Case Law Details
CIT Vs Mahavir Multitrade Pvt. Ltd. (ITAT Delhi)
The action of the learned Assessing Officer clearly reveals that it is only because the assessee categorised the expenditure/deduction as in respect of the penalty that was levied for not complying to the terms of contract, the learned Assessing Officer jump or to the conclusion that such penalty was paid for infraction of law so as to attract the provisions under Explanation 1 to section 37 (1) of the Act. It seems the assessing officer did not read the submission of the assessee in a holistic manner, because what all the assessee had submitted is that the penalty was levied on the assessee company for not complying to the terms of the contract. Assessee clearly submitted before the learned Assessing Officer that in spate of their best efforts, sometimes the moisture content of the coal cannot be the same as required by the buyer in view of the open storage of coal, rain factor while storing and transporting, natural environment etc and also because while mixing the different lots having different GCV of coal, to match the specifications, the actual GCV may differ from what is required by the buyer since the mixing is handled by large machines. Assessee submitted that precisely this is the reason why it was a great that in such an event the buyer makes deduction on account of quantity and quality while releasing the payment.
It is therefore clear that the contract between the assessee and the buyers is clear in its terms that there was a specification as to the quality of coal that has to be supplied and should there be any variation in such quality, the price will be adjusted accordingly. In case of supply of coal with the high moisture under low grass calorific value, the buyer makes deduction on such account. So, the contract clearly stipulates the consequences of variation in the quantity and quality of coal that has to be supplied by the assessee to the buyers. Further, case of the assessee has been that they did not pass on the liability incurred by them on this count to their sellers. Learned Assessing Officer should have considered this aspect as to the possibility of assessee passing on such liability to their sellers, which was not possible in case of the penalty paid for an offence or infraction of law.
As rightly held by the Ld.CIT(A),the inability to meet the contractual obligation by the assessee cannot be termed as an offence or infraction of law so as to deny the claim of the assessee by invoking the expression 1 to sec 37(1) of the Act. We are in agreement with the Ld.CIT(A) that the eligibility of an item to tax or tax deduction can hardly be made to depend on the label given to it by the parties and at the same time the absence of a specific label cannot be destructive of the right of an assessee to claim a deduction, if in fact, the consideration for the receipt can be attributed to the sources indicated in the section. Merely because the assessee categorised the claim under “penalty levied on the assessee company for not complying to the terms of the contract”, is not permissible to the jump to the conclusion that such penalty was in respect of any offence or infraction of law committed by the assessee so as to invoke the provisions under Explanation 1 to section 37 (1) of the Act. The expression “penalty was levied on the assessee company for not complying to the terms of the contract”, clearly indicates that it is a civil consequence for not complying with certain terms of contract and has nothing to do with any offence.
FULL TEXT OF THE ITAT JUDGEMENT
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