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Income Tax Appellate Tribunal, ‘SMC’ ‘C’ BENCH, CHENNAI
Before: Shri A. Mohan Alankamony
आदेश / O R D E R
This appeal by the assessee is directed against the order passed by the Ld. Commissioner of Income Tax (Appeals)-12, Chennai dated 17.07.2017 in for the assessment year 2014-15 passed u/s.250(6) r.w.s.143(3) of the Act.
The appeal was filed by the assessee with a delay of 13 days.
The Ld. AR submitted that the delay had occurred since the assessee’s office was under renovation and therefore the assessee could not compile the appeal papers on time. Therefore the Ld. AR pleaded that the short delay in filing the appeal by 13 days may be condoned. The Ld. DR strongly objected to the submission of the Ld. AR. After hearing both the parties, I’m of the considered view that the delay of 13 days in filing the appeal should be condoned because of the genuine constrain of the assessee. Therefore I hereby condone the delay and proceed to hear the appeal on merits.
The assessee has raised elaborate grounds in its appeal however the crux of the issue is that the Ld.CIT(A) has erred in confirming the order of the Ld.AO who had disallowed the expenditure of Rs.19,00,250/- by treating it to be penal in nature.
The brief facts of the case are that the assessee is a firm engaged in the business of cable cable TV operator in Nemili Taluk and its surrounding villages and also engaged in Railtel Signal Maintenance Service, filed its return of income for the assessment year 2014-15 on 22.11.2014 admitting total income of Rs.2,87,210/-. Initially the return was processed U/s.143(1) of the Act and subsequently the case was selected for scrutiny. Finally assessment order was passed U/s.143(3) of the Act, on 28.07.2016 wherein the Ld.AO made disallowance of expenditure incurred towards ‘Rail Tel Penalty’ amounting to Rs.19,00,254/- and added the same to the income of the assessee on the ground that expenditure incurred towards payment of penalty is not allowable as deduction as per the provisions of the Act . Before the Ld.CIT(A) the assessee had produced payment advice as proof for having paid penal expenses for not fulfilling certain conditions in the contract. However the Ld.CIT(A) confirmed the order of the Ld.AO by agreeing with his view.
Before me the Ld.AR explained that the payment of Rs.19,00,254/- paid by the assessee was not towards violating any of the provisions of the law / statutes but it was only due to non fulfilling certain terms of the commercial contract. It was therefore submitted that the explanation 1 to Section 37(1) of the Act is not applicable in the case of the assessee. Hence it was pleaded that the disallowance made by the Ld.AO which is further confirmed by the Ld.CIT(A) may be deleted. The Ld.DR argued in support of the orders of the Ld.Revenue Authorities.
I have heard the rival submissions and carefully perused the material available on record. From the submission of the Ld.AR, it
4 is evident that the expenditure of Rs.19,00,254/- is nothing but deduction of certain amount from the bills raised by the assessee due to delayed execution of work thereby not complying with the terms and condition of the commercial contract. This fact is not disputed by the Ld.DR. Explanation 1 to provision of Section 37(1) of the Act only prohibits expenditure incurred by the assessee towards any purpose which is an offense or which is prohibited by law. In the case of the assessee, it is only deduction of certain amount due to non-compliance of commercial contract and not for violation of any statute. Therefore in the case of the assessee explanation 1 to Section 37(1) of the Act will not be applicable as pointed out by the Ld.AR. Hence I hereby direct the Ld.AO to treat the amount of Rs.19,00,254/- as allowable deduction.
In the result the appeal of the assessee is allowed.
Order pronounced on the 09th January, 2018 at Chennai.