ACIT CIR 4(3), MUMBAI v. TAURIAN IRION & STEEL CO. P.LTD, MUMBAI

ITA 1613/MUM/2010 | 2006-2007
Pronouncement Date: 14-12-2011 | Result: Dismissed

Appeal Details

RSA Number 161319914 RSA 2010
Assessee PAN AAACT4814A
Bench Mumbai
Appeal Number ITA 1613/MUM/2010
Duration Of Justice 1 year(s) 9 month(s) 12 day(s)
Appellant ACIT CIR 4(3), MUMBAI
Respondent TAURIAN IRION & STEEL CO. P.LTD, MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 14-12-2011
Appeal Filed By Department
Order Result Dismissed
Bench Allotted D
Tribunal Order Date 14-12-2011
Date Of Final Hearing 28-11-2011
Next Hearing Date 28-11-2011
Assessment Year 2006-2007
Appeal Filed On 03-03-2010
Judgment Text
1 IT A 847 & 1613/ M/2010 M/S TAURIAN IRON & STEEL CO..P.LTD.. IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES D BEFORE SHRI R.K. PANDA A.M. AND SHRI VIJAY PAL RAO J.M. ITA NO. 847/MUM/2010 ASSESSMENT YEAR 2006-07 M/S TAURIAN IRON & STEEL CO. PVT. LTD. 302-A POONAM CHAMBERS DR. ANNIE BESANT ROAD WORLI MUMBAI 400 018. PAN AAACT 4814 A VS. ADDL. COMMISSIONER OF INCOME TAX RANGE 4(3) MUMBAI. APPELLANT RESPONDENT ITA NO. 1613/MUM/2010 ASSESSMENT YEAR 2006-07 ASST.COMMISSIONER OF INCOME TAX RANGE 4(3) MUMBAI. VS. M/S TAURIAN IRON & STEEL CO. PVT. LTD. 302-A POONAM CHAMBERS DR. ANNIE BESANT ROAD WORLI MUMBAI 400 018. PAN AAACT 4814 A APPELLANT RESPONDENT ASSESSEE BY SHRI J.P. BAIRAGRA REVENUE BY SHRI C.G.K. NAIR DATE OF HEARING 28.11.2011 DATE OF PRONOUNCEMENT 14.12.2011 ORDER PER R.K. PANDA A.M. THESE ARE CROSS APPEALS. THE FIRST ONE FILED BY THE ASSESSEE AND THE SECOND ONE FILED BY THE REVENUE AND ARE DIRECTED AGAINST T HE ORDER DT. 08.12.2009 OF THE CIT(A)- 8 MUMBAI RELATING TO A.Y. 2006-07. THE SE APPEALS WERE HEARD 2 IT A 847 & 1613/ M/2010 M/S TAURIAN IRON & STEEL CO..P.LTD.. TOGETHER AND ARE BEING DISPOSED OF BY THIS COMMON O RDER FOR THE SAKE OF CONVENIENCE. ITA NO. 847/MUM/2010 (BY ASSESSEE) 2. GROUND OF APPEAL NO. 1 BY THE ASSESSEE READS AS UNDER:- ON THE FACTS & IN THE CIRCUMSTANCES OF THE CASE & IN LAW THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) ERRED IN CONFI RMING THE DISALLOWANCE OF RS. 12 46 272/- MADE BY THE LEARNED ASSESSING OFFICER ON INTEREST FREE ADVANCES MADE TO SISTER CO NCERNS. 2.1 FACTS OF THE CASE IN BRIEF ARE THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE A.O. NOTED THAT THE ASSESSEE HAS G IVEN INTEREST FREE ADVANCES TO THE FOLLOWING SUBSIDIARY COMPANIES UNDER THE SAM E MANAGEMENT: 1. BAJLA EXPORTS RS. 73 40 000/- 2. PALSS PROPERTIES P. LTD. RS. 22 75 765/- 3. TAURIAN ENGG. P. LTD. RS. 2 87 53 221/- RS.3 83 68 986/- THE A.O. ASKED THE ASSESSEE TO EXPLAIN AS TO WHY P ROPORTIONATE INTEREST ON ADVANCES GIVEN TO ABOVE MENTIONED PARTIES SHOULD NO T BE DISALLOWED. THE ASSESSEE EXPLAINED THAT IT HAS NOT TAKEN ANY SPECIF IC BORROWING/LOANS FOR MAKING ADVANCES TO SISTER CONCERN. IT HAS GOT SUFF ICIENT FUNDS IN THE FORM OF SHARE CAPITAL SHARE APPLICATION MONEY AND FREE RES ERVE AND SURPLUS. THE COMPANY HAS GOT OWN CAPITAL OF RS. 37.40 CRORES AS AGAINST OUTSTANDING LOAN OF RS. 3.63 CRORES (EXCLUDING RS. 20 LACS GIVEN AS DEP OSIT TO PALSS PROPERTIES) GIVEN TO THE SISTER CONCERN AS ON 30.3.2006. THERE FORE IT CANNOT BE SAID THAT THE LOAN/ADVANCE GIVEN TO SISTER CONCERNS ARE OUT O F BORROWED FUNDS. IT WAS SUBMITTED THAT IT WAS OUT OF COMMON FUNDS FROM WHER E THE MONEY HAS BEEN ADVANCED TO THE SISTER CONCERNS. IT WAS SUBMITTED THAT THE COMPANY HAS ALSO TAKEN INTEREST FREE UNSECURED LOAN OF RS. 7.05 LACS FROM SISTER CONCERNS. IT WAS 3 IT A 847 & 1613/ M/2010 M/S TAURIAN IRON & STEEL CO..P.LTD.. ACCORDINGLY ARGUED THAT NO DISALLOWANCE SHOULD BE M ADE. IN THE ALTERNATE CONTENTION IT WAS SUBMITTED THAT SINCE THE AVERAGE COST OF BORROWING WAS 6.50% PER ANNUM THEREFORE THE AMOUNT OF INTEREST WH ICH AT BEST CAN BE DISALLOWED COMES TO RS. 12 46 272/-. 2.2 HOWEVER THE A.O. WAS NOT CONVINCED WITH THE EX PLANATION GIVEN BY THE ASSESSEE. ACCORDING TO HIM THE ASSESSEE DIVERTED I NTEREST BEARING FUNDS TOWARDS INTEREST FREE ADVANCES TO SISTER CONCERNS F OR NON-BUSINESS PURPOSES. HAD THE ASSESSEE NOT ADVANCED INTEREST FREE ADVANCE S THE FUNDS WOULD HAVE BEEN AVAILABLE TO THE ASSESSEE AND ITS INTEREST COS T WOULD HAVE BEEN REDUCED. HE ACCORDINGLY DISALLOWED INTEREST OF RS. 12 46 272 /-. 2.3 BEFORE THE LD. CIT(A) THE ASSESSEE REITERATED T HE SAME SUBMISSIONS AS MADE BEFORE THE A.O. IT WAS SUBMITTED THAT ALTHOUGH THE FUNDS ARE MIXED THE ADVANCES WERE MADE OUT OF ITS OWN FUNDS OF SHARE CA PITAL AND FREE RESERVES & SURPLUS OF RS. 37.40 CRORES. IT WAS FURTHER SUBMIT TED THAT THERE WAS BUSINESS EXPEDIENCY IN ADVANCING LOANS TO THE SISTER CONCERN AND NO INTEREST ON SUCH INTEREST FREE LOANS WERE CLAIMED AS DEDUCTION BY TH E SISTER CONCERNS. 