TMI Blog2009 (9) TMI 695X X X X Extracts X X X X X X X X Extracts X X X X ..... holder can violate the law and claim the expenditure thereof. AO also mentioned that during the course, for AY 2004-05, AO on the similar issue in other case falling in his jurisdiction had called for information u/s 133(6) from the RTO office to ascertain correct nature of penal action. AO further relying upon certain decisions of the Courts held that in the present case of the assessee, the nature of penalty is not compensatory but is for the violation of rudimentary law. AO concluded that this being a cognizable offence and infringement of law and payment being penal in nature and not incidental to the assessee s regular business. He, therefore, disallowed the amount. The CIT(A) confirmed the addition. HELD THAT:- In our considered view, the authorities below have not correctly appreciated the facts of the present case. In fact, they have grievously erred in observing that scheme of Gold Card introduced by the Government of Gujarat entitled the transport carriers to carry overload by payment of additional fees was strange in a way there is no Government machinery would encourage violation of infringement of legal provisions. It is evident from the record that on pay ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee by treating the same as penalty without appreciating the true and correct nature of such expenditure. 2. The learned CIT(A) has erred in law and in facts in not following the order of his predecessor for assessment year 2004-05 wherein under identical circumstances, such expenditure has been deleted by learned CIT(A). 3. Both the lower authorities have erred in law and on facts in not properly appreciating and considering various submissions, evidences and supporting (sic) placed on record during the course of the assessment proceedings and not properly appreciating various facts and law in its proper perspective and further erred in passing orders in gross violation of the principles of natural justice. 4. Learned CIT(A) has erred in law in confirming the levy of interest under section 234A/234B/234C of the Act. 5. Learned CIT(A) has erred in law and on facts in upholding the action of the Assessing Officer in initialing penalty under section 271(1)(c) of the Act without recording mandatory satisfaction as contemplated under the Act. 3. As regards ground Nos. 1 to 3 of the appeal brief facts of the case are that the assessee is a private limit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be equated with the penalty for infringement of law or otherwise, as per the provisions of IT Act. Without prejudice to the above, it is to submit that we have worked out the figures of the actual amount paid for the same and details of the same are submitted herewith. 4. Keeping in view the above reply of the assessee, the Assessing Officer issued a show-cause notice on 24-5-2007 requiring the assessee to submit the explanation as to why the penalty charges of Rs. 17.88,062 should not be disallowed as the same is penalty in nature and hence not allowable expenditure. Thereafter, another show-cause notice was issued on 11-12-2007 for giving opportunity to submit the detailed explanation. In response to above show-cause notice, the assessee stated that the letter furnished on 11-5-2007 may be considered as reply to above query. The Assessing Officer did not accept the reply of the assessee. The Assessing Officer rejected this contention of the assessee that it was normal business expenditure as corresponding income for the same was billed to the parties and that Gujarat Government has come out with a scheme of Gold Card which entitles every transporters to have overloaded ve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s which have not yet withdrawn the notifications directed to do it forthwith. [Emphasis, italicized In print, supplied] 5. The Assessing Officer also mentioned that during the course of assessment proceedings for assessment year 2004-05, the then Assessing Officer on the similar issue in other case falling in his jurisdiction had called for information under section 133( 6 ) of the IT Act from the RTO office to ascertain correct nature of penal action. The RTO, vide his letter dated 8-9-2006 confirmed that the payment to RTO is penal in nature as per the Motor Vehicles Act. The Assessing Officer further stated that the RTO has submitted relevant text of section 194 of Motor Vehicles Act, 1988. According to the said section, the incumbent would be punishable for violating the provisions of sections 113, 114 and 115 by way of fine. The Assessing Officer further relying upon certain decisions of the Courts held that in the present case of the assessee, the nature of penalty is not compensatory but is for the violation of rudimentary law. According to the Assessing Officer, this feature and tendency of carrying overloaded goods by the assessee is rampant, conscious and delib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (i)Overloading charges are collected in advance. No penalty can be collected in advance. (ii)It has got direct relation with the quantum of overload. Penalty usually is flat and once infraction of law takes place, the same is levied indiscriminately. (iii)Vehicles are not detained or confiscated even when overloading is done on regular basis. 8. Accordingly, it was submitted by the assessee before the C1T(A) that the amount in question is compensatory in nature and not penal as alleged by the Assessing Officer. The assessee also cited the following decisions before the CIT(A) : (1)Prakash Cotton Mills (P.) Ltd. v. CIT [1993] 201 ITR 684 (SC); (2)Lachmandas Mathuradas v. CIT [2002] 254 ITR 799 (SC); 9. The CIT(A) did not accept the contentions raised by the assessee before him and confirmed the addition observing as under : Keeping in view the aforesaid facts and circumstances, it is crystal clear that the expenditure which can be deducted is only in respect of business carried on by the appellant. The penalty paid for violation of law in the course of conduct of business cannot be regarded as deductible expenditure as the assessee is expecte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e is incurred in the normal course of business and corresponding income out of carrying of overload was subjected to tax as the party was billed as per tonnage carried. There is no dispute that the Government of Gujarat had introduced a scheme of Gold Card to carry overload on payment of additional fees fixed for that Gold Card. We find that such compensatory fees were being paid to various RTO authorities that entitled the transporters to carry overload on payment of such compensation fees to the final destination without stopping them to unload the excess weightage. In our view, if these fees were penal in nature then RTO authorities would have recovered the amount from the transporters and unloaded the excess load. In our considered view, the authorities below have not correctly appreciated the facts of the present case. In fact, they have grievously erred in observing that scheme of Gold Card introduced by the Government of Gujarat entitled the transport carriers to carry overload by payment of additional fees was strange in a way there is no Government machinery would encourage violation of infringement of legal provisions. Both the authorities below have not appreciated th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mstances of the present case, we are of the considered view that payment of penalty for excess load carried was not for infringement of law but in the nature of compensation in the business activities of transportation of goods. 11. In view of the above discussions we are of the view that the addition Wade by the Assessing Officer and confirmed by the CIT(A) is not sustainable and accordingly, we delete the addition of Rs. 17,88,262. Accordingly, we dismiss ( sic allow) the ground Nos. 1 to 3 of the appeal. 12. Ground No. 4 of the appeal relates to charging of interest under sections 234A, 234B and 234C of the Act. At the time of hearing of the appeal the learned counsel for the assessee submitted that this ground of appeal is consequential in nature and we hold accordingly. 13. Now, we will decide ground No. 5 of the appeal. In the impugned order the CIT(A) has observed as under : Regarding penalty proceedings under section 271(1)(c ) of the Income-tax Act, 1961, it is decided that as is abundantly clear from the aforesaid facts and circumstances; the appellant has really concealed/furnished inaccurate particulars of its income. With the result the action of t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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