to delay in supply of machinery was a capital receipts and accordingly had allowed the claim of depreciation. 3. It was submitted that the Ld PCIT thereafter issued a show cause notice u/s 263 of the Act and in response, a reply was furnished to Ld PCIT along with documentary evidence and judicia....
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...."if at the time of when the power under section 263 was exercised the decision of the jurisdictional High Court had not been set aside by this court or at least had not been appealed from, it would not be open to the commissioner to have proceeded on the basis that the High Court order was erroneous and the Assessing officer who had acted in terms of the High Courts decision had acted erroneously." 7. It was submitted that the ld AO had exercised the quasi-judicial power vested in him in accordance with law and arrived at conclusion on the basis of legal & valid documentary evidences and such a conclusion cannot be termed to be erroneous and prejudice to interest of Revenue on the basis of representation of factually incorrect facts. 8. It was submitted that it is settled position of law that revisionary powers of CIT u/s 263 can be invoked only when the assessment order is erroneous as well as prejudicial to the interest of the Revenue. Since, in the case of assessee, the assessment order could not be established to be erroneous, by Pr CIT. The sole ground of 263 jurisdiction by the Pr. CIT was that the ld AO did not make proper enquiry. This itself cannot be said to be erro....
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....f the case. As per the provision of section 43(1) of the Income-tax Act, 1961, the amount of liquidity damages received during the year was required to be reduced from the actual cost of the asset and on the balance amount depreciation was to be calculated. As per the provisions of Section 32(1)(i) of the Income-tax act, 1961, in respect of depreciation of building machinery, plant or furniture, being tangible asset, owned, wholly or partly by the assessee and used for the purpose of business or profession, the following deductions shall be allowed. (i) In the case of assets of an undertaking engaged in generation or generation and distribution of power, such percentage on the actual cost thereof to the assessee as may be prescribed. Further, section 43(1) provides that in sections 28 to 41 and in this section, unless the context otherwise requires "Actual Cost" means the actual cost of the assets to the assessee, reduced by that portion of the cost thereof, if any, has been met directly or indirectly by any other person or authority. In response to the show cause notice, the assessee filed a reply relying on the judgment of Hon'ble Apex Court in....
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....r the information available on record with regard to allowing the claim of depreciation @ 100% on the cost of plant and machinery of wind mill of Rs. 7,80,99,198/- in terms of section 43(1) of the I.T. Act, 1961. The Assessing Officer in a routine and perfunctory manner allowed excess claim of depreciation without deducting the liquidity damages from the cost of Wind Mill as per the provision Section 43(1) of the Act. The order has thus resulted in excess allowance of depreciation to the assessee. In this regard, the AO is directed to examine and verify the issue discussed above in the light of the provisions of Section 43(1) of the Income-tax Act, 1961." 10. We have heard the rival contentions and perused the material available on record. During the year under consideration, the assessee has capitalized a sum of Rs. 7,80,99,198/- towards cost of windmill and has claimed depreciation @ 80% and additional depreciation @ 20% on such cost. The assessee has also received a sum of Rs. 12 crores towards liquidated damages from M/s Suzlon Energy which has supplied the windmill to the assessee and the same was treated as capital receipt by the assessee. The said receipt of liqu....
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....before the Hon'ble Supreme Court was whether the liquidated damages received by the assessee from the supplier of plant and machinery on account of delay in supply of plant was capital or revenue receipt. In that case, the facts of the case were that the assessee engaged in the manufacture of cement entered into an agreement with M/s. Walchandnagar Industries Limited, Bombay for purchase of additional cement plant. The agreement contained a condition with regard to the manner in which the machinery was to be delivered and the consequences of delay in delivery. As per the said condition in the agreement, in the event of delay caused in delivery of the machinery, the assessee was to be compensated at the rate of 0.5 per cent of the price of the respective portion of the machinery for delay of each month by way of liquidated damages by the supplier, without proof of actual loss and the total amount of damages was not to exceed 5 per cent of the total price of the plant and machinery. The supplier defaulted and failed to supply the plant and machinery on the scheduled time and, therefore, as per the terms of contract, the assessee received an amount of Rs. 8,50,000 from the supplier by....
