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TMI Blog2019 (12) TMI 29X X X X Extracts X X X X X X X X Extracts X X X X ..... not be destructive of the right of an assessee to claim a deduction, if in fact, the consideration for the receipt can be attributed to the sources indicated in the section. Merely because the assessee categorised the claim under penalty levied on the assessee company for not complying to the terms of the contract , is not permissible to the jump to the conclusion that such penalty was in respect of any offence or infraction of law committed by the assessee so as to invoke the provisions under Explanation 1 to section 37 (1) of the Act. The expression penalty was levied on the assessee company for not complying to the terms of the contract , clearly indicates that it is a civil consequence for not complying with certain terms of con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt was, however, was complete at a loss of ₹ 8,72,01,852/- after making many additions including the addition by way of disallowance under section 37(1) of the Income Tax Act, 1961 (for short the Act ) to the tune of ₹ 3,66,68,504/-, which amount represented the penalty amount for supply of the coal with high moisture and low gross calorific value. 3. Assessee explained before the assessing officer that they sold coal to different parties as per the specifications and requirements; that the requirements specify the quantity, moisture content, type of coal, Gross Calorific Value (GCV) etc; and that if the seller fails to comply the requirement, the buyer makes deduction on account of quantity and quality while rel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... kash Cotton Mills (P) Ltd 111 CTR SC 389, Swadeshi Cotton Mills Company Limited vs. CIT, Continental constructions Ltd vs. CIT (1992) 101 CTR (SC) 386 and also the decisions of the Kerala and the Andhra Pradesh High Courts in CIT vs. Catholic Syrian bank Ltd (2004) 265 ITR 177 (Ker) and CIT vs. or television private limited (1996) 218 ITR 173 (AP). On considering the provisions under section 37 (1) of the Act and the decisions referred to now, Ld. CIT(A) reached a conclusion that the exigibility of an item to tax or tax deduction can hardly be made to depend on the label given to it by the parties, and at the same time the absence of specific label cannot be destructive of the right of an assessee to climb a deduction, if in fact, the consi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h is exactly the case of the assessee. According to them, Ld. CIT(A) correctly applied the law laid down by the Hon ble Apex Court and also the Kerala and Andhra Pradesh High Courts and therefore there is no ground to interfere with the impugned order. 8. We have gone through the record in the light of the submissions made on either side. According to the learned Assessing Officer also, the assessee incurred the expenditure/received the lesser payment from the buyers of the coal because of the supplied coal containing the high moisture and low calorific value. The allegations of the learned Assessing Officer against the assessee only reveals the failure of the assessee to meet the contractual obligations, but the entire asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ead the submission of the assessee in a holistic manner, because what all the assessee had submitted is that the penalty was levied on the assessee company for not complying to the terms of the contract. Assessee clearly submitted before the learned Assessing Officer that in spate of their best efforts, sometimes the moisture content of the coal cannot be the same as required by the buyer in view of the open storage of coal, rain factor while storing and transporting, natural environment etc and also because while mixing the different lots having different GCV of coal, to match the specifications, the actual GCV may differ from what is required by the buyer since the mixing is handled by large machines. Assessee submitted that precisely thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd at the same time the absence of a specific label cannot be destructive of the right of an assessee to claim a deduction, if in fact, the consideration for the receipt can be attributed to the sources indicated in the section. Merely because the assessee categorised the claim under penalty levied on the assessee company for not complying to the terms of the contract , is not permissible to the jump to the conclusion that such penalty was in respect of any offence or infraction of law committed by the assessee so as to invoke the provisions under Explanation 1 to section 37 (1) of the Act. The expression penalty was levied on the assessee company for not complying to the terms of the contract , clearly indicates that it is a civil conseq ..... X X X X Extracts X X X X X X X X Extracts X X X X
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