VISHWANATH V. KALE, NAVI MUMBAI V. ITO 23(1)(4), MUMBAI

ITA 2081/MUM/2010

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 3517 (ITAT-MUMBAI)
• Duration Of Justice: 9 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-12-2010
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: F
• Assessment Year: 2005-2006
• Appeal Filed On: 15-03-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: B V JHAVERI
• Keywords: Business expenditure; Revenue expenditure
• Section: 37(1)

Judgement Text

1 ITA NO. 2081/MUM/2010 (ASSESSMENT YEAR 2005-06 ) I II IN THE INCOME TAX APPELLATE TRIBUNAL N THE INCOME TAX APPELLATE TRIBUNAL N THE INCOME TAX APPELLATE TRIBUNAL N THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH MUMBAI BENCH MUMBAI BENCH MUMBAI BENCH F FF F MUMBAI MUMBAI MUMBAI MUMBAI BEFORE BEFORE BEFORE BEFORE SHRI N V VASUDEVAN, JM & SHRI N V VASUDEVAN, JM & SHRI N V VASUDEVAN, JM & SHRI N V VASUDEVAN, JM & SHRI SHRI SHRI SHRI R R R R K PANDA, AM K PANDA, AM K PANDA, AM K PANDA, AM IT ITIT ITA NO A NO A NO A NO. . . . 2081/MUM/2010 2081/MUM/2010 2081/MUM/2010 2081/MUM/2010 (ASSESSMENT YEAR 2005-06 ) SHRI VISHWANATH V KALE ROOM NO. 4 GROUND FLOOR NEW SHREE GAJANAN CHS LTD 19 GURUDWARA ROAD NERUL (E), NAVI MUMBAI VS THE INCOME TAX OFFICER WARD 23(1)( 4), MUMBAI (APPELLANT) (RESPONDENT) PAN PAN PAN PAN AGFPK0761M AGFPK0761M AGFPK0761M AGFPK0761M ASSESSEE BY: SHRI B V JHAVERI REVENUE BY: SMT ASHIMA GUPTA O OO O R RR R D DD D E EE E R RR R PER PER PER PER R RR R K PANDA K PANDA K PANDA K PANDA: :: : THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE ORDER DATED 20.1.2010 OF THE CIT(A), 33, MUMBAI RELATING TO ASS ESSMENT YEAR 2005-06. 2 THE ASSESSEE IN THE GROUNDS OF APPEAL HAS CHALLEN GED THE ORDER OF THE CIT(A) IN CONFIRMING THE ADDITION OF ` 11,47,461/- ON ACCOUNT OF OVERLOADING CHARGES PAID TO RTO TREATING THE SAME AS NATURE OF PENALTY. 2.1 FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSES SEE, AN INDIVIDUAL, IS IN THE BUSINESS OF TRANSPORT CONTRACT. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HAS P AID OVERLOAD CHARGES OF ` 11,47,461/- TO R.T.O. THIS EXPENSE BEING THE FINE PAID TO RTO FOR OVERLOADING, 2 ITA NO. 2081/MUM/2010 (ASSESSMENT YEAR 2005-06 ) THE ASSESSEE WAS ASKED TO SHOW CAUSE AS TO WHY THE SAME SHOULD NOT BE ADDED TO THE INCOME OF THE ASSESSEE. IT WAS SUBMITTED BY THE ASSESSEE THAT OVERLOAD CHARGES PAID TO RTO IS COLLECTED FROM THE CLIENTS F OR WHOM THEY ARE CARRYING GOODS AND PAID TO THE RTO; THEREFORE, IF THE SAME I S TREATED AS FINE OR PENALTY AND DISALLOWED THEN THE SAME HAS TO BE REDUCED FROM THE GROSS RECEIPTS OF TRANSPORT CHARGES. IT WAS SUBMITTED THAT LIKE TRAI N TRAVEL OR AIR TRAVEL WHEN EXCESS LUGGAGE IS CARRIED THEN THE PASSENGER HAS TO PAY EXCESS LUGGAGE CHARGES. SIMILAR IS THE CASE OF THE ASSESSEE. THE DIFFERENCE BETWEEN OVERLOAD CHARGES AND FINE WAS EXPLAINED TO THE ASSESSING OFF ICER. FURTHER, IT WAS SUBMITTED THAT SUCH OVERLOAD CHARGES ARE OFFICIALLY PERMITTED BY GUJARAT RTO BY COLLECTING EXCESS LOAD CHARGES; THEREFORE, IT DOES NOT BECOME FINE AND THEREFORE, ARE FULLY ALLOWABLE. 