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....unt of compensation for delay in shipment of the machinery received from the suppliers, for the purposes of allowing depreciation and development rebate. In that case, the facts of the case were that the assessee was mainly engaged in the business of manufacture and sale of cement and asbestos cement products. It enterted into an agreement with Revisione Construzione Machine of Torino, Italy for supply of machinery for manufacture of asbestos cement products. Under the sub-title "Delivery", of this agreement, the suppliers agreed to deliver the machinery as set out under the shipment plan and undertook to reimburse the assessee-company with compensation for delay in delivery. There was delay in supply of the machinery by the suppliers. The assessee-company, therefore, claimed compensation for the delay under the aforesaid term of the agreement. This claim for compensation made by the assessee-company was settled and under an agreement dated 12-7-1965, the suppliers agreed to pay Lira 74,559,725 equivalent to Rs. 5,72,216 by way of compensation for the delay to the assessee-company. Under the agreement dated 12-7-1963, it was agreed between the parties that the assessee-company woul....
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....inct things and the same shouldn't be mixed up. It was held that referring to the provisions of section 43(1), the actual cost of the machinery to the assessee company is the price at which it agreed to purchase the machinery, and compensation paid for the delay in delivery is to set off or reduce the loss which the assessee company suffered as a result of delay in supply of machinery and the same would not reduce the cost of machinery for the purposes of calculating depreciation and development rebate. 17. Applying the legal proposition so laid down in the instant case, we refer to the relevant clauses of the purchase order dated 10.09.2013 as under: "2. Price Sr. No. Description Price per unit (In Rs.) No. of units Total Price (in Rs.) 1 A Supply of S-82 SUZLON 1500 KW Wind Turbine Generator comprising mainly of: * Nacelle * Hub * Controller (Micro Processor etc.) 4,03,58,000/- 1 4,03,58,000/- Total (Rupees Four Crore Three Lacs Fifty Eight Thousand only) 4,03,58,000/- 1 4,03,58,000/- 3. Price basis * The above prices are on basis of delivery at our site. (Ex-Factory basis plus transportati....
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....interest for delayed payments are realized by you, you will have all rights of unpaid supplier's lien on complete supplies made by you. You will also have all remedies available under applicable law to recover possession of the goods supplied and seek damages to the extent of any loss or costs incurred as a result of such non payment. 12. Liquidity Damages * As you are aware that timely delivery of WTG is crucial for the timely commissioning of the WTG, any delay in delivery of WTG shall result in delayed commissioning of our Wind Farm Project. In order to make you stick to the target, you shall as sole remedy pay to us Liquidated Damages (LD) of 15% of total project cost i.e. Rs. 120 Lacs per WTG, on pro rate basis for the WTG delivered after 30th September 2013, if resulting in delayed commissioning. * However, as our sole objective is to achieve end result, i.e. timely commissioning of our Wind Farm Project, we shall not lodge claim for LD, if we are able to achieve the end result i.e., commissioning of the WTG through our erection & commissioning agency, on or before their committed date of commissioning." 18. On combined reading of the aforesaid c....
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....source is a capital receipt and the same by default cannot be held as meeting the cost of the windmill in the hands of the assessee and be reduced for determining the actual cost of windmill under section 43(1) of the Act which needs to be examined independently based on review of terms and conditions of the contract. As discussed above, on review of terms of the contract, the liquidated damages retains its independent character of compensating the assessee and cannot be mixed up with the cost of the windmill at which the assessee agreed to purchase the windmill and the same would therefore not reduce the cost of windmill for the purposes of calculating depreciation u/s 32(1) of the Act. 20. We therefore find that the decision of the Hon'ble Supreme Court in case of Saurashtra Cement (supra) as well as the decision of the Hon'ble Gujarat High Court in case of Shree Digvijay Cement Co Ltd (supra) supports the case of the assessee in treating the liquidated damages as capital receipts and not reducing the same from the cost of the windmill in terms of section 43(1) for the purposes of claim of depreciation and where such a claim is allowed by the Assessing officer, it cannot be he....