TMI Blog1998 (3) TMI 167X X X X Extracts X X X X X X X X Extracts X X X X ..... freight paid to Railway Department. The appellant explained to the AO that freight is originally charged by the Railway Department on coal keeping in view the capacity of the wagon. The coal is weighed later on by the Railway authorities and excess of the weight from actually charged weight is liable for payment of freight as well as penal freight. The appellant pleaded that they have no control on the despatch of the coal by the coal company who are loading the coal in accordance with their own procedure and according to their own system. The appellant filed complete details of freight charged, R.R. No. overweight and additional freight payable alongwith penal freight. The assessee also filed copy of the petition filed at the Calcutta Hig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reight will be charged. The details of additional freight charged have also been examined and the notice of demand issued by the Railway on 15th March, 1989, when the stay was vacated has been examined. All the leads to the conclusion that penal freight has been examined. All this leads to the conclusion that penal freight has been charged not for unlawful activity but on account of overloading of wagons over which the appellant had no control whatsoever. Since overloading of wagons was a part and parcel of the business activity the amount can be regarded as expended wholly and exclusively for the purpose of business on account of bona fide purchase of coal from Coal India Ltd. As such the penal freight is allowable: CIT vs. Panna Lal Narot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lty freight bills were raised by the Railways. The appellant filed petition before the Hon'ble Calcutta High Court who stayed the payments raised in the freight bills. Therefore, issue remained, if the liability is disputed which is the year when such liability under mercantile system is to be claimed. The Revenue relied on various case law cited in the grounds of appeal. The first law relates to CIT vs. Aggarwal Rice General Mills (1989) 180 ITR 29 (P H). The Hon'ble jurisdictional High Court has given following finding of the fact: "This Court has held in CIT vs. United India Woollen Mills (1981) 24 CTR (P H) 244 : (1981) 132 ITR 457 (P H), that where an assessee follows the mercantile system of accounting, he has to claim deduction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accounting would not be entitled to claim a deduction qua the liability discharged in the accounting year and would be entitled to do so only in the accounting year in which the liability accrued. "Now, under all sales-tax laws including the statute with which we are concerned, the moment a dealer makes either purchases or sales which are subject to taxation the obligation to pay the tax arises and taxability is attracted. Although that liability cannot be enforced till the quantification is effected by assessment proceedings the liability for payment of tax is independent of the assessment…… An assessee who follows the mercantile system of accounting is entitled to deduct from the profits and gains of the business such liability which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erative that the chargeable income shall be computed in accordance with the method of accounting regularly employed by the assessee." The fourth case law relates to CIT vs. K.A. Karim Sons Ors. (1981) 24 CTR (Ker) 83 (FB) : (1981) 133 ITR 515 (Ker)(FB). The similar view was held by the Hon'ble Kerala High Court. The Hon'ble Supreme Court has laid the law in Kedarnath Jute Mfg. Co.'s case whereby the Hon'ble Supreme Court has held that if an assessee follows mercantile system of accounting then he is entitled to deduct from the profits and gains of the business liability which has accrued during the period for which the profits and gains were computed. In the case of the appellant, it is abundantly clear that the additional penal frei ..... X X X X Extracts X X X X X X X X Extracts X X X X
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