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D.C.I.T., Central Circle-1 (3) Kolkata Versus M/s Rungta Sons (P) Ltd.

2018 (1) TMI 597 - ITAT KOLKATA

Disallowances as the overloading charges u/s 37 -whether this is nothing but a penalty as per provision of section 73 of the Indian Railway Act, 1989 - stand of the assessee was that these payments were not in the nature of penalty for infringement of law and were purely in the nature of compensatory charges and therefore cannot be disallowed under Explanation to section 37(1) - Held that:- The expenses were not allowed as deduction. We are of the view that in the facts and circumstances of the .....

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issue is involved with Sec.36(1)(va) read with 2(24)(x) ? - Held that:- Employees’ contribution to PF paid on or before the due date of filing the return of income u/s 139(1) of the Act should be allowed as deduction. SEE CIT vs Vijayshree Ltd. [2011 (9) TMI 30 - CALCUTTA HIGH COURT] - Additions u/s 14A - Held that:- In the light of the uncontroverted factual details with regard to availability of own funds the disallowance of interest expenses in terms of Rule 8D(2)(ii) of the Rules was rig .....

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m Ahmed, AM For the Appellant : Shri Arindam Bhattacharjee, Addl. CIT For the Respondent: Shri Subash Agarwal, Advocate ORDER PER N. V. VASUDEVAN, JM This is an appeal by the Revenue against the order dated 23.05.2016 of C.I.T- (A)-20, Kolkata relating to A.Y.203-14. 2. Ground no.1 raised by the revenue reads as follows :- (1) In the facts and circumstances of the case, Ld.CIT(A) is erred in deleting the disallowances as the overloading charges is nothing but a penalty as per provision of sectio .....

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e of expenses incurred for any purpose which is an offence or which is prohibited by law and therefore ought not to be allowed as a deduction while computing the income from business as per the provision of Explanation to Section 37(1) of the Act. Section 37(1) of the Act provides that any expenditure (not being expenditure of the nature described in sections 30 to 36 and not being in the nature of capital expenditure or personal expenses of the assessee), laid out or expended wholly and exclusi .....

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lowance shall be made in respect of such expenditure. 4. The stand of the assessee was that these payments were not in the nature of penalty for infringement of law and were purely in the nature of compensatory charges and therefore cannot be disallowed under Explanation to section 37(1) of the Act. The assessee explained the nature of railway punitive charges that the charges though called Punitive Charges in the terminology of the railways did not actually relate to any offence or infringement .....

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hen it actually goes to the Weighing Bridge. In case it is found that the goods were loaded in excess than the permissible load, it cannot be unloaded. The Railways however recover punitive charges for such overloading as additional freight which is only compensatory in nature. The Assessee reiterated that overloading charges were not in the nature of punishment for violation or infraction of law but by way of compensation for permitting to overload the goods beyond the permissible limit; moreov .....

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n overloading of wagons could be easily avoided. The Assessee also relied on Notification dated the 23rd December 2005 (to be published in Gazette of India, Part- II, Section 3(i) of the Gazette of India) issued by the Ministry of Railways wherein punitive charges for overloading has been defined in para 3 as : "Where the commodities are overloaded in a 8-wheeled wagon, the railway administration shall recover punitive charges as provided in parts I, II and III of the situation 'A' .....

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lf in case of detection of overloading at originating point. 6. The Assessee thus argued that the very heading of para 3 of the said Notification 'issued by the Ministry of Railways namely "punitive charges for overloading" makes it amply clear that such charges were actually in the nature of additional freight for overloading beyond the permissible carrying capacity and were not in the nature of penalty for any offence or infringement of law. The charges were in fact compensatory .....

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e provision of Explanation to Section 37(1) of the Income Tax Act, 1961 (Act). 8. Before CIT(A) the assessee placed reliance on the following judgements wherein it was held that railway punitive charges were compensatory payments and cannot be disallowed under Explanation to section 37(1) of the Act. 1. M/s Taurian Iron & Steel Co vs ACIT, ITA No. 847 & 1613/M/2010 2. Western Coalfields Ltd vs DCIT, ITA Nos. 289 & 290/Nag/2006 & 261/Nag/2008 3. Agarwal Roadlines (P) Ltd vs DCIT, .....

