ACIT Vs Devananda Shetty (ITAT Bangalore)
“Speed Money” Paid to Port Labourers Is Business Expenditure, Not Automatically an Illegal Payment: ITAT Upholds Restriction of Disallowance to ₹5 Lakh
Summary: The Bangalore Bench of the Income Tax Appellate Tribunal has upheld the allowability of “speed money” paid through subcontractors to labourers working at New Mangalore Port Trust, following the Karnataka High Court’s decision in CIT v. Konkan Marine Agencies [2009] 313 ITR 308 (Karnataka). The Tribunal held that similar expenditure had already been considered in the assessee’s own case for the immediately preceding year. As the facts remained unchanged, there was no reason to depart from the earlier decision restricting the disallowance to ₹5 lakh.
Facts of the case
The assessee was an individual carrying on the business of a clearing and forwarding agent at New Mangalore Port Trust. For Assessment Year 2007-08, he filed his return declaring total income of ₹91,01,150.
During the assessment proceedings under Section 143(3), the Assessing Officer noticed that the assessee had debited an amount of ₹2,10,10,245 as “speed money” paid through 13 subcontractors.
The Assessing Officer called upon the assessee to explain the nature of the payments and the necessity of engaging the subcontractors.
The assessee explained that in the clearing and forwarding business at the port, labourers were paid an additional amount over and above the wages fixed by New Mangalore Port Trust. The additional payment was made to ensure prompt handling of goods and smooth conduct of the clearing and forwarding operations.
