DCIT, Circle-6(1),, v. Mitsui Babcock Energy (India) Pvt. Ltd.,,

ITA 4126/DEL/2005 | 2002-2003
Pronouncement Date: 22-01-2010 | Result: Dismissed

Appeal Details

RSA Number 412620114 RSA 2005
Bench Delhi
Appeal Number ITA 4126/DEL/2005
Duration Of Justice 4 year(s) 2 month(s) 29 day(s)
Appellant DCIT, Circle-6(1),,
Respondent Mitsui Babcock Energy (India) Pvt. Ltd.,,
Appeal Type Income Tax Appeal
Pronouncement Date 22-01-2010
Appeal Filed By Department
Order Result Dismissed
Bench Allotted I
Tribunal Order Date 22-01-2010
Date Of Final Hearing 02-12-2009
Next Hearing Date 02-12-2009
Assessment Year 2002-2003
Appeal Filed On 24-10-2005
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH : I NEW DELHI BEFORE SHRI RAJPAL YADAV JUDICIAL MEMBER AND SHRI K.G. BANSAL ACCOUNTANT MEMBER I.T.A. NO. 4126/DEL./05 ASSESSMENT YEAR 2003-04 DY. COMMISSIONER OF INCOME TAX CIRCLE-6 (1) NEW DELHI VS. MITSUI BABCOCK ENERGY (INDIA) PVT. LTD. 2 ND FLOOR ALSA TOWERS 86-187 POONAMALEE HIGH ROAD KILPAUK CHENNAI-600010. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI M.MOHSIN ALAM DR RESPONDENT BY : SHRI S.K. AGARWAL CA ORDER PER RAJPAL YADAV JUDICIAL MEMBER THE REVENUE IS IN APPEAL BEFORE US AGAINST THE ORDE R OF LD. CIT (A) DATED 21 ST JULY 2005 PASSED FOR ASSTT. YEAR 2002-03. THE GRO UND NO. 1 & 2 ARE INTERCONNECTED TO EACH OTHER. IN THESE GROUNDS OF A PPEAL REVENUE HAS PLEADED THAT LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 77 30 000/- AND RS. 66 42 424/- ADDED BY THE AO BY MAKING A DISALLOWANC E OF THE ASSESSEES CLAIM OF LOSS ON DAMAGED SPARES DURING THE YEAR. 2. THE BRIEF FACTS OF THE CASE ARE THAT ASSESSEE IS A PRIVATE LTD. COMPANY INCORPORATED ON 25 TH MAY 1996 UNDER THE COMPANIES ACT 1956 TO CARRY O N THE BUSINESS OF SERVICING AND MAINTENANCE OF POWER PLAN T MACHINERY AND STUDY OF THE EXISTING POWER PLANTS THEIR RENOVATION RE SER VICEMENT MODERNISATION AND TO PROVIDE AFTER SALES SERVICES TO OTHER POWER PLANTS ETC. IT HAS FILED ITS RETURN OF ITA NO.4126/DEL/05 ASSTT. YEAR 2002-03 2 INCOME ON 31 ST OCTOBER 2002 DECLARING A LOSS OF RS. 5 35 61 692 /-. THE ASSESSEE HAD CLAIMED A LOSS OF RS. 1 42 45 000/- ON ACCOUNT OF LOSS INCURRED ON SALE OF SPARES. IN SUPPORT OF ITS CLAIM IT WAS CO NTENDED BY THE ASSESSEE THAT IT HAD BOOKED AN ORDER FROM NTPC RIHAND FOR SUPPLY OF TWO SETS OF GRINDING RINGS AND BALLS AS SPARE JOBS. THE ORDER VALUE IS OF RS. 155 LACS AND TOTAL ESTIMATED COST FOR THIS JOB WAS RS. 131 LACS. IN F.Y 2000-01 THE ASSESSEE HAD SUPPLIED ONE SET OF GRINDING RINGS AND BALLS FOR WHICH IT HAD BO OKED TURN OVER OF RS. 77.30 LACS. IN F.Y. 2001-02 THE ASSESSEE HAD SUPPLIED THE SECON D SET OF GRINDING RINGS AND BALLS. BOTH THE SETS GOT DAMAGED/BROKEN AND THE COM PANY HAS TO REPAY NTPC RS. 77.52 LACS FOR THE SET ALREADY SUPPLIED AND FOR WHICH PAYMENT WAS ALSO REALISED. THE TOTAL COST OF SECOND SET WAS RS. 65.1 5 LACS WAS BOOKED AS LOSS THEREFORE A TOTAL LOSS OF RS. 142 LACS (77.52 + 66. 