2014 (6) TMI 971 - AT - Income Tax

Disallowance of demurrage charges and penalty charges - non allowable expenses - CIT(A) deleted disallowance - Held that - When the amounts are paid on contractual obligation the same have to be allowed as business expenditure. The amount paid for non delivery of goods in time is allowable as deduction even though such amount is designated as penalty in the supply contract, time being the essence of the contract. In view of the above discussions and precedent we do not find any infirmity in the order of the ld. CIT(A) and accordingly we uphold the same. - Decided in favour of assessee Disallowance made towards excess depreciation claimed by the assessee company in respect of Tippers & Dumpers - Held that - This issue has been decided by the appellate authorities in assessee s own case in the earlier years in favour of the assessee wherein , came to the conclusion that in view of Circular No.652 dated 14th June, 1993 of C.B.D.T., the assessee was entitled to the benefit because of the fact that the assessee was using the vehicles in both the capacities, that is to say, business for transportation of goods on hire as well as transportation of goods. It was also pointed out that in the past for the assessment years 2005-2006 and 2004-2005, the learned C.I.T.(A) held that the assessee had the business of transportation of goods on hire as well as transporting other goods and, as such, was entitled to higher rate of depreciation as per the said Circular No.652. It appears that the Revenue did not challenge those decisions.- Decided in favour of assessee

Summary

Issues Involved:
1. Disallowance of demurrage charges and penalty charges.
2. Disallowance of excess depreciation claimed on tippers and dumpers.

Issue 1: Disallowance of Demurrage Charges and Penalty Charges:

The Revenue appealed against the deletion of disallowance of demurrage and penalty charges imposed by Central Coalfields Limited. The AO disallowed these amounts as penal expenses, but the CIT(A) ruled in favor of the assessee, citing contractual obligations and business necessity. The Tribunal upheld the CIT(A)'s decision based on past precedents and the Calcutta High Court's ruling in a similar case. The Tribunal emphasized that payments made under contractual obligations are allowable as business expenditures, even if designated as penalties. Therefore, the Tribunal dismissed the Revenue's appeal on this issue.

Issue 2: Disallowance of Excess Depreciation on Tippers and Dumpers:

The AO disallowed the higher depreciation claimed by the assessee on tippers and dumpers, arguing that the nature of the assessee's business did not qualify for the increased rate. The CIT(A) allowed the higher depreciation after considering the CBDT Circular and the assessee's dual use of the vehicles for transportation of goods. The Tribunal noted that the issue had been decided in favor of the assessee in previous years and referenced a favorable decision by the Jurisdictional High Court. Based on the High Court's ruling and past precedents, the Tribunal upheld the CIT(A)'s decision, stating that the assessee was entitled to the higher rate of depreciation. Consequently, the Revenue's appeal on this issue was dismissed.

In conclusion, the Tribunal upheld the CIT(A)'s decision to allow the demurrage charges, penalty charges, and excess depreciation claimed by the assessee. The Tribunal emphasized the importance of contractual obligations and business necessity in determining the allowability of expenses, as supported by past precedents and relevant legal rulings.