ASST.C.I.T., MANGALORE vs. M/S HASSAN HAJEE & CO, MANGALORE

PER CHANDRA POOJARI, ACCOUNTANT MEMBER:

IT(SS)A Nos.1 to 6/PNJ/2015 and ITA Nos.1358 to 1363/Bang/2015 are cross appeals directed against different orders of CIT(A) for the assessment years 2006-07 to 2011-12. There is another set of appeals in ITA Nos.30/Bang/2017 & 870/Bang/2017 relating to assessment years 2012-13 & 2013-14 filed by the assessee. The issue in all these appeals are common, hence, these appeals are clubbed together, heard together and disposed of for the sake of convenience. 2. At the outset, it is noticed that tax effect in ITA Nos.1362/Bang/2017 & 1363/Bang/2017 for the assessment years 2010-11 & 2011-12 were in the tax effect, which is below the monetary limit, where the department could have filed the appeals before this Tribunal. Accordingly, these appeals are not maintainable in view of the CBDT No.17/2019 dated 8.8.2019. Accordingly, these two appeals of revenue are dismissed as not maintainable. The remaining appeals are tabulated as below:-

2.1 The captioned appeals and miscellaneous petitions Nos.194 to 199/Bang/2017 have been restored to the Tribunal in terms of the

IT(SS)A Nos.1 to 6/PNJ/2015, ITA Nos.1358 to 1363/Bang/2015, ITA No.30/Bang/2017 & ITA No.870/Bang/2017 M/s. Hassan Hajee & Co., Mangalore

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judgement of the Hon’ble High Court of Karnataka in ITA Nos. 468/2018, 816/2017, 817/2017, 818/2017, 819/2017, 820/2017, 821/2017, 469.2018, 470/2018, 471/2018, 472/2018 & ITA No. 473/2018, dated 02/09/2021, whereby, the earlier order passed by the Hon’ble Bench dated 02/05/2017 in the Department Appeals in ITA Nos. 1358 to 1363/Bang/2015 has been set-aside. It has been further directed by the Hon’ble High Court in ITA No.468/2018 dated 2.9.2021 that the aforesaid appeals filed by the Department have to be heard along with the appeals filed by the assessee that are numbered as IT[SS]A. Nos. 1 to 6/PNJ/2015.

2.2 At the very outset, Ld. A.R. submitted that the Miscellaneous petitions filed by the assessee that are assigned M.A. Nos. 194 to 199/Bang/2017 have also been restored by the Hon’ble High Court by same judgement dated 2.9.2021 and the same are also posted for hearing before the Hon’ble Bench. These Miscellaneous Petitions have now become infructuous since they were arising out of the order of the Hon’ble Bench in ITA Nos.1358 to 1363/Bang/2015 dated 02/05/2017. In light of the fact that the order of the Hon’ble Bench dated 02/05/2017 itself has been set-aside and the entire matter is restored to the Tribunal, by High Court vide judgement in ITA No.468/2018 dated 2.9.2021. Ld. A.R. submitted that these miscellaneous petitions may be disposed of as infructuous.

2.3 Secondly, it is submitted that the Departmental appeals assigned ITA Nos.1362/Bang/2017 and 1363/Bang/2017 for the assessment years 2010-11 and 2011-12 are not maintainable having regard to the low tax effect in these appeals. The memo showing the tax effect computation in these appeals is attached as Annexure-1 &

IT(SS)A Nos.1 to 6/PNJ/2015, ITA Nos.1358 to 1363/Bang/2015, ITA No.30/Bang/2017 & ITA No.870/Bang/2017 M/s. Hassan Hajee & Co., Mangalore

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2.4 The remaining appeals both by the assessee as well as revenue involve certain common issues, which are tabulated along with the relevant grounds raised hereunder :-

DEPARTMENTAL APPEALS - ITA Nos. 1358 to 1361/Bang/2015:-

Particulars & Issues Assessment year/s & ITA Nos./Ground Nos. 2006-07 2007-08 2008-09 2009-10 1358/B/2015 1359/B/2015 1360/B/2015 1361/B/2015 Deletion of 90% of the -- Ground No.2 Ground No.2 Ground No.2 disallowance towards inflation of expenses under labour charges 1,56,94,334 31,97,350 36,36,000 Deletion of the disallowance -- Ground Ground Ground under inflation of expenses No.5,6,7 & 10 No.5,6,7 & 10 No.5,6,7 & through employees sub- 10 contractors considered as part of Speed Money 62,61,306 88,41,473 79,10,420 Deletion of 90% of disallowances Ground No.2 Ground Ground Ground in respect of: to 10 No.3,4, 8 & 9 No.3,4, 8 & 9 No.3,4, 8 & 9 1. Excess speed money and 2. Illegal payment [10% of the 4,08,76,846 4,31,56,759 48,89,813 speed money allowed by the A.O.] 3,71,19,204 as per u/s.37[1]

IT(SS)A Nos.1 to 6/PNJ/2015, ITA Nos.1358 to 1363/Bang/2015, ITA No.30/Bang/2017 & ITA No.870/Bang/2017 M/s. Hassan Hajee & Co., Mangalore

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ASSESSEE APPEALS – ITA Nos. 1 to 6/PNJ/2015, ITA No.30/Bang/2017 & ITA No.870/Bang/2017 :-

Particulars Assessment year/s & ITA Nos./Ground Nos. & Issues 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 1/PNJ/ 2/PNJ/ 3/PNJ/ 4/PNJ/ 5/PNJ/ 6/PNJ/ 30/Bang/ 870/Bang/ 2015 2015 2015 2015 2015 2015 2017 2017 Addition of -- Ground Ground Ground Ground Ground Ground Ground 10% in No.3 No.3 No.3 No.3 No.3 No.3 No.3 respect of inflation of 17,43,815 3,55,261 3,32,717 5,07,125 4,54,350 6,30,869 4,04,000 labour charges Disallowance Ground Ground Ground Ground Ground Ground Ground Ground of 10% of the Nos.1 to 3 No.1 & 2 No.1 & 2 No.1 & 2 No.1 & 2 No.1 & 2 No.1 & 2 No.1 & 2 expenses 85,92,400 towards 1,02,11,237 1,09,41,275 25,36,336 37,00,823 23,49,529 17,49,552 23,29,892 speed money sustained by CIT[A] Disallowance -- -- -- Ground -- -- -- -- of claim of No.4 Bad debts 25,80,205

2.5 As can be seen from the above, the issues involved in the assessee’s and revenue appeals are inter-connected and hence the submissions on these issues are made issue-wise in common hereinafter. ISSUE No.1 – INFLATION OF LABOUR CHARGES – Assessment years 2007-08 to 2009-10 & 2012-13 to 2013-14:- 3. First ground is with regard to inflation of labour charges. This ground is in all the appeals i.e. both in assessee as well as revenue’s appeals as in the table reproduced in para 2.4 of this order.

3.1 The first issue in these appeals for the assessment years 2007- 08 to 2009-10 & 2012-13 to 2013-14 relates to the disallowance made in respect of the alleged inflation of expenses under the head Labour Charges. On this issue, both are in appeal before us as the

IT(SS)A Nos.1 to 6/PNJ/2015, ITA Nos.1358 to 1363/Bang/2015, ITA No.30/Bang/2017 & ITA No.870/Bang/2017 M/s. Hassan Hajee & Co., Mangalore

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Ld. CIT(A) sustained only partial additions made by AO i.e. 10% in assessment years 2006-07 to 2011-12 and 2.5% in AYs 2012-13 & 2013-14. The relevant discussion is contained in para [4] of the assessment order for the assessment year 2007-08, which is also reproduced in the other assessment years. According to the learned A.O. certain self-made vouchers were found during the course of search for several years showing cash payments made towards labour charges. The details of the vouchers so found are tabulated at page 3 in the assessment order for AY 2007-08. According to the learned A.O., these labour charges are prepared by one or two persons and signatures of the receiving parties were not found in few of the vouchers and all payments are made in cash. Hence, the entire expenditure covered by these vouchers were disallowed by the A.O. and the break-up of the same is as under:

EXPENSE HEAD Assessment Year 2007-08 2008-09 2009-10 2010-11 2011-12

Transit Supervisor Wages 27,12,400 29,12,000 29,46,600 12,29,000 M.Yard/I.O Yard DMP Supervisor Charges 8,64,000 8,64,000 I.O. Fines Unloading and Truck Loading 1,31,41,749 35,52,611 Assessment year EXPENSES HEAD 2007-08 2008-09 2009-10 2010-11 2011-12 Watchman Wages 7,20,000 Staff Salary 2,64,000 NMP Casual Labour Wages 3,14,400 10,60,380 Casual Labour Wages 66,170 20,46,400 Travelling Expenses 1,87,740 Sundry Expenses 2,63,730 Machine Operators and Cleaners Shift Allowance 2,84,000 TOTAL 1,74,38,149 35,52,611 40,40,000 33,27,170 50,71,250

IT(SS)A Nos.1 to 6/PNJ/2015, ITA Nos.1358 to 1363/Bang/2015, ITA No.30/Bang/2017 & ITA No.870/Bang/2017 M/s. Hassan Hajee & Co., Mangalore

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4.1 The learned CIT[A] has discussed the issue in his appellate order for the assessment year 2007-08 at page No.34 and has held that the total tonnage and volume of the business handled by the assessee is very large and it was not possible to obtain signature in all vouchers. On the ground that a reasonable view has to be taken, 10% of the amount disallowed by the A.O. has been sustained by the learned CIT[A]. Both the Department and assessee have filed appeals on this issue and the relevant grounds are indicated in the table set- out in the earlier part of these submissions.

4.2 It is submitted that the learned A.O. has tabulated the alleged inflation of expenses at para (4) of the assessment order for various years giving the nature of expenses. Primarily, the main ground for making the disallowance is that these vouchers are unsigned. The assessee is enclosing a statement that gives the extent of the expenses claimed by the assessee in each year under the aforesaid

IT(SS)A Nos.1 to 6/PNJ/2015, ITA Nos.1358 to 1363/Bang/2015, ITA No.30/Bang/2017 & ITA No.870/Bang/2017 M/s. Hassan Hajee & Co., Mangalore

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heads and the amount disallowed is the printed figure and the handwritten figure represents the amounts that are claimed and allowed for the other years.

