Sri Ganesh Shipping Agency vs Asst. Commissioner Of Income Tax
2021 Latest Caselaw 1548 Kant

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 IN THE HIGH COURT OF KARNATAKA AT BENGALURU

       DATED THIS THE 6TH DAY OF FEBRUARY 2021

                         PRESENT

         THE HON'BLE MR. JUSTICE ALOK ARADHE

                           AND

  THE HON'BLE MR. JUSTICE NATARAJ RANGASWAMY

                 I.T.A. NO.366 OF 2015
BETWEEN:

SRI. GANESH SHIPPING AGENCY
REP. BY ITS MANAGING PARTNER
SRI. B. NAGARAJ SHETTY
05-152, SRI. RAM BUILDING
KOTTARA CHOWKI, DEREBAIL
MANGALORE-575006.
                                            .... APPELLANT
(BY MR. S. ANNAMALAI, ADV., FOR
    MR. M. LAVA, ADV.,)

AND:

ASST. COMMISSIONER OF INCOME TAX
CIRCLE-1(1), C.R. BUILDING
ANNEXE, ATTAVAR, MANGALORE-575001.
                                           ... RESPONDENT
(BY MR. DILIP KUMAR, ADV., FOR
    MR. K.V. ARAVIND, ADV.,)
                             ---

      THIS I.T.A. IS FILED UNDER SEC. 260-A OF INCOME TAX
ACT 1961, ARISING OUT OF ORDER DATED 29.05.2015 PASSED
IN ITA NO.798 TO 800/BANG/2014 FOR THE ASSESSMENT YEAR
2007-08, 2008-09 & 2009-10 PRAYING TO:
      (i) FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW AS
STATED ABOVE AND ANSWER THE SAME IN FAVOUR OF THE
APPELLANT.
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      (ii) ALLOW THE APPEAL AND SET ASIDE THE FINDINGS TO
THE EXTENT AGAINST THE APPELLANT IN THE ORDER PASSED BY
THE ITAT, BANGALORE BENCH IN ITA NO.798 TO 800/BANG/2014
RELATING TO ASSESSMENT YEARS 2007-08, 2008-09 AND 2009-
10 VIDE ITS ORDER DATED 29.05.2015.

     THIS I.T.A. COMING ON FOR HEARING,                     THIS   DAY,
ALOK ARADHE J., DELIVERED THE FOLLOWING:

                           JUDGMENT

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.22/2015, 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.

Sd/-

JUDGE

Sd/-

JUDGE

RV