Income Tax Appellate Tribunal - Ahmedabad
Agrawal Roadlines Pvt.Ltd.,, ... vs Assessee on 3 December, 2008
IN THE INCOME TAX APPELLATE TRIBUNAL
'C' BENCH - AHMEDABAD
(BEFORE S/SHRI H. L. KARWA, JM AND N. S. SAINI, AM)
ITA No.668/Ahd/2009
A. Y.: 2005-06
Agrawal Roadlines Pvt. Ltd., Vs The D. C. I. T., Circle-1,
Flat NO.A-1004, Rosewood Aayakar Bhavan,
Estate, Ahmedabad
Opp. Prerna Tirth Bungalows-2,
Satellite, Ahmedabad
PA No. AABCA 6667 M
(Appellant) (Respondent)
Assessee by Shri Tushar Hemani, AR
Department by Shri M. C. Pandit, DR
ORDER
PER H. L. KARWA: This appeal filed by the Assessee is directed against the order of the CIT(A)-VI, Ahmedabad dated 03-12-2008 relating to assessment year 2005-06.
2. In this appeal, the assessee has raised the following grounds:
"1. The learned CIT (A) has erred in law and in facts in confirming the action of ld. AO in disallowance expenditure of Rs.17,88,062/- being overload charges incurred in the normal course of business of the assessee by treating the same as penalty without appreciating the true and correct nature of such expenditure.
2. The learned CIT (A) has erred in law and in facts in not following the order of his predecessor for A. Y. 2004-05 wherein under identical circumstances, such expenditure has been deleted by ld. CIT(A).ITA No.668/Ahd/2009 2
Agrawal Roadlines Pvt. Ltd.
3. Both the lower authorities have erred in law and on facts in not properly appreciating and considering various submissions, evidences and supporting placed ion record during the course of the assessment proceedings and not properly appreciating various facts and law in its proper perspective and further erred in passing orders in gross violation of the principles of natural justice.
4. Ld. CIT(A) has erred in law in confirming the levy of interest u/s 234A/B/C of the Act.
5. Learned CIT(A) has erred in law and on facts in upholding the action of the AO in initiating penalty under section 271(1) (c ) of the Act without recording mandatory satisfaction as contemplated under the Act".
3. As regards grounds Nos. 1 to 3 of the appeal brief facts of the case are that the assessee is a Private Limited Company engaged in the business of Transport Contractor & Fleet Owners. The AO observed that on verification of audit report in Form No.3CD, it was found that in column NO. 17E, the auditor had put a remark as under:
"Penalty is there except overload penalty which is in normal course of business and hence not reported".
The AO vide his letter dated 14-2-2007 asked the assessee to furnish details of such penalty. In response to this query, the assessee vide its letter dated 11-5-2007 submitted as under:
"As per para (a) your letter dtd. 14/02/20007, your goodselves have stated that the auditors have mentioned a note in Tax Audit report that penalty on account of over loading is not reported by them. Your goodselves has asked us to furnish complete details of such penalty.
In this regard it is to submit that the penalty is not there in each and every case. We are engaged in transportation of liquid cargo hence the chances of overload are less however if any penalty for overload is there that is normal business expenditure because corresponding income for the same is also billed to the party which is billed per MT of the cargo. Further it is to submit that Gujarat ITA No.668/Ahd/2009 3 Agrawal Roadlines Pvt. Ltd.
Government had come out with a scheme of Gold Card which entitled every transporter to have overloaded vehicle for that particular month on payment of the additional fees fixed for that gold card as such the same is a normal business expenditure only which was allowed by the Government also after payment of requisite fees. Further the composition fee is paid to various RTO authorities which entitles a vehicle to carry the overload after payment of the composition fees. If this would have been a penalty, the RTO authorities would have forced the vehicle to pay the penalty and unload the excess load, which is not the case in any of the amounts paid as composition fees. The vehicle is permitted to carry the excess load which they have carried till the destination.
Hence, the same should not be termed as penalty otherwise the RTO authorities would have forced to unload the excess weight carried by the vehicle after the penalty. This is only a payment to Government of taxed which otherwise the vehicle had paid less for passed loan only. In case the load is in basis of total quantity including the excess load quantity. Hence the same should not be equated with the penalty for infringement of law or otherwise, as per the provisions of income tax Act. Without prejudice to the above, it is to submit that we have worked out the figures of the actual amount paid for the same and details of the same are submitted herewith".