2.4 HOWEVER THE LD. CIT(A) WAS ALSO NOT CONVINCED WITH THE EXPLANATION GIVEN BY THE ASSESSEE. HE OBSERVED THAT THE ASSESS EE WAS NOT ABLE TO SHOW THAT ITS OWN FUNDS WERE ADVANCED TO SISTER CONCERNS. FU RTHER THERE IS NO BUSINESS EXPEDIENCY IN ADVANCING LOAN BY THE ASSESSEE TO ITS SISTER CONCERN. HE ALSO REJECTED THE ARGUMENT OF THE ASSESSEE THAT IF IT WO ULD HAVE CHARGED INTEREST THEN THE INTEREST EXPENDITURE IN THE HANDS OF THE S ISTER CONCERNS WOULD HAVE BEEN TAKEN AS EXPENSES. ACCORDING TO HIM UNDER TH E INCOME TAX ACT EACH PERSON IS SEPARATE. MAKING SISTER CONCERNA PROFITA BLE OR OTHERWISE BY ADVANCING INTEREST FREE LOAN BY THE ASSESSEE TO ITS SISTER CONCERN CANNOT BE TREATED TO BE A BUSINESS EXPEDIENCY. HE ACCORDINGLY UPHELD THE ACTION OF THE 4 IT A 847 & 1613/ M/2010 M/S TAURIAN IRON & STEEL CO..P.LTD.. A.O. AGGRIEVED WITH SUCH ORDER OF THE LD. CIT(A) THE ASSESSEE IS IN APPEAL BEFORE US. 3. THE LD. COUNSEL FOR THE ASSESSEE REFERRING TO PA GES 54 TO 57 OF THE PAPER BOOK SUBMITTED THAT THE VARIOUS SUBMISSIONS MADE BY THE ASSESSEE AND THE DECISIONS CITED WERE NOT AT ALL CONSIDERED BY THE L D. CIT(A). HE SUBMITTED THAT THE ASSESSE COMPANY HAD RS. 37.40 CRORES AS ITS SHA RE CAPITAL AND FREE RESERVE OUT OF WHICH AN AMOUNT OF RS. 3.63 CRORES (EXCLUDIN G RS. 20 LACS GIVEN AS DEPOSIT TO PALSS PROPERTIES PVT. LTD.) HAS BEEN GIV EN AS INTEREST FREE ADVANCES TO THE SISTER CONCERNS AND NO BORROWED FUND HAS BEEN U TILIZED FOR SUCH INTEREST FREE ADVANCES. HE SUBMITTED THAT THE COMPANY HAS A FUNGIBLE BANK ACCOUNT AND THEREFORE IT IS NOT CORRECT TO SAY THAT ANY SPE CIFIC INTEREST BEARING FUNDS WERE GIVEN TO THE SISTER CONCERNS. THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT V. RELIANCE UTILITIES AND POWER LTD. REPORTED IN 313 ITR 340 WAS CITED BY THE LD. COUNSEL FOR THE ASSESSEE. HE SUBMITTED THAT THE ASSESSEE HAD GIVEN AN AMOUNT OF RS. 2.88 CRORES OUT OF THE TOTAL INTEREST FREE FUNDS OF RS. 3.84 CRORES TO TAURIAN ENGG. PVT. LTD. (TEPL) A SISTER CONCERN WHICH IS A SUBSIDIARY OF THE ASSESSEE COMPANY. HE SUBMITTED THAT TEPL IS A COMPANY ENGAGED IN THE BUSINESS OF MANUFACTURING OF CRUSHING PLANT/SCREENING PLANT AND THE SAID FUNDS GIVEN BY T HE ASSESSEE HAS BEEN UTILIZED FOR THEIR BUSINESS PURPOSE ONLY. DURING T HE YEAR TEPL HAD JUST STARTED ITS BUSINESS OPERATIONS AND THE BORROWED FUNDS WERE FULLY UTILIZED BY TEPL FOR THE PURPOSE OF ITS BUSINESS ACTIVITIES. THE COPY O F BALANCE SHEET OF TEPL FILED IN THE PAPER BOOK WAS SHOWN TO SUBSTANTIATE THE SAM E. RELYING ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF S.A. BUILDE RS LTD. REPORTED IN 158 TAXMAN 74 HE SUBMITTED THAT NO INTEREST SHOULD BE D ISALLOWED IF THE MONEY HAS BEEN ADVANCED TO SISTER CONCERNS FOR COMMERCIAL EXPEDIENCY. IT CAN BE DISALLOWED ONLY IF THE MONEY ADVANCED TO THE SISTER CONCERNS ARE UTILIZED BY THE DIRECTORS FOR THEIR PERSONAL BENEFITS. AS REGARDS THE OBSERVATION OF THE A.O. THAT HAD THE ASSESSEE NOT ADVANCED THE INTEREST FRE E ADVANCES THESE FUNDS 5 IT A 847 & 1613/ M/2010 M/S TAURIAN IRON & STEEL CO..P.LTD.. WOULD HAVE BEEN AVAILABLE TO THE ASSESSEE AND ITS I NTEREST COST WOULD HAVE REDUCED HE SUBMITTED THAT THE REVENUE CANNOT JUSTI FIABLY CLAIMED TO PUT ITSELF IN THE ARM CHAIR OF THE BUSINESSMAN OR IN THE POSIT ION OF THE BOARD OF DIRECTORS. THE DECISION OF THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT V. DALMIA CEMENT (BHARAT) LTD. REPORTED IN 254 ITR 377 WAS CITED ACCORDING TO WHICH THE AUTHORITIES MUST NOT LOOK AT THE MATTER F ROM THEIR OWN VIEW POINT BUT THAT OF A PRUDENT BUSINESSMAN. HE SUBMITTED TH AT THE SISTER CONCERNS AND THE ASSESSEE ARE ASSESSED TO TAX ON THEIR TAXABLE I NCOME AND THEREFORE THERE IS NO QUESTION OF SHIFTING THE TAX LIABILITY LEADING T O ANY REVENUE LEAKAGE. HE SUBMITTED THAT THE LD. CIT(A) HOWEVER HAS NOT CON SIDERED ANY OF THE SUBMISSIONS MADE BY THE ASSESSEE AND SIMPLY CONFIRM ED THE DISALLOWANCE MADE BY THE A.O. THE LD. COUNSEL FOR THE ASSESSEE A LSO RELIED ON VARIOUS DECISIONS GIVEN IN THE PAPER BOOK. 4. THE LD. D.R. ON THE OTHER HAND HEAVILY RELIED ON THE ORDER OF THE A.O. AND LD. CIT(A). 5. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY B OTH THE SIDES PURSUED THE ORDERS OF THE ASSESSING OFFICER AND THE CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSIDERED THE PLETHORA OF DECISIONS CITED BY THE LD. COUNSEL FOR THE ASSESSEE. THERE IS NO D ISPUTE TO THE FACT THAT SHARE HOLDERS FUND AND FREE RESERVES IN THE ASSESSEE COMP ANY IS RS. 37.40 CRORES AND IT HAS MADE INTEREST FREE ADVANCES OF RS. 3.63 CROR ES (EXCLUDING RS. 20 LACS GIVEN AS DEPOSIT TO PALSS PROPERTIES). THERE IS AL SO NO DISPUTE TO THE FACT THAT THE ASSESSEE IS MAINTAINING MIXED ACCOUNT. THE SUBM ISSION OF THE LD. COUNSEL FOR THE ASSESSEE THAT THE AMOUNT OF RS. 2.88 CRORES ADVANCED TO TEPL HAVE BEEN UTILIZED BY THEM FOR THEIR BUSINESS PURPOSE AN D NO PART OF THE SAME HAS BEEN DIVERTED FOR PERSONAL BENEFIT OF THE DIRECTORS REMAINS