2.2 HOWEVER, THE ASSESSING OFFICER WAS NOT CONVINCE D WITH THE EXPLANATION GIVEN BY THE ASSESSEE. ACCORDING TO HIM, THE NOME NCLATURE OF OVERLOAD CHARGES ITSELF INDICATE OF PAYMENTS MADE IN THE NA TURE OF FINE FROM TIME TO TIME. THE TERM OVERLOAD MEANS LOADING OF GOODS IN EXCESS OF STATUTORY NORMS PRESCRIBED UNDER THE RELEVANT ACT. THE GOODS ARE TO BE LOADED IN THE TRUCKS AS PER THE PROVISIONS OF THE RELEVANT ACT. SINCE THE ASSESSEE IS A REGULAR TRANSPORTER OF GOODS, HE IS WELL AWARE OF THE RULES AND REGULATIONS OF TRANSPORTATION OF GOODS. THE LOCAL AUTHORITY CHARGE FINE FOR THE VIOLATION OF THE STATUTORY NORMS PRESCRIBED UNDER THE RELEVANT ACT. THE OVERLOAD CHARGES PAID TO THE RTO ARE IN THE NATURE OF FINE AND ARE NOT THE E XPENDITURE INCURRED FOR THE PURPOSES OF BUSINESS AND THEREFORE, CANNOT BE CLAIM ED AS REVENUE EXPENDITURE. SINCE SUCH CLAIM FALLS WITHIN THE SCOPE OF EXPLANAT ION TO SEC. 37(1), THE ASSESSING 3 ITA NO. 2081/MUM/2010 (ASSESSMENT YEAR 2005-06 ) OFFICER DISALLOWED THE OVERLOAD CHARGES PAID TO THE RTO AMOUNTING TO ` 11,47,461/-. 3 IN APPEAL, IT WAS SUBMITTED THAT PROVISIONS OF EX PLANATION TO SEC. 37(1) CANNOT BE INVOKED SINCE OVERLOAD CHARGES PAID BY TH E ASSESSEE ARE NOT FOR ANY PURPOSE WHICH IS AN OFFENCE OR PROHIBITED BY LAW. T HEY ARE NOT IN THE NATURE OF FINE OR PENALTY BECAUSE THE OVERLOADED TRUCK, AFTER IT PAYS THE OVERLOADING CHARGES, IS ALLOWED TO PROCEED TO ITS DESTINATION. THE DECISION OF THE TRIBUNAL IN THE CASE OF WESTERN COALFIELDS LTD VS ACIT WAS BROU GHT TO THE NOTICE OF THE CIT(A). IN THE AFORESAID DECISION, THE ASSESSEE WHI LE TRANSPORTING COAL TO THE ELECTRICITY BOARD IN RAILWAY WAGON HAD PAID THE OVE RLOADING CHARGES TO THE RAILWAY AUTHORITIES. DISALLOWANCE MADE BY THE ASSES SING OFFICER FOR SUCH UNLOADING CHARGES TREATING THE SAME AS IN THE NATUR E OF FINE/PENALTY AND CONFIRMED BY THE CIT(A) WAS DELETED BY THE TRIBUNAL ON THE GROUND THAT MUCH IMPORTANCE SHOULD NOT BE GIVEN TO THE NOMENCLATURE GIVEN BY THE RAILWAY TO SUCH CHARGES. IT WAS HELD THAT THE OVERLOAD CHARGES PAID TO THE RAILWAYS ARE NOT OF THE NATURE OF ANY ILLEGAL/UNLAWFUL EXPENDITURE. THE DECISION OF THE CHANDIGARH BENCH OF THE TRIBUNAL IN THE CASE OF MASTER CAPITA L SERVICES LTD VS DCIT REPORTED IN 108 TTJ 389 AND THE DECISION OF THE HONBLE P UNJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS INDUSTRIAL CABLES INDIA LTD REPO RTED IN 162 TAXMAN 423 WERE ALSO CITED. 