Bothra Shipping Services, Kolkata V. DCIT, Cir.-1(1), Kolkata

ITSSA 10/KOL/2021

• Counselvise Citation: [2022] 104 COUNSELVISE.COM (IT) 3157 (ITAT-KOLKATA)
• Duration Of Justice: 1 year(s) 5 month(s) 30 day(s)
• Appeal Type: Income Tax (Search & Seizure) Appeal
• Pronouncement Date: 21-08-2022
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: B
• Next Hearing Date: 27-07-2022
• Assessment Year: 2008-2009
• Appeal Filed On: 22-02-2021
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business expenditure; Earning of tax free income
• Section: 147; 143(3); 153A; 14A; 153

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL “B” BENCH KOLKATA Before Shri Sanjay Garg, Judicial Member and Shri Rajesh Kumar, Accountant Member I.T(SS)A Nos.08 to 11/Kol/2021 Assessment Years: 2004-05, 2007-08, 2008-09 &2009-10 Bothra Shipping Services..................................................................Appellant 2 nd Floor, Room No.10, Sagar Estate, 2, Clive Ghat Street, Dalhousie, Kolkata-1. [PAN: AADFB8479P] vs. DCIT, CC-1(1), Kolkata....................................................................Respondent I.T(SS)A Nos.12 to 16/Kol/2021 Assessment Years: 2004-05 to 2008-09 Sarat Chatterjee & Co. VSP Pvt. Ltd.....................................................Appellant 2 nd Floor, Room No.10, Sagar Estate, 2, Clive Ghat Street, Dalhousie, Kolkata-1. [PAN: AADCS6139A] vs. DCIT, Circle-1(1), Kolkata.......................................................................Respondent I.T(SS)A Nos.06 & 07/Kol/2022 Assessment Years: 2009-10 & 2011-12 Sarat Chatterjee & Co. VSP Pvt. Ltd.....................................................Appellant 2 nd Floor, Room No.10, Sagar Estate, 2, Clive Ghat Street, Dalhousie, Kolkata-1. [PAN: AADCS6139A] vs. ACIT, Circle-1(1), Kolkata.......................................................................Respondent Appearances by: Smt. Arati Agarwal, Advocate & Rosy Banerjee, Advocate, appeared on behalf of the appellant. Shri Sudipta Guha, CIT-DR, appeared on behalf of the Respondent. Date of concluding the hearing : July 28, 2022 Date of pronouncing the order : August 22, 2022 ORDER Per Sanjay Garg, Judicial Member: The captioned bunch of appeals have been preferred by two separate assessees for different assessment years against separate orders of the Commissioner of Income Tax (Appeals), Kolkata [hereinafter referred to as ‘CIT(A)’]. Since, the common issue is I.T(SS)A Nos.08 to 11/Kol/2021 Bothra Shipping Services I.T(SS)A Nos.12 to 16/Kol/2021 & I.T(SS)A Nos.06 & 07/Kol/2022 Sarat Chatterjee & Co. VSP Pvt. Ltd 2 involved in all the appeals, hence they have been heard together and are being disposed of with this common order. IT(SS) No.11/Kol/2021 for assessment year 2009-10 in the case of Bothra Shipping Services is taken as lead case for the purpose of narration of facts and issues involved. 2. IT(SS) No.11/Kol/2021 – The assessee in this appeal has taken the following grounds of appeal: “1. That the assessments order u/s 143(3) r.w. section 153A is time barred as per the provisions of section 153B of the Income Tax Act, 1961 is thus void and bad in law. 2. a. On the facts and circumstances of the case, the learned Commissioner of Income Tax (A) erred enhancing the disallowance by Rs. 3,50,794/- without issuing any show cause notice nor offering an opportunity to represent the matter. b. That the learned Commissioner of Income Tax (A) erred in disallowing the claim of Rs. 29,69,823/- on account of payments made to dock labourers and union leaders allowable u/s 37 of the Income Tax Act, 1961. c. That the learned Commissioner of Income Tax (A) erred in estimating the quantum of speed money even when all the details were submitted before him as well as AO and there was no dispute regarding the quantum of speed money. d. On the facts and circumstances of the case, the learned Commissioner of Income Tax (A) ought to have allowed the entire speed money paid to the dock labours once it was held by him as a allowable business expenditure. e. That the learned Commissioner of Income Tax (A) erred in applying the ratio of total income to speed money of AY 05-06 in all the years completely ignoring the fact that payment of speed money has no nexus to the total income. 