UNCONTROVERTED. WE FIND THE HONBLE BOMBAY HIGH COURT IN THE CASE OF C IT V. RELIANCE UTILITIES AND 6 IT A 847 & 1613/ M/2010 M/S TAURIAN IRON & STEEL CO..P.LTD.. POWER LTD. REPORTED IN 313 ITR 340 HAS HELD THAT IF THERE ARE FUNDS AVAILABLE BOTH INTEREST FREE AND OVERDRAFT AND/OR LOAN TAKEN THEN A PRESUMPTION WOULD ARISE THAT INVESTMENTS WOULD BE OUT OF THE INTEREST FREE FUND GENERATED OR AVAILABLE WITH THE COMPANY IF THE INTEREST FREE FU NDS ARE SUFFICIENT TO MEET THE INVESTMENTS. SINCE IN THE INSTANT CASE THE INTERES T FREE FUNDS I.E. SHAREHOLDERS FUNDS AND FREE RESERVES AND SURPLUS ARE MUCH HIGHER THAN THE INTEREST FREE ADVANCES MADE TO THE SISTER CONCERNS AND SINCE THE ASSESSEE IS MAINTAINING A MIXED BANK ACCOUNT THEREFORE IN VIEW OF THE DECIS ION OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF RELIANCE U TILITIES AND POWER LTD. (SUPRA) NO DISALLOWANCE OF PROPORTIONATE INTEREST CAN BE MA DE. 5.1 FURTHER THE CASE OF THE ASSESSEE IS ALSO SQUARE LY COVERED BY THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF S.A. BUILDE RS (SUPRA) ACCORDING TO WHICH DISALLOWANCE OF PROPORTIONATE INTEREST CANNO T BE MADE IF THE INTEREST FREE ADVANCES HAVE BEEN MADE TO THE SISTER CONCERNS FOR COMMERCIAL EXPEDIENCY. SINCE IN THE INSTANT CASE THE ASSESSEE HAS CONCLUSIVELY PROVED THAT THE AMOUNT HAS BEEN PAID TO SUBSIDIARY COMPANI ES FOR THE PURPOSE OF BUSINESS AND NO PART OF THE AMOUNT OF ADVANCE HAS B EEN UTILIZED BY THE DIRECTORS FOR THEIR PERSONAL PURPOSE AND THE ENTIRE AMOUNT HAS BEEN UTILIZED FOR THE PURPOSE OF BUSINESS THEREFORE NO PROPORTI ONATE DISALLOWANCE OF INTEREST IN OUR OPINION CAN BE MADE IN THE INSTAN T CASE. THE VARIOUS DECISIONS OF THE TRIBUNAL RELIED ON BY THE LD. COUNSEL FOR TH E ASSESSEE ALSO SUPPORT THE CASE OF THE ASSESSEE. IN THIS VIEW OF THE MATTER W E SET ASIDE THE ORDER OF THE LD. CIT(A) AND DIRECT THE A.O. TO DELETE THE DISALLOWAN CE OF RS. 12 46 272/-. 6. GROUND NO. 2 RELATES TO THE DISALLOWANCE OF INDI RECT EXPENSES OF RS. 2087/- AND INTEREST OF RS. 2194/- MADE BY THE A.O. U/S 14A READ WITH RULE 8D. 7 IT A 847 & 1613/ M/2010 M/S TAURIAN IRON & STEEL CO..P.LTD.. 6.1 THE LD. COUNSEL FOR THE ASSESSEE DID NOT PRESS THIS GROUND FOR WHICH THE LD. D.R. HAS NO OBJECTION. ACCORDINGLY THIS GROUN D IS DISMISSED AS NOT PRESSED. 7. GROUND NO. 3 BY THE ASSESSEE READS AS UNDER:- ON THE FACTS & IN THE CIRCUMSTANCES OF THE CASE & IN LAW THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) ERRED IN NOT A DJUDICATING THE GROUND OF APPEAL TAKEN BEFORE HIM ON THE ISSUE OF N OT ALLOWING THE EXPENSES BY THE LEARNED ASSESSING OFFICER OF RS. 22 28 082/- PERTAINING TO THE ASSESSMENT YEAR 2006-07 CLAIMED B Y THE APPELLANT DURING THE COURSE OF ASSESSMENT PROCEEDINGS. 7.1 THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSE IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING. THE EXPENSES PERTA INING TO THE YEAR UNDER CONSIDERATION AMOUNTING TO RS. 22 28 082/- WHICH WE RE ORIGINALLY DEBITED TO THE P&L ACCOUNT FOR THE YEAR ENDED 31.03.2007 WERE SUO-MOTU DISALLOWED BY THE ASSESSEE IN THE COMPUTATION OF TOTAL INCOME FOR THE A.Y. 2007-08. SINCE THE TIME OF FILING OF THE REVISED RETURN FOR A.Y. 2006- 07 HAD EXPIRED THE ASSESSEE FILED REVISED COMPUTATION BEFORE THE A.O. DURING TH E COURSE OF ASSESSMENT PROCEEDINGS FOR A.Y. 2006-07 CLAIMING THE EXPENDITU RE. REFERRING TO PAPER BOOK PAGE 40 HE DREW THE ATTENTION OF THE BENCH TO COLU MN NO. 6 OF THE LETTER ADDRESSED TO THE A.O. REFERRING TO PAPER BOOK PAGE 43 HE DREW THE ATTENTION OF THE BENCH TO THE DETAILS OF PRIOR PERIOD EXPENSE S DISALLOWED IN F.Y. 2006-07 TO BE CONSIDERED IN F.Y. 2005-06. HE SUBMITTED THA T ALTHOUGH A SPECIFIC GROUND AS PER GROUND NO. 5 WAS RAISED BEFORE THE LD . CIT(A) HE HAS NOT ADJUDICATED THE SAME. REFERRING TO THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF GOETZE (INDIA) LTD. V. CIT REPORTED IN 284 ITR 323 (SC) AND THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF CIT V. JAI PRABOLIC SPRINGS REPORTED IN 306 ITR 42 (DEL) HE SUBMITTED THAT THE TRIBUNAL HAS POWER TO ALLOW DEDUCTION FOR EXPENDITURE TO THE ASSESSEE TO WHICH IT WAS OTHERWISE ENTITLED TO EVEN THOUGH NO CLAIM WAS MADE BY THE ASSESSEE IN TH E RETURN. REFERRING TO THE 8 IT A 847 & 1613/ M/2010 M/S TAURIAN IRON & STEEL CO..P.LTD.. DECISION OF THE TRIBUNAL IN THE CASE OF M/S INDIAN STEEL & ALLIED INDUSTRIES V. ACITT IN ITA NO. 3097/MUM/06 ORDER DTD. 10.8.2009 F OR A.Y. 2005-06 HE SUBMITTED THAT THE TRIBUNAL IN THE SAID DECISION RE LYING ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF GOETZE (INDIA) LTD. (SUPRA) HAS RESTORED THE ISSUE TO THE FILE OF THE A.O. WITH A DIRECTION TO ALLOW THE CLAIM OF DEDUCTION OF GRATUITY WHICH WERE NOT CLAIMED EITHER IN THE OR IGINAL RETURN OR IN THE REVISED RETURN. REFERRING TO THE DECISION OF THE HONBLE S UPREME COURT IN THE CASE OF KEDARNATH JUTE MFG. CO. LTD. V. CIT REPORTED IN 82 ITR 363 HE SUBMITTED THAT THE EXPENDITURE HAS TO BE ALLOWED IN THE YEAR TO WH ICH IT RELATES TO. HE ACCORDINGLY SUBMITTED THAT THE ISSUE MAY BE RESTORE D TO THE FILE OF THE A.O. FOR FRESH ADJUDICATION. 