15) WAS BOOKED IN THE YEAR 2002-03 THE LD. AO DID NOT MAKE MUCH DISCUSSION ON THE ISSUE BUT HE OBSERVED THAT LOSS OF RS. 77.30 LACS PERTAINS TO F.Y. 2001- 02 AND NOT FOR THIS ASSTT. YEAR. WITH REGARD TO THE SECOND SET HE OBSERVED THAT ASSE SSEE HAS NOT BROUGHT ON RECORD AGREEMENT BETWEEN ITSELF AND ITS HOLDING CO MPANY I.E. M/S MITSUI BABCOCK ENERGY LTD. UK. WITHOUT REFERRING AN Y CIRCUMSTANCE THE AO HARBORED A BELIEF THAT A HOLDING COMPANY MAY REIMBU RSE THE LOSS. IN THIS WAY HE DISALLOWED THE CLAIM OF ASSESSEE AND MADE AN ADDITI ON OF RS. 1 42 45 000/-. 3. DISSATISFIED WITH THE ACTION OF THE AO ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LD. CIT(A). IT CONTENDED THAT FIR ST SET BROKE UP IN JULY 2001 I.E. THE ACCOUNTING PERIOD RELEVANT TO THIS ASSTT. YEAR. WITH REGARD TO THE SECOND SET IT WAS CONTENDED BY THE ASSESSEE THAT NO AGREEMENT HAS BEEN ENTERED INTO WITH ITA NO.4126/DEL/05 ASSTT. YEAR 2002-03 3 THE HOLDING COMPANY FOR SUPPLY OF SUCH GRINDING RIN G. THE HOLDING COMPANY IS NOT THE SUPPLIER OF ENGINEERING COMPONENTS TO THE ASSES SEE. THE ASSESSEE FURTHER CONTENDED THAT ALL THE TRANSACTIONS BETWEEN RELATED PARTIES ARE DOCUMENTED IN FORM 3CEB FILED WITH THE CORPORATE TAX RETURN. NO R EFERENCE IS MADE OF ANY SUCH AGREEMENT IN FORM 3CEB. THE ASSESSEE ALSO REFERRED THE TPO ORDER DATED 25 TH FEBRUARY 2005 WHEREIN THE RELATED PARTY TRANSACTIO N WAS EXAMINED BY THE TPO. THE TPO ACCEPTED THE TRANSFER PRICING ADOPTED BY TH E ASSESSEE IN RESPECT OF ITS INTERNATIONAL TRANSACTIONS. LD. CIT (A) HAS CONSIDE RED THE CONTENTION OF ASSESSEE AND ARRIVED AT A CONCLUSION THAT BOTH THESE SETS OF GRINDING RINGS DID NOT WORK PROPERLY. IT HAS TO REPAY THE AMOUNT COLLECTED FROM NTPC FOR THE FIRST SET AND FOR THE SECOND SET IT WAS UNABLE TO COLLECT ANY AMOUNT. HENCE CLAIMED THESE AMOUNTS AS LOSS. 4. WITH THE ASSISTANCE OF LD. REPRESENTATIVE WE HAV E GONE THROUGH THE RECORD CAREFULLY. LD. COUNSEL FOR THE ASSESSEE AT T HE TIME OF HEARING DREW OUR ATTENTION TOWARDS PAGES NO. 37 45-48 55-58 WHEREIN IT HAS PLACED ON RECORD THE EVIDENCE INDICATING THE FACT THAT BOTH THE GRINDING RINGS WERE GOT MANUFACTURED FROM MUKAND LIMITED. THERE IS NO ROLE OF THE HOLDIN G COMPANY IN