4.3 It is submitted that the expenses claimed by the assessee under these heads are commensurate with the nature and volume of business handled by the assessee and there is no sudden increase in the extent of expenses for any of the years under appeal. The financials for all the years are placed at page 01 to 199 of the Paper Book. Furthermore, the extent of expenses considered as inflated based on the unsigned vouchers also show huge variations from Rs.1.74 Crores for the assessment year 2007-08 to Rs.33.27 lakhs for the assessment years 2010-11. Thus, the mere fact that these self-made vouchers did not bear the signature of the recipients cannot be a ground to hold that the entire expenditure represented by these vouchers are inflated. The assessee has given detailed submissions justifying the claim of these expenses based on volume of the cargo handled and the extent of expenses incurred year after year. The rejection of the explanation by the A.O. and partial rejection by the learned CIT[A], who has sustained 10% of the said disallowance is unjustified.

4.4 Accordingly, Ld. A.R. submitted that the learned CIT[A] ought not to have sustained 10% of these expenses and the same ought to have been allowed in full. He also made similar arguments for the assessment years 2013-14 & 2014-15 that addition of 2.5% sustained by Ld. CIT(A) in respect of speed money and labour charges to be deleted. Hence, he prayed that the departmental appeal on this

IT(SS)A Nos.1 to 6/PNJ/2015, ITA Nos.1358 to 1363/Bang/2015, ITA No.30/Bang/2017 & ITA No.870/Bang/2017 M/s. Hassan Hajee & Co., Mangalore

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ground be dismissed and the appeal of the assessee on this ground be allowed.

• All those vouchers are self-made. • Does not contain the full details of the recipient so as to enable the cross verifications. • All are fresh and single bundles, without segregated from the booklet of vouchers which would have separated in case of it is obtained in the regular course of business. • None of the vouchers are smeared or smudged which would have happened if obtained in the course of day-to-day activities as the same were supposedly obtained from and signed by the labourers.

IT(SS)A Nos.1 to 6/PNJ/2015, ITA Nos.1358 to 1363/Bang/2015, ITA No.30/Bang/2017 & ITA No.870/Bang/2017 M/s. Hassan Hajee & Co., Mangalore

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6.1 The main reason for disallowance by AO was that payment Labour Charges supported by self-made vouchers and have no signature of recipients. These expenditures mainly pertain to iron ore loading and unloading transit/site marshalling charges and other casual labour charges. According to the assessee, these expenditures incurred at various stages of iron ore movements. These expenses are pertaining to wages paid to various parties, such as workers manually handling iron ore from lorries/railway vehicles to the exporter’s yard, those engaged to counter pilferage of iron ore at railway yards, export yards and other casual labourers engaged for cleaning purposes. It was explained before us that the assessee has been carrying voluminous quantity of iron ore and large number of workers who were illiterate and have no commercial knowledge and it is not possible to take down the signatures of those persons

IT(SS)A Nos.1 to 6/PNJ/2015, ITA Nos.1358 to 1363/Bang/2015, ITA No.30/Bang/2017 & ITA No.870/Bang/2017 M/s. Hassan Hajee & Co., Mangalore

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and in such circumstances, the vouchers were blank and for the accounting purposes assessee prepared vouchers and they were duly accounted in the books of accounts of the assessee and books of accounts were audited by the statutory auditors and no adverse comments has been made by them. The A.O. alleged in the first page of the assessment order that incriminating evidence has been seized which reveals that the assessee has been engaged in inflation of expenditure substantially. This statement of the AO in the first page of the order shows that he has opened the file with pre-determined mind that assessee has inflated the expenditure. It was so alleged by the AO even without rejecting the books of accounts. Before making allegation that assessee has inflated expenditure, it is incumbent upon the AO to reject the audited books of accounts maintained by the assessee, he should challenge the entries in the books of accounts by duly rejecting the same. In other words, it is evident that the AO considered the income declared by the assessee, thereafter, he made disallowances of expenditure after accepting the books of accounts. The total disallowance made by the AO is only on conjectures and surmises. The claim of labour charges in these assessment years commensurate with the nature of volume of business carried on by the assessee and there is no sudden or steep increase in the claim of assessee as compared to year to year. However, the AO opted to disallow the expenditure on the reason that these are supported by self-made vouchers and were written by common persons. In our opinion, when the self-made vouchers are prepared inhousely, it must be prepared by inhouse persons only and as such, it has common pattern and that cannot be reason to doubt the genuineness of the payment. The assessee cannot carry on this business without incurring the expenditure. The allegation of the AO

IT(SS)A Nos.1 to 6/PNJ/2015, ITA Nos.1358 to 1363/Bang/2015, ITA No.30/Bang/2017 & ITA No.870/Bang/2017 M/s. Hassan Hajee & Co., Mangalore

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is that the vouchers are prepared at a stretch on one or two days during the financial year. There is no basis for this kind of allegation made by the AO and he has not brought anything on record to establish this contention of him. Being so, we have to reject this plea of the revenue authorities. In our opinion, considering the nature of the business of the assessee, we can take the judicial notice of the fact that if the AO had any doubt with regard to genuineness of any one of the voucher produced by the assessee, he could have drawn sample vouchers and called upon the assessee to produce the concerned recipient to establish the genuineness. Without doing so, making any adhoc disallowance is not legally sustainable. If the Ld. CIT(A) also without carrying on any enquiry, certain percentage of the labour payment at 10% in assessment years 2007-08 to 2011-12 and 2.5% in assessment years 2012-13 & 2013-14 was sustained. This act of Ld. CIT(A) is not justified. In our opinion, the impugned expenditure in fact claimed to have been incurred by the assessee wholly and exclusively for the purpose of its business and it cannot be said that this expenditure is bogus or fictitious and cannot be said that it has not been incurred by the assessee for the purpose of business. We do not see remotely there is any mention of rationale in arriving at the percentage of disallowance in the present case, and secondly, we find force in the claim of assessee that devoid of any specific infirmity in the books of accounts of the assessee, disallowance of labour charges expenditure by the lower authority is not proper and the adhoc disallowance made by authorities in most ordinary manner. In our opinion, to estimate any disallowance the first and foremost thing is that the A.O. has to reject the books of accounts by observing that books of accounts are not reliable and not verifiable. Then he has to specify the each entry which are to be

IT(SS)A Nos.1 to 6/PNJ/2015, ITA Nos.1358 to 1363/Bang/2015, ITA No.30/Bang/2017 & ITA No.870/Bang/2017 M/s. Hassan Hajee & Co., Mangalore

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considered as bogus or unverifiable and only to that extent he can make disallowance. In the present case, in a wholesome manner the A.O. made disallowance on estimate basis without rejecting the books of accounts. However, Ld. CIT(A) sustained this addition to the tune of 10% in A.Y. 2007-08 to 2011-12 and 2.5% in A.Y. 2012- 13 & 2013-14. This is having no legal sanction. For this purpose, we rely on the judgement of Hon’ble Karnataka High Court in the case of Shri Ganesh Shipping Agency in ITA No.366 of 2015 dated 6.2.2021, wherein held as follows:- “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 assessee'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

IT(SS)A Nos.1 to 6/PNJ/2015, ITA Nos.1358 to 1363/Bang/2015, ITA No.30/Bang/2017 & ITA No.870/Bang/2017 M/s. Hassan Hajee & Co., Mangalore

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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 200405 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.

Accordingly, we delete the addition and allow the ground taken by the assessee in these appeals and dismiss the ground taken by the revenue in these appeals.

ISSUE 2 - SPEED MONEY - Assessment years 2006-07 to 2009- 10 & 2012-13 to 2013-14:- 7. Next common issue in these appeals is speed money in Revenue’s appeals in ITA Nos.1353/Bang/2015, 1359/Bang/2015, 1360/Bang/2015 & 1361/Bang/2015. This is a common issue in all revenue’s appeals for the assessment years 2006-07 to 2009-10. The revenue is in appeal before us for deleting the speed money payment to the tune of 90% by Ld. CIT(A) and assessee in appeal before us for sustaining 10% ITA Nos.1 to 6/PNJ/2015, ITA No.30/Bang/2017 & ITA No.870/Bang/2017 in assessment years 2006-07 to 2013-14.

IT(SS)A Nos.1 to 6/PNJ/2015, ITA Nos.1358 to 1363/Bang/2015, ITA No.30/Bang/2017 & ITA No.870/Bang/2017 M/s. Hassan Hajee & Co., Mangalore

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7.1 The Ld. A.R. submitted that the aforesaid disallowance has been made by the learned A.O. under 3 different components as under:-

[a] Payment made through Sub-contractors; [b] Excess claim of Speed money; [c] Disallowance for illegal payments.

7.2 Firstly, the learned A.O. has held that there were payments made to employee sub-contractors that were found at the time of search and these payments were all routed through sub-contractors. The learned A.O. has mentioned that statements were recorded from these employee-sub contractors viz., Sulaiman, Nagesh Rao, Suresh. U and Mohammed Rafiq and has observed that these employees do not have any experience, expertise or equipment to carry out sub- contract work. The discussion on this aspect of the matter is in para [5] of the assessment order for the assessment year 2007-08. Similar discussion is found for the other assessment years as well. The expenses claimed for payment of labour charges paid to employee- sub contractors for the assessment years 2007-08 to 2011-12, is as under:-

Assessment year Amount 2007 – 08 62,61,306 2008 – 09 88,41,473 2009 – 10 79,10,420 2010 – 11 46,19,614 2011 – 12 24,44,614 Total 3,00,76,872

IT(SS)A Nos.1 to 6/PNJ/2015, ITA Nos.1358 to 1363/Bang/2015, ITA No.30/Bang/2017 & ITA No.870/Bang/2017 M/s. Hassan Hajee & Co., Mangalore

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7.3 This disallowance made by the learned A.O. has been considered by the learned CIT[A] along with the disallowance made under the other 2 components and therefore, separate grounds have been raised by the revenue and assessee.

