ACIT, Mangalore V. M/s Sri. Ganesh Shipping Agency, Mangalore

ITA 18/BANG/2010

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 5108 (ITAT-BANGALORE)
• Duration Of Justice: 6 month(s) 24 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: 24-06-2010
• Assessment Year: 2005-2006
• Appeal Filed On: 06-01-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: JASON P BOAZ CITI
• 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.18/BANG/2010 ASSESSMENT YEAR : 2005-06 THE ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE 1(1), MANGALORE. : APPELLANT VS. M/S. SRI GANESH SHIPPING AGENCY, SRI RAM BUILDING, KOTTARA CHOWKY, DEREBAIL, MANGALORE. : RESPONDENT APPELLANT BY : SHRI JASON P. BOAZ CIT-I (DR) RESPONDENT BY : NONE 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.73/CIT(A)-MNG/2007-08 FOR TH E ASSESSMENT YEAR 2005-06 DATED 11.11.2009. 2. THE REVENUE HAS RAISED FIVE GROUNDS IN ITS APPEA L. GROUND NOS. 1, 4 & 5 ARE GENERAL IN NATURE AND NEEDS NO ADJUDICATI ON, WHILE AS THE OTHER ITA NO.1176/BANG/09 PAGE 2 OF 5 TWO GROUNDS CULMINATES INTO ONE ISSUE THAT LD. CIT( A) HAS ERRED IN DELETING THE DISALLOWANCE OF SPEED MONEY AMOUNTING TO RS.14, 02,508. 3. THE ASSESSEE HAD PAID RS.1,40,25,087 AS SPEED M ONEY TO LABOURERS AT NEW MANGALORE PORT TRUST (NMPT). THE SE PAYMENTS WERE MADE IN CASH TO VARIOUS MOOPAS (GANG LEADERS) THROU GH VOUCHERS OVER AND ABOVE THE REGULAR PAYMENT THROUGH NMPT. IT WAS OBS ERVED THAT THE RECIPIENTS WERE NOT IDENTIFIABLE AND THEY ARE NOT A SSESSEES EMPLOYEES. DUE TO THE ABOVE FACTS, THE ASSESSING OFFICER WAS O F THE VIEW THAT EXPENDITURE IN RELATION TO THIS PAYMENT COULD BE IN FLATED IN ORDER TO ARRIVE AT A LOWER ASSESSABLE INCOME. FURTHER, THE AO WAS OF THE OPINION THAT THE SPEED MONEY WOULD NOT HAVE BEEN SPENT WHOLLY AND EX CLUSIVELY TOWARDS INCOME GENERATING ACTIVITY DURING THE YEAR. THEREF ORE, 20% OF THE PAYMENTS WITH RESPECT TO SPEED MONEY WAS DISALLOWED AMOUNTING TO RS.28,05,017 CONSIDERING IT NOT TO BE GENUINE. IN THE EARLIER ASSESSMENT YEAR 2004-05, 20% OF SUCH EXPENSES WERE DISALLOWED BY THE AO AND ON APPEAL, LD. CIT(A) RESTRICTED IT TO 10%. HOWEVER, HONBLE ITAT ALLOWED THE APPEAL IN FAVOUR OF THE ASSESSEE, THE MATTER IS NOW PENDING BEFORE THE HONBLE HIGH COURT OF KARNATAKA. LD. AO TOOK THE S AME STAND AS IN THE EARLIER YEAR INSPITE OF THE DECISION RENDERED IN M/ S. KONKAN MARINE AGENCY IN ITA NO.67/BANG/2000 DATED 17.5.04 BECAUSE THE DE PARTMENT IS STILL ON APPEAL BEFORE THE HONBLE HIGH COURT FOR THE REASON STATED HEREBELOW: (1) THE ASSESSEES CLAIM CANNOT BE CONSIDERED AS WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS AND FURTHER IT IS PAID BY CASH; (2) THE RECIPIENTS ARE NOT IDENTIFIABLE; ITA NO.1176/BANG/09 PAGE 3 OF 5 (3) WORK TURNED OUT OR BENEFIT/ADVANTAGE DERIVED B Y THE ACTIVITY OF THE ASSESSEE ARE NOT MEASURABLE AND QUANTIFIABLE; (4) IN SUCH CIRCUMSTANCE, THERE IS EVERY SCOPE FOR INFLATION OF EXPENDITURE; (5) THE NEXUS OR NECESSITY OF THE EXTENT OF EXPENDI TURE IS NOT CLEAR AND NOT PROVED; 4. HOWEVER, THE LD. AO AGREED WITH THE ASSESSEE THA T SUCH SPEED MONEY PAYMENT IS A TRADE PRACTICE FOLLOWED BY SIMIL AR BUSINESS CONCERNS FOR THE