The Tax Publishers2020 TaxPub(DT) 4974 (Kol-Trib)

INCOME TAX ACT, 1961

Section 37(1), Expln. 1

Punitive charges paid by assessee to railway for overloading of wagon was compensatory in nature and same could not be disallowed by invoking explanation to section 37(1).

Business expenditure - Railway punitive charges for overloading of wagons - Applicability of Expln. to section 37(1) -

Assessee claimed deduction of punitive charges paid by it to railways for overloading of wagon. AO invoked Expln. 37(1) and thus disallowed deduction. Held: Overloading charges irrespective of the nomenclature given by railways were essentially of commercial nature which could not be characterized as penalty and such charges were compensatory in the nature of additional freight for overloading of wagons which was explicitly permitted by railways and payments were made in accordance with law as provided by Notification of the Ministry of Railways. Accordingly, punitive charges paid to railways could not be characterized as expenditure incurred for any purpose which was an offence or which was prohibited by law and therefore, explanation to section 37(1) was not attracted and deduction could not be disallowed.

Relied:Taurian Irion & Steel Co. (P) Ltd. v. Asstt. CIT [ITA No. 847 & 1613/M/2010].

REFERRED :

FAVOUR : In assessee's favour.

A.Y. : 2015-16

INCOME TAX ACT, 1961

Section 14A

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