7.4 The Ld. A.R. submitted that the learned A.O. has also observed in para [6] of the assessment order for the assessment year 2007-08 that the assessee has claimed huge amount towards speed money paid for various assessment years, which is as under [the break-up of the labour charges claimed by the assessee wherein speed money has been claimed is placed at pages 200 to 206 of the paper book] :- Financial year Speed money paid in Rs. 2005 – 06 8,59,24,000 2006 – 07 10,21,12,375 2007 – 08 10,94,12,751 2008 – 09 2,53,63,365 2009 – 10 3,70,08,230 2010 – 11 2,34,95,290 2011-12 till 44,53,085 04/08/2011

7.5 The learned A.O. observed that the seized material 1/DOCK/3 & 4 [placed at page 219 to 223 of the Paper Book] contains details of the payments made by the supervisors for unloading of cargo on 29/04/2010 from a ship known as M V ALEX ‘D”. According to the learned A.O. the extent of speed money paid was between Rs.23 to 26 per ton based on these seized materials. The learned A.O. has reproduced the statement recorded from Mohammad Sharief, who has explained the contents of the above seized material in the assessment order for the assessment year 2007-08 at page 32-35. The relevant extracts of the statement is as under:

IT(SS)A Nos.1 to 6/PNJ/2015, ITA Nos.1358 to 1363/Bang/2015, ITA No.30/Bang/2017 & ITA No.870/Bang/2017 M/s. Hassan Hajee & Co., Mangalore

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“Q.4 Please state, how long are you working with M/s. Hasan Hajee & Co., and also explain your duties and responsibilities.

Ans. I am working since last 20 years as supervisor with M/s. Hasan Hajee & Co. My duties and responsibilities are to distribute the work to the Port Labours and Casual Labours inside the Port and to track the movement of tippers inside the Port and to see that the handling work is completed smoothly.

Q.6 I am showing you inventory Nos. 1/DOCK/3 & 1/DOCK/4 impounded during the course of survey proceedings on 04.08.2011. Please go through these inventories and explain the contents.

Ans. I have gone through the inventory Nos. 1/DOCK/3 & 1/DOCK/4 and explain the contents as under :-

Page No.1 to 5 contains details of actual expenditures incurred ship wise, towards handling of Iron ore belonging to KIOCL. For Eg : I am explaining the contents of Page 5 as under :-

M V ALEX ‘D” is the name of the ship. KIOCL is Kudremukh Iron Ore Co., Ltd., 49160 MT means the quantity of iron are handled in metric tons.

IT(SS)A Nos.1 to 6/PNJ/2015, ITA Nos.1358 to 1363/Bang/2015, ITA No.30/Bang/2017 & ITA No.870/Bang/2017 M/s. Hassan Hajee & Co., Mangalore

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Port Labour cash payment Rs.8,67,950/- : amount paid in cash to the Port Labours as Speed money for handling the Cargo over and above the cheque payment made towards Bill raised by the Port for labour charges. Casual labours – Rs.74,635/- : cash paid to the casual labours at the rate of Rs.310/- per shift per person. Foreman and A Foremen – Rs.35,325/- : Cash paid to foreman and Asst. Foreman for looking after the work of the Dock Workers. Port Tally Clerks – Rs.27,800/- : Cash paid to Port Tally clerks who issue delivery notes for the Cargo at different points. Tipper Drivers & Cleaners- Rs.46,400/- : Expenditure incurred in cash towards extra charges paid at the rate of Rs.25 to 30 per trip for the tipper driver and cleaner. Machine Operators – Rs.22,500/- : Cash paid to machine operators. Safety Operators – Rs.22,500/- : Cash paid to Safety Officer of the port. DTM Office Section – Rs.1,000/- : Cash paid to the section staff of the Deputy Traffic Manager, NMPT. Pooling Officer Section – Rs.2,000/- : Cash paid to staff of Pooling Office who are allotting the Dock Labours. Zone “A”, “B” ATM T 1 – Rs.6050/- : Cash paid to Asst. Traffic Manager Traffic Inspector Zone “A” (Berth 1 to 4) Zone “B” (5 to 14). Staff Shipment Account – Rs.14,450/- : Allowance paid in cash to the supervisors of Hasan Hajee & Co.,

IT(SS)A Nos.1 to 6/PNJ/2015, ITA Nos.1358 to 1363/Bang/2015, ITA No.30/Bang/2017 & ITA No.870/Bang/2017 M/s. Hassan Hajee & Co., Mangalore

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Foreman Illyash – Rs.4,000/- “ Cash paid to Mr. Illayash acting as Foreman on behalf of the firm. Usman D – Rs.1,300/- : Cash paid to Sri Usman D who makes wage statement of the Port Labours. Miscellaneous Account – Rs.10,000/- : This is cash expenditure incurred towards tea, coffee, foot and other expenses. KIOCL Expenses (Nagesh) – Rs.2,800/- : Cash expenses incurred by our staff Mr. Nagesh Rao inside the KIOCL Office. Ship Captain and C Offier – Rs.30,580/- : Cash expenditure paid to Ship Captain and chief Officer of the Ship. Labour Truck Payment – Rs.1,28,410/- : Cash paid to the Port Labours on the basis number of trucks of iron ore handled in addition to the labour Pool Bill and the speed money. This is paid at the rate of Rs.5 to 10 per truck per labour. Port Tally Truck Payment – Rs.44,510/- : Amount paid in cash to the Port Tally Clerks on the basis of number of trucks at the rate of Rs.5/- per truc. All the above payments are paid by the sub contractors to the concerned persons. The sub contractors are given cheques to this total amount by M/s. Hasan Hajee & Co. Labour Port Bill – Rs.14,87,663/- : Port Labour Bills paid in cheque to the Port Office. Foreman Bill – Rs.25,344/- : Cheque paid directly to the foreman towards the expenditures incurred towards the foreman.

IT(SS)A Nos.1 to 6/PNJ/2015, ITA Nos.1358 to 1363/Bang/2015, ITA No.30/Bang/2017 & ITA No.870/Bang/2017 M/s. Hassan Hajee & Co., Mangalore

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Tipper Hire – Rs.5,7,700/- : Cheque paid to tipper owners towards tipper hire charges. Page 6 contains the same details as that of page No.8 & 9 of 1/DOCK1 dated 04.08.2011. Page No.7 & 8 : They do not pertain to our firm. 1/DOCK/4 details : The notings in this note book are made by me. The contents are as under :- Page 1 contain cargo discharge details tonnage wise in different shifts on 02.05.2011 and 03.05.2011 by M V JAG RAHUL Ship. The last column contains the details of cash payment made to the Port Labours. Page No.2 to 33 contains the details of various miscellaneous expenditures incurred on different dates on behalf of M/s. Hasan Hajee & Co. The same expenditure are consolidated to prepare the expenditure sheets as mentioned above for 1/DOCK/3. Page 35 contains details of vehicle hire given to NIG and RICK. Page 35 to 43 contains date wise payment of casual labour expenditures incurred and paid in cash. Q.7 Please explain at what stage you make the notings as mentioned in Inventory No.1/Dock/4 DATED 04.08.2011. Ans. The notings are made on the date of incurring of expenditure”.

7.6 The Ld. A.R. submitted that the learned A.O. thereafter referred to the statement made by the main partner of the assessee firm Mr. B.Kunhi Ahmed at page 36-37 of the assessment order for the

IT(SS)A Nos.1 to 6/PNJ/2015, ITA Nos.1358 to 1363/Bang/2015, ITA No.30/Bang/2017 & ITA No.870/Bang/2017 M/s. Hassan Hajee & Co., Mangalore

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assessment year 2007-08. The partner of the assessee stated that speed money was paid at Rs.50 per ton for the period before 31/03/2008 and at Rs.35 per ton after 01/04/2008. The relevant extract of the statement is as under:-

“Q.8 It is seen from the books of accounts of M/s. Hasan Hajee & Co., that a large amount of labour expenditures are reflected to be paid through the subcontractors. No bills are found to be raised by the subcontractors. In such case please explain what is the basis for crediting the labour contractors ? Further, in most of the cases it is found that the cheques are reflected to be paid to the subcontractors after many days or many months of crediting their accounts. Moreover, Examination of the bank accounts indicates that many of the cheques so issued have been cleared after several months. In such circumstances how the subcontractors, many of whom are your present or old employees, make payments to the labours on daily or weekly basis ?

Ans. We will credit the accounts of the subcontractors on the basis of tonnage handled by the subcontractors. The rate is Rs.35 per ton of speed money, Rs.12 per ton for lorry/truck unloading. Rs.45 per ton for unloading from wagon and loading to truck. Rs.8 per ton for loading of lorry outside the port. The speed money was Rs.50 per ton before 31.03.2008. The subcontractors are sometimes given advances. In some cases the subcontractors make delayed payments to the labours”.

IT(SS)A Nos.1 to 6/PNJ/2015, ITA Nos.1358 to 1363/Bang/2015, ITA No.30/Bang/2017 & ITA No.870/Bang/2017 M/s. Hassan Hajee & Co., Mangalore

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7.7 After noting the above statement of Mr. B.Kunhi Ahmed, the learned A.O. has referred to the statement of Mr. Hemachandra Shetty, Manager of the assessee firm at page 30-32 of the assessment order for the assessment year 2007-08. When Mr. Hemachandra Shetty was confronted with certain seized materials at page 71 to 73 and 62-63 of seized material A1/HHC/40, he had stated as follows:

“Q15. I Am showing you, page No.71 to 73 and 62 to 63 of inventory No.A1/HHC/40 dated 28.09.2011. Please go through the same and explain the contents of these papers. Ans. I have gone through the said inventory and said pages are written by me. Page 73 contains estimate made by me towards handling of cargo in respect of Ship M V Haydar/M V Glorry Guan G-3 HOV. The first half of the page contains the following entries : Tonnage 1,06,600 Metric Ton RCHW Bill Rs.25/- per metric Ton which is to be paid in cheque. Cash payment to NMPT Labours Rs.27/- per MT paid through sub contractors. Transportation charges Rs.16/- per MT paid directly through cheque to the Tipper Owners. Machine expenses Rs.6/- per MT paid in cash to the machine owners through sub contractors. Extra payment of Rs.2/- per MT paid in cash through sub contractors towards miscellaneous expenses. Second half of the page contains similar details in respect of direct loading to ship from wagon for 20000 metric tons of Cargo.

