TaxTMI 
TaxTMI 
2011 (9) TMI 1028
X X X X Extracts X X X X
X X X X Extracts X X X X
....his consolidated order. 2. The grounds of appeal raised by the Revenue are as follows:- "1. On the facts and in the circumstances of the case and in law, the CIT (Appeals) has erred in deleting the disallowance of Rs. 6009.42 lacs claimed by the assessee on account of demurrage and diversion charge; 2. On the facts and in the circumstances of the case and in law, the CIT (Appeals) has erred in deleting the disallowance of Rs. 2070.58 lacs on account of purchase of food grains under unconnected wagons; 3. On the facts and in the circumstances of the case and in law, the CIT (Appeals) has erred in deleting the disallowance of Rs. 593.09 lacs on account of prior period expenses." 3. The ground of appeal raised ....
X X X X Extracts X X X X
X X X X Extracts X X X X
..... The assessee is following mercantile system of accounting. Hence, the same should have been disallowed. In the assessment completed under section 143(3) of the I. T. Act, the same has not been added back / disallowed." 4.2 During the course of reassessment proceedings the assessee challenged reopening of assessment relying on various decisions. However, the AO completed assessment by making the additions on account of demurrages charges, purchase of unconnected wagons and disallowance of prior period expenses. Before the ld. CIT (Appeals) the assessee challenged issue of reopening of assessment under section 147 as well as the additions made by AO under different heads. The ld. CIT (Appeals), however, upheld the reopening of a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....der on this issue was accordingly set aside. On the other hand, the ld. CIT (D)R supported the order of the ld. CIT (Appeals). 6. We have heard both the parties and gone through the material available on record. We have gone through the original assessment order passed on 15/12/2006. The AO has not dealt with the items on the basis of which reopening has been made. We have also gone through the reply submitted by the assessee during the course of original assessment proceedings. We find that the AO had not raised any query in respect of demurrages charges, purchase of unconnected wagons and prior period expenses. The assessee had also not given any details in respect of these items. It is also a fact that assessment has been reopened wit....
X X X X Extracts X X X X
X X X X Extracts X X X X
....lowance of Rs. 6009.42 lacs on account of demurrages charges. The AO in the course of reassessment proceedings noted that the assessee had paid Rs. 799.26 lacs on account of demurrages charges and Rs. 5210.06 lacs on account of diversion charges. The Corporation had been entrusted with the responsibility of executing the Food Policy of the Govt. of India. As such, the Corporation had been undertaking procurement, storage, movement and distribution of food grains since its incorporation. The food grains are transported mainly through railways from the procurement / surplus places to consuming / deficit regions. Railways as per its policy allow nine hours as free time for loading / un-loading of wagons. Though all out efforts were made to com....
X X X X Extracts X X X X
X X X X Extracts X X X X
....that payment of demurrages to railways is not in the nature of penalty and it is merely a charge made by the Railways administration to compensate itself for keeping the goods of the assessee in its custody beyond a particular time. Therefore, expenditure incurred on account of demurrage charges could be said to have been laid out wholly and exclusively for the assessee's business and was allowable as business expenditure. Respectfully following the decision of Hon'ble Delhi High Court it is held that demurrage charges paid by the assessee are not for any infraction of law and as such, the same cannot partake the character of penalty. The amount represents payment made to Railway administration for keeping the assessee's goods in their cust....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... purchase and rail wagon of its own and the note in the accounts relates to food grains received by the unit without corresponding advices such as booked as purchases on account of unaccounted wagons. In no stretch of imagination the same can be treated as purchase of wagons as a capital expenditure. However, the assessing officer treated the expenditure capital in nature and allowed depreciation at the rate of 25 per cent. On appeal, the ld. CIT (A) after considering the relevant material observed that the AO had treated the purchase of food grains under unconnected wagons as purchase of wagons by the assessee. The assessee did not purchase any rail wagons which are of the nature of capital expenditure. The ld. CIT (A) after going through ....