4 HOWEVER, THE CIT(A) WAS NOT SATISFIED WITH THE EX PLANATION GIVEN BY THE ASSESSEE AND UPHELD THE ACTION OF THE ASSESSING OF FICER. WHILE DOING SO, HE NOTED THAT IT IS WELL SETTLED LEGAL POSITION THAT T HE FINE OR PENALTY PAID ON BREACH OF LAW IS NOT BUSINESS EXPENDITURE. THE ASSESSEE, IN THE INSTANT CASE, HAS PAID 4 ITA NO. 2081/MUM/2010 (ASSESSMENT YEAR 2005-06 ) PENALTY TO THE RTO FOR OVERLOADING, WHICH IS A CLEA R INFRINGEMENT OF LAW. SINCE THE ASSESSEE HAS INDULGED IN OVERLOADING AND THERE WAS DELIBERATE INFRACTION OF LAW, THEREFORE, PAYMENT MADE FOR SUCH INFRACTION OF LAW CANNOT BE ALLOWED AS DEDUCTION. DISTINGUISHING VARIOUS DECISIONS CITED B EFORE HIM, HE HELD THAT EXPENDITURE INCURRED BY THE ASSESSEE ON OVERLOADING IS IN THE NATURE OF PENALTY AND IS NOT NORMAL BUSINESS EXPENDITURE BUT INCURRED FOR BREACH OF CONTRACT AND INFRACTION OF LAW. 5 AGGRIEVED WITH SUCH ORDER OF THE CIT(A), THE ASSE SSEE IS IN APPEAL HERE BEFORE US. 6 THE LD COUNSEL FOR THE ASSESSEE REITERATED THE SA ME SUBMISSIONS AS MADE BEFORE THE ASSESSING OFFICER AND THE CIT(A). HE DREW THE ATTENTION OF THE BENCH TO THE DECISION OF THE AHMEDABAD BENCH OF TH E TRIBUNAL IN THE CASE OF AGARWAL ROAD LINES P LTD VS DCIT REPORTED IN 129 TT J 49. REFERRING TO THE SAID DECISION, HE SUBMITTED THAT THE ASSESSEE IN THAT CA SE HAS PAID OVERLOAD CHARGES FOR TRANSPORTATION OF GOODS UNDER THE GOLD CARD SCH EME OF THE GOVT OF GUJARAT TO CARRY OVERLOAD ON PAYMENT OF ADDITIONAL FEES. SUCH COMPENSATION FEE WAS PAID TO RTO THAT ENTITLED THE TRANSPORTERS TO CARRY OVER LOAD TO THE FINAL DESTINATION WITHOUT UNLOADING OF THE EXCESS WEIGHT. THE ASSES SING OFFICER DISALLOWED SUCH OVERLOAD CHARGES ON THE GROUND THAT THE SAME WAS TO WARDS INFRINGEMENT OF LAW, WHICH WAS UPHELD BY THE CIT(A. ON FURTHER APPEAL, THE TRIBUNAL HELD THAT PENALTY PAID BY THE ASSESSEE TRANSPORTER FOR CARR YING EXCESS LOAD UNDER THE GOLD CARD SCHEME OF THE GOVERNMENT OF GUJARAT WAS N OT FOR INFRINGEMENT OF LAW 5 ITA NO. 2081/MUM/2010 (ASSESSMENT YEAR 2005-06 ) BUT IN THE NATURE OF COMPENSATION AND THE EXPENDITU RE INCURRED IN THE COURSE OF BUSINESS OF TRANSPORTATION OF GOODS; HENCE SAME IS ALLOWABLE AS DEDUCTION. HE ACCORDINGLY SUBMITTED THAT SINCE THE FACTS IN THE I NSTANT CASE ARE IDENTICAL TO THAT OF THE CASE DECIDED BY THE AHMEDABAD BENCH OF THE T RIBUNAL; THEREFORE, THE ADDITION MADE BY THE ASSESSING OFFICER AND UPHELD B Y THE CIT(A) SHOULD BE DELETED. 6.1 THE LD DR, ON THE OTHER HAND, WHILE SUPPORTING THE ORDERS OF THE AUTHORITIES BELOW SUBMITTED THAT THE ASSESSEE IS N OT FALLING UNDER THE GOLD CARD SCHEME OF THE GOVERNMENT OF GUJARAT; THEREFORE, THE CASE LAW RELIED ON BY THE LD COUNSEL FOR THE ASSESSEE IS DISTINGUISHABLE. 6.2 THE LD COUNSEL FOR THE ASSESSEE, IN HIS REJOIND ER, SUBMITTED THAT NO SUCH DISCRIMINATION CAN BE MADE. THE OVERLOAD CHARG ES HAVE TO BE TREATED EITHER AS PENALTY OR AS COMPENSATION. SINCE THE TRIBUNAL HAS HELD THAT SUCH OVERLOAD CHARGES ARE IN THE NATURE OF COMPENSATION; THEREFOR E, THE ORDER OF THE TRIBUNAL HAS TO BE FOLLOWED. 