4. Keeping in view the above reply of the assessee, the AO issued a show cause notice on 24-5-2007 requiring the assessee to submit the explanation as to why the penalty charges of Rs.17,88,062/- should not be disallowed as the same is penalty in nature and hence not allowable expenditure. Thereafter, another show cause notice was issued on 11-12- 2007 for giving opportunity to submit the detailed explanation. In response to above show cause notice, the assessee stated that the letter furnished on 11-5-2007 may be considered as reply to above query. The AO did not accept the reply of the assessee. The AO rejected this contention of the assessee that it was normal business expenditure as corresponding income for the same was billed to the parties and that Gujarat Government has come out with a scheme of Gold Card which entitles every transporters to have overloaded vehicle for that particular month on payment of additional fees fixed for that Gold Card. The AO ITA No.668/Ahd/2009 4 Agrawal Roadlines Pvt. Ltd.
also rejected this contention of the assessee that the overloading penalty cannot be equated with the penalty for infringement of law or otherwise, as per the provisions of Income Tax Act. The AO took the view that it cannot be held that Gold Card holder can violate the law and claim the expenditure thereof. The AO referred to the decision of the Hon'ble Supreme Court dated 9-11-2005 passed in the case of Transporters i.e. Paramjit Bhasin & others Vs Union of India AIR (2006) SC 440, wherein the Hon'ble Supreme Court has held as under:
"Section 200 does not in any way authorize the State Government to permit the excess weight to be carried when on various inspection/detection it is noticed that there is carriage load beyond the permissible limit. It only gives an opportunity of compounding so that instead of the amounts fixed, lesser amounts can be accepted by the authorized officer. The intention of uploading in the excess weight is apparent from bare reading of the section 194(1). The liability to pay charge for uploading of the excess load is fixed on one who drives a vehicle or causes a motor vehicle to be driven in contravention of the provision of section 113, 114 and 115. Compounding is done either before or after the institution of the prosecution in respect of the enumerated offenses. Notification issued by State Government permitting carriage of excess weight after compounding runs counter to the clear import of S. 194 and has no validity. After compounding the excess load, same cannot be permitted to be carried in the concerned vehicle. Such carriage would amount to infraction of S 113 of the Act. Moreover, over loading causes significant damage to the road surface and also causes pollution through auto emissions. Even over loaded vehicles are safety hazards not only for themselves, but also for other road users. It is indisputable that the power of compounding vests with the State Government but the notification issued by various State Governments in that regard cannot authorize continuation of the offence which is permitted to be compounded by payments of the amounts fixed. If permitted to be continued, it would amount to fresh commission of offence for which the compounding was done. The State Governments which have not yet withdrawn the notifications directed to do it forthwith".
5. The AO also mentioned that during the course of assessment proceedings for AY 2004-05, the then AO on the similar issue in other ITA No.668/Ahd/2009 5 Agrawal Roadlines Pvt. Ltd.
case falling in his jurisdiction had called for information u/s 133(6) of the Income Tax Act from the RTO office to ascertain correct nature of penal action. The RTO, vide his letter dated 8-9-2006 confirmed that the payment to RTO is penal in nature as per the Motor Vehicles Act. The AO further stated that the RTO has submitted relevant text of section 194 of Motor Vehicles Act, 1968. According to the said section, the incumbent would be punishable for violating the provisions of section 113, 114 and 115 by way of fine. The AO further relying upon certain decisions of the Courts held that in the present case of the assessee, the nature of penalty is not compensatory but is for the violation of rudimentary law. According to the AO, this feature and tendency of carrying overloaded goods by the assessee is rampant, conscious and deliberate phenomena over the years. The AO concluded that this being a cognizable offence and infringement of law and payment being penal in nature and not incidental to the assessee's regular business, the same is not allowable as an "allowable" expenditure under the provisions of section 37(1) of the Act. He, therefore, disallowed the amount of Rs.17,88,062/- and added the same to the total income of the assessee.
6. Aggrieved by the order of the AO the assessee carried the matter in appeal before the CIT(A).
7. Before the CIT(A), the assessee submitted that the disallowance made by the AO is neither sustainable in law nor in fact. The assessee also submitted that the issue is covered in favour of the assessee by the order of the CIT(A)-IV, Ahmedabad relating to AY 2004-05 wherein under identical circumstances, the appeal of the assessee was allowed. The assessee further submitted before the CIT(A) that the AO's reliance on the decision of the Hon'ble Supreme Court in the case of Paramjit Bhasin & Others Vs Union of India AIT (2006) SC 440 as well as on language of section 194 of Motor Vehicle Act 1968 are completely misplaced and mis-
ITA No.668/Ahd/2009 6Agrawal Roadlines Pvt. Ltd.
