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TMI Blog2017 (4) TMI 164X X X X Extracts X X X X X X X X Extracts X X X X ..... s of the case. 3. The brief facts of this issue is that the assessee-company incorporated with the main objects of carrying on the activities of handling and stevedoring contractor. During the previous year relevant to the assessment year under dispute, the respondent was acting in similar capacity for Steel Authority of India and Central Coalfields Limited. The learned Assessing Officer observed that the assessee had made payment of Rs. 36,81,373 and Rs. 1,43,27,044 to Steel Authority of India Ltd. ("SAIL" in short) and Central Coal Fields Ltd. ("CCFL" in short) respectively on account of railway demurrage and punitive charges which were included in "handling and stevedoring expenses" and accordingly not admissible as deduction in terms of the Explanation to section 37(1) of the Act as the same in the opinion of the learned Assessing Officer are penal in nature. The learned Assessing Officer observed that such expenses arose for breach of the contractual terms entered with SAIL and CCFL. The said addition was deleted by the learned Commissioner of Income-tax (Appeals). Aggrieved, the Revenue is in appeal before us on the following ground : "That under the facts and in the circu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... el Authority of India and Central Coalfields Limited imposed demurrage as well as punitive charges in accordance with the terms of the contract entered into with them by the assessee. The demurrage was charged by the principal of the contractees upon the payments made to the Steel Authority of India and Central Coalfields Limited who in turn charged the same on the payments made to the assessee. In other words, the demurrage arose out of the failure of the assessee to complete the work within the prescribed time allotted by the principal of the contractees and the same was deducted from the payments made to the contractees of the assessee who, in turn, deducted the same from the payments made to the assessee. In this line of business, such imposition of demurrage charges is usual. There is no infringement of any law, the failure of which has led to the instant imposition of demurrage but merely due to inability to comply with certain terms of the contract, the levy was imposed. The statutory prescription contained in the Explanation along with the provisions of section 37(1) of the Act prohibits deduction of expenditure incurred by the assessee for any purpose which is an offence o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... complete the work in time and a clause for imposing punitive charges was included for any default. These rights and obligations arose in course of carrying on of the business of the respondent. Therefore, this payment made under a contractual obligation is to be allowed under section 37(1) of the Act. 6. We find that the reliance placed by the learned authorised representative on the decision of the honourable jurisdictional High Court in the case of CIT v. Jiyajeerao Cotton Mills Ltd. reported in [1992] 103 CTR (Cal) 426 is well founded. In the said case, it was held that : "12. From the facts noted by the Income-tax authorities and the Tribunal, it appears that the goods were not delivered in time and as because the goods were not delivered in time a penalty under the default clause the aforesaid sum of Rs. 47,393 had to be paid by way of penalty. It is not a penalty for breach of any law. The payment was made on account of the contractual obligation under clause 12 of the agreement. When the goods were not delivered within the stipulated period, an extra amount, designated 'penalty' had to be paid. This was done in course of carrying on the business by the assessee. U ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... disallowing the same by invoking the Explanation to section 37(1) of the Act. We find that the co-ordinate Bench of this Tribunal in the assessee's own case in I. T. A. No. 240/Kol/2012 dated June 27, 2014 for the assessment year 2008-09 reported in Deputy CIT v. Ripley and Company Ltd. [2014] 40 CCH 401 (Kol-Trib) observed that the assessee during the year derived income from execution of jobs of handling contractors under CCFL (Government undertaking). That in the execution of such jobs, the assessee had not always been given adequate time and the delay in completion of job resulted in imposition of penalty. That demurrage charges are usual in the line of business. It was held that : "6.1. Thus we find 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 learned Commissioner of Income-tax (Appeals) and accordingly we uphold the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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