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he aforesaid decision the CIT(A) took the view that payment in question was compensatory in nature and not penal and therefore the provision to Explanation to Section 37(1) of the Act will not be applicable. In the decision relied upon by CIT(A) there is also a discussion about the notification issued by the railway ministry of overloading charges and also the decision of the Hon ble Supreme Court in the case of Prakash Cotton Mills Pvt. Ltd. 201 ITR 684 (SC) and the decision of the Hon ble Punj .....

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no.1 before the Tribunal. 11. The ld. DR placed reliance on the order of AO. It was submitted by him that the act of the assessee in overloading the wagon was an act which was against public policy for which punitive charges are levied. He drew our attention to section 73 of the Railway Act, 1989 which reads as follows :- 73. Punitive charge for overloading a wagon.-Where a person loads goods in a wagon beyond its permissible carrying capacity as exhibited under sub-section (2) or sub- section .....

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tination station and to recover the cost of such unloading and any charge for the detention of any wagon on this account. 12. He laid emphasis on the fact that the statutory provision makes it clear that the punitive charges are in addition to freight and other charges. He also highlighted that punitive charges are clearly referred to as penalty. It was therefore submitted by him that the CIT(A) was not justified in deleting the addition made by the AO. The ld. DR also brought to our notice the .....

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of law falling within the ambit of Explanation to section 37(1) of the Act. The ld. DR also placed reliance to the decision of the Hon ble Karnataka High Court in the case of CIT vs Mamta Enterprises 266 ITR 356 (Ka. In the aforesaid case, compounding charges paid for unauthorised construction was claimed as deduction while computing income from business. The Hon ble Karnataka High Court held that the compounding fee was paid for the purpose of compounding a criminal offence and was therefore h .....

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M/s. Feegrade & Company Pvt. Ltd. In IT(SS) A. Nos. 36 to 38/Kol/2015 dated 05.04.2017 wherein this Tribunal took the view that railway punitive charges were not hit by Explanation to section 37(1) of the Act. 14. We have considered the rival submissions. This tribunal in the case of Feegrade & Company Pvt. Ltd on an identical issue has taken the following view :- 8. At the time of hearing of the appeal it was fairly accepted by the parties that the issue raised by the revenue in this ap .....

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to Section 37(1) of the Act. The other decisions relied upon by the assessee supports the plea of the assessee and where the decisions rendered in the context of overloading charges paid to railways. In view of the above we do not find any merits in ground no.1 raised by the revenue. Consequently the same is dismissed. 15. In the case of M/s Taurian Iron & Steel Co (supra) ITAT Mumbai Bench dealt with an identical issue and came to the following conclusion :- The overloading charges paid by .....

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B" It provides that in case of overloading upto1/2 tonnes, 'punitive charges eligible on the entire weight of loading beyond the permissible carrying capacity shall be nil (as per different tables of Situation A' and Situation B' and in case the weight of commodity exceeds the permissible carrying capacity . of the wagon by more than 1/2 tonnes, the punitive charges eligible on the entire weight loading beyond the permissible carrying capacity would be '2 times the freight .....

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ndian Railways for carrying the goods in its rake .are permitted by Railway authorities itself and the punitive charges are computed as 2 times or 3 times of the freight rates. The punitive charges levied by Railways, in accordance with the notification of Ministry of Railways dated 23.12.2005, for carrying goods in its rakes are not 'for any purpose which is an offense or which is prohibited by law'. As a matter of fact, the Indian Railways itself permits carrying weight load beyond the .....

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eted and Ground No. 4 is allowed. 16. As far as the decision of the Hon ble Delhi High Court in the case of Time Incorporated (supra) cited by the ld. DR before us is concerned that was the case of a suit for permanent injunction and damages, filed against the defendant for a passing off action and in the course of it s judgement the Hon ble court made a reference regarding purpose of awarding punitive damages. The said decision is not of any application whatsoever be the present case. The decis .....