IT(SS)A Nos.1 to 6/PNJ/2015, ITA Nos.1358 to 1363/Bang/2015, ITA No.30/Bang/2017 & ITA No.870/Bang/2017 M/s. Hassan Hajee & Co., Mangalore

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Page 72 contains actual expenditure incurred through sub contractors except for the RCHW Bill in respect of handling of Cargo for the Ship M V African Oryz. Page 71 contains same details as that of page 72 excluding the RCHW Bill. Page 63 contains details of movement of trucks from 27.02.2009 to 31.03.2009”.

7.8 On the basis of the aforesaid seized materials and after extracting the aforesaid statements from the employees and partner of the assessee firm that was recorded at the time of search, the learned A.O. held that the payment of speed money in excess of Rs.26 per ton was not acceptable and the same represents excess speed money claimed by the assessee. The learned A.O. noted that the assessee had claimed speed money at the rate of Rs. 50 per ton till 31/03/2008 and at Rs. 35 per ton after 01/04/2008 and has restricted the same to Rs. 26 per ton. Hence, the following amounts have been disallowed for all the assessment years as under :-

F.Y Total Speed Speed money Excess claim of money claimed if calculated @ Speed money Rs.26 per ton 2005 – 06 8,59,24,000 4,46,80,480 4,12,43,520 2006 – 07 10,21,12,375 5,30,98,435 4,90,13,940 2007 – 08 10,94,12,751 5,68,84,630 5,25,18,121 2008 – 09 2,53,63,365 1,88,41,356 65,22,009 2009 – 10 3,70,08,230 2,74,91,828 95,16,402 2010 – 11 2,34,95,290 1,74,53,644 60,41,646

7.9 The third component of the disallowance is out of the speed money allowed by the A.O., [mentioned in column no. 3 above] who

IT(SS)A Nos.1 to 6/PNJ/2015, ITA Nos.1358 to 1363/Bang/2015, ITA No.30/Bang/2017 & ITA No.870/Bang/2017 M/s. Hassan Hajee & Co., Mangalore

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has noted that some portion of these expenses relate to illegal gratification paid to the staff of NMPT. Hence, the expenses are hit by section 37[1] of the Act and the same has been estimated at 10% of the speed money considered as allowable expenditure. The disallowance made on this count is as under :-

A.Y Illegal payment attracting the provisions of explanation to section 37[1] of the Act computed at 10% of Rs.26 per ton of actual speed money paid 2006 – 07 44,68,048 2007 – 08 53,09,844 2008 – 09 56.89,463 2009 – 10 18,84,136 2010 – 11 27,49,183 2011 – 12 17,45,364 Total 2,18,46,038

7.10 It is the assessee’s contention that the speed money paid is entirely allowable having regard to the judgement of the Hon’ble Karnataka High Court in the case of KONKAN MARINE reported in 313 ITR 308 [Kar] and other decisions relied upon [placed in paper book at Page 294 to 308]. There is no dispute on this aspect of the matter as the learned A.O. has himself allowed a portion of the speed money paid in the assessment order. The question therefore relates to the quantum of speed money claimed by the assessee and whether the same is reasonable.

IT(SS)A Nos.1 to 6/PNJ/2015, ITA Nos.1358 to 1363/Bang/2015, ITA No.30/Bang/2017 & ITA No.870/Bang/2017 M/s. Hassan Hajee & Co., Mangalore

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Labour Unions, which is in the knowledge of NMPT authorities. Further, it was submitted that the evidence collected during the course of search says that the inflation of expenditure on this count cannot be ruled out. He submitted that the Ld. CIT(A) overlooked the entire evidence brought on record by AO in the form of seized material and various statements recorded u/s 132(4) of the Act and 131 of the Act were overlooked which are crucial evidence and these statements are recorded from principal persons and crucial employees like Abdul Aziz, Accountant, Shri H.N. Shetty, Manager, Mr. Md. Sharif, Supervisor, Mr. Md. Amin, Partner and those statements were self- explanatory, which cannot be ruled out that assessee is habitual of inflating the speed money payment. Accordingly, he relied on the assessment order and prayed that addition to be sustained in its entirety.

IT(SS)A Nos.1 to 6/PNJ/2015, ITA Nos.1358 to 1363/Bang/2015, ITA No.30/Bang/2017 & ITA No.870/Bang/2017 M/s. Hassan Hajee & Co., Mangalore

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a payment of Rs.50 Per M.T. for the period before 31.3.2008 and Rs.35 Per M.T. after 1.4.2008. Thereafter, the Ld. A.O. referred the statement of Hemachandra Shetty, Manager of assessee firm, which has been discussed by AO in pages 30 to 32 of assessment order for the assessment year 2007-08, which has been reproduced in earlier part of the order. As per Mr. Hemachandra Shetty, the speed money payment was Rs.35 per M.T. The AO has taken notice of this statement. However, he intentionally ignored it as it was in favour of the assessee. The A.O. could not do cherry picking, if the Ld. AO considered the statement of Shri B. Kunhi where he has stated that payment of speed money was at Rs.35 per M.T., there could be no addition on this count. Even otherwise, the payment of speed money in assessment year 2006-07 to 2008-09, it was Rs.26 and due to inflation and changes in economic condition, the assessee claimed the same at Rs.35 Per M.T. after 1.4.2008. It cannot be restricted to AO at Rs.26 Per M.T. There were no seized material relating to each assessment year so as to restrict the payment of speed money at Rs.26 Per M.T. As we discussed earlier, the A.O. never rejected the books of accounts and without rejecting the books of accounts, he cannot make any adhoc disallowances. For this purpose, we rely on the judgement of Hon’ble Karnataka High Court in the case of Shri Ganesh Shipping Agency in ITA No.366 of 2015 dated 6.2.2021 cited (supra).

9.1 Further in assessee’s own case in A.Y. 2004-15, according to the AO, the labour charges in respect of clearing and forwarding charges and sub-contractor’s expenses of Rs.2,53,29,660/- and Rs.2,70,70,475/- respectively has been claimed as an expenditure. The assessee could not prove that payment is with reference to

IT(SS)A Nos.1 to 6/PNJ/2015, ITA Nos.1358 to 1363/Bang/2015, ITA No.30/Bang/2017 & ITA No.870/Bang/2017 M/s. Hassan Hajee & Co., Mangalore

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service rendered. The A.O. disallowed 20% of the said amount works out at Rs.1,17,59,931/-. On further appeal to the Tribunal, the Tribunal sustained only Rs.15 lakhs by observing as under in ITA No.947/Bang/2018 dated 30.4.2019:-

“18. We have heard both the parties. The first issue which we have to consider is as to whether such speed money is being paid by the assessee for handling the cargo at the port. The Hon'ble Madras High Court in the case of CIT v South India. Corporation (Agencies) Ltd. 293 ITR 237 had an occasion to consider the allowability of expenditure of giving incentives to Dock workers. In that case, the AO has not disbelieved the payments but he was not satisfied with the quantum of expenditure debited and therefore, disallowed 50% of such expenditure. In that case, the CIT(A) held that though nature of payment is unverifiable but allowed the expenditure on the ground that expenditure claimed in the year of appeal was not unjustifiably different from the earlier year. The Tribunal in that case has held that there is no breach of law in making payments which were essentially incidental to the carrying of the appellant's business with a view to earn profits. In this case, the activities were being carried at the Madras Port. The assessment year involved was 1994-95. The Hon'ble Madras High Court allowed such expenditure in the case of the assessee. Such expenditure was also allowed in the case of that assessee in decision reported at 290 ITR 217 for the asst, years 1986-87 to 1993-94.

IT(SS)A Nos.1 to 6/PNJ/2015, ITA Nos.1358 to 1363/Bang/2015, ITA No.30/Bang/2017 & ITA No.870/Bang/2017 M/s. Hassan Hajee & Co., Mangalore

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allowed the expenditure relating to speed money and in that case, the assessee was carrying on the cargo handling at Cochin port. In this case, the Shipping Corporation of India recognized and approved the payment of speed money. 21. The Hon'ble jurisdictional High Court had an occasion to consider such payment in the case of Konkan Marine Agencies, Mangalore. In this case, the assessee was handling the cargo at the Mangalore port. In that case, the assessee claimed a sum -of Rs.11,07,568/- as incentive paid to the dock workers. The assessment year involved was 1996-97. The Hon'ble High Court in the case of Konkan Marine Agencies vide order dated 28th July, 2008 in ITA No.603/2004 took into consideration the business of the assessee and the prevailing practice in the trade. It was accepted that there is a prevailing practice in the trade where payments have to be made by the firms such as the assessee in order to ensure that work of handling goods are done within reasonable time and emergency operations of cargo handling beyond the working hours are attended. Such payments are made either through labour or workers union cannot be considered to be either prohibited in law and further the assessee cannot be expected to take the receipt from individual workers or make payments by way of cheques.

In the newspaper cutting dated 6th May, 2008 available in 24. the paper book filed by the learned AR, it is mentioned that Mr. M. Shekar Pujari, President of the Assocation of the New Mangalore Port Stevedore stated that port labourers are being paid speed

IT(SS)A Nos.1 to 6/PNJ/2015, ITA Nos.1358 to 1363/Bang/2015, ITA No.30/Bang/2017 & ITA No.870/Bang/2017 M/s. Hassan Hajee & Co., Mangalore

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money apart from their wages and official incentives. As per Mr. Pujari, the labourers have adopted go-slow attitude since they sought speed money in cash rather than in cheque. There was also an agreement entered into between the Management of the New Mangalore Port and the Union representing Karnataka bock and General Workers Union. As per clause (2) of the settlement, it was provided that casual workers can be employed to attend to the work other than those attended to by the listed workers.

