ITAT Kolkata, in DCIT v. M/s Feegrade & Company Ltd, held that railway punitive charges are eligible for tax deduction under the provisions of the Income Tax Act, 1961.
The bench comprising N.V.Vasudevan (JM) & Waseem Ahmed (AM) was hearing an appeal filed by Assessee, who is a mining company. During the assessment proceedings, AO found that the assessee claimed deduction of Railway Punitive Charges’ which was recorded in the books under the head ‘ Freight and Transporting expenses ‘.
According to the AO these charges were in the nature of expenses incurred for any purpose which is an offence or which is prohibited by law and therefore ought not to be allowed as a deduction while computing the income from business as per the provision of Explanation to Section 37(1) of the Income Tax Act.
The stand of the assessee was that these payments were not in the nature of penalty for infringement of law and were purely in the nature of compensatory charges and therefore cannot be disallowed under Explanation to section 37(1) of the Act.
CIT (A) held that railway punitive charges were compensatory payments and cannot be disallowed under Explanation to Section 37(1) of the Income Tax Act. Aggrieved by the order of CIT (A) the revenue has raised ground before the Tribunal.
The counsel for revenue highlighted before ITAT that statutory provision makes it clear that the punitive charges are in addition to freight and other charges and also they meant to as penalty. On contrary assessee placed reliance on Kolkata Bench in the case of DCIT vs. M/s. Feegrade & Company Pvt. Ltd. wherein held that railway punitive charges were not hit by Explanation to section 37(1) of the Act.
The tribunal considered the rival submission and perused the records and identical issues involved cases. The ITAT mentioned the decision of the Karnataka High Court in the case of Mamta Enterprises (supra) where the criminal offence was compounded and the compounding fees was claimed as deduction.
The tribunal bench mentioned under some circumstances like breach of penal provisions of Customs Act for which fine was paid; the expenses were not allowed as deduction.
According to the fact and situation of instant case the bench observed it as the claim of the assessee for deduction was rightly allowed by CIT (A).
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