ACIT CIRCLE-1, DHANBAD vs. M/S. BHARAT COKING COAL LIMITED, DHANBAD

The assessee further submitted that 'under-loading charges' have already been allowed by the ITAT, Nagpur Bench in order in & 290/Nag/2006 dated 30/06/2009 for A.Y. 2002-03 and 2003-04 and order in dated 10/08/2009 for the A.Y. 2004-05 in the case of the sister concern of BCCL i.e. Western Coalfields Ltd. Vs ACIT. It was further claimed by the assessee that these expenses have never been disallowed by the Assessing Officer in the case of BCCL in the past.

The Assessing Officer, however, was not convinced with the explanation offered by the assessee and disallowed a sum of ₹ 121,08,01,000/- under the head "under loading charges" under Section 37 of the Act and added back to & 103/Ran/2023 ACIT/DCIT Vs BCCL the total income of the assessee on the ground that there is no need of such type of FSA to load the goods in wagons because transportation including loading and unloading is a responsibility of buyers and not a responsibility of sellers. Further, the BCCL is not directly involved with the railways for transportation of coal. Parties/purchasers are booking the wagons and the BCCL is only filing up the wagons with coal. Indirectly, the BCCL is paid penalty to the railways for running of partly filled wagons by the coal buyers which are not incidental to the business of BCCL. The BCCL is allowing rebates in the bills of the party as penalty for irrelevant work. Besides above, the BCCL has not taken any concrete steps to fill up the wagons fully and complete it on time. BCCL has no mechanism to stop this type of unwanted penalty and unnecessary expenditure. It is, therefore, held that the charge demanded by the railway authorities is a penalty for failure of loading wagons fully. Thus, ULC is penal in nature for failure to load wagons fully and therefore, the same cannot be allowed as a business expenditure under Section 37 of the Act.

Aggrieved by the order of the Assessing Officer, the assessee company filed appeal before the ld. CIT(A), who vide impugned order dated 23/03/2023, deleted the addition on this count on the ground that the issue of disallowance of "under-loading charges" was a subject matter of appeal in the case of assessee for A.Y. 2016-17 which was allowed by the ld. CIT(A) vide its order dated 24/02/2023. The relevant para of the findings of the ld. CIT(A), NFAC is reproduced as under: "6.1.7 The submission of the appellant, the case laws cited by it and the order appealed against have been perused. The judgment dated 10.08.2009 of 4 & 103/Ran/2023 ACIT/DCIT Vs BCCL Hon'ble ITAT Nagpur Bench in for AY 2004-05, in the case of M/s Western Coalfields Ltd Vs DCIT. Range-2, Nagpur has decided on the identical issue of under loading charges. The first ground of appeal

Aggrieved by the order of learned. CIT(A), this appeal has been preferred by the revenue before us.

The ld. CIT-DR for the revenue, in its submissions, justified the disallowance made by the Assessing Officer and stated that these expenses are penal in nature and thus, the same cannot be allowed under Section 37 of the Act because the assessee BCCL is discharging the liability on behalf of coal buyers and it was the primary responsibility of the coal buyers to bear this cost. The FSA entered into by the assessee and the coal buyer is an unnecessary & 103/Ran/2023 ACIT/DCIT Vs BCCL exercise and the payment made by BCCL to the railway authorities is unwarranted.