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e was paid. Under these circumstances, the expenses were not allowed as deduction. We are of the view that in the facts and circumstances of the present case the claim of the assessee for deduction was rightly allowed by CIT(A). We therefore uphold the order of CIT(A) and dismiss ground no.1 raised by the revenue. 17. Ground No.2 raised by the revenue reads as follows :- (2) In the facts and circumstances and law point of the case, the order of the CIT(A) is erroneous because it relied on the se .....

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law governing the provident fund, will not be allowed as deduction. It is the plea of the assessee that the employees contribution to PF & ESI had been paid by the assessee on or before the due date of filing the return of income for the relevant assessment year u/s 139(1) of the Act and therefore deduction claimed should be allowed as provided under the proviso to section 43B of the Act. The said plea of the assessee was rejected by the AO for the reason that the proviso to section 43B of .....

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. Aggrieved by the order of CIT(A) the revenue has raised ground no.2 before the Tribunal. 20. At the time of hearing it was brought to our notice that the Hon ble Calcutta High Court has also taken the view that employees contribution to PF paid on or before the due date of filing the return of income u/s 139(1) of the Act should be allowed as deduction. In this regard the decision of the Hon ble Calcutta High Court in the case of M/s. Akzo Nobel India Ltd. Vs CIT in ITA 110 of 2011 order dated .....

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e Act was correct or not. It appears that the Tribunal below, in View of the decision of the Supreme Court in the case of Commissioner of Income Tax vs. Alom Extrusion Ltd., reported in 2009 Vol.390 ITR 306, held that the deletion was justified. Being dissatisfied, the Revenue has come up with the present appeal. After hearing Mr. Sinha, learned advocate, appearing on behalf of the appellant and after going through the decision of the Supreme Court in the case of Commissioner of Income Tax vs. A .....

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. We, therefore, find that no substantial question of law is involved in this appeal and consequently, we dismiss this appeal. 21. In view of the aforesaid decision of the Hon ble Calcutta High Court, we do not find any merits in the ground raised by the revenue and accordingly the same is dismissed. 22. Ground No.3 raised by the revenue reads as follows :- (3) In the facts and circumstances and law point of the case, Ld. CIT(A) is erred in deleting the additions u/s 14A ·without going in .....

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g in the balance sheet as on 31.03.2013 was a sum of ₹ 4 corres and that since A.Y.2009- 10 there was no new investments. The assessee pointed out that the position of own funds are as follows :- 31.03.2013 31.03.2012 Share Capital 24,57,54,000.00 24,57,54,000.00 Reserve & Surplus 18,83,19,63,076.53 14,65,67,95,185.00 It was argued that as far as disallowance of interest under Rule 8D(2)(ii) is concerned no disallowance on account of interest expenditure is warranted as the assessee wa .....

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340 and CIT vs. HDFC Bank Ltd. (ITA 330 of 2012). As per decision in the case of HDFC Bank Ltd. (supra) if share capital and reserves are available along with borrowed capital, a presumption can be made that investment in shares have been made from own funds. Relevant extract of the decision is as follows : 'In the present case, undisputedly the Assessee's capital, profit reserves, surplus and current account deposits were higher than the investment in the tax-free securities. In view of .....

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plea of the assessee was to exclude investments which did not yield dividend exempt income during the previous year while working out the average value of investments for application of Rule 8D(2)(iii) of the Rules. In this regard the assessee placed reliance on the decision of ITAT, Kolkata Bench in the case of REL Agro Ltd vs DCIT 144 ITD 141 (Kol) wherein it was held that while working Average value of investments while applying Rule 8D(2)(iii) of the Rules only dividend yielding investments .....

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lowing were the relevant observations of the CIT(A) : I have perused the impugned order and also considered the submissions of the assessee and relevant judicial decisions. It was argued before me that the investments were made by the assessee out of its own fund and that the borrowed fund was utilized for the purposes of the business. I find from the balance sheet for the relevant year that the assessee had share capital of ₹ 245754000/- as on 31-03-2013. In this factual background, I fin .....

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