7.2. THE LD. D.R. ON THE OTHER HAND SUBMITTED THA T SINCE NEITHER THE A.O. NOR THE CIT(A) HAS ADJUDICATED THE ISSUE THEREFORE THE SAME HAS TO BE RESTORED TO THE FILE OF THE A.O. OR CIT(A) FOR FRESH ADJUDIC ATION. 7.3. AFTER HEARING BOTH THE SIDES WE FIND THE ASSES SEE HAS FILED A LETTER BEFORE THE A.O. GIVING DETAILS OF THE PRIOR PERIOD EXPENSE S TO BE CONSIDERED IN A.Y. 2006-07 WHICH THE ASSESSEE HAS SUO MOTU DISALLOWED IN A.Y. 2007-08. HOWEVER WE FIND THE A.O. HAS NEITHER ACCEPTED NOR REJECTED THE CLAIM OF THE ASSESSEE. EVEN THOUGH A SPECIFIC GROUND AS PER GROU ND OF APPEAL NO. 5 ATTACHED TO FORM NO. 35 WAS TAKEN BEFORE THE LD. CI T(A) WE FIND THE LD. CIT(A) HAS ALSO NOT ADJUDICATED THE SAME. THE HONBLE SUP REME COURT IN THE CASE OF GOETZE (INDIA) LTD. (SUPRA) HAS HELD THAT THE POWER OF THE A.O. IS RESTRICTED TO ENTERTAINING CLAIM FOR DEDUCTION OTHERWISE THAN BY A REVISED RETURN AND DID NOT IMPINGE ON THE POWER OF THE APPELLATE TRIBUNAL U/S 254 OF THE INCOME TAX ACT 1961. THE ASSESSEE IN THE IMPUGNED CASE HAS MADE A CLAIM FOR THE DEDUCTION OF EXPENDITURE BY WAY OF SUBMITTING WRITTEN SUBMISS ION BEFORE THE A.O. WHICH HAS NOT BEEN ADJUDICATED BY THE A.O. A SPECIFIC GRO UND TAKEN BEFORE THE LD. 9 IT A 847 & 1613/ M/2010 M/S TAURIAN IRON & STEEL CO..P.LTD.. CIT(A) HAS NOT BEEN ADJUDICATED BY HIM. UNDER THESE CIRCUMSTANCES WE DEEM IT PROPER TO SET ASIDE THE ISSUE TO THE FILE OF THE A. O. WITH A DIRECTION TO CONSIDER THE ALLOWABILITY OR OTHERWISE OF THE CLAIM OF RS. 2 2 28 082/- AFTER VERIFYING THE FACTS FROM THE RECORDS OF THE DEPARTMENT. NEEDLESS TO SAY THE A.O. SHALL GIVE ADEQUATE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE AND DECIDE THE ISSUE IN ACCORDANCE WITH LAW. THE GROUND RAISED BY THE ASSE SSEE IS ACCORDINGLY ALLOWED FOR STATISTICAL PURPOSE. 8. GROUND NO. 4 BY THE ASSESSEE READS AS UNDER:- ON THE FACTS & IN THE CIRCUMSTANCES OF THE CASE & IN LAW THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) ERRED IN NOT A DJUDICATING THE GROUND OF APPEAL TAKEN BEFORE HIM ON THE ISSUE OF I NITIATION OF THE PENALTY PROCEEDINGS U/S 271(1)(C) OF THE INCOME TAX ACT 1961 BY THE LEARNED ASSESSING OFFICER. 8.1. WE FIND THE ABOVE GROUND IS PRE-MATURE AT THIS JUNCTURE. ACCORDINGLY THE SAME IS DISMISSED. 9. GROUND NO. 5 BY THE ASSESSEE READS AS UNDER:- ON THE FACTS & IN THE CIRCUMSTANCES OF THE CASE & IN LAW THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) ERRED IN NOT A DJUDICATING THE GROUND OF APPEAL TAKEN BEFORE HIM ON THE ISSUE CHAR GING INTEREST U/S 234B & 234C OF THE INCOME TAX ACT 1961 BY THE LEAR NED ASSESSING OFFICER ON THE ADDITIONS MADE AT THE TIME OF ASSESS MENT. 9.1 AFTER HEARING BOTH THE SIDES WE ARE OF THE CONS IDERED OPINION THAT CHARGING OF INTEREST U/S 234B & 234C IS MANDATORY A ND CONSEQUENTIAL IN NATURE. A`CCORDINGLY THIS GROUND BY THE ASSESSEE I S DISMISSED. ITA NO. 1613/MUM/2010 (BY THE REVENUE) 10. THE ONLY EFFECTIVE GROUND RAISED BY THE REVENUE READS AS UNDER:- 10 IT A 847 & 1613/ M/2010 M/S TAURIAN IRON & STEEL CO..P.LTD.. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) ERRED IN TREATING PUNITIVE CHARGES AS PAYMENTS AND NOT AN OFFENCE O R PROHIBITED BY LAW WITHOUT APPRECIATING THE FACT THAT PUNITIVE CH ARGES ARE LEVIED TO DETER PEOPLE FROM OVERLOADING BY LEVYING CHARGES IN EXCESS OF NORMAL FREIGHT AND THEY ARE PENAL IN NATURE. 10.1 FACTS OF THE CASE IN BRIEF ARE THAT DURING THE COUR SE OF ASSESSMENT PROCEEDINGS THE A.O. NOTED THAT THE ASSESSEE HAS DE BITED PUNITIVE CHARGES OF RS. 1 01 85 788/- IN ITS P&L ACCOUNT. ON BEING QUE STIONED BY THE A.O. REGARDING THE ALLOWABILITY OF THE SAME THE ASSESSE E VIDE LETTER DTD. 31.12.2008 REPLIED AS UNDER:- THE COMPANY HAS INCURRED PUNITIVE CHARGES WHICH PA ID TO THE INDIAN RAILWAYS DUE TO OVERLOADING OF GOODS IN THE WAGON W HILE SENDING THE GOODS THROUGH RAILWAYS WAGONS FROM RAILWAY SIDING T O PORTS OR FROM ONE SIDING TO OTHER SIDINGS. THERE IS AN ECONOMY OF SCA LE WHILE TRANSPORTING THE GOODS TO PORT THROUGH RAILWAYS AS COMPARED TO T RUCKS EVEN IF PUNITIVE CHARGES ARE INCURRED. IN THE TERMINOLOGY OF RAILWAY S WHERE COMMODITIES ARE OVER LOADED IN RAILWAY WAGON THE RAILWAY ADMIN ISTRATION SHALL RECOVER PUNITIVE CHARGES AS PER THEIR NORMS FROM TH E CONSIGNOR CONSIGNEE OR THE ENDORSEE AS THE CASE MAY BE FOR THE ENTIRE DISTANCE TO BE TRAVELED BY THE TRAIN HAULING THE WAGONS FROM THE ORIGINATIN G STATIONS TO THE DESTINATION POINT IRRESPECTIVE OF THE PAINT OF DET ECTION OF OVER LOADING THOUGH PUNITIVE WORD HAS BEEN GIVEN FOR SUCH CHARGE S FOR OVERLOADING THE GOODS BUT IN COMMERCIAL PARLANCE IT IS NOR IN THE