3. The appellant craves leave to add to, alter, to delete from or substantiate the above grounds of appeal.” 3. The brief facts of the case are that the assessee is engaged in the business of cargo handling, clearing and forwarding, stevedoring, hiring out of equipment etc. A search and seizure action u/s 132(1) was conducted at the premises of the assessee on 02.11.2010. During the search proceedings, several incriminating documents were found and seized. In the course of search, evidences in the form of entries and accounts of illegal payments were found which were recorded in the books of accounts under the head ‘Miscellaneous’ and incidental Charges'. When confronted with these entries, Shri Ajit Chand Bothra I.T(SS)A Nos.08 to 11/Kol/2021 Bothra Shipping Services I.T(SS)A Nos.12 to 16/Kol/2021 & I.T(SS)A Nos.06 & 07/Kol/2022 Sarat Chatterjee & Co. VSP Pvt. Ltd 3 admitted that these expenses pertained to Speed Money paid to various persons including the labourers and Union leaders of Vishakapatnam Port Trust, Government Agencies, Customs Officials, Police, Road Transport Officials etc. In the relevant year, the assessee had booked expenses of Rs.1,60,49,851/- under the head “Miscellaneous and Incidental Charges”. Out of these expenses, Rs.39,59,765/- were allegedly paid to Dock Labourers and Union leaders as speed money to expedite the work and Rs.5,88,968/- were paid to various Government officials of Railways, Customs, Port Authorities etc. AO has disallowed Rs.5,88,968/-, being illegal payments. AO allowed only 25% of speed money and disallowed the balance amount of Rs.29,69,823/- by holding it to be illegal expenses and further held that these cannot be allowed u/s. 37 of the I.T. Act. Accordingly, Assessing Officer, thus, disallowed Rs.35,58,791/- (Rs.29,69,823/- + 5,88,968/-) and added the same to the total income of the assessee. 4. In appellate proceedings, appellant submitted before the CIT(A) that the issue relating to amount of Rs.5,88,968/- paid to police, Customs, Port Officials etc was not pressed. Hence, addition to the extent of Rs. 5,88,968/- was confirmed by the CIT(A). The assessee did not prefer any appeal against the said confirmation of disallowance of CIT(A). However, in respect of payments of Rs.29,69,823/- made to dock labourers and Union leaders it was submitted that these were made to get the targeted work done more efficiently. That dock labourers are mainly engaged in loading /unloading of cargo from the vessels and if work is not completed within the scheduled time then the company has to bear huge cost in the form of demurrage charges for extra time spent on the port. This entire expenditure was exclusively for business purposes and as these were small amounts paid to individuals, it was not possible to get any receipts from them. Appellant further relied on judgment of Karnataka High Court in the case of CIT vs. Konkan Marine Agencies (2009) 313 TR 308(Karnataka) where it has been held that payments made at port to labourers should be considered for business consideration and cannot be considered as illegal in nature. Appellant had also placed reliance on another judgment of the Hon'ble Karnataka High Court in the case of CIT vs. Cliffort D'souza (11 ITA no. 22/2011), wherein it has been held that the extra payment made to port labourers as speed I.T(SS)A Nos.08 to 11/Kol/2021 Bothra Shipping Services I.T(SS)A Nos.12 to 16/Kol/2021 & I.T(SS)A Nos.06 & 07/Kol/2022 Sarat Chatterjee & Co. VSP Pvt. Ltd 4 money for prompt and speedy carrying out the labour work of handling of cargo beyond working hours, was legal. Appellant has further submitted that the AO in assessee's own case in A.Y. 2010-11 and A.Y. 2011-12 has allowed 25% of such payments made to dock labourers. In view of the above submission the appellant requested the CIT(A) to allow the amount of Rs.29,69,823/- as well. 5. The ld. CIT(A) after considering