conceived. It was also submitted before the learned CIT(A) that the Hon'ble Supreme Court was concerned with the schemes of the State Government in so far as overloading was concerned. It nowhere decided that the amount paid by the assessee towards such scheme (Gold Card in the present case) is for illegal purposes. Secondly, as observed by the CIT(A) for AY 2004-05, the said decision was applicable from 09-11-2005 i.e. from AY 2006-07. Therefore, under both the counts, the case of the AO is not sustainable. It was also submitted by the assessee before the CIT(A) that the AO without appreciating the nature of payment made by the assessee by way of additional fees under Gold Card scheme floated by the Gujarat Government which is very much compensatory in nature as RTO authorities having not confiscated the vehicles or directing to unload the excess load has treated the same as penal in nature and made applicable the provisions of Explanation of Section 37(1) of the Act. The assessee has also submitted before the CIT(A) that the following facts would establish that the said expenditure was compensatory in nature and not penal:
(i) Overloading charges are collected in advance. No penalty can be collected in advance.
(ii) It has got direct relation with the quantum of overload.
Penalty usually is flat and once infraction of law takes place, the same is levied indiscriminately.
(iii) Vehicles are not detained or confiscated even when overloading is done on regular basis.
8. Accordingly, it was submitted by the assessee before the CIT(A) that the amount in question is compensatory in nature and not penal as alleged by the AO. The assessee also cited the following decisions before the CIT(A):
1) Prakash Cotton Mills Pvt. Ltd. Vs CIT (1993) 201 ITR 684 ITA No.668/Ahd/2009 7 Agrawal Roadlines Pvt. Ltd.
2) Lachmandas Mathurdas Vs CIT (2002) 254 ITR 799 (SC)
9. The CIT(A) did not accept the contentions raised by the assessee before him and confirmed the addition observing as under:
" Keeping in view the aforesaid facts and circumstances, it is crystal clear that the expenditure which can be deducted is only in respect of business carried on by the appellant. The penalty paid for violation of law in the course of conduct of business cannot be regarded as deductible expenditure as the assessee is expected to carry on the business in accordance with the law. Penalty or interest or fine under direct taxes is not deductible, for example, interest levied on the assessee for delay in filing return will not be allowable as a business expenditure as held in the case of Bharat Commerce and Industries Ltd. Vs CIT(1998) (230 ITR 733/98 Taxman 151 (SC).
Keeping in view the aforesaid facts, circumstances and various judicial pronouncements, it is abundantly clear that the aforesaid is cognizable offence: the infringement of law, thereby, the payment in question is penal in nature and not at all relate to appellant's regular business. With the result, the same cannot be allowed as an allowable expenditure under the provisions of section 37(1) of the Income-tax Act, 1961. In the given facts and circumstance, the Assessing Officer has rightly disallowed the amount of Rs.17,88,062/- and added back to the total income of the appellant. Hence, the action of the Assessing Officer is confirmed on this ground (i.e. Grounds NO.1,2,3 and 4)."
10. We have heard the learned representatives of both the parties at length and have also perused the materials available on record. It is relevant to state that Shri Tushar Hemani, learned Counsel for the assessee reiterated the submissions made before the lower authorities. He further submitted that in assessee's own case wherein under identical circumstances, the CIT(A)-IV, Ahmedabad vide his order dated 25-10- 2007 has allowed the appeal of the assessee for AY 2004-05. He further submitted that the order of the CIT(A) for AY 2004-05 has become final and, therefore, the CIT(A) should have followed the order of his predecessor while deciding the issue. On the other hand, Shri M. C. ITA No.668/Ahd/2009 8 Agrawal Roadlines Pvt. Ltd.
Pandit, learned DR submitted that the facts of the present year are entirely different and, therefore, the CIT(A) was justified in not following the order of his predecessor passed in the assessee's case for AY 2004-
05. We have perused the reply of the assessee dated 11-5-2007 submitted before the AO. The contention of the assessee that penalty is not levied in each and every case, moreover the assessee being engaged in the business of transportation of liquid cargo chances of overloading was not frequent. Further, the assessee also submitted that this expenditure is incurred in the normal course of business and corresponding income out of carrying of overload was subjected to tax as the party was billed as per tonnage carried. There is no dispute that the Government of Gujarat had introduced a scheme of "Gold Card" to carry overload on payment of additional fees fixed for that Gold Card. We find that such compensatory fees were being paid to various RTO authorities that entitled the transporters to carry overload on payment of such compensation fees to the final destination without stopping them to unload the excess weightage. In our view, if these fees were penal in nature then RTO authorities would have recovered the amount from the transporters and unloaded the excess load. In our considered view, the authorities below have not correctly appreciated the facts of the present case. In fact, they have grievously erred in observing that "scheme of Gold Card introduced by the Government of Gujarat entitled the transport carriers to carry overload by payment of additional fees was strange in a way there is no Government machinery would encourage violation of infringement of legal provisions. Both the authorities below have not appreciated the appellate order for AY 2004-05 wherein the CIT(A) has discussed the judgment of the Hon'ble Supreme Court in the case of Paramjit Bhasin & others Vs Union of India (supra) as well as the provisions of section 194 of the Motor Vehicles Act, 1968. In our considered view, the judgment of the Hon'ble Supreme Court in the case of Transporters dated 9-11-2005 is operative from the date of the ITA No.668/Ahd/2009 9 Agrawal Roadlines Pvt. Ltd.
