Case Law Details
Ganesh Shipping Agency Vs ACIT (Karnataka High Court)
From perusal of the order passed by the authorities, it is evident that the authorities have accepted the books of accounts produced by the assessee. The Assessing Officer, in its order, has admitted that the payment of speed money is a trade practice which is followed by the assessee and similar business concerns functioning for speedy completion of their work. However, the disallowance of 20% of the expenses is made solely on the ground that the assessee had produced the self-made cash vouchers which showed that the payment was made by cash to each gang leader and the identity of the gang leader is not verifiable and the recipients are not assesse’s employees. The aforesaid finding has been affirmed by the Commissioner of Income Tax (Appeals) as well as by the Tribunal. However, it is pertinent to note that the books of accounts have not been touted by any of the authorities under the Act. A Bench of this Court vide judgment dated 24.03.2015 passed in ITA No.22/20 15, has held that admittedly the normal practice in the line of business of the assessee is to pay certain extra amounts to port labourers as speed money for promptly and speedily carrying out the labour work of handling cargo beyond working hours and has placed reliance on the decision rendered by this Court in KONKAN MARINE AGENCIES, supra. It is pertinent to note that in CLIFFORD D’SOZA, supra, payment was made to the sub-contractors in cash as well as by Cheques. In the absence of any challenge to the entries made in the books of accounts by the authorities, in our opinion, the finding recorded by the Assessing Officer as well as the Tribunal that it denied the claim of the assessee for expenditure to the extent of 10% on account of payment of speed money, is perverse as the same is duly supported by the documentary evidence. Insofar as the submission made by the learned counsel for the revenue that in paragraph 4 of the order of the Commissioner the assessee himself had restricted the payment of speed money to 10% is concerned, it is pertinent to note that the restriction was made by the assessee in respect of Assessment Year 2004-05 and from the grounds of memorandum of appeal before the Tribunal, we find that the assessee had challenged the aforesaid finding which is evident from paragraphs 1 and 2, therefore, the aforesaid submission is of no assistance to the revenue.
In view of aforesaid preceding analysis, the substantial question of law involved in this appeal is answered against the revenue and in favour of the assessee.
FULL TEXT OF THE HIGH COURT ORDER /JUDGEMENT
This appeal under Section 260-A of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’, for short) has been filed by the assessee. The subject matter of the appeal pertains to the Assessment Years 2007-08, 2008-09 and 2009-10. The appeal was admitted by a Bench of this Court vide order dated 10.01.2018 on the following substantial question of law:
“Whether the Income Tax Appellate Tribunal is justified in law in sustaining the disallowance of expenses of Rs.9, 74,418/- being 10% of the expenses paid to port workers as incentives even when the books of account have been accepted are not rejected by pointing to any defects therein and the entire expenditure is supported by documentary evidence on the facts and circumstances of the case?”
2. Facts leading to filing of this appeal briefly stated are that the assessee is a partnership firm engaged in the business as clearing and forwarding agent and steamer agent. The assessee filed its returns for the Assessment Years in question. The Assessing Officers, by order dated 29.12.2009, 20.12.2010 and 11.11.2011 in respect of Assessment Years 2007-08, 2008-09 and 2009-10, respectively, disallowed 20% of the expenses incurred by the assessee as speed money which was paid to the workers for speedy completion of their work. Being aggrieved, the assessee filed an appeal. The Commissioner of Income Tax (Appeals), by a common order dated 27.03.2014 in respect of the Assessment Years in question, restricted the disallowance of 10%. The assessee thereupon approached the Tribunal by filing an appeal. The Tribunal, by the impugned order dated 29.05.2015, has maintained the disallowance of 10% of the expenses. In the aforesaid factual background, this appeal has been filed.
