The order of the Bench was delivered by
This appeal by the Revenue is directed against the order of the Ld. Commissioner of Income Tax (Appeals)-XXVIII, New Delhi dated 07.9.2011 pertaining to assessment year 2007-08 on the following grounds:-
1. The Ld. CIT(A) has erred in deleting the addition made by AO of Rs. 46,37,887/- on account of arbitration award received from DDA by the assessee as escalation damage and interest on such damages holding the same as capital receipt since the award was received on account of escalation and delays in completing the project and not for loss of profit making apparatus as seen from the arbitration award. It is also in disregard to the provision of section 28(va) of the I.T. Act, 1961.
2. The Ld. CIT(A) has erred in deleting the addition made by the AO of Rs. 77,73,520/- on account of arbitration award received from DDA by the assessee for construction 416 houses at Alaknanda and since the said award was credited in the books of account of the assessee and the award was also confirmed by single bench of Hon’ble Delhi High Court.
3. The appellant craves to add, amend or modify the grounds of appeal at any time.
2. At the time of hearing, Ld. Sr. DR filed an adjournment Application dated 28.3.2017 stating therein that “the grounds of appeal need be revised to raise additional ground”. But the Ld. Counsel of the Assessee strongly objected the adjournment Application of the Ld. Sr. DR and stated that the Revenue has filed the present Appeal in 2011 and has not filed any additional ground till date. He further stated that even the AO has not requested the Ld. DR to file any additional ground. Therefore, Ld. Counsel of the assessee stated that the request of the Ld. Sr. DR is not tenable and needs to be rejected. He further stated that the issue in dispute has already been decided by the ITAT in favour of the assessee in assessee’s own case for the assessment year 2003-04. Therefore, Ld. Counsel of the assessee requested that the appeal of the Revenue may be dismissed.
3. We have heard both the parties and perused the relevant records, we find force in the assessee’s counsel contention that the Revenue has filed the present Appeal in 2011 and has not filed any additional ground till date. We further note that even the AO has not requested the Ld. DR to file any additional ground, hence, the request for adjournment on the reasons mentioned in the Application dated 28.3.2017 is hereby rejected and we proceed to decide this Appeal on merits, after hearing both the parties.
4. The brief facts of the case are that return of income in this case was filed on 22.10.2007 declaring income at Rs. 15,13,330/-. The return of income was processed u/s. 143(1) of the I.T. Act, 1961 on the same income. Subsequently, the case was selected for scrutiny under CASS. First notice u/s. 143(2) was issued on 18.7.2008 and again notices u/s. 142(1) and 143(2) alongwith detailed questionnaire were issued to the assessee. In response thereto, the Assessee’s AR attended the assessment proceedings from time to time and relevant information were filed. During the year under consideration the assessee has received arbitration awards from DDA in respect of work done by it in the earlier years and it was observed thereon that in the return of income the assessee firm has shown contract receipt at Rs. 29,53,349/- as against receipt of Rs. 75,91,236/-. Thus the assessee has shown less contract receipt by Rs. 46,37,887/- (Rs. 75,91,236/- = Rs. 29,53,349/-). During the course of assessment proceedings the assessee was asked to explain the reasons for not showing contract receipts of Rs. 46,37,887/-. Accordingly, the AO assessed the income of the Assessee at Rs. 1,39,20,740/- and made the additions of Rs. 46,33,887/- & Rs. 77,73,520/- on account of damages and interest received from DDA vide his order dated 29.12.2009 passed u/s.143(3) of the I.T. Act, 1961. Aggrieved with the addition, assessee filed the appeal before the Ld. CIT(A) who vide his impugned order dated 07.9.2016 deleted the additions by allowing the appeal of the assessee.