FINALISING THIS ORDER. THE GRINDING RINGS DID NOT WORK PROPERLY. LD . COUNSEL FOR THE ASSESSEE ALSO BROUGHT TO OUR NOTICE THE LETTER OF NTPC WHERE IN THEY HAVE DEMANDED THE REFUND OF RS. 77 LACS. THE COPY OF THE LETTER DATED 19.11.2001 IS PLACED AT PAGE NO. 60. WHEREBY IT WAS INFORMED TO THE ASSESSEE THA T ITS GRINDING RINGS ARE NOT FUNCTIONING AND THEY HAVE BROKEN. TAKING INTO CONSI DERATION THE ABOVE MATERIAL WE ARE OF THE OPINION THAT BOTH THESE GRINDING RING S BROKE DOWN DURING THE ITA NO.4126/DEL/05 ASSTT. YEAR 2002-03 4 ACCOUNTING PERIOD RELEVANT TO THIS ASSTT. YEAR AND IT IS THE LOSS PERTAINS TO THIS ASSTT. YEAR ONLY. LD. CIT(A) HAS APPRECIATED THE FA CTS AND CIRCUMSTANCES IN RIGHT PERSPECTIVE AND WE DO NOT SEE ANY REASON TO INTERFE RE IN THE ORDER OF THE LD. CIT(A). 5. IN GROUND NO. 3 THE GRIEVANCE OF THE REVENUE IS THAT LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 42 59 675/- AND RS. 24 15 387/-. THE BRIEF FACTS OF THE CASE ARE THAT ASSESSEE HAD ENTERED INTO AN AGRE EMENT WITH GAYATRI SUGAR COMPLEX LTD. (HEREIN AFTER REFERRED TO GSCL) ON 1 ST OCTOBER 1999 FOR THE SUPPLY OF 130 TPH STEAM GENERATOR AND AUXILIARY. SUBSEQUEN T TO THE COMMENCEMENT OF WORK GSCL DELAYED IN MEETING ITS COMMITMENT TO T HE ASSESSEE UNDER THE CONTRACT BY DELAYING PAYMENT. THEREFORE BOTH THE CO NCERNS AGREED FOR TERMINATION OF CONTRACT. THIS AGREEMENT FOR TERMIN ATION OF CONTRACT WAS ARRIVED ON 20 TH FEBRUARY 2002. THE ASSESSEE BY THAT TIME HAD ALRE ADY PLACED ORDERS FOR SUPPLY OF MAIN DRAUGHT FANSWITH ANDREW YULE & CO. L TD. WHICH IS A GOVT. ENTERPRISES. IT HAS MADE ADVANCE PAYMENT OF RS. 2 5 7 000/- AND ALSO MADE PAYMENT OF RS. 2 LACS ON 28 TH SEPTEMBER 2000 TOWARDS READINESS OF MATERIAL. THE ASSESSEE HAS PLACED AN ORDER WITH M/S. BOSMIT F OR ROTOGRATE TWIN STOKER FOR RS. 35 LACS PLUS PACKING AND FORWARDING CHARGES . TO SECURE THE ORDER ASSESSEE HAD MADE ADVANCE PAYMENT OF RS. 1 70 000/- ON 25.2.2000. THEREAFTER IT MADE PAYMENTS ON DIFFERENT DATES AND THE TOTAL ADVANCE WAS GIVEN TO THIS PARTY IS OF RS. 15 32 500/-. SINCE THE ASSE SSEE HAS TERMINATED THE CONTRACT WITH GSCL IT HAS WRITTEN OFF THE ADVANCES GIVEN AND IT HAS CLAIMED THE LOSS REPRESENTING THE VALUE OF WORK IN PROGRESS. TH E AO ON MISCONSTRUCTION OF ITA NO.4126/DEL/05 ASSTT. YEAR 2002-03 5 THE TERMINATION AGREEMENT ARRIVED AT A CONCLUSION T HAT ASSESSEE WOULD NOT SUFFER ANY LOSS IN THIS CONTRACT AND DISALLOWED THE CLAIM OF ASSESSEE. BEFORE LD. CIT(A) ASSESSEE HAS CLARIFIED ITS POSITION AND EXPLAINED T HE DIFFERENT CLAUSES OF THE TERMINATION AGREEMENT. IT WAS ALSO CONTENDED