2010 (9) TMI 1146 - AT - Income Tax

Summary

Issues Involved:
1. General nature of ground No. 1.
2. Disallowance of overloading expenses.
3. Penalty u/s 271(1)(c) and interest u/s 234B and 234C.

Summary:

Issue 1: General Nature of Ground No. 1
The first ground raised by the assessee is general in nature and does not require specific adjudication.

Issue 2: Disallowance of Overloading Expenses
The main issue pertains to the disallowance of overloading expenses amounting to Rs. 21,84,701/-. The assessee, a transport contractor, claimed these expenses as necessary business expenses incurred due to overloading of lorries/trailers. The Assessing Officer (A.O.) disallowed the expenses, viewing them as penalties for offences under sections 113 and 194 of the Motor Vehicle Act, thus not allowable u/s 37(1) of the IT Act. The CIT(A) upheld this disallowance, distinguishing it from previous ITAT decisions and various case laws.

The ITAT, however, noted that similar disallowances in earlier years (A.Y. 2003-04 and A.Y. 2005-06) were restricted to 5% of the claimed amount. The ITAT reiterated that overloading charges are necessary business expenses and not penal in nature, as they are paid regularly at RTO Check Posts for transporting indivisible and heavy goods. The ITAT referenced the case of ITO vs. Ramesh Stone Wares, where additional freight charges for overloading were deemed contractual payments, not penalties. Consequently, the ITAT directed the A.O. to restrict the disallowance to 5% of the overloading charges for the current year as well.

Issue 3: Penalty u/s 271(1)(c) and Interest u/s 234B and 234C
Ground No. 3 pertains to penalty u/s 271(1)(c) and interest u/s 234B and 234C, which are consequential in nature and do not require adjudication in this appeal.

Conclusion:
The ITAT partly allowed the appeal, directing the A.O. to restrict the disallowance of overloading expenses to 5% of the claimed amount. The other grounds were either general or consequential and did not require specific adjudication.