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Income Tax Appellate Tribunal, CIRCUIT BENCH : MANGALORE
Before: SHRI INTURI RAMA RAO & SHRI SUDHANSHU SRIVASTAVA
to dispose the same vide this consolidated order. We shall now take up the & 68/Bang/2010 for the assessment year 2002-03 and 2003-04 respectively and ITA No. 947/Bang/2008 for the assessment year 2004-05.
These are appeals restored by the Hon’ble High Court vide orders in dated 26.02.2016 for the assessment years 2002-03 & 2003-04, ITA No. 433/2010 dated 28.09.2016 for the assessment year 2003-04 and I.T.A. No. 450/2009 dated 01.06.2015 for the assessment year 2004-05. The Hon’ble High Court in ITA No. 450/2009 has observed as follows.
The Hon’ble High Court has set aside the order of the Tribunal for fresh disposal in accordance with law. Thus all the three appeals are restored to the file of the Tribunal for fresh adjudication before the Tribunal in the assessment year 2004-05 the additional ground relating to enhancement of income to the extent of Rs. 2,70,70,745/- by CIT(Appeals) was involved. In the assessment years 2002-03 to 2004-05 the common issue is regarding disallowance of the speed money.
The brief facts of the case are that.
The respondent assessee is a partnership firm. It is engaged in the business of clearing and forwarding agent and transport contractor.
During the course of assessment proceedings, the AO had noticed that the assessee firm had claimed a sum of Rs. 1,17,59,931/- as the speed money. The assessee firm claim, that this speed money was paid out of business expediency. It is claimed that the speed money is paid to the NMPT to complete the work on time and avoid the payment of charges to ship owners and these type of payment is common and is prevalent in this line of business. It is further submitted that the payment was not made for breach of any provisions of law nor illegal payment. The AO had set out the following facts against the allowability of this expenditure for the assessment year 2002-03 and finally disallowed the 20% of the expenditure.
1) Given the nature of business, such payments are to be made. 2) The assessee firm is making such claims even in earlier years. 3) To get extra hours of work, additional payments are to be made to complete the work without paying damages / demurrage to the ship owner. 4) Unless such extra payment is made, the survival / existence of the assessee’s business will be in jeopardy and it is normal in the type of activity carried on by the assessee.
On appeal the CIT(A) vide order dated 25.11.2009 had restricted the disallowance to 1.6% of the total payment following the order of the Hon’ble ITAT’s order dated 30.04.2009 in for the assessment year 2004-05 and the same came to be confirmed by the Hon’ble Tribunal vide order dated 16.07.2010 in ITA Nos. 67 & 68/Bang/2010 for the assessment years 2002-03 and 2003-04. The Revenue being aggrieved by the Tribunal order carried the matter to the Hon’ble High Court. The Hon’ble High Court passed the above orders.
Thus the matters came before us.
The only issue in all these appeals is whether the CIT(A) were justified in restricting the disallowance at 1.6% of the total wages for the assessment year 2002-03. It is not the case of the AO that the speed money is not allowable in principle. The AO had not even doubted the genuineness of the expenditure. Having regard to the nature of the evidence produced before him, the AO has come to the conclusion that a part of the expenditure was not allowable as he felt that there was no evidence available except the self made vouchers and the expenditure incurred in cash. It is trite to law that no expenditure can be disallowed without rejecting the books of accounts and reliance in this regard can be made on the decision of Hon’ble Karnataka High Court in case of Anil Kumar & Co. Vs CIT (386 ITR 702).
The assessee firm is not on appeal against the order of the CIT(A); keeping in view the above principle, we sustain the order of the CIT(A) and appeals filed by the revenue are dismissed.
In respect of the assessment years 2006-07 to 2011-12 in ITA Nos.
1358 to 1363/Bang/2015 the brief facts of the case are as under.
10.It is the case of the AO that during the course of search and seizure operations certain incriminating material suggesting illegal payment to the officials of port was found therefore he inferred that out of the total speed money claimed the speed money paid in excess of Rs. 26/- per tone was treated as inflated expenditure. Accordingly, the AO treated that 10% of the speed money as illegal money and invoking the explanation to section 1 to 37(1) of the IT Act.
Being aggrieved, the appeal was filed against assessment orders
before CIT(A), who upheld the disallowance to the extent 10% of the speed money and 10% of the total labour charges. Being aggrieved the revenue is in appeal before us in the present appeals. It is an undisputed fact that the impound assessment orders are made pursuant to the notice issued u/s. 153A of the Act. Now the law is settled to the extent that the additions in the assessments u/s. 153A can be made only based on the material facts as a result of the incriminated materials found. From the perusal of the assessment order it is clear that during the course of survey and seizure operations the department had seized a loose sheet indicating payment to the certain officials of the port trust. Based on this information the AO as well as the CIT(A) has disallowed the payment to the extent of 10% of the speed money as illegal payment. Mere perusal of the loose sheet it is clear that about 10% of the cash payments was made to the officials of the port trust. Therefore in our considered opinion the disallowance to the extent of 10% is just and proper and therefore we do not want to interfere.
Accordingly we dismiss the appeals filed by the revenue.
Assessee’s appeal - 2004-05:-
The appeal as filed by the assessee company in ITA No.
947/Bang/2008 is challenging the enhancement notice issued by the Hon’ble ld. Commissioner of Income-tax to disallow the speed money paid to the said contractors which were allowed by the AO. In the revenue’s appeal since, we held that 10% of the speed money is disallowable there was no question of enhancement of addition on this issue. Therefore the question of enhancement does not arise.
The appeal filed by the assessee is allowed.
Pronounced in the open court on this 02nd day of May, 2017