N ATURE OF PENALTY FOR INFRACTION OF LAW. IT IS PURELY COMPENSATORY IN NAT URE. IN FACT WHILE LOADING THE GOODS EXACT MEASUREMENT CANNOT BE MADE . SINCE THE GOODS (IRON ORE) ARE IN OPEN CONDITION THE SAME ARE LOAD ED IN WAGON BY THE COMPANY ON SOME ESTIMATE BASIS WHICH VARIES FROM TH E RAILWAYS MEASUREMENT WHEN IT GOES TO RAILWAY WEIGHTMENT BRI DGE FOR WEIGHT MEASUREMENT. IF IT IS FOUND EXCESS IT CANNOT BE UN LOADED. EVEN IF IT IS UNLOADED COST OF UNLOADING & SHIFTING THE GOODS WI LL BE HIGHER AS COMPARED TO PUNITIVE LEVIABLE BY THE RAILWAYS. DEMU RRAGE & PUNITIVE ARE SYNONYMS IN NATURE. IT IS FURTHER STATED THAT MANNE R OF DETERMINATION OF AMOUNT OF PUNITIVE CHARGES CANNOT DETERMINE THE NAT URE OF EXPENSES. THESE COMPENSATION CHARGES ARE INCURRED/PAID FOR BR EACH OF CONTRACT NOT FOR BREACH OF LAW. FROM THE ABOVE IT IS SUNMARIZED AS UNDER:- - THE GOODS ARE LOADED IN GOOD FAITH/GOOD INTENTION T HAT IT WILL NOT EXCEED THE PERMISSIBLE CAPACITY. - EVEN IF PUNITIVE CHARGES ARISE IT IS BENEFICIAL T O THE COMPANY IN TERMS OF FREIGHT COST & TIME FACTOR AS COMPARED TO GOODS SENT THROUGH OTHER MODE OF TRANSPORT A THERE IS LIMITED AVAILABILITY O F WAGONS (RAKE). IT IS 11 IT A 847 & 1613/ M/2010 M/S TAURIAN IRON & STEEL CO..P.LTD.. COMMERCIALLY VIABLE. IF GOODS ARE SENT THROUGH RAIL WAYS THERE IS COST SAVING AS WELL AS SAVING OF TIME FURTHER HANDLING L OSS WILL BE DECREASED AS COMPARE TO ROAD TRANSPORT. - IT ARISES DUE TO BREACH OF CONTRACT NOT FOR BREACH OF LAW. - THESE CHARGES ARE NOT IN THE NATURE OF PENALTY FOR INFRACTION OF LAW. - IT IS PURELY COMMERCIAL EXPENSES I.E. COMPENSATORY IN NATURE. - IT IS PAID AS PER THE SCHEME OF RAILWAY CIRCULAR I S ATTACHED HERE WITH. HENCE THE ASSESSEE IS AWARE OF PUNITIVE AND UNDER G OOD FAITH/INTENTION HAS PAID UNDER SCHEME OF THE CIRCUL AR. HENCE IT IS A INCIDENT OF BUSINESS LAID OUT AND EXPENDED WHOLLY A ND EXCLUSIVELY FOR THE PURPOSES OF THE BUSINESS (REF CJT V. AHMEDABAD COTTON MFG. CO. LTD. [1993] 7) TAXMAN 56/[1 994] 205 ITR 163 (SC).) - IN ADDITION TO ABOVE THE PUNITIVE CHARGES INCLUDES THE NORMAL CHARGES I.E. BASIC FREIGHT. IN VIEW OF ABOVE PUNITIVE CHAR GES INCURRED BY THE ASSESSEE SHOULD BE ALLOWED AS EXPENSES U/S. 37(1) O F THE INCOME TAX ACT BY TREATING THE SAME AS INCURRED WHOLLY & EXCLU SIVELY FOR THE BUSINESS OF THE ASSESSEE. COPY OF DETERMINATION OF PUNITIVE CHARGES ARE ENCLOSED FOR YOUR REFERENCE. 10.2 HOWEVER THE A.O. WAS NOT CONVINCED WITH THE E XPLANATION GIVEN BY THE ASSESSEE. ACCORDING TO HIM THE DICTIONARY MEANING OF PUNITIVE IS INFLICTING OR INTENDING TO INFLICT PUNISHMENT OF TAXATION ETC.. THEREFORE THE PUNITIVE CHARGES ARE PENAL IN NATURE. HE OBSERVED THAT THE PUNITIVE CHARGES ARE LEVIED AS PER NOTIFICATION OF MINISTRY OF RAILWAYS (RAILWA Y BOARD) DTD. 23.12.2005. PUNITIVE CHARGES ARE LEVIED FOR OVERLOADING IN A WA GON BEYOND THE PERMISSIBLE CARRYING CAPACITY OF THE WAGON. HE REFERRED TO THE RATE OF SUCH PUNITIVE CHARGES. ACCORDING TO HIM THESE PENAL CHARGES ARE LEVIED FOR INFRINGEMENT OF LAW AND RULES OF THE RAILWAYS SPECIFYING THE PERMIS SIBLE CARRYING CAPACITY. THESE CHARGES ARE LEVIED TO DETER THE PEOPLE FROM O VERLOADING WAGONS BY LEVYING CHARGES IN EXCESS OF NORMAL FREIGHT. ACCORDING TO T HE A.O. AS PER THE PROVISIONS OF EXPLANATION TO SEC. 37 ANY EXPENDITURE INCURRED BY AN ASSESSEE FOR ANY PURPOSE WHICH IS AN OFFENCE OR PROHIBITED BY LAW SH ALL NOT BE DEEMED TO HAVE BEEN INCURRED FOR THE PURPOSES OF BUSINESS AND NO D EDUCTION SHALL BE ALLOWED. RELYING ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF HAJI AZIZ AND 12 IT A 847 & 1613/ M/2010 M/S TAURIAN IRON & STEEL CO..P.LTD.. ABDUL SHAKOOR BROS REPORTED IN 41 ITR 350 (SC) AND THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF RO HIT PULP & PAPER INDUSTRIES REPORTED IN 215 ITR 919 HE DISALLOWED THE AMOUNT OF RS. 1 01 85 788/- BEING PENAL IN NATURE. 10.3 BEFORE THE LD. CIT(A) THE ASSESSEE SUBMITTED T HAT THAT DURING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR 2006- 07 THE COMPANY WAS MAINLY ENGAGED IN EXPORT OF IRON ORE FOR WHICH MATE RIAL HAD TO BE TRANSPORTED FROM MINES/PLANT/RAILWAY SIDINGS TO THE PORTS THROU GH PRIVATE TRANSPORTER IN TRUCKS AND RAILWAY WAGONS PROVIDED BY INDIAN RAILWA YS. RAILWAY IS THE ONLY MODE OF TRANSPORTATION IF THE PERSON WISHES TO TRAN SPORT ITS PRODUCT THROUGH RAILWAY & IT IS COMMERCIALLY CHEAPEST IN COMPARISON TO OTHER MODE OF TRANSPORTATION. DURING THE YEAR THE COMPANY HAD PAI D FREIGHT OF RS.13.83 CRORES TO THE RAILWAYS. IN ADDITION TO THAT RS.1 01 85 788/- HAS BEEN PAID AS OVERLOADING CHARGES TOWARDS OVERLOADING THE GOODS I N THE RAILWAY WAGONS WHICH IS TERMED AS PUNITIVE CHARGES AND THE SAME IS CHARGED AS PER THE RATES FIXED BY THE RAILWAYS BY ISSUING NOTIFICATION FROM TIME TO TIME. IN THIS RESPECT THE ASSESSEE SUBMITTED THE FOLLOWING:- 1. THE APPELLANT COMPANY HAS INCURRED THE SAID EXPE NSES DURING THE NORMAL COURSE OF BUSINESS ACTIVITIES CARRIED ON. 2. IT IS PURELY A COMMERCIAL EXPENSES INCURRED BY T HE APPELLANT COMPANY DURING THE NORMAL COURSE OF BUSINESS. 