Nestor Pharmaceuticals Pvt. Ltd., New ... vs Assessee

Deputy Commissioner of Vs. M/s Nestor Pharmaceuticals Income Tax, Pvt.Ltd., Circle- Circle-13(1), B-24/3, Okhla Industrial Area, New Delhi. Delhi. Phase- Phase-II, New Delhi - 110 020. PAN : AAACN1574Q. (Appellant) (Respondent)

Cross Objection No.192/Del/2013 No.192/Del/2013 Assessment Year : 2004- 2004-05

M/s Nestor Pharmaceuticals Vs. Deputy Commissioner of Pvt.Ltd., Income Tax, B-24/3, Okhla Industrial Area, Central circle- circle-13, Room No.406, Phase- Phase-II, C.R. Building, I.P. Estate, New Delhi - 110 020. New Delhi. PAN : AAACN1574Q. (Appellant) (Respondent)

Revenue by : Shri P. Dam Kanunjha, Sr.DR. Assessee by : Shri Amit Goel, FCA.

Date of hearing : 16.03.2015 Date of pronouncement : 01.04.2015

ORDER

PER G.C. GUPTA, GUPTA, VP :

The appeal by the Revenue and the cross-objection by the assessee for the assessment year 2004-05 are directed against the order of learned CIT(A)-XVI, New Delhi dated 26th February, 2013. These are being disposed of with this consolidated order.

2 ITA-3133/D/2013 & C.O.-192/D/2013

ITA No.3133/Del/2013 - Revenue's appeal :- :-

2. The grounds of appeal of the Revenue are as under:-

"1. The ld.CIT(A) has erred in law and on facts in deleting the addition made on account of 'liquidated damages' of Rs.46,29,219/-.

2. The ld.CIT(A) has erred in law and on facts in not appreciating the provision laid down in explanation to Sec. 37(1) which clearly states that any amount paid for the purpose which is an offence or prohibited by any law shall not be allowed as expenditure incurred for business purpose.

3. The ld.CIT(A) has erred in law and facts in not appreciating the fact that any compensation paid by the person for breach or non-fulfillment of contract is a penalty itself within the purview of Contract Act viz-a- viz Income Tax Act."

3. Learned DR submitted that there was a violation of the terms of contract for supply of goods on the part of the assessee and therefore, the Explanation to Section 37(1) clearly applies to the case of the assessee. He submitted that compensation paid by the assessee for breach or non-fulfillment of the contract is in itself a penalty and therefore, not allowed as per the scheme of the Act. He relied on the order of the Assessing Officer.

4. Learned counsel for the assessee has opposed the submissions of the learned DR. He submitted that similar payments made by the assessee for liquidated damages were allowed by the Assessing Officer throughout the preceding assessment years. He submitted that the liquidated damages are not in the nature of expenses mentioned in Explanation to Section 37(1) of the Income-tax Act, 1961. He relied on the order of learned CIT(A).

3 ITA-3133/D/2013 & C.O.-192/D/2013

5. We have considered the rival submissions and perused the order of the Assessing Officer and the learned CIT(A). We find that the basic facts of the case are not in dispute. The disallowance was made on account of liquidated damages. These were due to numerous deductions and forfeitures made by different purchasers of pharmaceutical goods on account of failure of the assessee company to deliver all or any of the goods or to perform specified terms and conditions within the specified period in the contract. We find that these liquidated damages made by the assessee were in the normal course of business and were incidental to carrying on of the business by the assessee. The Revenue could not show a single item of liquidated damages which may have been incurred by the assessee in violation of the public policy or in the form of some illegal payment made by the assessee. In fact, the damages paid to the purchaser for failure of the assessee to deliver within the specified time and as per the specified terms and conditions of the contract were compensation for failure to complete specific terms of the contract and were very much incidental to the business and allowable as a deduction. Learned CIT(A) has referred to various judicial pronouncements on this issue. He has also referred to the earlier assessment year 2003-04 and subsequent assessment year 2008-09 wherein similar expenses were allowed as a deduction. In these facts, we hold that there is no mistake in the order of learned CIT(A) in allowing the deduction of liquidated damages and, accordingly, the order of learned CIT(A) on this issue is confirmed and grounds of appeal of the Revenue are dismissed.

Assessee's cross-

cross-objection No.192/Del/2013 :-

:-

6. The only ground raised by the assessee in its cross-objection is as under:-

4 ITA-3133/D/2013 & C.O.-192/D/2013

"On the facts and circumstances of case and in law, the Commissioner of Income Tax (Appeal) erred in not holding that notice u/s 148 issued in this case was illegal, void, without jurisdiction and barred by limitation and accordingly assessment order passed on the foundation of such notice was liable to be quashed."

7. The learned counsel for the assessee has not pressed this ground of the cross-objection and, accordingly, the same is dismissed.

8. In the result, the appeal of the Revenue and the cross-objection of the assessee are dismissed.

Decision pronounced in the open Court on 1st April, 2015.

Sd/- Sd/- (T.S. KAPOOR) KAPOOR) (G.C. (G.C. GUPTA) GUPTA) ACCOUNTANT MEMBER VICE PRESIDENT

VK.

Copy forwarded to: -

1. Revenue : Deputy Commissioner of Income Tax, Circle- Circle-13(1), New Delhi.

2. Assessee : M/s Nestor Pharmaceuticals Pvt.Ltd., B-24/3, Okhla Industrial Area, Phase- Phase-II, New Delhi - 110 020. 3. CIT 4. CIT(A) 5. DR, ITAT

Assistant Registrar