"We are aware of the fact that, strictly, speaking, res judicata does not apply to income-tax proceedings. Again, each assessment year being a unit, what is decided in one year may not apply in the following year but where a fundamental aspect permeating through the- different assessment years has been found as a. fact one way or the other and parties have allowed that position to be sustained by not challenging the

IT(SS)A Nos.1 to 6/PNJ/2015, ITA Nos.1358 to 1363/Bang/2015, ITA No.30/Bang/2017 & ITA No.870/Bang/2017 M/s. Hassan Hajee & Co., Mangalore

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order; it would not be at all appropriate to allow the position to be changed in a subsequent year.

IT(SS)A Nos.1 to 6/PNJ/2015, ITA Nos.1358 to 1363/Bang/2015, ITA No.30/Bang/2017 & ITA No.870/Bang/2017 M/s. Hassan Hajee & Co., Mangalore

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directly or through sub-contractors. The learned CIT(A) confirmed the disallowance of a part of such payment through subcontractor in the case of Devanand Shetty in ITA No.93/MNG/CIT(A)/MNG/07-08 vide order dated 12.5.2008 for asst. year 2005-06. Hence, the total disallowance of payment through sub-contractors WQS not called-for.

"Debit NMP labour wage A/c the sum of Rupees Fourteen Thousand Seven Hundred and eighty five only being M V Nurtenana (Iron Ore lumps .& fines) cash paid to Hateh Jindal Veerappa towards extra wages of G.N2 of 5 workers for loading of 1056.00 MT on 27.9.03 II shift. @ Rs.2.80 per MT per head".

Such vouchers bear different signatures. Hence the voucher gives the details and it is not a case where person preparing the voucher has signed. Hence, facts are different from the facts of APL (India) Pvt. Ltd. (supra) decided by Mumbai Tribunal where disallowance of 25% was confirmed.

IT(SS)A Nos.1 to 6/PNJ/2015, ITA Nos.1358 to 1363/Bang/2015, ITA No.30/Bang/2017 & ITA No.870/Bang/2017 M/s. Hassan Hajee & Co., Mangalore

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Wages

Ratio Gross turnover (Rs.) Wages (Rs.) Asst. year 4,38,27,054 59.42% 2002-03 7,37,46,115 4,62,71,697 59.50% 2003-04 7,77,61,525 9,28,18,382 66.40% 2004-05 13,97,75712 30,65,84,000 21,96,12,293 71.63% 2005-06 69.02% 24,37,73,103 16,82,61,968 2006-07

The disallowance of Rs.2,70,70,745/-constituted around 20% of the turnover and around 30% of the wages. In case the entire sum is added back then the net profit will become 25.48% and the quantum of wages viz-a-viz the turnover will be only 50%. Considering the past history of the case, it is impossible to have a net profit of 25.48% and to allow the wages to only 50%. Hence, looking to the fact on record, the entire disallowance is not justified.

Asst. year Business rent income depreciation Interest to remuneration Total of The income as per receipt from other allowed partners business figure to partners computation of sources income of earlier + depreciation income col. as percentage,:%; +interest & remuneation . of to partners turnover 4 8.96 2002-03 37,76,062 51,180 3,19,236 20,77,177 — 7,58,701 66,11,940 • 6..38 2003-04 19,62,566 30.533 3,35,264 20,28,281 — 9,67,200 49,58,047 2004-05 57,47,673 6,593 1,46,757 42,64,825 — 10,32,000 1,10,74,498. 7.92 2005-06 ,1,71,69,154 ,32,378 1,59,996 99,58,?58 17,18,142 11,04,097 2,97,50,651 9.70 2006-07 77,16,051 25,200 1,75,336 82,64,620 8,15,658 7,50,000 1,75,46,329 7.19

There has been no cargo handling of iron ore in the asst. year 2002-03 and 2003-04. Iron ore has been handled for the first time in the asst. year 2004-05. The same has been handled in the subsequent two asst. years. Assessment for the asst. year 2005-06 has been completed u/s 143(1) and the returned income has been accepted. In the asst. year 200607, the AO has completed the assessment u/s 143(3) and has made disallowance of Rs.10 lakhs. After that amount is added, the net profit stands increased by only 0.5%. Looking to the addition made by the AO in asst. year 2006- 07 and considering the net profit after the addition, we have to consider the disallowance out of the wages because the wages or incentives paid

IT(SS)A Nos.1 to 6/PNJ/2015, ITA Nos.1358 to 1363/Bang/2015, ITA No.30/Bang/2017 & ITA No.870/Bang/2017 M/s. Hassan Hajee & Co., Mangalore

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are not totally verifiable. Looking to the net profit disclosed in the year under consideration and considering that this was first year when iron ore was handled, we feel that ends of justice will be met in case the overall addition of Rs.15 lakhs is sustained. This will include the disallowance out of the payments made in cash and out of the payments made to the sub-contractors. 35. In the result, addition to the extent of Rs.15 lakhs is sustained and the appellant will get consequential relief. In the result, the appeal is partly allowed.”

9.2 Further, the Tribunal in the case of HML Agencies Pvt. Ltd. in ITA No.1209/Bang/2009 dated 30.6.2010 with regard to speed money has held as under:- “5. We have heard the rival submissions and minutely perused the records furnished before us. The following facts of the case have merits and cannot be brushed aside. 1) The payments are made to the laborers employed under pooling arrangements canalized by the New Mangalore Port Trust.

2) The assessee occupation is 'Clearing & Forwarding Agent' which requires high integrity and Goodwill.

3) The assessee has to entirely depend on the labour force to execute its work and thus keep up the Goodwill and credibility.

4) Since the laborers are arranged by pooling, the assessee does not have direct control on them in order to extract full work from them.

5) In order to extract proper work from the laborers incentives have to be paid so that speedy and timely disposal of cargo can be effected.

Above all these facts we are also of the view that the decision of the Hon'ble jurisdictional High Court in the case CIT and another

IT(SS)A Nos.1 to 6/PNJ/2015, ITA Nos.1358 to 1363/Bang/2015, ITA No.30/Bang/2017 & ITA No.870/Bang/2017 M/s. Hassan Hajee & Co., Mangalore

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V/s Konkan Marine Agencies reported in 323 1TR 308 on which the Ld. CIT(A) had placed reliance squarely applies to the case in hand. The Hon'ble High Court held; "That taking into consideration the assessee's business and the prevailing practice in the trade, whereby payments had to be made by firms like the assessee in order' to ensure that the work of handling goods was done within reasonable time and emergency operations of cargo handling were done beyond working hours, such payments were made either through labour workers union. It could not be considered to be prohibit by law. The assessee could not be expected to take receipts from individual workers or make payment by way of cheques. The payment was made by the assessee for business purposes and the expenditure had been incurred in the ordinary course of business. Therefore, the deduction was allowable by way of business expenditure". 6. From the above discussions and the rulings of the Hon'ble jurisdictional High Court, we find it proper to confirm the decision of the learned CIT(A). It is ordered accordingly.”

9.3 Further Hon’ble Karnataka High Court in the case of Konkan Marine (313 ITR 308), wherein held as follows: “Held, dismissing the appeal, that taking into consideration the assessee’s business and the prevailing practice in the trade, whereby payments had to be made by firms like the assessee in order to ensure that the work of handling goods was done within reasonable time and emergency operations of cargo handling were done beyond working hours, such payments were made either through labour or workers’ union. It could not be considered to be prohibited by law. The assessee could not be expected to take receipts from individual workers or make payment by way of cheques. The payment was made by the assessee for business purposes and the expenditure had been incurred in the ordinary course of business. Therefore, the deduction was allowable by way of business expenditure.”

9.4 Further, it is well settled that it is not open to the department to adopt a subjective standard of reasonableness and disallow business expenditure as being unreasonably large or decide that

IT(SS)A Nos.1 to 6/PNJ/2015, ITA Nos.1358 to 1363/Bang/2015, ITA No.30/Bang/2017 & ITA No.870/Bang/2017 M/s. Hassan Hajee & Co., Mangalore

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what type of expenditure, the assessee should incur and in what circumstances as held in the case of CIT Vs. Oracle India Pvt. Ltd. (2011) Taxmann.com 139 (Del.). Thus, the jurisdiction of the A.O. only confined to decide “profit & gains of business or profession” i.e. whether expenditure claimed actually and factually expended or not and whether it was wholly and exclusively for the purpose of business. The A.O. cannot put himself in the chair of businessman and assume the role to decide how much is reasonable expenditure having regard to the circumstances of the case. No businessman can be compelled to maximize his profit. The A.O. must put himself in the shoes of the assessee and see how a prudent businessman would act. The A.O. must not look at the matter from their own view point but that of a prudent businessman. A businessman’s sole intention is to run the business and earn profit. In the course of carrying such business, he has to incur expenditure and in the present case, the business is such a nature that loading and unloading has to be done on priority. Otherwise, the shipping person has to incur huge loss in the form of demurrage or damages. In order to avoid such heavy charges, in different times of day & night the assessee has to hire the labourers to do the loading and unloading of ship even by paying extra charges due to urgent need of the same. In such situation, the assessee may be forced to pay extra amount in the interest of the business and in that act of the assessee, AO cannot find fault and observe that he should reduce the expenditure so as to pay the maximum income-tax to the government.

9.5 In our opinion, in view of above discussion, the disallowance made by AO is only on conjectures and surmises basis, which cannot be applied. Accordingly, adhoc disallowance made by AO is deleted.

IT(SS)A Nos.1 to 6/PNJ/2015, ITA Nos.1358 to 1363/Bang/2015, ITA No.30/Bang/2017 & ITA No.870/Bang/2017 M/s. Hassan Hajee & Co., Mangalore

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The ground in revenue’s appeal is dismissed and the assessee’s appeal is allowed.

ISSUE No.3 – PAYMENT TO SUB-CONTRACTORS – Assessment years 2007-08 to 2009-10:- 10. On this issue, revenue is in appeal in ITA Nos.1359 & 1360/Bang/2015 and in ITA No.1361/Bang/2016 in the assessment years 2007-08, 2008-09 & 2009-10.

