2018 (1) TMI 1378 - AT - Income Tax

Railway Charges Deductible, PF/ESI Contributions Allowed Pre-Filing, Tribunal Rules

D.C.I.T., Central Circle-1 (3) Versus M/s Rungta Mines Ltd.

The Tribunal dismissed the Revenue's appeal, confirming that railway punitive charges are compensatory and not penal, thus allowable as deductions. ... Business expenditure u/s 37(1) - Punitive charge for overloading a wagon - AO treated the overloading charges is nothing but a penalty as per provision of section 73 of the Indian Railway Act, 1989 - CIT(A) deleted the additions - Held that:- In the present case there is no offence whatsoever and there is no compounding fee paid and claimed as deduction. As far as the decision of the Hon’ble Supreme Court in the case of Haji Aziz and Abdul Brothers [1960 (11) TMI 15 - SUPREME COURT] is concerned it was again the case of breach of penal provisions of Customs Act for which fine was paid. Under these circumstances, the expenses were not allowed as deduction. We are of the view that in the facts and circumstances of the present case the claim of the assessee for deduction was rightly allowed by CIT(A). - Decided against the revenue. Additions u/s 43B - contribution payable by its employees from their salaries payable, as their share of contribution to Provident Fund (PF) and Employees State Insurance (ESI) - Held that:- employees’ contribution to PF paid on or before the due date of filing the return of income u/s 139(1) of the Act should be allowed as deduction - Decided against the revenue. Issues Involved:1. Disallowance of railway punitive charges under Explanation to Section 37(1) of the Income Tax Act, 1961.2. Deduction of employees' contribution to Provident Fund (PF) and Employees State Insurance (ESI) under Section 36(1)(va) read with Section 2(24)(x) of the Income Tax Act, 1961.Issue-Wise Detailed Analysis:1. Disallowance of Railway Punitive Charges:The primary issue was whether the railway punitive charges paid by the assessee for overloading wagons should be disallowed under Explanation to Section 37(1) of the Income Tax Act, 1961. The Assessing Officer (AO) disallowed these charges, considering them as expenses incurred for an offense or prohibited by law. The assessee argued that these charges were compensatory, not penal, and were additional freight for overloading beyond the permissible limit due to infrastructural constraints.The CIT(A) sided with the assessee, referencing previous rulings and a notification by the Ministry of Railways, which indicated that such charges were compensatory. The Tribunal upheld the CIT(A)'s decision, citing the ITAT Mumbai Bench's ruling in the case of Taurian Iron & Steel Co. (P) Ltd., which concluded that railway punitive charges were compensatory and not penal, thus not falling under Explanation to Section 37(1).2. Deduction of Employees' Contribution to PF and ESI:The second issue revolved around whether the employees' contribution to PF and ESI, paid by the assessee after the due date but before the filing of the return of income, should be allowed as a deduction. The AO disallowed the deduction, stating that the proviso to Section 43B of the Act could not be applied to Section 36(1)(va).The CIT(A) allowed the deduction, following the Delhi High Court's decision in CIT vs AIMIL Ltd., which permitted such deductions if payments were made before the return filing due date under Section 139(1). The Tribunal upheld the CIT(A)'s decision, referencing the Calcutta High Court's rulings in M/s. Akzo Nobel India Ltd. and CIT vs Vijayshree Ltd., which supported the allowance of such deductions.Conclusion:The Tribunal dismissed the Revenue's appeal, confirming that:1. Railway punitive charges are compensatory and not penal, thus allowable as deductions.2. Employees' contributions to PF and ESI, paid before the return filing due date, are deductible under Section 43B.Order Pronounced:The appeal by the Revenue was dismissed, and the order was pronounced in the open Court on 10.01.2018.