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2018 (12) TMI 51 - AT - Income TaxAddition on account of punitive charges paid to railway as over-loading charges - Held that - Punitive charges by Railways cannot be considered to be penal in nature and it is actually in nature of compensation paid by assessee for carrying out extra load which may cause wear and tear to tracks of Railway Department. See CIT vs. Ahmedabad Cotton Manufacturing Co.Ltd 1993 (10) TMI 1 - SUPREME COURT . Addition on account of water supply expenses - Held that - CIT(A) restricted disallowance at 1, 27, 500/- by considering the fact that supply of drinking water to employees/labourers at mining site with tanker is a must to maintain workforce strong for extra loading and unloading of iron ore. Further AO has not brought on record any contradictory facts which would lead to conclusion that expenditure has not been incurred for any other purposes. As there is no other contrary observations by Ld.AO which is based upon any material evidence we do not find any reason to uphold addition. We therefore do not find any infirmity in the same and uphold view of CIT (A) in respect of this issue. Addition on account of hiring charges and rack loading charges paid to parties - violation of section 40A(2)(b) - Held that - As observed from above reproductions that assessee deducted TDS. Merely because according to Ld. A.O. payments were not reasonable cannot be basis for disallowance. We are therefore inclined to uphold the view of Ld. CIT (A). - decided against revenue
Issues:
1. Addition of punitive charges paid to railway as over-loading charges. 2. Restriction of water supply expenses. 3. Deletion of addition on hiring charges and rack loading charges paid to parties. Issue 1: Addition of Punitive Charges The Assessing Officer (AO) disallowed an addition of ?1,38,54,151 under the head 'punitive charges' as penal expenses, not incidental to business activities. The CIT (A) allowed the claim, stating that the charges were commercial in nature, compensating for extra load causing wear and tear to railway tracks. The CIT (A) relied on precedents like CIT vs. Ahmedabad Cotton Mfg. Co. Ltd. and Tuarian Iron & Steel Co. Pvt. Ltd. The ITAT upheld the CIT (A)'s decision, emphasizing that the charges were not penal but compensatory, dismissing the revenue's appeal. Issue 2: Restriction of Water Supply Expenses The AO disallowed part of the water supply expenses, but the CIT (A) restricted the disallowance to ?1,27,500. The CIT (A) reasoned that supplying drinking water to workers was essential for the workforce's strength. No contradictory evidence was presented by the AO to challenge this reasoning. The ITAT found no reason to uphold the addition, supporting the CIT (A)'s decision, and dismissed the revenue's appeal on this issue. Issue 3: Deletion of Hiring Charges and Rack Loading Charges The AO disallowed ?16,07,900 paid to related parties under section 40A(2)(b). However, the CIT (A) deleted the addition, highlighting that the expenses were genuine, reasonable, and subject to TDS. The ITAT concurred with the CIT (A), noting that the payments were competitive and justified, thus dismissing the revenue's appeal against the deletion of hiring and rack loading charges. In conclusion, the ITAT upheld the CIT (A)'s decisions on all issues, dismissing the revenue's appeal in its entirety. The judgment emphasized the commercial nature of expenses, the essentiality of water supply for workers, and the reasonableness of payments made to related parties, providing detailed reasoning and legal precedents to support the decisions.
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