3. THE RAILWAY IS PERMITTING/ALLOWING TO CARRY THE GOODS OVERLOADED IN THE WAGONS BY COLLECTING THE OVERLOADING CHARGES TERMED AS PUNITIVE I.E. IT IS NOT PROHIBITED TO OVERLOAD THE GOODS IN THE WAGONS. 4. OVERLOADING CHARGES PAID TO RAILWAYS WAS NOT IN THE NATURE OF PENALTY FOR VIOLATION/INFRACTION OF ANY LAW BUT BY WAY OF COMPE NSATION FOR PERMITTING TO OVERLOAD THE GOODS BEYOND THE PERMISSIBLE LIMIT ALL OWED BY THE RAILWAY ADMINISTRATION THOUGH THE TERMINOLOGY FOR THE SAME HAS BEEN GIVEN BY THE RAILWAY AS PUNITIVE. 13 IT A 847 & 1613/ M/2010 M/S TAURIAN IRON & STEEL CO..P.LTD.. 5. THERE IS NO PROVISION FOR CRIMINAL ACTION/PERSON AL LIABILITIES/PROSECUTION/CONFISCATION OF GOODS FOR O VERLOADING THE GOODS. 6. THE PAYMENT AS FINE/PUNITIVE CHARGES WAS NOT IN THE NATURE OF PUNISHMENT BUT BY WAY OF COMPENSATION 7 OVERLOADING IS VERY COMMON IN NATURE WHICH THE RAILWAYS IS ALLOWING/PERMITTING BY PAYING ADDITIONAL FREIGHT TE RMED AS PUNITIVE. IN VIEW OF ABOVE AND NOTIFICATION ISSUED BY THE RAI LWAY BOARD YOU WILL APPRECIATE THAT PUNITIVE CHARGES ARE PAID FOR OVERL OADING THE WAGON BUT NOT FOR ANY VIOLATION/INFRACTION OF LAW. THE HEADING OF TER MS OF PUNITIVE CHARGES FOR OVERLOADING ITSELF STARTS WITH PUNITIVE CHARGES FOR OVERLOADING. 10.4 BASED ON THE ARGUMENTS ADVANCED BY THE ASSESSE E THE LD. CIT(A) DELETED THE ADDITION MADE BY THE A.O. BY OBSERVING AS UNDER :- THE OVERLOADING CHARGES PAID BY THE APPELLANT TO T HE RAILWAYS ARE PAID IN THE REGULAR COURSE OF BUSINESS IN ACCORDANCE WITH T HE NOTIFICATION ISSUED BY MINISTRY OF RAILWAYS DATED 23.12.2005. THE NOTIFICA TION OF MINISTRY OF RAILWAYS DATED 23.12.2005 PROVIDES A SCHEDULE IN WH ICH SITUATION A AND SITUATION B PROVIDES THAT F THE AGGREGATED PAYLOAD IN A RAKE EXCEED THE COMBINED PERMISSIBLE CARRYING CAPACITY OF THE RAKE THE PUNITIVE CHARGES SHOULD BE LEVIED AS PER PART I PART-II PART- III OF SITUATIONS A & B IT PROVIDES THAT IN CASE OF OVERLOADING UPTO 1/2 TONNE S PUNITIVE CHARGES ELIGIBLE ON THE ENTIRE WEIGHT OF LOADING BEYOND THE PERMISSIBLE CARRYING CAPACITY SHALL BE NIL (AS PER DIFFERENT TABLES OF S ITUATION A AND SITUATION B AND IN CASE THE WEIGHT OF COMMODITY EXCEEDS THE PER MISSIBLE 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 RATES APPLICABLE TO THAT CO MMODITY IN CASE OF SITUATION A AND 3 TIMES THE FREIGHT RATES APPLICABLE TO THE HIGHEST CLASS IN CASE OF SITUATION B. (II) THUS IT IS OBVIOUS FROM THE NOTIFICATION OF M INISTRY OF RAILWAYS DATED 23.12.2005 THAT THE RAILWAY AUTHORITIES DO ALLOW OV ERLOADING OF ITS RAKE AND IT CHARGES 2 OR 3 TIMES THE FREIGHT RATE APPLICABLE TO THAT COMMODITY AS PUNITIVE CHARGES. THOUGH THE WORDS USED IN THE NOT IFICATION ARE PUNITIVE CHARGES THE CHARGES LEVIED BY THE INDIAN RAILWAYS FOR CARRYING THE GOODS IN ITS RAKE ARE PERMITTED BY RAILWAY AUTHORITIES ITSEL F 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 NOTIFICA TION OF MINISTRY OF 14 IT A 847 & 1613/ M/2010 M/S TAURIAN IRON & STEEL CO..P.LTD.. RAILWAYS DATED 23.12.2005 FOR CARRYING GOODS IN IT S 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 W EIGHT LOAD BEYOND THE PERMISSIBLE CARRYING CAPACITY SUBJECT TO PAYMENT OF HIGHER RATE OF FREIGHT BY 2 TIMES OR 3 TIMES. THOUGH THE WORDS ARE PUNITIVE CHARGES THEY ARE PAYMENT WHICH ARE NEITHER AN OFFENSE NOR IS PROHIBI TED BY THE LAW RATHER THE PAYMENT IS IN ACCORDANCE WITH THE LAW AS PROVIDED I N THE NOTIFICATION OF MINISTRY OF RAILWAYS DATED 23.12.2005. IT IS THEREFORE HELD THAT EXPLANATION TO SECTION 37 IS NOT APPLICABLE AND THE PAYMENT OF RS.1 O1 85 788/- IS ALLOWABLE. HENCE THE ADDITION IS DELETED AND GROUN D NO. 4 IS ALLOWED. AGGRIEVED WITH SUCH ORDER OF THE LD. CIT(A) THE RE VENUE IS IN APPEAL BEFORE US. 10.5 THE LD. D.R. SUBMITTED THAT THE PUNITIVE CHARG ES PAID TO THE INDIAN RAILWAYS DUE TO OVERLOADING ARE PURELY PENALTY IN N ATURE. MERELY BECAUSE THE RAILWAYS ARE ALLOWING THE SAME IT CANNOT BE SAID T HAT IT IS NOT A PENALTY AND IT IS COMPENSATORY IN NATURE. HE SUBMITTED THAT SINCE THE EXPENDITURE INCURRED BY THE ASSESSEE IS AN OFFENCE AS PER THE INDIAN RAI LWAYS ACT THEREFORE THE SAME SHOULD NOT BE ALLOWED AS A DEDUCTION. REFERRIN G TO THE DECISIONS RELIED ON BY THE A.O. IN THE BODY OF THE ASSESSMENT ORDER HE SUBMITTED THAT THE A.O. WAS FULLY JUSTIFIED IN DISALLOWING THE PUNITIVE CHA RGES OF RS. 1 01 85 788/- CLAIMED BY THE ASSESSEE. HE ACCORDINGLY SUPPORTED BY THE ORDER OF THE A.O. 10.6 THE LD. COUNSEL FOR THE ASSESSEE WHILE SUPPOR TING THE ORDER OF THE LD. CIT(A) SUBMITTED THAT ALTHOUGH THE PAYMENTS MAD E WERE TERMED AS PUNITIVE CHARGES BUT SUCH PAYMENTS WERE ROUTINE PAYMENTS IN THE NATURE OF ADDITIONAL