10.1 The Ld. A.R. submitted that in so far as the payments made to sub-contractors are concerned, it is submitted that the assessee has made payments to 4 of its employees viz., Mr. Sulaimain, Nagesh Rao, Suresh. U and Mohammed Rafiq. In respect of these payments made tax has been deducted at source at the time of making the payment. These employee sub-contractors have also filed returns reporting the income received by them u/s.44AD of the Act. The funds were drawn by the employee sub-contractors and payments were made towards labour charges for which detailed explanation was submitted by the assessee vide letter dated 14/11/2013. The A.O. has relied upon certain statements recorded from these employee sub-contractors stating that they did not have the requisite expertise or machinery to carry out the work entrusted to them. The A.O. notes that the amounts paid to the employee sub-contractors are immediately drawn through bearer cheques. He has reproduced the statement of Mr. Sulaiman Manchi at page 24 of the assessment order and Mr. Abdul Azeez at page 26 of the assessment order. A reading of the statement shows that the sub-contractors have indeed engaged with the labour indented by NMPT Registered Cargo Handling Workers Association based on the estimate of the work load

IT(SS)A Nos.1 to 6/PNJ/2015, ITA Nos.1358 to 1363/Bang/2015, ITA No.30/Bang/2017 & ITA No.870/Bang/2017 M/s. Hassan Hajee & Co., Mangalore

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for which payments are made by the assessee to the employee sub- contactors who withdraw the amount in cash and disburse it to the labourers.

10.2 The A.O. has disallowed the expenditure stating that the assessee exercises control over the employee sub-contractors and that the payments made by them are infact the expenses of the assessee itself, which ought to have been incurred by it directly. This arrangement was devised to conceal the actual extent of expenses and to give a colour of genuineness.

10.3 The learned CIT[A] in his impugned order has considered the contentions of the assessee and has considered the said disallowance along with the disallowance in respect of speed money wherein 10% of the expenses has been disallowed. It is submitted the learned CIT[A] ought to have deleted the entire addition in as much as, the disallowance has been made by the A.O. only on suspicion and surmise. From the statement of Mr. Sulaiman Manchi reproduced in the assessment order, it is clear that he is aware of the nature of work that was required to be carried out by him. He has stated that the amounts were paid to him to be disbursed amongst the labourers for which daily accounts are prepared and handed over to Mr. Azeez, who is the accountant. Merely because these persons are employees of the assessee does not mean that the expenses incurred by the assessee are not genuine. No materials have been brought on record by the learned A.O. to show that such expenses are not been incurred at all. Hence, it cannot be said that no services have been rendered by these employees sub-contractors as held by the learned A.O.

IT(SS)A Nos.1 to 6/PNJ/2015, ITA Nos.1358 to 1363/Bang/2015, ITA No.30/Bang/2017 & ITA No.870/Bang/2017 M/s. Hassan Hajee & Co., Mangalore

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10.4 Furthermore, the assessee has deducted the TDS on the payments made and these employee sub-contractors have also filed their returns of income reporting the turnover received. Hence, the disallowance made is only on surmises and without any material to show that no services have been received by the assessee. Consequently, the learned CIT[A] ought to have deleted the addition in full instead of treating a part of the disallowance made in respect of speed money as covering for any discrepancy in respect of these payments. As a result the Ld. A.R. submitted that the grounds raised by the revenue on this course deserve to be dismissed and prayed accordingly.

Year Disallowance by Ld. CIT(A) @ 10% (Rs.) 2007-08 62,61,306/- 2008-09 84,41,473/- 2009-10 79,10,420/-

12.1 These payments are made by assessee towards labour charges and payments by cheque and assessee has been deducted TDS on

IT(SS)A Nos.1 to 6/PNJ/2015, ITA Nos.1358 to 1363/Bang/2015, ITA No.30/Bang/2017 & ITA No.870/Bang/2017 M/s. Hassan Hajee & Co., Mangalore

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the same. Further, the recipient sub-contractors disclosed these receipts in their income tax returns and offered income u/s 44AD of the Act. The reason for addition by AO was that the amounts has been withdrawn by the recipients by bearer cheques. For this purpose, he relied on the statement of Mr. Sulaiman Manchi, which has been recorded at page no.26 of assessment order for the A.Y. 2008-09. The reading of the above statement of sub-contractors shows that the sub-contractors engaged with the labour intended by NMPT Registered Cargo handling workers assessment based on the estimate of the work load for which payments are made by the assessee to the employee sub-contractors who withdrawn the amount in cash and disbursed it to the labourers. According to the AO, assessee had a control over the employees of sub-contractors that the payment made by them are in fact expenses of the assessee itself which ought to have been incurred by it directly and this arrangement was fixed to conceal the actual expenses and to give a colour of genuineness. In our opinion, hiring assessee’s employees as a sub-contractors and making payment to them cannot be reason to disallow this expenditure. There is no provision under any provisions of the Act to hire assessee’s own employees as a sub- contractors and there is no allegation that these expenditure not incurred by the assessee for the purpose of business. In such circumstances, when the assessee paid the amount to its sub- contractors though they were the employees of the assessee that expenditure cannot be disallowed unless there is a material is brought on record to suggest that this is a fictitious expenditure. More so, when the income was offered by the sub-contractors has been accepted by the department as their income and subject to the assessment thereafter, they cannot deny the payment of that

IT(SS)A Nos.1 to 6/PNJ/2015, ITA Nos.1358 to 1363/Bang/2015, ITA No.30/Bang/2017 & ITA No.870/Bang/2017 M/s. Hassan Hajee & Co., Mangalore

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expenditure in the hands of assessee. On this count also, this expenditure to be allowed in the hands of the assessee and that cannot be partial or adhoc disallowance in the hands of the assessee. Accordingly, we dismiss this ground of revenue in all the above appeals.

12.2 Further, the Ld. D.R. relied on the earlier order of the Hon’ble High Court in assessment year 2004-05 in ITA No.450/2009 dated 1.6.2005, wherein the High Court has observed that “the court hopes that the ITAT will apply its mind judicially before arriving at the conclusion”. However, we find that on set aside by High Court, it has been decided by the Tribunal only disallowing Rs.15 lakhs as against original disallowance of Rs.5,24,00,135/-, which has been reproduced by us in the earlier para of order. Further, in our humble opinion, the facts of each assessment year has to be considered independently and to be adjudicated thereupon. Being so, we refrain from commenting anything on this argument of the Ld. D.R.

12.3 Further, in the case of Hon’ble Karnataka High Court in the case of Sri Clipford Dsouza in ITA No.22/2011 vide judgement dated 24.12.2015 has held as under:-

“2. We have heard Sri E.T.Sanmathi, learned counsel appearing for the appellants-Department as well as Sri S.Parathasarathi, learned counsel appearing for the respondent-assessee and perused the record. 3. The submission of the learned counsel lot the appellants is that payment was made by the respondent- assessee to the sub-contractors, whoa in rum made payment to the labourers for clearing goods on the port. Such payment was made to four sub-contractors totaling to Rs.2,25,32,614/- out of which a sum of Rs.21,38,941 I- was paid in cash and

IT(SS)A Nos.1 to 6/PNJ/2015, ITA Nos.1358 to 1363/Bang/2015, ITA No.30/Bang/2017 & ITA No.870/Bang/2017 M/s. Hassan Hajee & Co., Mangalore

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the remaining amount was paid to the sub-contractors by cheques. It is not disputed that the TDS was deducted by the respondent while making payment to the sub- contractors and was deposited with the Department. Further, it is submitted that the assessee could not prove that the entire amount, which was paid to the contractor, had been given to the labourers. it has also been submitted that it was nor established by the respondent-assessee that the sub-contractors were directly involved in the business of providing labourers. Learned counsel also submitted that in the previous years, the payment was made directly to the labourers whereas for the assessment year in question the payment was made to the labourers through four sub- contractors. It was lastly contended that the Tribunal as well as the CIT(Appeals) have wrongly placed reliance on the decision of this Court in the case of Commissioner of. income Tax & another —vs- Konkan Marine Agencies (2009) 313 ITR 308 as the facts of the said case Were different from the facts of the case on hand.

IT(SS)A Nos.1 to 6/PNJ/2015, ITA Nos.1358 to 1363/Bang/2015, ITA No.30/Bang/2017 & ITA No.870/Bang/2017 M/s. Hassan Hajee & Co., Mangalore

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contractors to the labourers would be a question to be answered by the sub-contractors in their assessment proceedings. Merely because in the earlier years the respondent-assessee had made payment to the labourers directly and for the assessment year in question they had shifted the mode of payment through the sub.-contractors, cannot make the entire transaction doubtful. The expenditure incurred by the respondent assessee for the purpose in question through the cub-contractors cannot he said to be prohibited by law. Unless the payment through a sub- contractor is prohibited by law, merely because the assessee has switched over from direct payment mode to payment through sub- contractor cannot be said to be a reason for attracting the provisions of Section 37 of the IT Act and disallowing the expenditure incurred by the assessee. It is not disputed that the normal practice in the line of the business of the rice in the line of the 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. In our opinion, the ratio of the decision in the Konkan's case (supra) applies to the facts of the present case: The only difference in the said case is that the payment was made directly to the labourers - whereas in the present cases, the payment has been made through sub-contractors, which would not make any difference as making payment to labourers through sub- contractors is not prohibited by law and thus would be permissible. In view of the aforesaid facts, we do not find that any substantial question of law arises in the present case for determination of this Court.”

12.4 In view of the above discussion, we allow the ground taken by the assessee and delete the addition made towards payment to sub- contractors.