During the course of hearing before us, the learned Authorized Representative of the assessee filed paper book containing Fuel Supply Agreement, various other relevant documents and the copy of decisions of Hon'ble Tribunal and Hon'ble High Court on this issue. The ld. AR drew our attention towards Clause (10) of the FSA entered into between BCCL and the coal buyer, UP Rajya Vidyut Vitaran Ltd. dated 16/09/2011 which reads as under: "10. OVERLOADING AND UNDER-LOADING 10.1 Any penal freight for overloading charged by the Railways for any consignment shallbepayablebythePurchaser.However,ifoverloadingisdetectedfromanyparticularcolliery, consistentlyduringthree(3)continuousmonths,ondueintimationfromthePurchasertothiseffect, theSellerundertakestotakeremedialmeasures. 10.2 For Grade A, Grade B, Steel Grade I, Steel Grade II, Washery Grade-I, Washery Grade-II, Semi-coking Grade I. Semi-coking Grade II and washed coal; and idle freight for under- loading below the stenciled carrying capacity, as shown on the wagon or carrying capacity based on the actual tare weight, as the case may be, shall be borne by the Seller. For all other Grades of Coal, any idle freight for under-loading below the stenciled carrying capacity, as shown on the wagon or carrying capacity based on the actual tare weight,asthecasemaybe, plustwo(2)tonnesshall bebornebytheSeller. 10.3 Idle freight resulting from under loading of wagon, as per Clause 10.2. shall be adjustedinthebills.Idlefreightshallbereckonedas: (i) For Grade A. Grade B, Steel Grade-I. Steel Grade II, Washery Grade I, Washery Grade- II, Semi-coking Grade I, Semi-coking Grade II and washed Coal, the difference between the freight charges applicable for the stencilled carrying capacity, as Shown on the wagon or carrying capacity based on the actual tare weight, as the case may be, less the freight payable as per actual recorded weight of Coal loaded in the wagon; and/or (ii) For all other Grades of Coal, the difference between the freight charges applicable for the stencilled carrying capacity, as shown on the wagon or 7 & 103/Ran/2023 ACIT/DCIT Vs BCCL carrying capacity based on the actual tare weight, as the case may be, plus two (2) tonnes less the freight payable as per actual recorded weight of Coal loaded in the wagon." The ld. Counsel then argued that as per the above conditions mentioned in the said FSA, the assessee company is bound to discharge its commitment of paying under-loading charges to Railway authorities and claimed that these expenses, being borne by the assessee, is a kind of reimbursement which is finally, finally adjusted in the books of the assessee. Thus, this expenditure cannot be termed as penal in nature. It was further submitted by the AR that this issue of ‘under loading charges’ was a subject matter of disputes before the Hon’ble ITAT, Nagpur which decided these issues in its judgment dated 10/08/2019 in for A.Y. 2004-05 in the case of Western Coalfields Limited Vs DCIT, Range-2, Nagpur in favour of assessee. The same Hon'ble ITAT Nagpur Bench vide its order dated in ITA No. 289 and 290/nag/2006 dated 30/06/2009 for A.Y. 2002-03 and 2003-04 (supra.) also decided the issue of under-loading charges in favour of the assessee. While allowing the appeal of the appellant on the issue of under loading charges, in para 7 of the judgement, the Hon'ble ITAT has mentioned para 25 of the order of the ITAT dated 30/06/2009. The relevant part of the order is reproduced as below: "25. We have considered rival submissions, orders of the authorities below and the materials available on record. We find that all the three charges have been clubbed together without analyzing the exact nature of these items. As far as underloading charges and credit notes are concerned, these expenses have been incurred by the assessee as a consequence of agreement with its customers and these have not been paid to railways like overloading charges, hence, at the very outset, these are not covered 8 & 103/Ran/2023 ACIT/DCIT Vs BCCL within the ambit of Explanation to S. 37(1) of the Act. The fact of incurrence of these expenses for the purpose of business is also not in doubt. Accordingly, we hold that these are allowable expenses as incurred for the purpose of business. Thus, ground Nos. 5 and 6 of assessee's appeal are accepted."