FREIGHT CHARGES MADE TO THE RAILWAYS FOR OVERLOADIN G THE WAGONS AND THESE PAYMENTS WERE MADE IN ACCORDANCE WITH LAW AS PROVID ED IN THE NOTIFICATION OF MINISTRY OF RAILWAYS DTD. 23.12.2005. REFERRING TO THE DECISION OF NAGPUR BENCH OF THE TRIBUNAL IN THE CASE OF WESTERN COALFI ELDS LTD. V. ACIT IN ITA NO. 289 & 290/NAG/2006 FOR A.Y. 2002-03 & 2003-04 AND I TA NO. 261/NAG./2008 FOR A.Y. 2003-04 ORDER DTD. 30.6.2009 HE DREW THE ATTENTION OF THE BENCH TO PARA NO. 26 OF THE SAID ORDER WHERE THE TRIBUNAL UN DER IDENTICAL CIRCUMSTANCES 15 IT A 847 & 1613/ M/2010 M/S TAURIAN IRON & STEEL CO..P.LTD.. HAS ALLOWED THE CLAIM OF THE ASSESSEE. HE SUBMITTE D THAT IN THE SAID DECISION THE A.O. HAS DISALLOWED THE OVERLOADING CHARGES AND UNDER LOADING CHARGES PAID TO THE RAILWAYS. IN APPEAL THE LD. CIT(A) CO NFIRMED THE ACTION OF THE A.O. AND THE TRIBUNAL DELETED THE ADDITION BY HOLDING TH AT THE ACTIVITIES OF RAILWAYS ARE OF COMMERCIAL IN NATURE AND FREIGHTS ARE FIXED ON COMMERCIAL BASIS. MERELY BECAUSE THE RAILWAYS IS A GOVT. OWNED INSTITUTION A ND WORKS UNDER AN ACT OF PARLIAMENT THE NATURE OF OVERLOADING CHARGES WHICH ARE ESSENTIALLY OF COMMERCIAL NATURE CANNOT BE CHARACTERIZED AS OF PEN AL NATURE IRRESPECTIVE OF THE NOMENCLATURE GIVEN TO SUCH CHARGES BY THE RAILW AYS. 10.7 REFERRING TO THE DECISION OF HONBLE SUPREME C OURT IN THE CASE OF PRAKASH COTTON MILLS P. LTD. REPORTED IN [1993] 20 1 ITR 684 A COPY OF WHICH IS PLACED AT PAPER BOOK PAGE 111 TO 115 HE DREW THE A TTENTION OF THE BENCH TO THE FOLLOWING PARA:- THE DECISION OF THIS COURT IN MAHALAKSHMI SUGAR MI LLS CO. [1980] 123 ITR 429 AND THE DECISION OF THE DIVISION BENCH OF T HE ANDHRA PRADESH HIGH COURT IN HYDERABAD ALLWYN METAL WORKS LTD. [1 988] 172 ITR 113 WITH THE VIEWS OF WHICH WE ARE IN COMPLETE AGR EEMENT ARE IN OUR OPINION DECISIONS WHICH SETTLE THE LAW ON THE QUES TION AS TO WHEN AN AMOUNT PAID BY AN ASSESSEE AS INTEREST OR DAMAGES OR PENALTY COULD BE REGARDED AS COMPENSATORY (REPARATORY) IN CHARACT ER AS WOULD ENTITLE SUCH ASSESSEE TO CLAIM IT AS AN ALLOWABLE EXPENDITURE UNDER SECTION 37(1) OF THE INCOME-TAX ACT. THEREFORE WH ENEVER ANY STATUTORY IMPOST PAID BY AN ASSESSEE BY WAY OF DAMAGES OR PE NALTY OR INTEREST IS CLAIMED AS AN ALLOWABLE EXPENDITURE UNDER SECTI ON 37(1) OF THE INCOME-TAX ACT THE ASSESSING AUTHORITY IS REQUIRED TO EXAMINE THE SCHEME OF THE PROVISIONS OF THE RELEVANT STATUTE PR OVIDING FOR PAYMENT OF SUCH IMPOST NOTWITHSTANDING THE NOMENCLATURE OF THE IMPOST AS GIVEN BY THE STATUTE TO FIND WHETHER IT IS COMPENS ATORY OR PENAL IN NATURE. 10.8 HE SUBMITTED THAT THE RAILWAYS ALLOW OVERLOADING OF THE WAGONS. THEREFORE IT IS THE COMMERCIAL DECISION OF THE ASS ESSEE TO OVERLOAD THE WAGONS SINCE THE WAGONS ARE NOT AVAILABLE EASILY AND THE A SSESSEE HAS TO REMAIN IN QUEUE. REFERRING TO THE DECISION OF HONBLE PUNJAB & HARYANA HIGH COURT IN 16 IT A 847 & 1613/ M/2010 M/S TAURIAN IRON & STEEL CO..P.LTD.. THE CASE OF CIT V. HERO CYCLES LTD. REPORTED IN 178 TAXMAN 484 HE SUBMITTED THAT PENALTY PAID TO STATE ELECTRICITY BOARD FOR VI OLATING POWER REGULATIONS I.E EXTRA CHARGES PAID FOR DRAWING EXTRA LOAD IN PEAK H OURS WAS ALLOWED AS A REVENUE EXPENDITURE. HE SUBMITTED THAT THE DECISION S RELIED ON BY THE A.O. ARE DISTINGUISHABLE ON FACTS AND NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE. HE ACCORDINGLY SUBMITTED THAT THE ORDER OF THE LD. CIT (A) BE UPHELD AND THE GROUND RAISED BY THE REVENUE SHOULD BE DISMISSED. 11. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES PURSUED THE ORDERS OF THE ASSESSING OFFICER AND THE CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSIDERED THE VARIOUS DECISIONS CITED BEFORE US. THE ONLY DISPUTE IN THE IMPUGNED GROUND IS REGARDIN G THE ALLOWABILITY OF THE PUNITIVE CHARGES OF RS. 1 01 85 788/- PAID TO THE RAILWAYS. IT IS THE CASE OF THE REVENUE THAT THE SAME BEING A PENALTY PAID TO THE RAILWAYS FOR VIOLATION OF THE RULES AND REGULATIONS EXPLANA TION TO SECTION 37(1) IS ATTRACTED AND THEREFORE THE SAME SHOULD BE DISALLOW ED. IT IS THE CASE OF THE ASSESSEE THAT ALTHOUGH THE NOMENCLATURE OF AMOUNT P AID IS PUNITIVE CHARGES HOWEVER THE SAME IS COMPENSATORY IN NATURE SINCE T HE RAILWAYS ALLOW OVERLOADING OF WAGONS. 11.1 IT HAS BEEN HELD BY THE HONBLE SUPREME COURT IN THE CASE OF MAHALAXMI SUGAR MILLS CO. [1980] 123 ITR 429 THAT WHENEVER ANY STATUTORY IMPOST PAID BY AN ASSESSEE BY WAY OF DAMAGES OR PENALTY OR INTERES T IS CLAIMED AS AN ALLOWABLE EXPENDITURE U/S 37(1) OF THE INCOME TAX ACT THE AS SESSING AUTHORITY IS REQUIRED TO EXAMINE THE SCHEME OF THE PROVISIONS OF THE RELEVANT STATUTE PROVIDING FOR PAYMENT OF SUCH IMPOST NOTWITHSTANDIN G THE NOMENCLATURE OF THE IMPOST AS GIVEN BY THE STATUTE TO FIND WHETHER IT IS COMPENSATORY OR PENAL IN NATURE. THE AUTHORITY HAS TO ALLOW DEDUCTION U/S 37 (1) OF THE INCOME TAX ACT 17 IT A 847 & 1613/ M/2010 M/S TAURIAN IRON & STEEL CO..P.LTD.. WHENEVER SUCH EXAMINATION REVEALS THE CONCERNED IMP OST TO BE PURELY COMPENSATORY IN NATURE. 