5. Aggrieved with the impugned order of the Ld. CIT(A), the Revenue is in appeal before the Tribunal.
6. Ld. DR relied upon the order of the AO and reiterated the contentions raised in the grounds of appeal.
7. We have heard both the parties and perused the relevant records, especially the order of the Ld. CTI(A). We find that Ld. First Appellate Authority has elaborately discussed and adjudicated the issue No. 1 vide para no. 6 at page no. 7 to 8 of the impugned order and issue no. 2 vide para no. 9 & 10 at page no. 13 to 15 of the impugned order by considering the submissions of the Ld. Counsel of the assessee. The relevant findings of the Ld. CIT(A) are reproduced as under:-
“ 6. I have gone through the order of the Assessing Officer and written submission of the appellant. In the year under consideration, appellant received arbitration awards from DDA in respect of construction of houses, at Rohini, Motia Khan and Vasant Kunj for earlier years. The only receipt on which assessment was completed was receipt of award during the year and there was no other income. Appellant was out of the contract business due to the dispute with DDA, therefore, damages so received were for loss of business and not merely loss of profit, same was capital in nature. The business of appellant was totally paralyzed. The nature of dispute under consideration is similar to dispute in AY 2003-04. Relevant extract of order of Delhi ITAT in appellant's own case for Asstt. Year 2003-04 is reproduced as under:
GROUND NO. 1
“There is s no dispute to the well settled legal proposition that damages received on loss of sources of income amounts to capital receipt. Hon’ble Supreme Court "in the case of Oberoi Hotels-236 ITR 903 held that amount received on loss of source of income is a capital receipt. The damages so received were not on 'account: of any work done or likely to be done, but for loss of income earning apparatus. Damages were for injury inflicted on income earning apparatus of assessee. Hon'ble Supreme Court in the case of P. H. Divecha & Anr. Vs CIT - 48 ITR 222 held that compensation received on termination of agency was capital receipt not taxable as revenue receipt. Hon'ble Madras High Court in the case of CIT vs. T. 1. & M. Sales Ltd, 259 ITR 116 held that compensation for impairment of profit making apparatus was capital receipt. It was also observed by Hon'ble Supreme Court in the case of reported at 236 ITR 903 that compensation received for the destruction or sterilization of capital asset were nothing but capital receipt. In the instant case also, after the dispute with DDA, assessee was out of said contract and the business of the assessee was totally paralyzed, which amounts to loss of source of income, therefore the amount received only towards damages was capital in nature. In the year under consideration the issue in dispute is the same. There was no business activity during the year and the only receipt was from DDA towards damages which is capital in nature and therefore, not taxable. Following the judgement of Delhi ITAT in the appellant's own case for the asstt.year 2003-04, I delete the addition of Rs. 46,37,887/- made by the Assessing Officer who treated the-same as revenue receipt.”
GROUND NO. 2
9. The CIT(A) in the case of appellant in the assessment year 2003-04 has held that interest received during the year was not liable to tax in the year of receipt, but is required to be spread over the period / respective years to which such interest pertains and this finding hold good in the year under consideration also. The order of the CIT(A) has attained finality as this was not challenged by the revenue in its appeal for the relevant Asstt. Year before Delhi ITAT. In view of this finding the Assessing Officer is directed to apportion the interest component for different Asstt. Years and tax it accordingly.
As far as the disputed award of Rs. 77,73,520/-- is concerned, it was awarded by the arbitrator and the award was presented before the single bench of Delhi High Court for making it Rule of Court. It was decided in favour of the appellant. However, DDA preferred to challenge this payment before the Double Bench of Delhi High Court. During the course of assessment proceedings ,the appellant had brought this fact to the knowledge of the Assessing Officer. As per the copy of order of justice H.R. Malhotra, Delhi High Court it was held that"....... Since there is no stay against the execution of the decree let this amount be paid to the decree holder subject to furnishing an affidavit to the effect that in case the judgement debtor succeeds in the appeal, this amount shall be refunded to the judgement debtor within one week after the decision of the appeal".
The appellant has shown the amount of Rs. 77,73,520/- as liability in its balance sheet. It has been stated that when this matter will be decided by the same amount shall be shown in the P&L account or would be refunded to DDA as per the direction of the Court.
The appellant has placed reliance on the following judgements:
In the case of COMMISSIONER OF WEALTH-TAX/INCOME-TAX VS. SMT. T. GIRIJA AMMAL [2006] 154 TAXMAN 211 (MAD.) it has been held that "..... during pendency of said appeal, Assessing Officer brought to tax interest on additional compensation in each of relevant assessment years on accrual basis - Whether additional compensation received could not be treated as part of compensation received for transfer of land until it was finally determined by High Court or Supreme Court and if appeal of State Government against enhanced compensation received by assessee was allowed, assessee was bound to refund amount and, hence, same could not be assessed before reaching finality".