the submissions of the assessee, though accepted the fact that in the assessee’s line of business, making payment to dock labourers for the purpose of unhindered work is a compulsion and thus it is an allowable expense. However, he observed that there was no authentic and verifiable document which may establish the actual amount of speed money paid. He observed that it all was dependant on the assessee's declaration in this regard. That as these payments were made in cash and posted in the Books of Accounts through self-made vouchers, the correctness of the quantum of payment made as speed money could not be established. He further observed that under the ‘Miscellaneous and Incidental Charges’, the assessee had booked certain expenses which were illegal because these were paid as bribe money to Police and Govt. Officials etc. Under the same head the assessee had also booked expenses related to speed money. He observed that it could not be ascertained whether the assessee had booked only the speed money paid in cash through self-made vouchers or it had made payments which were illegal in nature, but still shown those as speed money. He further noted that apart from the possibility of certain illegal expenses to have been booked as speed money, there may be inflation of quantum of speed money itself which may be on account of booking personal expenses or diversion of funds from the assessee company. The ld. CIT(A) further observed that there was variation in the quantum of speed money paid to dock workers in a proportion to total expenditure under the head ‘miscellaneous and incidental charges’ and that percentage of such total income declared differed from year to year. The ld. CIT(A) took the assessment year 2005-06 as the base year and noted that the speed money claimed by the assessee for the said year was at 0.50% of the total declared income for that year. He observed that since the assessee had paid speed money at a certain rate in assessment year 2005-06 then there was no justification to pay speed I.T(SS)A Nos.08 to 11/Kol/2021 Bothra Shipping Services I.T(SS)A Nos.12 to 16/Kol/2021 & I.T(SS)A Nos.06 & 07/Kol/2022 Sarat Chatterjee & Co. VSP Pvt. Ltd 5 money at a higher rate in any other year. He made this percentage as a yardstick and applied the same rate for all the assessment years and accordingly calculated the allowable expenditure for each of the assessment years. In this course, in some of the assessment years, the ld. CIT(A) enhanced the disallowance as compared to the disallowance made by the Assessing Officer of 75% of the total expenses. Accordingly, the ld. CIT(A) for the assessment year under consideration i.e. A.Y 2009-10 calculated 0.50% of the total declared income at Rs.6,39,148/- and allowed the same. He, therefore, enhanced the addition to the extent of Rs.3,50,794/- as against the addition of Rs.35,58,791/- made by the Assessing Officer. 6. Being aggrieved by the above order of the CIT(A), the assessee has come in appeal before us. The ld. counsel for the assessee has submitted that all the bills and vouchers were furnished by the assessee before the Assessing Officer and further that the books of accounts of the assessee have not been rejected that even the ld. CIT(A) has also accepted this fact that in the line of business of the assessee, the certain additional payments are required to be made to the dock labourers for speedy work and that the ld. CIT(A) has admitted that the same was an admissible expenditure. The ld. counsel has also relied upon the following case laws: 1 Sri Ganesh Shipping Agency vs. Asst. Commissioner of Income Tax Circle -1(1), Mangalore [2021 (2) TMI 550 - Karnataka High Court] 2 The Assist. Commissioner of Income Tax vs. Sri Ganesh Shipping Agency [MANU/IL/0039/2010] 3 Principal Commissioner of Income Tax - 7 vs. R.G. Buildwell Engineers Ltd. [MANU/DE/7972/2017] 4 Principal Commissioner of Income Tax -7 vs. R.G. Buildwell Engineers Ltd. [MANU/SCOR/43017/2018] 5 Commissioner of Income Tax vs. South India Corporation (Agencies) Limited [2006 (8) TMI 153 - Madras