Contractual demurrage and higher depreciation claims allowed where business payments were incidental and vehicles were used for goods transport on hire.

Contractual demurrage and penalty charges paid for delay in performance of business contracts were treated as deductible business expenditure because they arose under a contractual compensation clause and were not penalties for breach of law. Higher depreciation on tippers and dumpers was also upheld because the vehicles were used for transportation of goods on hire, consistent with the applicable CBDT circular and the jurisdictional High Court view. On both issues, the disallowance was rejected and the assessee's claims were allowed, resulting in deletion of the additions.

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Issues: (i) Whether demurrage charges and penalty charges paid under contractual obligations were allowable as business expenditure; (ii) whether the assessee was entitled to higher depreciation on tippers and dumpers on the footing that they were used for transportation of goods on hire.

Issue (i): Whether demurrage charges and penalty charges paid under contractual obligations were allowable as business expenditure.

Analysis: The payments arose from delay in performance of business contracts and were made under a contractual clause intended to compensate the other contracting party for non-delivery within time. Such payments were not penalties for breach of law, but were incidental to the carrying on of business. Earlier decisions in the assessee's own case and the jurisdictional High Court view supported the allowance of such expenditure.

Conclusion: The disallowance was unsustainable and the issue was decided in favour of the assessee.

Issue (ii): Whether the assessee was entitled to higher depreciation on tippers and dumpers on the footing that they were used for transportation of goods on hire.

Analysis: The vehicles were found to have been used in the assessee's business for transportation of goods on hire as well as for transportation of goods, and the assessee's claim was supported by CBDT Circular No. 652 dated 14.06.1993 and by the jurisdictional High Court in the assessee's own case. In these circumstances, the lower appellate view allowing higher depreciation required no interference.

Conclusion: The assessee was entitled to higher depreciation and the issue was decided in favour of the assessee.

Final Conclusion: Both additions made by the Assessing Officer were deleted, and the Revenue's challenge failed in its entirety.

Ratio Decidendi: A payment made under a contractual penalty clause in the course of business, where it is not a penalty for breach of law, is deductible as business expenditure; similarly, higher depreciation is allowable where the vehicles are used for transportation of goods on hire within the applicable circular framework.

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