Income Tax Appellate Tribunal - Mumbai
Vishwanath V. Kale, Navi Mumbai vs Assessee
1
ITA No. 2081/Mum/2010
(Assessment Year 2005-06 )
IN THE INCOME TAX APPELLATE TRIBUNAL
MUMBAI BENCH ' F ' MUMBAI
BEFORE SHRI N V VASUDEVAN, JM & SHRI R K PANDA, AM
ITA
ITA No.
No. 2081/Mum/2010
(Assessment Year 2005-06 )
Shri Vishwanath V Kale Vs The Income Tax Officer Ward
Room No. 4 Ground Floor 23(1)( 4), Mumbai
New Shree Gajanan CHS Ltd
19 Gurudwara Road
Nerul (E), Navi Mumbai
(Appellant) (Respondent)
PAN AGFPK0761M
Assessee by: Shri B V Jhaveri
Revenue by: Smt Ashima Gupta
ORDER
PER R K PANDA:
PANDA:
This appeal filed by the assessee is directed against the order dated 20.1.2010 of the CIT(A), 33, Mumbai relating to assessment year 2005-06.
2 The assessee in the grounds of appeal has challenged 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 assessee, an individual, is in the business of transport contract. During the course of assessment proceedings, the Assessing Officer noted that the assessee has paid 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 for whom they are carrying goods and paid to the RTO; therefore, if the same is 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 train 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 Officer. 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 convinced with the explanation given by the assessee. According to him, the nomenclature of "overload charges" itself indicate of payments made in the nature 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 expenditure incurred for the purposes of business and therefore, cannot be claimed as revenue expenditure. Since such claim falls within the scope of Explanation 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 Explanation to sec. 37(1) cannot be invoked since overload charges paid by the assessee are not for any purpose which is an offence or prohibited by law. They 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 brought to the notice of the CIT(A). In the aforesaid decision, the assessee while transporting coal to the Electricity Board in Railway Wagon had paid the overloading charges to the Railway Authorities. Disallowance made by the Assessing Officer for such unloading charges treating the same as in the nature 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 Capital Services Ltd vs DCIT reported in 108 TTJ 389 and the decision of the Hon'ble Punjab & Haryana High Court in the case of CIT vs Industrial Cables India Ltd reported in 162 Taxman 423 were also cited.
4 However, the CIT(A) was not satisfied with the explanation given by the assessee and upheld the action of the Assessing Officer. While doing so, he noted that it is well settled legal position that the 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 clear 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 before 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 assessee is in appeal here before us.
6 The ld counsel for the assessee reiterated the same 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 the Tribunal in the case of Agarwal Road lines P Ltd vs DCIT reported in 129 TTJ 49. Referring to the said decision, he submitted that the assessee in that case has paid overload charges for transportation of goods under the Gold Card Scheme 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 overload to the final destination without unloading of the excess weight. The Assessing Officer disallowed such overload charges on the ground that the same was towards infringement of law, which was upheld by the CIT(A. On further appeal, the Tribunal held that penalty paid by the assessee transporter for carrying excess load under the Gold Card Scheme of the Government of Gujarat was not for infringement of law 5 ITA No. 2081/Mum/2010 (Assessment Year 2005-06 ) but in the nature of compensation and the expenditure 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 instant case are identical to that of the case decided by the Ahmedabad Bench of the Tribunal; therefore, the addition made by the Assessing Officer and upheld by 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 not 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 rejoinder, submitted that no such discrimination can be made. The overload charges 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; therefore, 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 has paid overload charges of ` 11,47,461/- to the RTO. We find the Assessing Officer disallowed the same on 6 ITA No. 2081/Mum/2010 (Assessment Year 2005-06 ) the ground that such overload charge is in the nature of penalty for infringement of law and therefore, the Explanation to section. 37(1) are clearly applicable. We find the CIT(A) also upheld the action of the Assessing Officer on the ground that overload charges paid to the RTO is in the nature of penalty and is not a normal business expenditure but incurred for breach of law. It is the submission of the ld counsel for the assessee that overload charges paid 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 paid 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 the nature of compensation and expenditure incurred in the course of business of transportation of goods. Accordingly, the same was allowed as deduction. Respectfully following the above decision of the Tribunal, we hold that overload charges paid in the impugned case is in the nature of compensation, since on payment of additional amount already fixed by the RTO, the assessee has been allowed to move further which itself shows that the amount collected by the RTO was not the payment towards infringement of law but in the nature of compensation. From the various details furnished by the assessee, we find the amount has been paid to Gujarat RTO. Therefore, the decision of the Ahmedabad 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 and 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 is allowed. Order pronounced on the 31st day of Dec 2010.
Sd/ Sd/-
( N V VASUDEVAN ) ( R K PANDA )
Judicial Member 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