SMOOTH FUNCTIONING AND SPEEDY COMPLETION OF THEIR WORK. 5. THE ASSESSEE, AGGRIEVED BY THE ORDER OF LD. AO, WENT ON APPEAL BEFORE CIT(APPEALS). THE CIT(APPEALS) AFTER ANALYZ ING THE ISSUE IN DETAIL DECIDED THE ISSUE RESTRICTING THE DISALLOWANCE TO 1 0% INSTEAD OF 20%. THE RELEVANT PORTION OF THE ORDER IS EXTRACTED HEREBELO W: 4. IN THE CASE OF M/S. KONKAN MARINE AGENCY CITED, THE HONBLE HIGH COURT OF KARNATAKA HAS HELD THE PAYMEN T OF SPEED MONEY, MADE EITHER THROUGH LABOUR OR WORKERS UNION, COULD NOT BE CONSIDERED TO BE EITHER PROHIBITED BY LAW OR ILL EGAL IN NATURE, HAD BEEN INCURRED IN THE ORDINARY COURSE OF BUSINES S AND THEREFORE OUGHT TO BE ALLOWED AS DEDUCTION BY WAY O F BUSINESS EXPENDITURE. IN ASSESSMENT YEAR 2004-05, THE HONB LE ITAT HAS CONFIRMED THE CIT(A)S ORDER IN THE APPELLANTS OWN CASE REDUCING THE DISALLOWANCE OF SPEED MONEY TO 10 PER CENT. FOLLOWING THE DECISIONS OF THE HONBLE JURISDICTION AL HIGH COURT AND THE HONBLE ITAT, I RESTRICT THE DISALLOWANCE T O 10 PER CENT AND DELETE THE REMAINING DISALLOWANCE OF RS.14,02,5 08. 6. LD. DR SUPPORTED THE ARGUMENTS OF LD. AO AND ARG UED THAT THE SPEED MONEY PAYMENT ARE EXCESSIVE. THEREFORE IT W AS PLEADED THAT THE ORDERS OF THE AO SHOULD BE UPHELD. ITA NO.1176/BANG/09 PAGE 4 OF 5 7. WE HAVE HEARD THE LD. DR AND PERUSED THE MATERIA LS ON RECORD. THE ASSESSEE HAS RELIED UPON THE DECISION RENDERED BY THE HONBLE HIGH COURT OF KARNATAKA. THE RELEVANT PORTION OF THE OR DER IS EXTRACTED HEREBELOW: 6. THE QUESTIONS THAT ARISE IN THIS APPEAL WAS CO NSIDERED BY THIS COURT IN I.T.A. NO.603/2004 DISPOSED OF BY US ON 28.7.2008 BY HOLDING THAT TAKING INTO CONSIDERATION THE NATUR E OF THE ASSESSEES BUSINESS AND THE PREVAILING PRACTICE IN THE TRADE WHEREBY PAYMENTS HAVE TO BE MADE BY THE FIRMS SUCH AS THE ASSESSEE IN ORDER TO ENSURE THAT WORK OF HANDLING G OODS ARE DONE WITHIN REASONABLE TIME AND TO HANDLE EMERGENCY OPER ATIONS OF CARGO HANDLING BEYOND THE WORKING HOURS. SUCH PAYM ENTS ARE MADE EITHER THROUGH LABOUR OR WORKERS UNION, CANNOT BE CONSIDERED TO BE EITHER PROHIBITED IN LAW EVEN THOU GH THEY ARE IN THE NATURE OF SPEED MONEY. ACCORDINGLY THE QUESTIO N RAISED IN THE SAID APPEAL WAS ANSWERED IN FAVOUR OF THE ASSES SEE AND AGAINST THE REVENUE. IN OUR VIEW, IN THIS CASE ALS O THE PAYMENT MADE IS FOR BUSINESS CONSIDERATION AND CANNOT BE CO NSIDERED TO BE ILLEGAL IN NATURE AND HAVE BEEN INCURRED IN THE ORD INARY COURSE OF BUSINESS IN ORDER TO ENSURE THAT THE WORK IS COMPLE TED ON TIME. THEREFORE, THE SAID AMOUNT HAS TO BE ALLOWED AS DED UCTION BY WAY OF BUSINESS EXPENDITURE. THEREFORE SAID DECIS ION SQUARELY APPLIES TO THE PRESENT CASE ALSO AND ACCORDINGLY, W E ANSWER THE SUBSTANTIAL QUESTIONS AGAINST THE REVENUE. THE APP EAL IS ACCORDINGLY DISMISSED. CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE , WE ARE ALSO OF THE CONSIDERED VIEW THAT THE ASSESSEES CASE IS QUITE I DENTICAL TO THE CASE DECIDED BY THE HONBLE HIGH COURT SUPRA. LD. CIT(A PPEALS) HAS ALSO ARRIVED AT THE SAME CONCLUSION. THEREFORE WE DO NO T HAVE ANY HESITATION TO UPHOLD THE ORDER OF THE LD. CIT(A). IT IS ORDERED A CCORDINGLY. 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.