Case Law Details
CIT (International Taxation) Vs UT Starcom Inc. (Delhi High Court)
Introduction: The recent judgment by the Delhi High Court in the case of Commissioner of Income Tax (International Taxation)-3 Vs UT Starcom Inc. (ITA 719/2023) revolves around the deduction of liquidated damages concerning the Assessment Year 2008-09. The appeal seeks to challenge the order of the Income Tax Appellate Tribunal (ITAT) dated 28.07.2021.
Detailed Analysis: The core issue examined by the statutory authorities and subsequently appealed is whether UT Starcom Inc., the respondent/assessee, rightfully claimed a deduction for liquidated damages. The respondent had provisioned for liquidated damages in the preceding Financial Year (FY) 2006-07 (AY 2007-08), amounting to Rs. 3,87,12,148/-. In the relevant Assessment Year 2008-09, UT Starcom Inc. claimed a deduction based on the actual damages incurred, totaling Rs. 4,37,36,387/-.
The Assessing Officer (AO) allowed a deduction of Rs. 50,24,239/- but disputed the remaining amount, asserting that UT Starcom Inc. failed to prove damages amounting to Rs. 3,87,12,148/- provisioned in the preceding AY. The respondent appealed to the Commissioner of Income Tax (Appeals) [CIT(A)], who, after examining the material, affirmed that damages were suffered.
The CIT(A) found that UT Starcom Inc. faced delays in supplying services to BSNL and MTNL, leading to liquidated damages. BSNL and MTNL adjusted these damages against the invoices raised by the respondent. Detailed information, including purchase orders, invoice values, and deducted liquidated damages, was provided in the CIT(A)’s order.
Despite the appellant/revenue’s appeal to the Tribunal, the findings of the CIT(A) were upheld. The Tribunal, unconvinced by the appellant’s arguments, sustained the CIT(A)’s conclusions on the liquidated damages suffered by UT Starcom Inc. No evidence suggesting the perversity of the CIT(A)’s findings was presented.
Conclusion: In conclusion, the Delhi High Court, considering the orders of the CIT(A) and the Tribunal, found no substantial question of law for consideration. The appeal (ITA 719/2023) was accordingly closed. The judgment establishes the legitimacy of the deduction claimed by UT Starcom Inc. for liquidated damages arising from delayed service to BSNL and MTNL. Parties are instructed to act based on the digitally signed copy of the order.
FULL TEXT OF THE JUDGMENT/ORDER OF DELHI HIGH COURT
1. This is an application moved on behalf of the appellant/revenue seeking condonation of delay in re-filing the appeal.
1.1 According to the appellant/revenue, there is a delay of 430 days in re- filing the appeal.
2. Although the period of delay is large, we are inclined to condone the same as we intend to decide the appeal on merits.
3. It is ordered accordingly.
4. The aforesaid application is disposed of.
ITA 719/2023
5. This appeal concerns Assessment Year (AY) 2008-09.
6. Via the instant appeal, the appellant/revenue seeks to assail the order dated 28.07.2021 passed by the Income Tax Appellate Tribunal [in short, “Tribunal”].
7. The only issue which arose for consideration before the statutory authorities was: Whether the respondent/asseessee had rightly claimed deduction with regard to liquidated damages?
8. The record shows that the respondent/assessee had made a provision for the liquidated damages in the preceding Financial Year (FY), i.e., F.Y. 2006-07 (AY 2007-08).
9. The respondent/assessee had thus made a provision in the AY 2007- 08 amounting to Rs.3,87,12,148/-.
10. In the period in issue i.e., AY 2008-09, the respondent/assessee claimed deduction of liquidated damages, albeit on actual basis of an amount equivalent to Rs. 4,37,36,387/-. This amount included the sum referred to herein above which was provided as liquidated damages in the preceding AY i.e., Rs.3,87,12,148/-, and Rs. 50,24,239/- which was additional compensation that the respondent/assessee had to pay towards the liquidated damages in the period in issue.
11. The record shows that the Assessing Officer (AO) concluded that the respondent/assessee had not proved that it had suffered damages amounting to Rs.3,87,12,148/- which was the sum provided in the preceding AY.
11.1. The AO, however, allowed the deduction amounting to Rs.50,24,239/-.
12. Being aggrieved, the respondent/assessee carried the matter in appeal to the Commissioner of Income Tax (Appeals) [in short, “CIT(A)].
13. The CIT(A) examined the material on record and returned a finding of fact that the respondent/assessee had infact suffered damages to the extent of the provisions made in the preceding AY, i.e., Rs.3,87,12,148/-.
13.1. The CIT(A) found that the respondent/assessee had to make supplies to BSNL and MTNL. Since, there was a delay in making the supplies, liquidated damages were adjusted by the said entities against the invoices raised by the respondent/assessee.
14. These finding of facts are recorded by the CIT(A) in his order dated 28.03.2018. The CIT(A) has given the details of purchase orders, the value of the invoices, and the liquidated damages deducted by BSNL and MTNL against each of the purchase orders.
15. The tabulated information qua the same is provided in paragraph 5.3 of the order passed by the CIT(A).
16. Being aggrieved, the appellant/revenue carried the matter in appeal to the Tribunal.
17. The Tribunal, however, was not impressed with the arguments advanced on behalf of the appellant/revenue, and hence sustained the findings returned by the CIT(A) with regard to the liquidated damages suffered by the respondent/assessee.
17.1. We may note that there is nothing brought on record to suggest that the findings returned by the CIT(A) are perverse.
18. Thus, having regard to the orders passed by the CIT(A) and the Tribunal, according to us, no substantial question of law arises for our consideration.
19. The appeal is accordingly closed.
20. Parties will act based on the digitally signed copy of the order.