We have considered the facts of the case, rival submissions and the decisions of the Hon'ble ITAT, Nagpur Bench and also the decision of Hon'ble High Courts on this issue. It is found that the Hon'ble ITAT, Nagpur Bench has already decided this issue of “under-loading charges” in the case of assessee's sister concern i.e. M/s Western Coalfields Ltd. We have also examined Clause-10 of Coal Supply Agreement and it is found that this payment of under-loading charges is part of that agreement and the expenses is being borne by the assessee through book adjustments. We have also perused the order of Hon'ble ITAT Nagpur Bench in the case of sister concern of assessee i.e. Western Coalfields Ltd. and we find that the Hon'ble Nagpur Bench has already decided these issues in favour of the assessee and the additions made by the Assessing Officer were deleted. Thus, considering the specific clause-10 of the Coal Supply Agreement and the decisions of the Hon'ble ITAT, Nagpur Bench, Nagpur, there is no reason for this Bench to differ with that because the nature of expenses is same in both the BCCL and its sister concern M/s Western Coalfields Ltd. The ratio applied by the Hon'ble ITAT Nagpur Bench is also applicable in the case of the assessee. Thus, respectfully following the decision of the Hon’ble ITAT, Nagpur, we also hold that the disallowance made by the Assessing Officer under the head "under loading charges" treating it as a statutory penalty is not correct and same is & 103/Ran/2023 ACIT/DCIT Vs BCCL deleted. The impugned order of ld. CIT(A) is, therefore, upheld qua this issue.

Demurrage Charges: During the course of assessment proceedings, the Assessing Officer found that the assessee has debited demurrage expenses of ₹23,77,000,00/- and asked the assessee to justify the genuineness of these expenses. In response to that, the assessee i.e. BCCL stated “demurrage is payable to railway for delay in loading and unloading at railway siding beyond a stipulated free loading/unloading time. At colliery siding, where loading of raw coal is done, the demurrage is payable on loading only. At washery siding, both unloading of raw coal and loading of washed coal occurs. Hence, at washery siding, demurrage is applicable on both loading as well as unloading.”

The Assessing Officer, however, was not convinced with the above explanation given by the assessee and added this demurrage charge of ₹23,77,000,00/- being penal in nature and disallowed the same under Section 37 of the Act on the ground that the delay in loading and unloading of wagons is a failure on the part of the company. The company has clearly failed to discharge his duty timely and paid this penalty, therefore, it cannot be considered as business expenditure.