IT(SS)A Nos.1 to 6/PNJ/2015, ITA Nos.1358 to 1363/Bang/2015, ITA No.30/Bang/2017 & ITA No.870/Bang/2017 M/s. Hassan Hajee & Co., Mangalore

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ISSUE -4 REGARDING ILLEGAL PAYMENTS:- Assessment years 2006-07 to 2009-10:- 13. This is the issue in Revenue’s appeals ITA Nos.1358 to 1361/Bang/2015 for the assessment years 2006-07 to 2009-10. The Ld. A.R. submitted as follows:- 13.1 ILLEGAL PAYMENTS: In so far as the allegation that the speed money paid consisted of illegal gratification to government servants, it is submitted that there is no case to hold that these amounts paid are illegal. The learned A.O. has mentioned in the assessment order that there were payments made to government officials in para 6.25 of the assessment order for the assessment year 2007-08. 10% of the speed money considered as allowable has been disallowed u/s. 37[1] of the Act. There is no basis for the presumption that 10% of the speed money constitutes illegal payments made by the assessee. The entire disallowance made is purely on suspicion and surmise, assumptions and presumptions. At any rate, the judgement of the Hon’ble High Court of Karnataka in the case of KONKAN MARINE and Clifford D’Souza [placed at Page 262 to 270 of the paper book] has considered and deleted the addition made in respect of payment of speed money to the port workers. Hence, nothing turns much on this aspect of the matter pointed out by the learned A.O.

13.2 In view of the above, Ld. A.R. submitted that the learned A.O. is not justified in limiting the rate of speed money to Rs. 26 per ton and therefore, the learned CIT[A] has rightly held that the disallowance so made cannot be sustained. However, the learned CIT[A] was not justified in sustaining 10% of the speed money paid by the assessee on the ground that there is a likelihood of inflation

IT(SS)A Nos.1 to 6/PNJ/2015, ITA Nos.1358 to 1363/Bang/2015, ITA No.30/Bang/2017 & ITA No.870/Bang/2017 M/s. Hassan Hajee & Co., Mangalore

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under this head of expenditure and hence, the entire disallowance made ought to have been deleted.

ISSUE -5 REGARDING BAD DEBTS:-

15.1 The Ld. A.R. submitted that the assessee’s claim for bad debts made during the course of assessment proceedings, has been disallowed by the AO on the ground that the claim for bad debts was not made in the original return of income filed for the AY 2009-10 and AY 2010-11. The CIT[A] also upheld the disallowance of bad debts on the same grounds, holding that the claim was a mere afterthought as the same was not made in the original return of income. It is submitted that the appellate proceedings are the extension of the assessment proceedings and claims made by the assessee during the course of the same must be considered in order

IT(SS)A Nos.1 to 6/PNJ/2015, ITA Nos.1358 to 1363/Bang/2015, ITA No.30/Bang/2017 & ITA No.870/Bang/2017 M/s. Hassan Hajee & Co., Mangalore

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to determine the correct income of the assessee. Reliance is placed upon the decision of the Hon’ble Bombay High Court in the case of CIT Vs Pruthvi Brokers & Shareholders Pvt. Ltd. 349 ITR 336. Hence, he prayed that the bad debts claimed by the assessee for AY 2009- 10 and AY 2010-11 may kindly be allowed.

15.2 In light of the above, Ld. A.R. prayed that the appeal of the assessee may be allowed and that of the revenue be dismissed for the advancement of substantial cause of justice.

IT(SS)A Nos.1 to 6/PNJ/2015, ITA Nos.1358 to 1363/Bang/2015, ITA No.30/Bang/2017 & ITA No.870/Bang/2017 M/s. Hassan Hajee & Co., Mangalore

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taxable income and payment of taxes. Ld. A.O. dismissed this ground of appeal of the assessee accordingly.

Legal Issue in ITA Nos.1/PNJ/2015 to 4/PNJ/2015:-

18.1 The assessee has raised one more ground in all these appeals stating that A.O. was not justified in reopening the assessment as there was “no incriminating evidence found during the course of search”. The A.O. on the basis of voucher for Rs.26/- made for the financial year 2011-12 had reopened the assessment of all these assessment years on the ground that there was excess payment of speed money. Therefore, on the basis of above ground, the Ld. A.R. submitted that the assessment framed in these assessment years 2006-07, 2007-08, 2008-09 & 2009-10 are concluded assessments and there was no seized material so as to frame assessment u/s 153A of the Act. As such, assessments to be quashed. For this purpose,

IT(SS)A Nos.1 to 6/PNJ/2015, ITA Nos.1358 to 1363/Bang/2015, ITA No.30/Bang/2017 & ITA No.870/Bang/2017 M/s. Hassan Hajee & Co., Mangalore

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he placed reliance on the judgement of Hon’ble Karnataka High Court in the case of Delhi International Airport in ITA No.322/2018 dated 29.9.2021 and further submitted as follows:-

18.2 Ld. A.R. submitted that it is pertinent to mention here that the assessments for assessment years 2006-07 and AY 2008-09 are concluded assessments in the sense that the assessments did not abate by virtue of search conducted in the case of the assessee on 04/08/2011 having regard to the assessment orders passed u/s 143[3] of the Act. Similarly, for the AY 2007-08 and AY 2009-10, the time limit for issuance of notice u/s 143[2] had expired on the date of search and thus, the assessments did not abate by virtue of search conducted in the case of the assessee on 04/08/2011. The details of the returns filed by the assessee for the assessment years 2006-07, 2007-08, 2008-09 and 2009-10 before the search action was conducted and the status of the assessments is tabulated below :- Asst. Year Date of filing Date of order Remarks original return u/s.143[3] / 143[1] 2006-2007 30/10/2006 Order u/s Concluded assessment. Copy 143[3] dated of the order passed u/s 143[3] 26/11/2008 2007-2008 31/10/2007 Time limit for issue of notice expired on 30/09/2008 and hence, assessment not pending on date of search i.e. 04/08/2011 2008-2009 30/09/2008 Order u/s Concluded assessment. Copy 143[3] dated of the order passed u/s 143[3] 24/12/2010 2009-2010 30/09/2009 30/09/2010 Time limit for issue of notice expired on 30/09/2010 and hence, assessment not pending on date of search i.e. 04/08/2011

IT(SS)A Nos.1 to 6/PNJ/2015, ITA Nos.1358 to 1363/Bang/2015, ITA No.30/Bang/2017 & ITA No.870/Bang/2017 M/s. Hassan Hajee & Co., Mangalore

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18.3 Ld. A.R. submitted that as can be seen from the above, the above assessments were not pending on the date of search and hence, the scope for making the assessment for these years are limited. No seized material has been found for the above assessment years to hold that the speed money paid has to be reckoned at Rs. 26 per ton. In the absence of any seized material relating to the aforesaid assessment years, the impugned disallowances made for these assessment years are opposed to ratio of the Hon’ble jurisdictional High Court in the case of Delhi International Airport in ITA No. 322/2018 dated 29/09/2021. On this score also, the disallowance made deserves to be deleted.

18.4 The Ld. D.R. relied on the orders of the A.O. and submitted that there was no such ground before the Ld. CIT(A) and this ground may not be considered by this Tribunal.

IT(SS)A Nos.1 to 6/PNJ/2015, ITA Nos.1358 to 1363/Bang/2015, ITA No.30/Bang/2017 & ITA No.870/Bang/2017 M/s. Hassan Hajee & Co., Mangalore

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No requirement to restrict to documents found during the course of search. 2. Return of Income just filed by Since return filed is even pending the assessee – return yet to be to be processed, the return processed u/s 143(1) – Time would be treated as pending limit for issue of notice u/s before the AO. 143(2) not expired. Consequently, AO would have authority/jurisdiction to assessee the entire income, similar to jurisdiction in regular assessment u/s 143(3). 3. Return of Income filed by the Since intimation is not akin to assessee – return processed and assessment and time limit for intimation issued u/s 143(1) – notice u/s 143(2) hs not expired, Time limit for issue of notice u/s even though return has been 143(2) not expired. processed, it will be case where return has not attained finality.

Consequently, AO would have authority/jurisdiction to assess the entire income, similar to jurisdiction in regular assessment u/s 143(3).

Since, no assessment would be pending there would be no abatement of any proceedings.

Accordingly, the scope of assessment u/s 153A would be restricted to incriminating material found during the course of search.

IT(SS)A Nos.1 to 6/PNJ/2015, ITA Nos.1358 to 1363/Bang/2015, ITA No.30/Bang/2017 & ITA No.870/Bang/2017 M/s. Hassan Hajee & Co., Mangalore

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Accordingly the scope of assessment under section 153A would cover the pending return filed as well and would not be restricted to incriminating material found during the course of search. 6. Assessment u/s 143(3) Since regular assessment completed. proceedings have been completed & are not pending, there would be no abatement of proceedings.

AO loses jurisdiction to review the completed assessment. Accordingly, the scope of assessment u/s 153A would be restricted to incriminating material found during the course of search.

IT(SS)A Nos.1 to 6/PNJ/2015, ITA Nos.1358 to 1363/Bang/2015, ITA No.30/Bang/2017 & ITA No.870/Bang/2017 M/s. Hassan Hajee & Co., Mangalore

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19.1. In the light of above, we will examine the facts of present case. In the case in hand, there was seized material found during the course of search action on 4.8.2011 in the case of assessee where there was a seized material found marked as inventory No.A/HHC/4, A/HHC/7 & A/HHC/9 dated 4.8.2011. The details of this are as follows:-

“A/HHC - Contains the details of cash payments made to NMPT Labours on various dates towards handling charges over and above the labour bill raised by the Port Authority during the current financial year. These payments are not entered into the regular books of account till the date of search.

A/INC/7 — Page No. 1 to 37 and page 49 to 57 contains the details of cash payments made to NMPT Labours on various dates towards handling charges over and above the labour bill raised by the Port Authority during February and March 2011. These cash payments were made through sub contractors to whom the cheques were issued by M/s. HasanHajee& Co. Page No. 38 to 48 contains the details of labour charges paid to the NMPT Labours over and above the labour bills raised by the Port Authority when the cargo handling is made by using Mobile Cranes. These payments are made in cheque to individual labour and accounted in our books as Mobile Crane Labour Wages.

A/HHC/9 - This register contains the details of cash payments made to NMPT Labours on various dates towards handling charges over and above the labour bill raised by the Port Authority for the period 17.07.2010 to 20.12.2010. These cash payments were made through sub contractors to whom the cheques were issued by M/s. HasanHajee& Co.”

19.2 Further there was seized material A1/HHC/39, the details of which are as follows:-

“Q.13: Please go through the inventory No. A 1/HHC/39 and explain the contents of this inventory and accounting treatment in the books of account.