11.2 WE FIND THE HONBLE PUNJAB & HARYANA HIGH COUR T IN THE CASE OF HERO CYCLES LTD. HAS UPHELD THE DECISION OF THE TRIBUNAL AND ALLOWED THE DEDUCTION OF THE AMOUNT PAID TO THE ELECTRICITY BOARD AS PENA LTY FOR VIOLATION OF POWER REGULATIONS I.E. EXTRA CHARGES PAID FOR DRAWING EXT RA LOAD IN PEAK HOURS. 11.3 WE FIND THE NAGPUR BENCH OF THE TRIBUNAL IN TH E CASE OF WESTERN COALFIELDS LTD. (SUPRA) UNDER IDENTICAL CIRCUMSTANC ES HAS ALLOWED THE CLAIM OF OVER LOADING CHARGES PAID TO THE RAILWAYS AS REVENU E EXPENDITURE BY HOLDING AS UNDER:- AS REGARDS OVERLOADING CHARGES WE HAVE TO TAKE IN TO CONSIDERATION THE ENVIRONMENT IN WHICH THE COMPANIES ARE OPERATIN G. RAILWAY IS THE ONLY MODE OF TRANSPORTATION IF THE PERSON WISHES TO TRANSPORT ITS PRODUCT THROUGH RAILWAY. THIS FACT IS IMPORTANT BE CAUSE SUCH ACTIVITIES OF RAILWAYS IS OF COMMERCIAL IN NATURE AND FREIGHTS ARE FIXED ON COMMERCIAL BASIS. IF WE LOOK THE ISSUE IN ITS PERS PECTIVE THEN WHAT EMERGES IS THAT IF THESE WERE PRIVATE CARRIERS ALSO AND IF THE ASSESSEE WOULD HAVE PAID IDENTICAL CHARGES TO THEM THE SAME WOULD HAVE BEEN ALLOWED AS A NORMAL BUSINESS EXPENDITURE ESPECIALLY WHEN THERE IS NO DISPUTE THAT THESE EXPENSES HAVE BEEN INCURRED IN T HE COURSE OF BUSINESS OPERATIONS AND THEREFORE MERELY BECAUSE THE RAILWAYS IS A GOVT. OWNED INSTITUTION AND WORKS UNDER AN ACT OF P ARLIAMENT AND NATURE OF OVERLOADING CHARGES WHICH ARE ESSENTIALLY OF COMMERCIAL NATURE CANNOT BE CHARACTERIZED AS OF PENAL NATURE I RRESPECTIVE OF NOMENCLATURE GIVEN TO SUCH CHARGES BY THE RAILWAYS. FURTHER IT IS NOT IN DISPUTE THAT THE QUANTITY TREATED AS OVERLOADIN G HAS BEEN UNLOADED BY THE RAILWAYS NOR IT HAS BEEN A CASE OF VIOLATION OF SAFETY RULES/NORMS HENCE THE OVERLOADING SO INCURRED CAN NOT BE EQUATED WITH TRAVELING WITHOUT TICKET HENCE THE SAID CONT ENTIONS OF THE LD. D.R. ARE REJECTED. IT IS ALSO NOTED THAT SUCH OVERLOADIN G IS NOT CORRECT DUE TO A DELIBERATE ACT ON THE PART OF THE ASSESSEE BUT DU E TO LACK OF INFRASTRUCTURE AND NATURE OF COMMODITY HENCE THE RATIO OF THE DECISION OF THE HONBLE PUNJAB & HARYANA HIGH COURT IN THE C ASE OF HERO CYCLES LTD. (SUPRA) IS SQUARELY APPLICABLE. IT IS ALSO A SETTLED JUDICIAL PRINCIPLE THAT SUBSTANCE OF THE MATTER SHOULD BE LOOKED INTO AND BE GIVEN TO THE NOMENCLATURE GIVEN BY THE RAILWAY TO SUCH CHARGES. THE OBJECT OF EXPLANATION 1 ALSO SUPPORTS THE CLAIM OF THE ASSESS EE AS THESE 18 IT A 847 & 1613/ M/2010 M/S TAURIAN IRON & STEEL CO..P.LTD.. EXPENSES ARE NOT OF HE NATURE OF THE ANY ILLEGAL/UN LAWFUL EXPENDITURE. ACCORDINGLY WE ACCEPT THESE GROUNDS OF THE APPEAL BY THE ASSESSEE ALSO. 11.4 THE VARIOUS DECISIONS RELIED ON BY THE A.O. AN D BY THE LD. D.R. ARE NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE. IN TH E CASE OF HAJI AZIZ AND ABDUL SHAKOOR BROTHERS (SUPRA) IT WAS HELD THAT FINE PAID TO THE CUSTOM AUTHORITIES WAS IN FACT PENALTY U/S 167 (8C) OF THE CUSTOMS ACT . IT WAS HELD BY THE HONBLE APEX COURT THAT SUCH PENALTIES WHICH ARE IN CURRED BY AN ASSESSEE IN PROCEEDINGS LAUNCHED AGAINST HIM FOR AN INFRACTION OF THE LAW CANNOT BE CALLED COMMERCIAL LOSSES INCURRED BY AN ASSESSEE IN CARRYI NG ON HIS BUSINESS. IN THE CASE OF ROHIT PULP & PAPER INDUSTRIES (SUPRA) THE D EPUTY COLLECTOR OF CUSTOMS HAD ORDERED CONFISCATION OF GOODS UNDER SECTION 111 (D) OF THE CUSTOMS ACT READ WITH SECTION 3 OF THE IMPORTS AND EXPORTS (CONTROL) ORDER. HE GAVE AN OPTION TO THE ASSESSEE UNDER SECTION 125 OF THE CUSTOMS ACT T O PAY IN LIEU OF CONFISCATION A FINE OF RS. 35 000. THIS PAYMENT WA S IN THE NATURE OF PENALTY AND ACCORDINGLY IT WAS NOT ALLOWABLE AS A DEDUCTION UNDER SECTION 37 OF THE ACT. HOWEVER IN THE INSTANT CASE AS WE HAVE ALREAD Y HELD EARLIER THAT THE PUNITIVE CHARGES PAID BY THE ASSESSEE TO RAILWAYS F OR OVERLOADING OF THE WAGONS IS COMPENSATORY IN NATURE THEREFORE THE SAME CANN OT BE DISALLOWED BY INVOKING THE PROVISIONS OF EXPLANATION TO SECTION 3 7(1) OF THE ACT. IN THIS VIEW OF THE MATTER AND IN VIEW OF THE DETAIL DISCUSSION BY THE LD. CIT(A) WE DO NOT FIND ANY INFIRMITY IN HIS ORDER. ACCORDINGLY THE S AME IS UPHELD. THE GROUND RAISED BY THE REVENUE IS DISMISSED. 19 IT A 847 & 1613/ M/2010 M/S TAURIAN IRON & STEEL CO..P.LTD.. 12. IN THE RESULT THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSE AND THE APPEAL FILED BY THE REV ENUE IS DISMISSED. ORDER PRONOUNCED ON 14.12.2011. SD/- SD/- (VIJAY PAL RAO) (R.K. PANDA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI DATED 14.12.2011 RK COPY TO 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) 8 MUMBAI 4. THE CIT 4 MUMBAI 5. THE DR BENCH D 6. MASTER FILE // TUE COPY// BY ORDER DY/ASSTT. 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