Aggrieved by the order of Assessing Officer, the assessee filed appeal before the ld. CIT(A), who vide impugned order dated 23/03/2023, deleted the addition made by the Assessing Officer on the ground that the issue of disallowance of demurrage charges paid to railways, was also subject matter of appeal in the case of assessee itself for the A.Y. 2016-17 has been decided & 103/Ran/2023 ACIT/DCIT Vs BCCL vide order dated 24/02/2024 in appeal No. CIT(A) Dhanbad/10087/2018-19. The relevant para of the findings of the ld. CIT(A) NFAC is reproduced as under: "6.2.4 The facts of the instant case are squarely covered by the Judgment of Hon'ble Delhi High Court in the case of Mahalakshmi Sugar Mills Co. Ltd. vs. Commissioner of Income-tax (1984) 19 Taxman 447 (Delhi). The Hon'ble High Court in para 9 of its judgment has observed as under: 9. Question No. 3 is common for the assessment years 1963-64 and 1964-65 and relates to the deductibility of the demurrage paid by the assessed-company to the Railways. For the assessment year 1963-64, the assessed had claimed a sum of Ps. 5.030 and for 196465 the assessed claimed Rs. 1,244 as demurrage paid to the Railways for not lifting the goods consigned to it in time. The Income-tax Officer disallowed the claim which was, however, allowed by the Appellate Assistant Commissioner in appeal. On appeal by the Department. the Tribunal held the claim of the assessed as correct and observed that the claim was allowed in earlier years as well. In doing so. the Tribunal applied its decision in relation to the allowability of the interest on the arrears of cess. On the other hand, it was contended by the Department before the Tribunal that this expenditure was of the same Mahalaxmi Sugar Mills Company vs Commissioner of Income-Tax on 29 May, 1984 Indian Kanoon- http://indiankanoon.org/doc/155561/3 nature as interest paid by the assessed on the arrears of sugarcane cess and purchase tax. It may at once be seen that the payment of demurrage was not in the nature of damage or penalty amount and that it was merely a charge made by the Railway administration to compensate itself for keeping the goods of the assessed in its custody beyond a particular time. The payment of demurrage was incidental to business and its impact was to increase the cost to the assessed of the goods transported. Shri S. N. Kumar, learned counsel for the assessed, referred to a decision of the Allahabad High Court in Nanhoomal Jyoti Prasad v. CIT [1980] 123 ITR 269. In this case, the port authorities charged demurrage for delay in clearing the 11 & 103/Ran/2023 ACIT/DCIT Vs BCCL goods from the godowns of the port authorities which included charges for storage and safe custody of the good by the port authorities. It was held that when demurrage is paid by a trader, he pays the amount for storage and safe custody of the goods by the port authorities or the railways and also an additional amount for delayed clearance and the payment essentially is by way of liquidated damages for use of the port facilities beyond the period allowed under the port Rules. It was held that the demurrage paid was not a fine for infraction of any law but was by way of compensation for use of port facilities beyond the period allowed under the Port Trust Rules, and that the expenditure on this account was laid out wholly and exclusively for the assessees business. We would follow the reasoning adopted by the Allahabad High Court in this judgment. We thus answer question No. 3 in the affirmative, i.e.. in favor of the assessed and hold that the assessed is entitled to deduction of sums of Rs. 5,030 and Rs. 1.244, respectively, for the assessment years 1963-64 and 1964-65 paid by it by way of demurrage to the Railways in the computation of its business income for the assessment years in question. 6.2.5 The assessing officer has made this disallowance by holding the demurrage charges as fine/penalty. This contention of the assessing officer has been considered and rejected by the aforesaid judgment of Hon'ble Delhi High Court. Further, charging of demurrage is widely prevalent practice in the business of transportation and storage of bulk goods. Therefore, the conclusion of the AO that the demurrage charges could have been avoided and these have occurred on account of the negligence of the appellant is also not sustainable in the eyes of law. 6.2.5 In view of the above discussion and also the judicial precedents cited by the appellant it is held that the demurrage charges paid by the appellant was on account of its contractual obligations with the railways for transportation and the expenditure incurred under the head was exclusively for the purpose of business. Therefore, the expenses claimed by the Appellant of Rs. 20,36,75,000/- is allowable expenditure u/s 37(1) of 12 & 103/Ran/2023 ACIT/DCIT Vs BCCL the Income Tax Act. Accordingly. the disallowance made by the AO of Rs. 20,36,75,000/- under the head demurrage charges is hereby deleted. 6.2.7 Thus the second ground of appeal

We have considered the facts of the case, rival submissions and the decisions of the Hon'ble ITAT, Nagpur Bench and also the decision of Hon'ble High Courts on this issue. It is found that the Hon'ble ITAT, Nagpur Bench has already decided this issue of demurrage charges in the case of assessee's sister concerned i.e. M/s Western Coalfields Ltd. We find no reason to differ with that because the nature of expenses as the same in both the cases i.e. in the case of this assessee and its sister concern M/s Western Coalfields Ltd., Thus, the ratio applied by the Hon'ble ITAT, Nagpur Bench is also applicable in the case of the assessee. Thus, respectfully following the decision of the Hon’ble ITAT, Nagpur, we also hold that the disallowance made by the Assessing Officer under the head "Demurrage” is not correct and same is deleted. The impugned order of ld. CIT(A) is, therefore, upheld qua this issue.

In the result, this appeal of revenue is dismissed..

Similarly in A.Y. 2016-17, we find that in this appeal, the revenue has raised similar grounds of appeal except variation of additions/disallowances made by the Assessing Officer. We also find that the facts of the case and the grounds of appeal as raised in for the A.Y. 2016-17 are similar, where we have dismissed the appeal of revenue by upholding the order of ld. CIT(A). Therefore, keeping in view the principle of consistency on similar set of facts, this appeal of revenue is also