COMMISSIONER OF INCOME TAX Vs. PREMIER ENGINEERING COMPANY

JUDGEMENT

(1.) WE do not find any merit in this application. The AO proceeded to complete the assessment treating the amount of Rs. 8,90,241 received by the assessee under an arbitration award as additional receipts. The CIT (A) has also proceeded on the same basis, but modified the assessment granting some allowances. The Tribunal set the matter in the proper perspective by refusing to treat the amount received in arbitration as profit or income and treating it as part of the contract receipts.

(2.) IT is only common sense that the amount received on arbitration does not fully represent profit as contended by the Revenue. In fact, the award is made to provide for the escalation in cost due to delay in completion of the work, interest charges that the assessee will have to incur as also the increased cost of labour. It is to offset the loss caused to the assessee by such delay in the execution of the work that the arbitration award is made. The ITO has gone wrong in treating the arbitration award amount as the income or profit of the business forgetting the fact that the award is really related to the escalation in the cost suffered by the contractor as mentioned earlier. It is this order that was rectified by the Tribunal for adequate reasons.

(3.) THE reasons given by the Tribunal are valid and the Tribunal was justified in treating only 11 per cent. of the award amount as profit. The award does not suffer from any infirmity legally or otherwise. The questions raised are questions of fact on which no question of law is liable to be referred.