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Income Tax Appellate Tribunal, “C” BENCH: KOLKATA
Before: Shri J. Sudhakar Reddy & Shri S.S. Viswanethra Ravi
ORDER Shri S.S.Viswanethra Ravi, JM:
This appeal by the Revenue is against the order dt. 27-02-2015 passed by the CIT-A, 3, Kolkata for the assessment year 2011-12.
The only issue in this appeal is to be decided as to whether the CIT-A is justified in deleting the disallowance of Rs.28,18,316/- made on account of demurrage and penalty charges in the facts and circumstances of the case.
The ld. DR relied on the order of the AO.
On the other hand, the ld. AR submits that the issue in this appeal is squarely covered by the decision of this Tribunal on identical issue decided in assessee’s own case in & 2223/Kol/2013 for the A.Ys 2008-09 & 2010-11, copies of the same are placed on record. He referred to paras 6 & 6.1 for the orders of A.Y 2008-09 and paras 9 & 10 for the A.Y 2010-11 and argued that payment of demurrage and penalty charges are incidental to business and not in the nature of punitive charges.
Heard rival submissions and perused the material on record. We find that the Co-ordinate Bench of this Tribunal in its order for the A.Y 2008-09 allowed the claim of the assessee on identical issue by following the decision of the Hon’ble Jurisdictional High Court of Calcutta in the case of CIT Vs. Jiyajeerao Cotton Mills Ltd and held that the impugned amounts by way of demurrage and penalty charges are in the nature of contractual obligation can be allowed as business expenditure. Relevant portion of which is reproduced herein below:-
Para 6 & 6.1 for the A.Y 2008-09:
We have heard both the counsel and perused the records. We find that the Tribunal in assessee's own case earlier has decided the issue in favour of the assessee. In this regard the Tribunal's decision in assessee's own case in for A.Yr. 1997-98 and ITA No.687/Ko1/2002 for A.Yr.1998-99 are relevant. Since it has been decided by the Tribunal in assessee's own case on identical issue there is no reason to differ from the same. Moreover, the case law of the Hon'ble Calcutta High Court in the case of CIT vs Jiyajeerao Cotton Mills Ltd. (supra) also supports the assessee's case. In this case the Hon'ble Jurisdictional High Court has expounded as under :-
"The goods were not delivered in time and thereby a penalty under the default clause had to be paid. It is not a penalty for breach of any law. The payment was made on account of the contractual obligation under 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. Usually, time is not of the essence of the contract, but the parties are entitled to make it so by inserting a specific clause in the contract. The parties are entitled to fix the time within which the goods must be delivered and to stipulate that if there is any failure to deliver the goods within the contracted period, extra money will have to be paid to compensate the buyer for non-delivery of the goods in time. In the instant case, there was specific requirement to deliver the goods in time and a penalty clause for default. These rights and obligations arose in course of carrying one of the business of buying and selling goods. One fails to see how this payment made under a contractual obligations cannot be allowed as business expenditure.
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. "
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 ld. CIT(A) and accordingly we uphold the same.”
6. In the light of above observation of the Co-ordinate Bench of this Tribunal on identical issue in the case of assessee’s sister concern company i.e. M/s. Reply & Co. Ltd for the A.Ys 2008-09 and 2010- 11, we hold that payment involving of Rs.28,18,316/- on account of demurrage and penalty charges are held to be incidental to business expenditure and assessee is entitled to claim the same as business expenditure. We find that the CIT-A while deciding the issue(s) raised by the assessee before him considered the said order of this Tribunal and allowed the claim of the assessee. Therefore, the impugned order of the CIT-A on this issue is justified. We do not see any reason to interfere with the same. Therefore, the grounds raised by the revenue involving the impugned addition are dismissed.
In the result, the appeal of the revenue is dismissed. Order pronounced in the open court on 13-10-2017