In the case of CIT V. Sarvartra Road Runners Pvt. Ltd. 301 ITR 443(Del.) it is held that amount withdrawn by assessee pending appeal against arbitration awards from deposits made in court following interim order of court could not be treated as income accrued to the assessee.
In the case of CIT v. Bhoop Ram Dagar HUF (2008) 173 Taxman 8 (P&H) High Court, it has been held that interest on enhanced compensation cannot be taxable till the issue relating to it attains finality as the same would accrue to assessee at that time only.
Further in the case of CIT v. Karanbir Singh (2008) 169 Taxman 85 (P&H) High Court, it was held that revenue was not entitle to tax amount of interest received by the assessee till such time proceedings in reference to compensation attain finality.
In the case of Commissioner of Wealth Tax v. Girija Ammal (2006) 154 Taxman 211 (Mad.) it was held that additional compensation received could not be treated as part of compensation received for transfer of land until it was finally determined by High Court or Supreme Court and 'if the appeal of State Govt. against enhanced compensation received by assessee was allowed, assessee was bound to refund amount and, hence, same could not be assessed before reaching finality.
10. In view of the facts and findings of the case and the legal proposition relied upon by the appellant, the issue relating to damages and interest of Rs. 77,73,520/ - being still subjudice cannot be brought to tax in the year under consideration. The finding of the Assessing Officer in this respect that if the assessee fails in appeal by the judgement of Hon'ble High Court then the same will be deducted from its income is not justified. After considering the relevant facts of case and in view of the legal proposition cited in cases relied upon by the appellant, I delete the addition of Rs. 77,73,520/ -. Once the order of award attains finality, the same shall be taken into consideration in the year of the judgement.”
7.1 On going through the aforesaid finding of the Ld. CIT(A), with regard to ground no. 1 relating addition of Rs. 46,37,887/- is concerned, we find that in the year under consideration, assessee received arbitration awards from DDA in respect of construction of houses, at Rohini, Motia Khan and Vasant Kunj for earlier years. The only receipt on which assessment was completed was receipt of award during the year and there was no other income. Assessee was out of the contract business due to the dispute with DDA, therefore, damages so received were for loss of business and not merely loss of profit, same was capital in nature. The business of assessee was totally paralyzed. The nature of dispute under consideration is similar to dispute in AY 2003-04. Relevant extract of order of Delhi ITAT in assessee's own case for Asstt. Year 2003-04 is reproduced as under:
“There is s no dispute to the well settled legal proposition that damages received on loss of sources of income amounts to capital receipt. Hon’ble Supreme Court "in the case of Oberoi Hotels-236 ITR 903 held that amount received on loss of source of income is a capital receipt. The damages so received were not on 'account: of any work done or likely to be done, but for loss of income earning apparatus. Damages were for injury inflicted on income earning apparatus of assessee. Hon'ble Supreme Court in the case of P. H. Divecha & Anr. Vs CIT - 48 ITR 222 held that compensation received on termination of agency was capital receipt not taxable as revenue receipt. Hon'ble Madras High Court in the case of CIT vs. T. 1. & M. Sales Ltd, 259 ITR 116 held that compensation for impairment of profit making apparatus was capital receipt. It was also observed by Hon'ble Supreme Court in the case of reported at 236 ITR 903 that compensation received for the destruction or sterilization of capital asset were nothing but capital receipt. In the instant case also, after the dispute with DDA, assessee was out of said contract and the business of the assessee was totally paralyzed, which amounts to loss of source of income, therefore the amount received only towards damages was capital in nature. In the year under consideration the issue in dispute is the same. There was no business activity during the year and the only receipt was from DDA towards damages which is capital in nature and therefore, not taxable.
7.2 We further find that Ld. CIT(A) by following the decision of Delhi ITAT in the assessee's own case for the asstt.year 2003-04, rightly deleted the addition of Rs. 46,37,887/- made by the Assessing Officer who treated the-same as revenue receipt, which does not need any interference on our part, hence, we uphold the action of the Ld. CIT(A) on the issue in dispute and dismiss the ground no. 1 raised by the Revenue.
