Income Tax Appellate Tribunal - Mumbai
Bharat C. Gandhi, Mumbai vs Department Of Income Tax on 24 May, 2009
IN THE INCOME TAX APPELLATE TRIBUNAL
"B" Bench, Mumbai
Before Shri D. Manmohan, Vice President
and Shri B. Ramakotaiah, Accountant Member
ITA No. 4270/Mum/2009
(Assessment Year: 2006-07)
DCIT 13(1) Shri Bharat C. Gandhi
Room No. 418, 4th Floor Vs. Marine House, 93, Dr. Maheshwari
Aayakar Bhavan, M.K. Road Road, Chinchbunder, Dongri
Mumbai 400020 Mumbai 400009
PAN - AAFPG 9238 F
Appellant Respondent
Appellant by: Shri R.S. Srivastava
Respondent by: Shri Jignesh Shah
ORDER
Per B. Ramakotaiah, A.M.
This appeal by the Revenue is against the order of the CIT(A) XIII, Mumbai dated 24.05.2009.
2. Revenue has raised three grounds on the issue of relevance of allowing settlement fees paid by the assessee under the Motor Vehicle Act disallowed by the A.O. on the pretext that it was a penalty not allowable under section 37(1) but allowed by the CIT(A) as an expenditure.
3. Assessee is an individual and proprietor of M/s. Darshan Roadlines which specialises in transporting cargo of over -Dimensional Consignments where the front side and rear dimension of the consignment as well as the weight of the consignment exceed the same allowed under the permit granted by the RTO and the limits laid down under the Motor Vehicle Act, 1988 and the rules made there under. During the course of assessment proceedings the A.O. noticed that the assessee paid compounding fees aggregating to `73,45,953/- to the RTO at the Check Post at Bhachau, Gujarat on various trips during the year for transportation of over dimensional consignments in its trailers of M/s. Suzlon Energy Ltd. The A.O. asked why the same should not be disallowed as it is in the nature of 2 ITA No. 4270/Mum/2009 Shri Bharat C. Gandhi penalty and not allowable under section 37(1). It was assessee's contention that the over dimensional consignment was indivisible and cannot be divided into parts and pieces and therefore there is no other possibility except to transport them by exceeding the permitted limits. He submitted that transportation of this is a business necessity and commercial exigency and not involved any deliberate intention of violating any law or rules. It was further submitted that eventhough it is a compounding fees paid under section 86(5) of the Motor Vehicle Act to the RTO, it is an option given to the assessee and this cannot be referred as penalty. It was further submitted that such over dimensional charges were also paid to Western Railways for crossing the railway tracks and an amount of `2,71,380/- was allowed by the A.O. The A.O. did not agree with assessee's contentions and disallowed the same. The CIT(A), however, noticed that the expenditure is not in violation of the Motor Vehicle Act and cannot be termed as penalty and relying on the clarifications given by the Central Government vide letter dated 03.08.2008 and after relying on the decision of the ITAT "C" Bench in its order dated 29.01.2001 allowed the expenditure as an allowable deduction under section 37(1). The Revenue is aggrieved.
4. The learned counsel at the outset submitted that this issue is covered in favour of the assessee by the order of the ITAT in the case of M/s. Chadha & Chadha Co. in ITA No. 3524/Mum/2007 and the facts are similar. He further submitted that the Central Government itself has clarified vide circular dated 3rd September 2008 that such consignments meant for infrastructural purpose should be exempt from levy of compounding fees by RTO and relied on the Hon'ble Gujarat High Court decision in the case of Nabros Transport p ltd to submit that this levy was held arbitrary and illegal when it was collected only at Check Posts in Gujarat. He further referred to section 86(5) of the Motor Vehicle Act and relied on the precedence on the issue in the following cases: -
i) CIT vs. Ahmedabad Cotton MFG Co. Ltd. 205 ITR 163 (SC)
ii) CIT vs. H.M. Parthasarathy 212 ITR 105 (Mad)
iii) ACIT vs. Vikas Chemicals 122 Taxman 59 (Del) 3 ITA No. 4270/Mum/2009 Shri Bharat C. Gandhi
iv) CIT vs. Hero Cycles Ltd. 178 Taxman 484 (P&H)
v) Kaira Can Company Ltd. vs. DCIT 31 DTR (Mum) (Trib) 485
vi) Western Coalfields Ltd. vs. ACIT 27 DTR (Nag) (Trib) 226
5. He placed a paper book on record about the activities of the assessee and photoes involving carrying of over dimensional consignments undertaken by the assessee Roadlines.