7 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS MADE BY BOTH THE PARTIES, PERUSED THE ORDERS OF THE AUTHORITIES BELOW AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSIDERED THE VARIOUS DECISIONS CITED BEFORE US. THERE IS NO DISPUTE TO THE FACT THAT THE ASSESSEE H AS PAID OVERLOAD CHARGES OF ` 11,47,461/- TO THE RTO. WE FIND THE ASSESSING OFFI CER DISALLOWED THE SAME ON 6 ITA NO. 2081/MUM/2010 (ASSESSMENT YEAR 2005-06 ) THE GROUND THAT SUCH OVERLOAD CHARGE IS IN THE NATU RE OF PENALTY FOR INFRINGEMENT OF LAW AND THEREFORE, THE EXPLANATION TO SECTION. 3 7(1) ARE CLEARLY APPLICABLE. WE FIND THE CIT(A) ALSO UPHELD THE ACTION OF THE ASSES SING OFFICER ON THE GROUND THAT OVERLOAD CHARGES PAID TO THE RTO IS IN THE NATURE O F PENALTY AND IS NOT A NORMAL BUSINESS EXPENDITURE BUT INCURRED FOR BREACH OF LA W. IT IS THE SUBMISSION OF THE LD COUNSEL FOR THE ASSESSEE THAT OVERLOAD CHARGES P AID TO THE RTO IS IN THE NATURE OF COMPENSATION AND NOT FOR ANY BREACH OF LAW OR PENALTY FOR INFRINGEMENT OF ANY LAW. 7.1 WE FIND THE AHMEDABAD BENCH OF THE TRIBUNAL IN THE CASE OF AGRAWAL ROADLINES PVT LTD (SUPRA) HAS HELD THAT PENALTY PAI D BY THE ASSESSEE TRANSPORTER FOR CARRYING EXCESS LOAD UNDER THE GOLD CARD SCHEME OF THE GOVERNMENT OF GUJARAT WAS NOT FOR INFRINGEMENT OF LAW BUT IN TH E NATURE OF COMPENSATION AND EXPENDITURE INCURRED IN THE COURSE OF BUSINESS OF T RANSPORTATION OF GOODS. ACCORDINGLY, THE SAME WAS ALLOWED AS DEDUCTION. RE SPECTFULLY FOLLOWING THE ABOVE DECISION OF THE TRIBUNAL, WE HOLD THAT OVERLO AD CHARGES PAID IN THE IMPUGNED CASE IS IN THE NATURE OF COMPENSATION, SIN CE ON PAYMENT OF ADDITIONAL AMOUNT ALREADY FIXED BY THE RTO, THE ASSESSEE HAS B EEN ALLOWED TO MOVE FURTHER WHICH ITSELF SHOWS THAT THE AMOUNT COLLECTE D BY THE RTO WAS NOT THE PAYMENT TOWARDS INFRINGEMENT OF LAW BUT IN THE NATU RE OF COMPENSATION. FROM THE VARIOUS DETAILS FURNISHED BY THE ASSESSEE, WE F IND THE AMOUNT HAS BEEN PAID TO GUJARAT RTO. THEREFORE, THE DECISION OF THE AHME DABAD BENCH OF THE TRIBUNAL IN THE CASE OF AGRAWAL ROADLINES P LTD (SUPRA) IS CLEARLY APPLICABLE TO THE FACTS OF THE PRESENT CASE. RESPECTFULLY FOLLOWING THE SAID DECISION AND IN VIEW OF OUR OBSERVATIONS ABOVE, WE HOLD THAT THE ADDITION MADE BY THE ASSESSING OFFICER 7 ITA NO. 2081/MUM/2010 (ASSESSMENT YEAR 2005-06 ) AND UPHELD BY THE CIT(A) IS NOT SUSTAINABLE AND THE OVERLOAD CHARGES PAID TO RTO BY THE ASSESSEE HAS TO BE TREATED AS COMPENSATION A ND NOT PENALTY FOR INFRINGEMENT OF LAW. ACCORDINGLY, WE SET ASIDE THE ORDER OF THE CIT(A) AND THE GROUND RAISED BY THE ASSESSEE IS ALLOWED. 8 IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE I S ALLOWED. ORDER PRONOUNCED ON THE 31 ST DAY OF DEC 2010. SD/ SD/- ( (( ( N V VASUDEVAN N V VASUDEVAN N V VASUDEVAN N V VASUDEVAN ) )) ) JUDICIAL MEMBER ( (( ( R K PANDA R K PANDA R K PANDA R K PANDA ) )) ) ACCOUNTANT MEMBER PLACE: MUMBAI : DATED: 31 DEC 2010 RAJ* COPY FORWARDED TO: 1 APPELLANT 2 RESPONDENT 3 CIT 4 CIT(A) 5 DR /TRUE COPY/ BY ORDER DY /AR, ITAT, MUMBAI