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𝗟𝗶𝗾𝘂𝗶𝗱𝗮𝘁𝗲𝗱 𝗱𝗮𝗺𝗮𝗴𝗲𝘀 𝗿𝗲𝗰𝗲𝗶𝘃𝗲𝗱 𝘄𝗲𝗿𝗲 𝗰𝗮𝗽𝗶𝘁𝗮𝗹 𝗿𝗲𝗰𝗲𝗶𝗽𝘁𝘀, 𝗻𝗼𝘁 𝘁𝗮𝘅𝗮𝗯𝗹𝗲 𝗮𝘀 𝗯𝘂𝘀𝗶𝗻𝗲𝘀𝘀 𝗶𝗻𝗰𝗼𝗺𝗲
🔘 Case: ITC Limited, Kolkata vs ACIT, Range-8, Kolkata (I.T.A. No. 1222 & 1223/Kol/2017)
🔘 Facts:
🔹 ITC Limited received ₹1,49,54,059 in liquidated damages from various suppliers and credited this amount to their profit and loss account.
🔹ITC claimed these damages were compensation for delays in the delivery and installation of capital assets (machinery, buildings) and should be treated as capital receipts, not taxable.
🔹The Assessing Officer (AO) argued these damages were business income since they were linked to supplier contract violations during normal business operations.
🔹The AO added these damages to ITC's taxable income, stating they had no direct relation to the cost of fixed assets.
ITAT Kolkata Ruling:
🔹𝗖𝗶𝘁𝗶𝗻𝗴 𝘁𝗵𝗲 𝗦𝘂𝗽𝗿𝗲𝗺𝗲 𝗖𝗼𝘂𝗿𝘁 𝗱𝗲𝗰𝗶𝘀𝗶𝗼𝗻 𝗶𝗻 𝗖𝗜𝗧 𝘃𝘀. 𝗦𝗮𝘂𝗿𝗮𝘀𝗵𝘁𝗿𝗮 𝗖𝗲𝗺𝗲𝗻𝘁 𝗟𝘁𝗱., the ITAT ruled that the damages were linked to the procurement of capital assets and were not part of regular business operations, thus constituting capital receipts.
🔹The damages 𝗱𝗶𝗱 𝗻𝗼𝘁 𝘀𝘂𝗯𝘀𝗶𝗱𝗶𝘇𝗲 𝗮𝘀𝘀𝗲𝘁 𝗰𝗼𝘀𝘁𝘀 𝗯𝘂𝘁 𝘄𝗲𝗿𝗲 𝗰𝗼𝗺𝗽𝗲𝗻𝘀𝗮𝘁𝗶𝗼𝗻 𝗳𝗼𝗿 𝘀𝘂𝗽𝗽𝗹𝗶𝗲𝗿 𝗱𝗲𝗹𝗮𝘆𝘀. Therefore, they should not be reduced from the cost of fixed assets.
🔹As per Section 43(6)(c) of the Income Tax Act, the value of fixed assets should only include the actual cost, with no other adjustments.
🔘 Conclusion:
🔹The ITAT Kolkata concluded that the liquidated damages ITC received were capital receipts, not taxable as business income, and should not be adjusted against the cost of fixed assets.
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Chief Executive Officer at Falcon Group of Companies, UAE
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