Namakkal South India Transports Vs ACIT (ITAT Chennai)
This appeal was filed by the assessee against the order dated 06.06.2025 passed by the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi, for the assessment year 2018-19. The assessee, a transport operator and Clearing & Forwarding Agent, had filed its return declaring NIL income. The case was selected for limited scrutiny to verify large expenditure claimed as penalty or fine and substantial loan squared up during the year.
During assessment proceedings, the Assessing Officer (AO) observed that the assessee had claimed ₹20,00,000 as “penalty/fine” paid to M/s. Chettinad Cements Ltd. due to shortage of cement during transportation. The assessee furnished ledger accounts, bank statements evidencing payment through banking channels, and email correspondence confirming the claim. However, since Chettinad Cements did not respond to a notice issued under section 133(6) and no independent confirmation was filed, the AO treated the payment as penal in nature and disallowed it under section 37 of the Act. The order was passed under section 143(3) on 31.03.2021. The CIT(A) confirmed the disallowance.
Before the Tribunal, the assessee contended that the payment was not for violation of law but was compensatory in nature, arising from shortage of goods during transit. Reference was made to the transportation contract, particularly clause 4, which made the transporter responsible for shortages or loss during transit. The assessee relied on judicial precedents to argue that compensatory damages arising out of contractual obligations are allowable as business expenditure.
