ACIT, Mangalore V. Sri Clifford D Souza, Mangalore

ITA 1176/BANG/2009

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 5100 (ITAT-BANGALORE)
• Duration Of Justice: 7 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-07-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 26-05-2010
• Assessment Year: 2006-2007
• Appeal Filed On: 14-12-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: JASON P BOAZ CITI
• Assessee Lawyers: J V DAYAKAR RAU
• Keywords: Business expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : BANGALORE BEFORE SHRI GEORGE GEORGE K., JUDICIAL MEMBER AND SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER ITA NO.1176/BANG/2009 ASSESSMENT YEAR : 2006-07 THE ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE 1(1), MANGALORE. : APPELLANT VS. SRI CLIFFORD DSOUZA, PROP. EXPORT TRADELINK AGENCIES, PUNJA BUILDING, MANGALORE. : RESPONDENT APPELLANT BY : SHRI JASON P. BOAZ CIT-I (DR) RESPONDENT BY : J.V. DAYAKAR RAU, C.A. O R D E R PER A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER THIS APPEAL IS BY THE REVENUE DIRECTED AGAINST T HE ORDER OF THE LD. CIT(APPEALS) IN ITA NO.79/CIT(A)-MNG/08-09 FOR THE ASSESSMENT YEAR 2006-07 DATED 21.10.2009. 2. THE REVENUE HAS RAISED FOUR GROUNDS IN ITS APPEA L. GROUND NOS. 1 & 4 ARE GENERAL IN NATURE AND NEEDS NO ADJUDICATION , WHILE AS THE OTHER TWO GROUNDS CULMINATES INTO ONE ISSUE; LD. CIT(A) HAS E RRED IN DELETING THE DISALLOWANCE OF SPEED MONEY AMOUNTING TO RS.67,59,7 84, WHEN THE FACTS ITA NO.1176/BANG/09 PAGE 2 OF 5 INDICATE THAT THE PAYMENTS WERE MADE TO SUB-CONTRAC TORS FOR DISBURSEMENT TO NEW MANGALORE PORT TRUST (NMPTRCH) WORKERS. 3. THE FACTS OF THE CASE ARE THAT THE APPELLANT HAD ENGAGED LABOUR FROM NMPTRCHW FOR LOADING AND UNLOADING OF EXPORT AND IM PORT CARGO. THERE WAS AN ORAL UNDERSTANDING BETWEEN C&F AGENTS ASSOCI ATION AND NMPTRCHW FOR PAYING INCENTIVE WAGES AT AN INTERVAL OF A YEAR OR TWO. SUCH INCENTIVE PAYMENTS ARE REQUIRED FOR SPEEDY HAN DLING OF CARGO IN ORDER TO AVOID OTHER PENAL EXPENDITURES SUCH AS DEMURRAGE ETC. DURING THIS YEAR UNDER DISPUTE, THE ASSESSEE HAD PAID AN AMOUNT OF R S.1,31,52,614 TO SHRI JEEVAN DSOUZA, RS.33,50,000 TO SMT. PREETHI DSOUZ A, RS.35,30,000 TO SHRI CHARLOTTE PINTO AND RS.25,00,000 TO SHRI S.V. KRISHNA RAO TOWARDS EXTRA WAGES PAYABLE TO NMPTRCH WORKERS AGGREGATING TO RS.2,25,32,614. OUT OF THIS, RS.21,38,941 WAS PAI D IN CASH OVER AND ABOVE THE CHARGES PAYABLE TO NMPTRCH WORKERS. FOR THE PAST TWO YEARS, THE ASSESSEE HAD PAID TO THE WORKERS THROUGH SUB-CO NTRACTORS, WHILE AS DURING THE EARLIER PERIOD THE PAYMENT WAS MADE DIRE CTLY TO THE WORKERS. 