DCIT Vs M/s Hindustan Urban Infrastructure Ltd. (ITAT Kolkata)
Conclusion: Liquidated damages which were in nature of contractual liability on account of non-compliance of business obligations to customers were allowable expenditure.
Held: AO disallowed assessee’s claim of liquidated damages as the same were in the nature of penal liability not allowable as expenditure incurred wholly and exclusively for the purpose of its business. It was undisputed that liquidated damages were in the nature of contractual liability only than arising from violation of any penal provision. In the present case, assessee had made the impugned provision as per its contractual liability on account of non compliance / non-fulfilment of its business obligations to only its customer parties. Therefore, the same was allowable as expenditure.
FULL TEXT OF THE ITAT JUDGMENT
All these three cases pertain to single assessee M/s Hindustan Urban Infrastructure Ltd. Former assessment year 2011-12 involves Revenue’s appeal ITA No.1615/Kol/2017 along with taxpayer’s Cross Objection CO No.87/Kol/2017 arising against the Commissioner of Income Tax (Appeals)-39, New Delhi’s order dated 15.03.2017 in case No.314/16-17. Latter assessment year 2012-13 contains Revenue’s appeal against the very CIT(A)’s order of the even date in case No.312/16-17. Relevant proceedings in both assessment year(s) are u/s 143(3) of the Income Tax Act, 1961; in short ‘the Act’.
Heard both the parties. Case files perused.
2. It emerges at the outset that the Revenue’s two appeals ITA No.1615 and 1616/Kol/2017 raise identical substantive grounds. The Revenue’s first substantive ground in its both appeals plead that CIT(A) has erred in law as well as on facts in admitting additional evidence in violation of Rule 46A of the Income Tax Rules, 1962. We do not see any additional evidence admitted in lower appellate proceedings of all much less in violation of said statutory provision. Its first substantive grievance raised in instant two appeals stands decline therefore.
4. Next comes Revenue’s second identical substantive grievance in both assessment years seeking to revive the Assessing Officer’s action disallowing assessee’s export commission payments of ₹63,56,458/- and ₹19,88,798/- on account of non-deduction of TDS thereby invoking sec. 40A(a)(i) of the Act. We treat the former assessment year 2011-12 as the “lead” assessment year containing the CIT(A)’s following detailed discussion on the issue.
“5. I have considered the order u/s 143(3) of the Act, the submission of the AR on this point along with the case laws relied upon by him and the extant law in this regard. It is observed from the grounds of appeal at Para 3 above that the ground at (a) and (h) are general in nature and there are no specific submission by the appellant on this ground during the appellant proceedings. Hence, this ground is not discussed in this order. As regards the ground at (g) of the grounds of appeals mentioned at para 3 above, it is observed that this ground relates to initiation of penalty proceedings u/s 271(1)(c) of the Act in the impugned order. Initiation of penalty proceedings is not an order imposing penalty and therefore does not come under the ambit of Section 246A of the Act meaning thereby that it is premature at this juncture. Accordingly, this ground of appeal is dismissed.
5.1 With regard to the ground at (b)(i) and (b)(ii) is relating to the addition of Export Commission payment (Rs.63,66,458/-) due to non-deduction of TDS thereon u/s 40(a)(i) in the impugned order, it is seen that it is mentioned therein, inter alia, – “…I have considered a. the facts of the case, plea of the assessee and of the view that the assessee company received services hence from foreign agents and companies, these services did not constitute fees for technical services as defined in section 9(1)(vii) of the Income Tax Act is not acceptable because in the instant case the income is payable by resident, services are utilized by resident and business or profession is carried out in India. As a result of these services the profits are being derived or utilized in India. Further, the payment for commission paid to various parties as noted above is also payable by resident, services are utilized of that services by resident of India and business profession is also being carried out in India. In view of all the facts noted above it is clear that the assessee company was liable to deduct TDS on commission expenses as noted above paid to non-resident. Since the assessee did not deduct TDS as per provisions of section 195 of the IT Act 1961 therefore the total deduction of expenditure at Rs.63, 56, 458/- as commission .expenses as claimed by the assessee is hereby disallowed and added back to the total income of the assessee … “
From the above extract it is observed that the reason for the disallowance of the appellant’s claim of expenses is that in spite of the fact that the payer is a resident, services are utilized by the resident and business is carried out in India, the appellant did not deduct tax at source (TOS) on the commission payments whereas TOS has been made on payments of testing and global service agreement. In fact, it is mentioned in the impugned order that the appellant is making payment to foreign agents and thereby receiving their services enabling the sales of products and articles of the appellant thereby it earns its income in India and therefore the provisions of Section 9(1) are applicable in this case.
5.2 It is also gathered from the impugned order that reliance has been made on the following court judgements –