THAT A SSESSEE HAS WRITTEN OFF BAD DEBT AMOUNTING TO RS. 2 38 18 045/-. THE AO HAS DIS ALLOWED THE AMOUNT IN RESPECT OF BAD DEBT RETURN OF RELATING TO GSCL ONLY . THIS DISALLOWANCE IS MADE ON THE BASIS OF MIS INTERPRETATION OF THE AGREEMENT BE TWEEN THE ASSESSEE AND THE GSCL. THE LD. FIRST APPELLATE AUTHORITY HAS CONSIDE RED THE ISSUE AND ARRIVED AT A CONCLUSION THAT TERMINATION AGREEMENT WITH GSCL W AS DUE TO BUSINESS AND COMMERCIAL REASON. NONE OF THE CLAUSE OF THE TERMIN ATION AGREEMENT LEAD TO THE CONCLUSION THAT THERE SHALL BE NO LOSS ON THIS PROJ ECT TO THE ASSESSEE. THIS TERMINATION AGREEMENT WAS RATHER BENEFICIAL TO THE ASSESSEE WHICH ENABLE IT TO AVOID FURTHER PROBABLE LOSSES ON THIS PROJECT. 6. WITH THE ASSISTANCE OF LD. REPRESENTATIVE WE HAV E GONE THROUGH THE TERMINATION AGREEMENT AVAILABLE AT PAGE 7 & 8 OF TH E PAPER BOOK. WE HAVE ALSO GONE THROUGH THE EXPLANATION OF THE ASSESSEE WITH R EGARD TO THE ABOVE CLAUSES REPRODUCED BY THE LD. CIT (A) ON PAGE 9 11 AFTER GOING THROUGH THESE CLAUSES AND EXPLANATION OF THE ASSESSEE WE ARE OF THE OPINI ON THAT LD. AO HAS FAILED TO CONSTRUE THESE CLAUSES PROPERLY. IT IS POINTED OUT BY THE LD. COUNSEL FOR THE ASSESSEE THAT NONE OF THE CLAUSES REFERRED BY THE A O FROM THE TERMINATION AGREEMENT LEAD TO THE CONCLUSION THAT THERE SHALL B E NO LOSS IN THE GSCL PROJECT TO THE ASSESSEE. THIS CONTRACT NOWHERE STATES THAT GSCL WILL PAY AL THE DUES PAYABLE BY THE ASSESSEE OR WILL REIMBURSE ANY EXPEN DITURE ON WORK IN PROGRESS ITA NO.4126/DEL/05 ASSTT. YEAR 2002-03 6 AS ON THE DATE OF THE TERMINATION OF THE CONTRACT T O THE APPELLANT. THE ASSESSEE HAS ALREADY INCURRED EXPENSES BY MAKING PAYMENT TO ANDREW YULE & CO. AND M/S. BOSMIT FOR ROTOGRATE TWIN STOKER. TAKING INTO CONSIDERATION THE CONTENTIONS OF THE ASSESSEE AND THE FINDING OF THE LD. FIRST AP PELLATE AUTHORITY WE ARE OF THE VIEW THAT LD. CIT(A) HAS APPRECIATED THE FACTS AND CIRCUMSTANCES IN RIGHT PERSPECTIVE. THE AO WHILE MAKING DISALLOWANCE IN RE SPECT OF GSCL CONTRACT HAS NOT MADE MUCH DISCUSSION. HE ONLY REFERRED CLAUSES OF TERMINATION AGREEMENT AND DID NOT POINT OUT HOW HE CONSTRUED THAT LOSSES WERE TO BE BORNE BY GSCL ON TERMINATION OF THE AGREEMENT. WE DO NOT FIND ANY ER ROR IN THE ORDER OF THE LD. CIT (A). THIS GROUND OF APPEAL IS ALSO REJECTED. 7. IN THE RESULT APPEAL OF THE REVENUE IS DISMISSED . ORDER PRONOUNCED IN THE OPEN COURT ON 22.1.2010. [K.G. BANSAL] [RAJPAL YADAV] ACCOUNTANT MEMBER JUDICIAL MEMBER VEENA DATED : COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ITAT TRUE COPY BY ORDER D EPUTY REGISTRAR ITAT