4. LD. AO AFTER ANALYZING THE ISSUE CAME TO A CONCL USION THAT THE ASSESSEE COULD NOT PROVE THE PAYMENT TO HAVE REACHE D THE NMPTRCH WORKERS AND ALSO THE SAID EXPENDITURE WAS ACTUALLY INCURRED IN THE INTEREST OF BUSINESS EXPEDIENCY. LD. AO OPINED THAT THERE COULD BE A POSSIBLE INFLATION IN EXPENDITURE INDUCED BY THE ASSESSEE IN ORDER TO REDUCE THE ASSESSABLE INCOME AND THEREFORE COMPLETED THE ASSES SMENT BY DISALLOWING 30% OF THE SPEED MONEY. ACCORDINGLY, AN AMOUNT OF RS.67,59,784 WAS DISALLOWED AS EXPENDITURE. ITA NO.1176/BANG/09 PAGE 3 OF 5 5. THE ASSESSEE WENT ON APPEAL BEFORE CIT(APPEALS). THE CIT(APPEALS) AFTER ANALYZING THE ISSUE IN DETAIL DE CIDED THE ISSUE IN FAVOUR OF THE ASSESSEE. THE RELEVANT PORTION OF THE ORDER IS EXTRACTED HEREBELOW: 8. THE APPELLANT ARGUED THAT IT HAD THEREFORE BECO ME A NORMAL PRACTICE IN HIS LINE OF BUSINESS TO PAY CERT AIN EXTRA AMOUNTS TO PORT LABOURERS AS SPEED MONEY. UNLESS S UCH SPEED MONEY WAS PAID, THE LABOURERS AT THE PORT WOULD NOT CARRY ON THE WORK PROMPTLY AND SPEEDILY, THEREBY CAUSING HEAVY F INANCIAL LOSSES AND IRREPARABLE DAMAGE TO THE AGENTS REPUTA TION. IN SUCH CIRCUMSTANCES, IT HAD BECOME CUSTOMARY TO ACCEDED T O THE LABOURERS DEMAND AND PAY CERTAIN AMOUNTS AS SPEED MONEY. IT WAS EXPLAINED THAT PAYMENT OF SPEED MONEY HAD VERY MUCH BECOME AN ESSENTIAL FACT OF BUSINESS AT EVERY PORT IN INDIA AND THE COURTS HAD ALSO ACCEPTED THE GENUINENESS AND NEED F OR SUCH PAYMENTS AND TREATED THEM AS BUSINESS EXPENSES. 9. THE HONBLE HIGH COURT OF KARNATAKA HAS HELD IN THE CASE CITED THAT, TAKING INTO CONSIDERATION THE ASSESSEE S BUSINESS AND THE PREVAILING PRACTICE IN THE TRADE, WHEREBY PAYME NTS HAD TO BE MADE TO FIRMS SUCH AS THE ASSESSEE IN ORDER TO ENSU RE THE WORK OF HANDLING GOODS WERE DONE WITHIN A REASONABLE TIME A ND TO HANDLE EMERGENCY OPERATIONS OF CARGO HANDLING BEYOND THE W ORKING HOURS, SUCH PAYMENTS WERE MADE EITHER THROUGH LABOU R OR WORKERS UNION, COULD NOT BE CONSIDERED TO BE EITHE R PROHIBITED BY LAW AND FURTHER THE ASSESSEE COULD NOT BE EXPECT ED TO TAKE THE RECEIPT FROM INDIVIDUAL WORKERS OR MAKE PAYMENTS BY WAY OF CHEQUE. IT HAS OPINED THAT THE PAYMENT IS CLEARLY FOR BUSINESS CONSIDERATION AND CANNOT BE CONSIDERED TO BE ILLEGA L IN NATURE AND HAVE BEEN INCURRED IN THE ORDINARY COURSE OF BUSINE SS AND THEREFORE THE SAID AMOUNT OUGHT TO BE ALLOWED AS DE DUCTION BY WAY OF BUSINESS EXPENDITURE. 