TaxTMI 
TaxTMI 
2009 (9) TMI 695
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.... 3. Both the lower authorities have erred in law and on facts in not properly appreciating and considering various submissions, evidences and supporting (sic) placed on record during the course of the assessment proceedings and not properly appreciating various facts and law in its proper perspective and further erred in passing orders in gross violation of the principles of natural justice. 4. Learned CIT(A) has erred in law in confirming the levy of interest under section 234A/234B/234C of the Act. 5. Learned CIT(A) has erred in law and on facts in upholding the action of the Assessing Officer in initialing penalty under section 271(1)(c) of the Act without recording mandatory satisfaction as contemplated under the Act." 3. As regards ground Nos. 1 to 3 of the appeal brief facts of the case are that the assessee is a private limited company engaged in the business of transport contractor and fleet owners. The Assessing Officer observed that on verification of audit report in Form No. 3CD, it was found that in column No. 17E, the auditor had put a remark as under : "Penalty is there except overload penalty which is in normal course of business and hence not reported." The As....
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.... notice on 24-5-2007 requiring the assessee to submit the explanation as to why the penalty charges of Rs. 17.88,062 should not be disallowed as the same is penalty in nature and hence not allowable expenditure. Thereafter, another show-cause notice was issued on 11-12-2007 for giving opportunity to submit the detailed explanation. In response to above show-cause notice, the assessee stated that the letter furnished on 11-5-2007 may be considered as reply to above query. The Assessing Officer did not accept the reply of the assessee. The Assessing Officer rejected this contention of the assessee that it was normal business expenditure as corresponding income for the same was billed to the parties and that Gujarat Government has come out with a scheme of Gold Card which entitles every transporters to have overloaded vehicle for that particular month on payment of additional fees fixed for that Gold Card. The Assessing Officer also rejected this contention of the assessee that the overloading penalty cannot be equated with the penalty for infringement of law or otherwise, as per the provisions of IT Act. The Assessing Officer took the view that it cannot be held that Gold Card holder....
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....e IT Act from the RTO office to ascertain correct nature of penal action. The RTO, vide his letter dated 8-9-2006 confirmed that the payment to RTO is penal in nature as per the Motor Vehicles Act. The Assessing Officer further stated that the RTO has submitted relevant text of section 194 of Motor Vehicles Act, 1988. According to the said section, the incumbent would be punishable for violating the provisions of sections 113, 114 and 115 by way of fine. The Assessing Officer further relying upon certain decisions of the Courts held that in the present case of the assessee, the nature of penalty is not compensatory but is for the violation of rudimentary law. According to the Assessing Officer, this feature and tendency of carrying overloaded goods by the assessee is rampant, conscious and deliberate phenomena over the years. The Assessing Officer concluded that this being a cognizable offence and infringement of law and payment being penal in nature and not incidental to the assessee's regular business, the same is not allowable as an "allowable" expenditure under the provisions of section 37(1) of the Act. He, therefore, disallowed the amount of Rs. 17.88,062 and added the same t....
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....he C1T(A) that the amount in question is compensatory in nature and not penal as alleged by the Assessing Officer. The assessee also cited the following decisions before the CIT(A) : (1)Prakash Cotton Mills (P.) Ltd. v. CIT [1993] 201 ITR 684 (SC); (2)Lachmandas Mathuradas v. CIT [2002] 254 ITR 799 (SC); 9. The CIT(A) did not accept the contentions raised by the assessee before him and confirmed the addition observing as under : "Keeping in view the aforesaid facts and circumstances, it is crystal clear that the expenditure which can be deducted is only in respect of business carried on by the appellant. The penalty paid for violation of law in the course of conduct of business cannot be regarded as deductible expenditure as the assessee is expected to can on the business in accordance with the law. Penalty or interest or fine under direct taxes is not deductible, for example, interest levied on the assessee for delay in filing return will not be allowable as a business expenditure as held in the case of Bharat Commerce & Industries Ltd. v. CIT [1998] 145 CTR (SC) 340 : [1998] 230 ITR (SC) 733 : Keeping in view the aforesaid facts, circumstances and various judicial pronou....
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.... carry overload on payment of such compensation fees to the final destination without stopping them to unload the excess weightage. In our view, if these fees were penal in nature then RTO authorities would have recovered the amount from the transporters and unloaded the excess load. In our considered view, the authorities below have not correctly appreciated the facts of the present case. In fact, they have grievously erred in observing that "scheme of Gold Card introduced by the Government of Gujarat entitled the transport carriers to carry overload by payment of additional fees was strange in a way there is no Government machinery would encourage violation of infringement of legal provisions. Both the authorities below have not appreciated the appellate order for assessment year 2004-05 wherein the CIT(A) has discussed the judgment of the Hon'ble Supreme Court in the case of Parmajit Bhasin (supra) as well as the provisions of section 194 of the Motor Vehicles Act, 1988. In our considered view, the judgment of the Hon'ble Supreme Court in the case of transporters dated 9-11-2005 is operative from the date of the judgment. Here, we are concerned with the assessment year 2005-06 a....