7.3 On going through the aforesaid finding of the Ld. CIT(A), with regard to ground no. 2 relating addition of Rs. 77,73,520/- is concerned, we find that in the case of assessee in the assessment year 2003-04 the Ld. CIT(A) has held that interest received during the year was not liable to tax in the year of receipt, but is required to be spread over the period / respective years to which such interest pertains and this finding hold good in the year under consideration also. The order of the CIT(A) has attained finality as this was not challenged by the revenue in its appeal for the relevant Asstt. Year before Delhi ITAT. In view of this finding the Assessing Officer was directed to apportion the interest component for different Asstt. Years and tax it accordingly.
7.4 We further find that as far as the disputed award of Rs. 77,73,520/-- is concerned, it was awarded by the arbitrator and the award was presented before the single bench of Delhi High Court for making it Rule of Court. It was decided in favour of the appellant. However, DDA preferred to challenge this payment before the Double Bench of Delhi High Court. During the course of assessment proceedings ,the appellant had brought this fact to the knowledge of the Assessing Officer. As per the copy of order of justice H.R. Malhotra, Delhi High Court it was held that"....... Since there is no stay against the execution of the decree let this amount be paid to the decree holder subject to furnishing an affidavit to the effect that in case the judgement debtor succeeds in the appeal, this amount shall be refunded to the judgement debtor within one week after the decision of the appeal.
7.5 The assessee has shown the amount of Rs. 77,73,520/- as liability in its balance sheet. It has been stated that when this matter will be decided by the same amount shall be shown in the P&L account or would be refunded to DDA as per the direction of the Court.
7.6 The assessee has placed reliance on the following judgements:
In the case of COMMISSIONER OF WEALTH-TAX/INCOME-TAX VS. SMT. T. GIRIJA AMMAL [2006] 154 TAXMAN 211 (MAD.) it has been held that "..... during pendency of said appeal, Assessing Officer brought to tax interest on additional compensation in each of relevant assessment years on accrual basis - Whether additional compensation received could not be treated as part of compensation received for transfer of land until it was finally determined by High Court or Supreme Court and if appeal of State Government against enhanced compensation received by assessee was allowed, assessee was bound to refund amount and, hence, same could not be assessed before reaching finality".
In the case of CIT V. Sarvartra Road Runners Pvt. Ltd. 301 ITR 443(Del.) it is held that amount withdrawn by assessee pending appeal against arbitration awards from deposits made in court following interim order of court could not be treated as income accrued to the assessee.
In the case of CIT v. Bhoop Ram Dagar HUF (2008) 173 Taxman 8 (P&H) High Court, it has been held that interest on enhanced compensation cannot be taxable till the issue relating to it attains finality as the same would accrue to assessee at that time only.
Further in the case of CIT v. Karanbir Singh (2008) 169 Taxman 85 (P&H) High Court, it was held that revenue was not entitle to tax amount of interest received by the assessee till such time proceedings in reference to compensation attain finality.
In the case of Commissioner of Wealth Tax v. Girija Ammal (2006) 154 Taxman 211 (Mad.) it was held that additional compensation received could not be treated as part of compensation received for transfer of land until it was finally determined by High Court or Supreme Court and 'if the appeal of State Govt. against enhanced compensation received by assessee was allowed, assessee was bound to refund amount and, hence, same could not be assessed before reaching finality.
7.7 In view of the facts and findings of the case and the legal proposition relied upon by the assessee, the issue relating to damages and interest of Rs. 77,73,520/ - being still subjudice cannot be brought to tax in the year under consideration. The finding of the Assessing Officer in this respect that if the assessee fails in appeal by the judgement of Hon'ble High Court then the same will be deducted from its income is not justified. After considering the relevant facts of case and in view of the legal proposition cited in cases relied upon by the assessee, the ld. CIT(A) has rightly deleted the addition of Rs. 77,73,520/, which does not need any interference on my part, hence, I uphold the action of the Ld. CIT(A) on the issue in dispute and dismiss the ground no. 2 raised by the Revenue.
8. In the result, the Appeal filed by the Revenue stands dismissed.