6. The learned D.R., however, submitted that the issue is not of nomenclature but the intention of the Legislature in not allowing the amounts paid for violation of law. The learned D.R., however, submitted that the assessee was given permission to transport required weight with permitted axils as can be seen from the circular by the Central Government and nowhere it is stated that assessee satisfied the conditions. Therefore, it is submitted that this is a penalty for violating the law and, therefore, cannot be allowed.
7. The learned counsel in reply submitted that the issue before the A.O. is not that of the trailer capacity but the compounding fees paid and it was submitted that assessee made about 230 trips during the year from the same Check Post and knowing very well that assessee is carrying always over dimensional consignments the RTO was invariably levying fees while allowing the trucks to be transported on road and it is not in violation or contravention of any law but simple compounding fees paid for transporting over dimensional consignments which is assessee's business itself.
8. We have considered the issue. As rightly considered by the CIT(A) fees paid is not in violation of law but an option given to the assessee to pay compounding fees for transporting over dimensional consignments generally termed as over loading charges. This issue was elaborately discussed by the ITAT in the case of M/s. Chadha & Chadha Co. in ITA No. 6140/Mum/2009 dated 17.09.2010 relied upon by the assessee wherein the ITAT in its order has considered as under: -
"9. The liability for additional freight charges was considered in the case of ITO vs. Ramesh Stone Wares by the ITAT Amritsar Bench in 62 TTJ (Asr) 93 wherein the additional freight charges paid to Railway Department for overloading was considered and held that 4 ITA No. 4270/Mum/2009 Shri Bharat C. Gandhi the expense was not penal in nature because it is not the infringement of law but same is violation of contract that too not by the assessee but by his agent, i.e. Coal Authority of India. In terms of an agreement, if coal is finally found by the authorities to be overloaded then the assessee has to pay additional freight charges which according to the terminology of the contract is called penalty freight. This liability was not considered as penal nature and allowed. In assessee's case also the overloading charges are to be incurred regularly in view of the nature of goods transported for the said steel company and since the nature of the goods is indivisible and generally more than the minimum limit prescribed under the Motor Vehicle Act, the assessee has to necessarily pay compounding charges for transporting goods as part of the business expenses. These are not in contravention of law and the RTO authorities neither seized the vehicle nor booked any offence but are generally collecting as a routine amount at the check post itself while allowing the goods to be transported. In view of the nature of collection and payment which are necessary for transporting the goods in the business of the assessee, we are of the opinion that it does not contravene the M V Act as stated by the A.O. and the CIT(A).
10. Similar issue also arose with reference to fine and penalty paid on account of violation of National Stock Exchange Regulations in the case of Master Capital Services Ltd. vs. DCIT and the Hon'ble ITAT Chandigarh "A" Bench in ITA No. 346/Chd/2006 dated 26th February 2007 (108 TTJ (Chd) 389 has considered that fines and penalties paid by the assessee to NSE for trading beyond exposer limit, late submission of margin certificate due to software problem and delay in making deliveries of shares due to deficiencies are payments made in regular course of business and not infraction of law, hence allowable. In the assessee's case also these fines are paid regularly in the course of assessee's business for transportation of goods beyond the permissible limit and these payments are being made in the regular course of business to the same RTO authorities at the check post every year, in earlier years and in later years also. Accordingly it has to be held that these payments are not for any infraction of law but paid in the course of assessee's business of transportation and these are allowable expenses under section 37(1)."
9. In view of the legal principles established above and also noticing that the assessee has made about 230 trips by paying compounding fees, as per the rules in the Motor Vehicle Act, it cannot be stated that assessee's payments of compounding fees is in violation of law. Since assessee is engaged in transporting of over dimensional capacities in its transport business, it is necessary business expense wholly for the purpose of 5 ITA No. 4270/Mum/2009 Shri Bharat C. Gandhi business. Therefore, the same is allowable under section 37(1). CIT(A)'s order on this is confirmed.
10. In the result, appeal of the Revenue is dismissed.
Order pronounced in the open court on 30th March 2011.
Sd/- Sd/-
(D. Manmohan) (B. Ramakotaiah)
Vice President Accountant Member
Mumbai, Dated: 30th March 2011
Copy to:
1. The Appellant
2. The Respondent
3. The CIT(A) - XIII, Mumbai
4. The CIT- XIII, Mumbai City
5. The DR, "B" Bench, ITAT, Mumbai
By Order
//True Copy//
Assistant Registrar
ITAT, Mumbai Benches, Mumbai
n.p.