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 M/s A Daga Royal Arts vs. ITO (ITAT Jaipur)
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August, 16th 2014
%                                                DECIDED ON: 02.07.2014
+                                  ITA 83/2014
       COMMISSIONER OF INCOME TAX                       ..... Appellant
                   Through: Mr. Sanjeev Sabharwal, Sr. Standing
                   Counsel with Mr. Ruchir Bhatia, Jr. Standing


       GLOBAL ASSOCIATES                                    ..... Respondent
                    Through: None.


       1.    The office report indicates that the respondent/assessee was
       served on 22.05.2014. There is no appearance on their behalf. The
       Court accordingly proceeds to set them down ex parte.
       2.    The following substantial question of law arises for
       consideration: -
             Did the Tribunal fall into error in directing the deletion of
             penalty imposed upon the assessee on the ground that it had
             filed inaccurate particulars and was, therefore, liable under
             Section 271 (1) (c) of the Income Tax Act.

       3.    The assessee filed its return for the AY 2008-09. In a scrutiny
       assessment, the AO, inter alia was of the opinion that part of the

ITA83/2014                                                            Page 1
     allowance for liquidated damages claimed in terms of clause 14 (c) of
     the assessee's contract with an oversees purchaser, i.e., Golden World
     Enterprises Limited for supply of iron ore fines, had to be disallowed.
     The assessee's appeals were unsuccessful. In the return filed by the
     assessee, an allowance was made for liquidated damages under clause
     14 (c) which reads as follows: -
             "C. Undelivered quantity for purposes of sub clause B above,
             would mean-

             Total quantity of the commodity agreed to be delivered under
             clause 2 above (i.e. 285,000 Mt) as reduced by the total actual
             quantity of the commodity delivered by the seller."

     4.      The assessee had debited `17,24,24,025/- towards liquidated
     damages and was asked to substantiate that figure. In reply, the
     assessee claimed that during the relevant previous year it had incurred
     expenses on liquidated damages which had to be charged in profit and
     loss account and in this regard contended as follows: -
             "The assessee entered into a contract with Golden World
             Enterprise Limited, Hong Kong ("Buyer"), to supply a total
             quantity of 2,85,000 WMT ± 10%, during the year 2007-08. It
             was agreed that individual contracts will be made for each
             shipment to ensure the supply is made on mutually agreed rates
             for each shipment. It was also provided in the agreement that
             should the assessee fail to comply with the terms of this clause
             (supply of the agreed quantity), the buyer, without prejudice to
             other remedies available to the buyer shall be entitled to
             recover, Liquidated Damages for breach of contract, computed
             in the manner provided in the agreement. The copy of the
             agreement is annexed herewith."

     5.      After considering the submissions, the AO observed that the

ITA83/2014                                                             Page 2
     computation of liquidated damages by the assessee was done on
     taking the basis of the agreed quantity to be 3 lakh MT as against the
     actual agreed quantity of 2,85,000 MT, i.e., an excess of 15,000 MT.
     This was plainly contrary to the agreement itself.            The AO,
     accordingly, disallowed `1,30,53,263/- and proceeded to issue notice
     under Section 271 and imposed penalty in that regard. The penalty
     order was made on 28.06.2011. The CIT rejected the assessee's
     contentions that the excess deduction was due to oversight and held
     that the explanation was not bona fide. In this regard, the CIT (A)
     found that the addition for penalty made by the AO disclosed that the
     assessee had taken the minimum quantity to be supplied at 3 lakhs
     MT.     Apart from the explanation of oversight, the assessee did
     nothing to dispel the view that the figure of 3 lakhs MT as a
     contractual quantity was nowhere reflected in any document. The
     ITAT upon the assessee's appeal to it directed deletion of the penalty.
     The Tribunal was persuaded to accept that the claim of the assessee
     was based on an inadvertent computation mistake through oversight.
     6.      We have gone through the records.        To say the least, the
     Tribunal's reasoning which accepts the assessee's contentions with a
     further rationale that it could have committed a silly mistake, is
     unsustainable. There was no material on the record to support the
     assessee's return which claimed an allowance on the basis that the
     total quantity to be supplied was 3 lakh MT. The first explanation,
     i.e. that the said figure included the moisture content, is not borne out
     from the record; it also does not appear to be a part of any condition
     agreed to between the parties. The Commissioner who had occasion

ITA83/2014                                                             Page 3
     to go into this aspect, found it to be untrue. On the basis of these facts,
     we find no infirmity with the conclusion of the AO and subsequently
     the Commissioner that the claim for liquidated damages on the basis
     that 3 lakhs MT were to be supplied, amounted to furnishing
     inaccurate particulars.    The explanation given by the respondent
     assessee cannot by any stretch of imagination be termed as bona fide
     so as to escape the mischief of Section 271 (1) (c) of the Act. As a
     result, the impugned order is hereby set aside. The question of law is
     answered in favour of the Revenue and against the assessee. The
     appeal is accordingly allowed.

                                                   S. RAVINDRA BHAT

                                                    VIBHU BAKHRU
     JULY 02, 2014

ITA83/2014                                                               Page 4
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