IT(SS)A Nos.1 to 6/PNJ/2015, ITA Nos.1358 to 1363/Bang/2015, ITA No.30/Bang/2017 & ITA No.870/Bang/2017 M/s. Hassan Hajee & Co., Mangalore

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Ans: This inventory contains details of various expenditure incurred by M/s HasanHajee& Co. which are paid through the Sub-Contractors. The Payments are made in cheques to the Sub Contractors as calculated in these papers who in turn make cash payments to the labours."

19.3 On the basis of above seized materials and statement recorded on 14.9.2011 from Shri Abdul Aziz as recorded by us in para 7.5 to 7.8 of this order, the assessment was reopened u/s 153A of the Act for assessment years 2006-07, 2007-08, 2008-09 & 2009-10. As rightly pointed out by the Ld. A.R., the assessment for assessment year 2006-07 has been already concluded u/s 143(3) of the Act vide order dated 26.11.2018. This assessment cannot be reopened without seized material found during the course of search action as held by Special bench in the case of All Cargo Global Logistics Ltd. Vs. DCIT (2012) 18 ITR (Trib) 106 (Mumbai)(SB) that in case of assessments that are abated, the AO retains the original jurisdiction as well as jurisdiction conferred on him u/s 153A of the Act for which assessment shall be made for each of 6 assessment years separately. In other cases, in addition to the income that has already been assessed, the assessment u/s 153A of the Act will be made on the basis of incriminating material, which in the context of relevant provisions means (i) books of accounts, other documents, found in the course of search but not produced in the course of original assessment, and (ii) undisclosed income or property discovered in the course of search. The argument of the Ld. Counsel is that in this assessment year, notice to issue u/s 143(2) was already lapsed as on the date of search, no assessment could be made without basis of incriminating material found during the course of search. We find force in the argument of Ld. Counsel for the assessee in this assessment year 2006-07, the addition made by AO is not based on

IT(SS)A Nos.1 to 6/PNJ/2015, ITA Nos.1358 to 1363/Bang/2015, ITA No.30/Bang/2017 & ITA No.870/Bang/2017 M/s. Hassan Hajee & Co., Mangalore

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any seized material and the AO made additions in a routine manner which were disclosed to the department by way of regular return of income filed by the assessee and no incriminating material was found during the course of search and to come to conclusion that the expenses or allowances claimed by the assessee could be disregarded or income disclosed by the assessee could be considered as taxable. Further, Hon’ble Karnataka High Court in the case of IBC Knowledge Park Pvt. Ltd. Vs. CIT (382 ITR 346) had held that “unless material seized during the course of search which suggest undisclosed income and are incriminating in nature, jurisdiction u/s 153C of the Act cannot be assumed. Further, in the case of Principal CIT Vs. Delhi International Airport Pvt. Ltd. in ITA No.322/2018 vide judgement dated 29.9.2021, the jurisdictional High Court followed the earlier judgement in the case of IBC Knowledge Park Pvt. Ltd. (supra). It is relevant to refer para 10 of the above judgement in the case of Delhi International Airport Pvt. Ltd. (supra) which reads as follows:-

“30. Thus, it is clear that the Assessing Officer while passing the order under Section 153A read with Section 143(3) of the Act, ordinarily cannot disturb the assessment / reassessment order which has attained finality, unless the materials gathered in the course of the proceedings establishes that the finalized assessments are contrary to the material unearthed during the course of 153A proceedings, as held by the Coordinate Bench of this Court in the case of IBC Knowledge Park (P) Ltd. supra. A concluded assessment could not be disturbed without there being any basis for doing so which is impermissible in law. Even in case of a searched person, the same reason would hold good…………………..” 19.4 The judgment of the Hon’ble Delhi High Court in the case of CIT v. Kabul Chawla reported in (2016) 380 ITR 573 (Delhi) had summarized the legal position as regards assessment u/s 153A of the Act, as follows:-

IT(SS)A Nos.1 to 6/PNJ/2015, ITA Nos.1358 to 1363/Bang/2015, ITA No.30/Bang/2017 & ITA No.870/Bang/2017 M/s. Hassan Hajee & Co., Mangalore

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"37. On a conspectus of Section. 153A(1) of the Act, read with the provisos thereto, and in the light of the law explained in the aforementioned decisions, the legal position that emerges is as under: i. Once a search takes place under Section 132 of the Act, notice under Section 153A(1) will have to be mandatorily issued to the person searched requiring him to file returns for six A Ys immediately preceding the previous year relevant to the A Y in which the search. takes place. ii. Assessments and reassessments pending on the date of the search shall abate The total income for such AYs will have to be computed by the AOs as afresh exercise. iii. The AO will exercise normal assessment powers in respect of the six years previous to the relevant AY in which the search takes place. The AO has the power to assess and reassess the 'total income of the aforementioned six years In separate assessment orders for each of the six years. In other words there will be only one assessment order in respect of each of the six AYs in which both the disclosed and the undisclosed income would be brought to tax". iv. Although. Section. 153 A does not say that additions should be strictly made on the basis of evidence found in the course of the search, or other post-search material or information. available with the AO which can be related to the evidence found, it does not mean that the assessment "can be arbitrary or made without any relevance or nexus with the seized material. Obviously an assessment has to be made under this Section only on the basis of seized material.” v. In absence of any incriminating material, the completed assessment can be reiterated and the abated assessment or reassessment can be made. The word 'assess' in Section 153A is relatable to abated proceedings (i.e. those pending on the date of search) and the word 'reassess' to completed assessment proceedings. vi. Insofar as pending assessments are concerned the jurisdiction to make the original assessment and the assessment under Section 153A merges into one. Only one assessment shall be made separately for each A Y on the basis

IT(SS)A Nos.1 to 6/PNJ/2015, ITA Nos.1358 to 1363/Bang/2015, ITA No.30/Bang/2017 & ITA No.870/Bang/2017 M/s. Hassan Hajee & Co., Mangalore

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of the findings of the search and any ether material existing or brought on the record of the AD. vi. Completed assessments can be interfered with by the AO while making the assessment under Section 153 A only on the basis of some incriminating material unearthed during the course of search or requisition of documents or undisclosed income or property discovered in the course of search which were not produced or not already disclosed or made known in the course of original assessment." 19.5 The Hon’ble jurisdictional High Court in the case of Pr.CIT v. M/s.Delhi International Airport Pvt. Ltd. (supra) had also referred to the judgment of the Hon’ble Delhi High Court in the case of CIT v. Kabul Chawla (380 ITR 573) (Refer para 20 of the Karnataka High Court judgment). From the above judicial pronouncements, cited supra, it is clear that the assessments which are not pending and hence does not abate, the addition can be made only on the basis of incriminating material found during the course of search.

19.6 Therefore, as mentioned in the judgement of jurisdictional High Court in the case of Delhi International Airport Pvt. Ltd. (supra), it is clear that, in case of persons searched, the assessment for those assessment years where the assessments are concluded as on the date of search, cannot be disturbed unless incriminating material pertain to such assessment year is found and seized during the course of search. Hence, in our opinion, completed assessment cannot be tinkered without the support of any incriminating material found during the course of search. Therefore, the assessment framed for assessment 2006-07 without any incriminating material, the AO was not justified in framing assessment u/s 153A r.w.s. 143(3) of the Act as there was no seized material relating to AY 2006-07 was found during search action. It is not the case of AO that the seized material,

IT(SS)A Nos.1 to 6/PNJ/2015, ITA Nos.1358 to 1363/Bang/2015, ITA No.30/Bang/2017 & ITA No.870/Bang/2017 M/s. Hassan Hajee & Co., Mangalore

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if any suggested the inflation of expenditure. Hence, the framing of assessment for the assessment year 2006-07 cannot be upheld.

A.Y. 2007-08:-

19.7 The return for assessment year 2007-08 has been filed by the assessee on 31.10.2007. Time limit for issue of notice for completion of assessment u/s 143(3) of the Act was expired on 30.9.2008. There was no seized material relating to this assessment year found during the course of search action on 4.8.2011 relating to AY 2007-08. As such, without search & seizure material, assessment concluded by lapse of time cannot be reopened. Hence, the framing of assessment for the assessment year 2007-08 cannot be upheld.

A.Y. 2008-09:-

19.8 The assessee has filed return of income for the assessment year 2008-09 on 30.9.2008. The assessment was completed u/s 143(3) of the Act on 24.12.2010 and the assessment was not pending as on that date. There was no seized material found during the course of search action on 4.8.2011 relating to this assessment year 2008-09. On this assessment also reopening of assessment u/s 153A of the Cannot be done. Accordingly, framing of assessment u/s 153A of the Act cannot be upheld.

A.Y. 2009-10:-

19.9 For assessment year 2009-10, the assessee filed return of income on 30.9.2008. Time limit to issue notice expired on 30.9.2010 and no notice has been issued so as to frame the assessment u/s 143(3) of the Act. The search action on 4.8.2011 was not resulted in unearthing of any seized material relating to the

IT(SS)A Nos.1 to 6/PNJ/2015, ITA Nos.1358 to 1363/Bang/2015, ITA No.30/Bang/2017 & ITA No.870/Bang/2017 M/s. Hassan Hajee & Co., Mangalore

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assessment year 2009-10 on 4.8.2011. Being so, framing assessment u/s 153A of the Act cannot be possible as this assessment has been lapsed by operation of law so as to issue notice u/s 143(3) of the Act. Accordingly, framing assessment for the assessment year 2009-10 cannot be upheld. Thus, the assessment for assessment years 2006-07, 2007-08, 2008-09 & 2009-10 cannot be sustained and same are quashed in ITA No.1/PNJ/2015 to 4/PNJ/2015.

Sd/- Sd/- (Beena Pillai) (Chandra Poojari) Judicial Member Accountant Member

Bangalore, Dated 22nd Sept, 2022. VG/SPS

IT(SS)A Nos.1 to 6/PNJ/2015, ITA Nos.1358 to 1363/Bang/2015, ITA No.30/Bang/2017 & ITA No.870/Bang/2017 M/s. Hassan Hajee & Co., Mangalore

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Copy to:

Asst. Registrar, ITAT, Bangalore.