10. THE ABOVE DECISION SQUARELY APPLIES TO THIS APP ELLANT, WHO IS ALSO IN THE CLEARING AND FORWARDING BUSINESS AND CARRYING ON OPERATIONS AT THE SAME PORT, NAMELY, THE NEW MANGAL ORE PORT TRUST. IN THE LIGHT OF THIS DECISION AND THE FACTS OF THE APPELLANTS CASE, THERE APPEARS TO BE LITTLE ROOM FOR DOUBT THA T THE SPEED MONEY PAID BY THE APPELLANT WAS ENTIRELY FOR BUSINE SS PURPOSES. THERE IS ABSOLUTELY NO EVIDENCE IN SUPPORT OF THE A SSESSING OFFICERS CLAIM THAT SPEED MONEY WAS PAID TO COVER UP INFLATION OF EXPENSES. I FIND THAT THE DISALLOWANCE OF 30% MADE BY HIM IS RATHER UNSCIENTIFIC AND ARBITRARY, BECAUSE HE HAS M ADE DIFFERENT PERCENTAGES OF DISALLOWANCES IN DIFFERENT CASES UND ER THE SAME HEAD OF EXPENDITURE IN THE SAME ASSESSMENT YEAR. ITA NO.1176/BANG/09 PAGE 4 OF 5 11. THE ASSESSING OFFICERS OBSERVATION THAT PAYME NT THROUGH SUB-CONTRACTOR ENTAILED HIGHER EXPENDITURE IS NOT B ORNE OUT BY THE FACTS. AS POINTED OUT IN PARAGRAPH 6 ABOVE, THE NE T INCOME OFFERED TO TAX BY THE APPELLANT IS ONLY HIGHER. FU RTHER, ONCE THE GENUINENESS OF PAYMENT IS ESTABLISHED AND ITS NECES SITY IS UPHELD BY COURTS, THE METHOD OF MAKING PAYMENTS, WHETHER THROUGH SUB- CONTRACTORS OR DIRECTLY TO PORT WORKERS, IS ENTIREL Y A MATTER OF THE APPELLANTS CHOICE AND DISCRETION. NO CASE HAS BEEN MADE OUT HERE THAT PAYMENTS MADE TO SUB-CONTRACTS WERE FRAUD ULENT OR BOGUS. ON THE CONTRARY, THE APPELLANT HAS MADE DED UCTION OF TAX AT SOURCE ON ALL PAYMENT OF SPEED MONEY AS PER LAW AND THE SUB- CONTRACTORS HAVE, IN TURN, ACCOUNTED FOR SUCH RECEI PTS. DETAILS OF TDS MADE AND OF THE SUB-CONTRACTORS INCOME-TAX PAR TICULARS HAVE ALSO BEEN FURNISHED. 12. RESPECTFULLY FOLLOWING THE DECISION OF THE H ONBLE HIGH COURT OF KARNATAKA I THE CASE OF KONKAN MARINE AGEN CIES CITED ABOVE AND FOR OTHER REASONS DISCUSSED IN THE FOREGO ING PARAGRAPHS, I DELETE THE DISALLOWANCE OF SPEED MONE Y. IN THE RESULT, THE APPEAL IS ALLOWED. 6. LD. DR SUPPORTED THE ARGUMENTS OF LD. AO AND ARG UED THAT THE SPEED MONEY PAYMENT ARE EXCESSIVE. THE PAYMENTS OF SPEED MONEY TO THE WORKERS ARE NOT ESTABLISHED TO BE GENUINE BY TH E ASSESSEE, AS THE PAYMENTS WERE MADE THROUGH SUB-CONTRACTORS BONA FID E OF WHICH IS QUESTIONABLE. 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIALS ON RECORD. THE ASSESSEE HAS RELIED UPON THE DECISION RENDERED BY THE HONBLE HIGH COURT OF KARNATAKA. WE ARE ALSO OF OPI NION THAT THE FACTS AND ISSUES IN BOTH THESE CASES ARE IDENTICAL AS HELD BY THE LD. CIT(APPEALS). THEREFORE WE HAVE NO HESITATION TO HOLD THE MATTER IN FAVOUR OF THE ASSESSEE. IT IS ORDERED ACCORDINGLY. 8. IN THE RESULT, THE APPEAL FILED BY THE REVENUE I S DISMISSED. ITA NO.1176/BANG/09 PAGE 5 OF 5 PRONOUNCED IN THE OPEN COURT ON THIS 30 TH DAY OF JULY, 2010. SD/- SD/- ( GEORGE GEORGE K. ) (A. MOHAN ALANKAMONY ) JUDICIAL MEMBER ACCOUNTANT MEMBER BANGALORE, DATED, THE 30 TH JULY, 2010. DS/- COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR ITAT, BANGALORE.