judgment. Here, we are concerned with the assessment year 2005-06 and the return of income was filed on 30-10-2005 i.e. much before the date of the judgment passed in the case of Paramjit Bhasin and others (supra). In fact, the decision of the Hon'ble Supreme Court (supra) was applicable from 9-11-2005 i.e. from the AY 2006-07 and hence not applicable to the facts of the present year. The Hon'ble Supreme Court held that notifications issued by the State Governments permitting to carry excess weight after giving effect to section 194 of the Motor Vehicles Act has no validity. In this judgment, the Hon'ble Supreme Court directed the State Governments to withdraw the notification forthwith. As we have already stated hereinabove that the State Government of Gujarat had introduced a scheme of Gold Card which entitled the holder of the Card to carry overload on payment of additional fees fixed for that Gold Card. Such compensatory fees were being paid to various RTO authorities that permitted the transporters to carry overload on payment of such compensation fees to final destination without stopping them to unload the excess weight. In our considered view, payment of fine towards carrying excess load cannot fall into the category either of an offence or infringement of law. It is evident from the record that on payment of additional amount already fixed by RTOs, they have allowed vehicles to move further which itself shows that amount collected by the RTOs was not payment towards infringement of law but in the nature of compensation. It is pertinent to state here that Government of Gujarat has allowed to carry such excess load and collected only compensatory amount from the assessee which cannot be termed as payment towards infringement of law. It is also relevant to state that laws of State Government allowed the transporters to carry excess load in vehicles in relevant years and hence such payment is not in violation of any law. Thus, considering the entire facts and circumstances of the present case, we are of the considered view that payment of penalty for excess load ITA No.668/Ahd/2009 10 Agrawal Roadlines Pvt. Ltd.
carried was not for infringement of law but in the nature of compensation in the business activities of transportation of goods.
11. In view of the above discussions we are of the view that the addition made by the AO and confirmed by the CIT(A) is not sustainable and accordingly, we delete the addition of Rs.17,88,262/- . Accordingly, we dismiss the ground Nos. 1 to 3 of the appeal.
12. Ground No.4 of the appeal relates to charging of interest u/s 234A, 234B and 234C of the Act. At the time of hearing of the appeal the learned Counsel for the assessee submitted that this ground of appeal is consequential in nature and we hold accordingly.
13. Now, we will decide ground No.5 of the appeal. In the impugned order the CIT(A) has observed as under:
"Regarding penalty proceedings u/s. 271(1) ( c ) of the Income Tax Act, 1961, it is decided that as is abundantly clear from the aforesaid facts and circumstances; the appellant has really concealed/furnished inaccurate particulars of its income. With the result, the action of the Assessing Officer on this ground is confirmed. Hence, the appeal is dismissed on this ground".
14. After hearing the parties, we find that the above observations of the CIT(A) are unwarranted, unjustified, and hence not sustainable in law. In the instant case, CIT(A) was not required to make such comments because he was deciding the quantum appeal and not the penalty appeal. In our view, the CIT(A) has exceeded his jurisdiction while making such observations. In fact, the CIT(A) should have observed that this ground of appeal is premature and hence I reject the same. Accordingly, we quash the above observations of the CIT(A) on the ground that the same are without jurisdiction and uncalled for. This ground of appeal is allowed.
ITA No.668/Ahd/2009 11Agrawal Roadlines Pvt. Ltd.
15. In the result, the appeal of the Assessee is allowed.
The order was pronounced in the open court on 18-09-2009 Sd/- Sd/-
(N. S. SAINI) (H. L. KARWA)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Date : 18-09-2009
Lakshmikant/-
Copy of the order forwarded to:
1. The Appellant
2. The Respondent
3. The CIT concerned
4. The CIT(A)
5. The DR, ITAT, Ahmedabad
6. Guard File
BY ORDER
Dy. Registrar, ITAT, Ahmedabad