3. Learned counsel for the assessee submitted that the authorities have accepted the books of accounts and the entire expenditure is supported by documentary evidence. It is also pointed out from the order of assessment that the Assessing Officer himself has accepted that payment of speed money is a trade practice which is followed by the assessee and similar business concerns functioning for speedy completion of their work and therefore, under the Act, grossly erred in disallowing the claim to the extent of 10% of the expenditure incurred by the assessee on account of speed money which was paid to the workers. In support of aforesaid submission, reliance has been placed on the decision of the this Court in ITA NO.22/2011 DATED 24.02.2015 (COMMISSIONER OF INCOME-TAX AND ANOTHER Vs. SRI.CLIFFORD D’SOUZA) as well as in ‘COMMISSIONER OF INCOME-TAX AND ANOTHER Vs. KONKAN MARINE AGENCIES’ 313 ITR 308 (KAR).
4. On the other hand, learned counsel for the revenue submitted that the revenue does not dispute the fact that payment of speed money for timely completion of the work is a trade practice which is followed by the assessee as well as other business concerns. However, it is submitted that in the instant case, the assessee has paid the entire amount by cash and has produced the vouchers which do not contain the details of payment made to the workers. Therefore, the Assessing Officer had rightly disallowed the expenditure incurred by the assessee. While inviting the attention of this Court to paragraph 4 of the memorandum of appeal, it is submitted that the assessee infact before the Commissioner of Income Tax (Appeals) has relied on the decision of the Tribunal dated 18.07.2008 in respect of Assessment Year 2004-05 and had argued that the speed money is to be restricted at 10% as per the order passed by the Tribunal. It is also submitted that the issue did not attain finality as the authorities have not adjudicated the aforesaid issue on merits and the issue was not decided on merits on account of monetary limits.
5. We have considered the submissions made on both sides and have perused the record. From perusal of the order passed by the authorities, it is evident that the authorities have accepted the books of accounts produced by the assessee. The Assessing Officer, in its order, has admitted that the payment of speed money is a trade practice which is followed by the assessee and similar business concerns functioning for speedy completion of their work. However, the disallowance of 20% of the expenses is made solely on the ground that the assessee had produced the self-made cash vouchers which showed that the payment was made by cash to each gang leader and the identity of the gang leader is not verifiable and the recipients are not assesse’s employees. The aforesaid finding has been affirmed by the Commissioner of Income Tax (Appeals) as well as by the Tribunal. However, it is pertinent to note that the books of accounts have not been touted by any of the authorities under the Act. A Bench of this Court vide judgment dated 24.03.2015 passed in ITA No.22/20 15, has held that admittedly the normal practice in the line of business of the assessee is to pay certain extra amounts to port labourers as speed money for promptly and speedily carrying out the labour work of handling cargo beyond working hours and has placed reliance on the decision rendered by this Court in KONKAN MARINE AGENCIES, supra. It is pertinent to note that in CLIFFORD D’SOZA, supra, payment was made to the sub-contractors in cash as well as by Cheques. In the absence of any challenge to the entries made in the books of accounts by the authorities, in our opinion, the finding recorded by the Assessing Officer as well as the Tribunal that it denied the claim of the assessee for expenditure to the extent of 10% on account of payment of speed money, is perverse as the same is duly supported by the documentary evidence. Insofar as the submission made by the learned counsel for the revenue that in paragraph 4 of the order of the Commissioner the assessee himself had restricted the payment of speed money to 10% is concerned, it is pertinent to note that the restriction was made by the assessee in respect of Assessment Year 2004-05 and from the grounds of memorandum of appeal before the Tribunal, we find that the assessee had challenged the aforesaid finding which is evident from paragraphs 1 and 2, therefore, the aforesaid submission is of no assistance to the revenue.
6. In view of aforesaid preceding analysis, the substantial question of law involved in this appeal is answered against the revenue and in favour of the assessee.
7. In the result, the impugned order of the Tribunal dated 29.05.2015 insofar as it contains the findings to the extent of disallowance of 10% of the expenses incurred by the assessee in relation to the Assessment Years 2007-08, 2008-09 and 2009-10 is hereby quashed.
Accordingly, the appeal is allowed.