High Court] 6 CIT & ANR Vs. Konkan Marine Agencies (2009) 313 ITR 308 (Kar) 7 ACIT Circle 1(1), Mangalore vs. Delta Infralogistics (Worldwide) [2015 (5) TMI 1183 ITAT Bangalore] I.T(SS)A Nos.08 to 11/Kol/2021 Bothra Shipping Services I.T(SS)A Nos.12 to 16/Kol/2021 & I.T(SS)A Nos.06 & 07/Kol/2022 Sarat Chatterjee & Co. VSP Pvt. Ltd 6 To press the point the ld. counsel has submitted that under similar circumstances, the Hon’ble Karnataka High Court in the case of Sri Ganesh Shipping Agency (supra) has held that when the assessee proving the commercial expediency to make such cash payments, and vouchers even produced and further the books of accounts have not been rejected, such expenditure has been allowed by the Hon’ble High Court and different Benches of the Tribunal. 7. The ld. DR, on the other hand, has relied upon the findings of the lower authorities. 8. We have considered the rival submissions and gone through the record. Though the ld. counsel has submitted that the entire expenditure in this respect is required to be allowed, however, she has been fair enough to submit that considering the fact that the payments were made in cash and that each of the expenditure was not verifiable, certain reasonable percentage of the total amount may be disallowed. The ld. DR has also agreed that certain reasonable disallowance of the total expenditure claimed may be disallowed. After consulting both the ld. representatives of the parties, we are of the view that taking into consideration the facts and circumstances of the case, 10% of the total expenditure claimed in each assessment year would make a reasonable disallowance. The ld. counsel for the assessee has agreed in the open court for disallowance of 10% of the total expenses on account of speed money paid to dock labourers in each of the assessment year. We accordingly restrict the disallowance to the 10% of the total expenditure claimed in each of the assessment years of the total expenditure paid as speed money to dock labourers. However, it is made clear that out above order will not affect the disallowance made by the Assessing Officer in respect of illegal speed money paid to certain officers/authorities which has been agreed to by the assessee even before the CIT(A). However, it is also made clear that our above order will not be taken as precedent for any other assessment year. Before parting with the order, it is pertinent to mention here that the assessees, inter alia, has taken certain other grounds of appeal such as relating to the validity of the reopening I.T(SS)A Nos.08 to 11/Kol/2021 Bothra Shipping Services I.T(SS)A Nos.12 to 16/Kol/2021 & I.T(SS)A Nos.06 & 07/Kol/2022 Sarat Chatterjee & Co. VSP Pvt. Ltd 7 of the assessment u/s 147 of the Act and other ground relating to the disallowance or of the validity of the assessment framed u/s 153A of the Act which have not been pressed by the ld. counsel for the assessee. Even in some appeals, the ground contesting the disallowance made of expenditure u/s 14A in respect of expenditure incurred for earning of exempt income and the ground contesting charging of interest u/s 234A of the Act etc. which have not been pressed by the ld. counsel on account of smallness of amount. To say in other words, the ld. counsel for the assessees has not pressed any other ground in any of the captioned appeals except relating to the issue of disallowance of expenditure paid as speed money to dock labourers, the disallowance relating to which as discussed above is restricted to 10% of the total expenditure claimed in each of the captioned appeals. The captioned appeals of the assessees are accordingly partly allowed. 9. In the result, all the appeals of the assessees stand partly allowed. Kolkata, the 22 nd August, 2022. Sd/- Sd/- [Rajesh Kumar] [Sanjay Garg] Accountant Member Judicial Member Dated: 22.08.2022. RS Copy of the order forwarded to: 1. (i) Bothra Shipping Services (ii) Sarat Chatterjee & Co. VSP Pvt. Ltd 2. DCIT, CC-1(1), Kolkata 3. CIT (A)- 4. CIT- , 5. CIT(DR), //True copy// By order Assistant Registrar, Kolkata Benches