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IN THE HIGH COURT OF KARNATAKA AT BENGALURU
DATED THIS THE 24TH DAY OF FEBRUARY, 2015
PRESENT
THE HON'BLE MR. JUSTICE VINEET SARAN
AND
THE HON’BLE MRS. JUSTICE S.SUJATHA
ITA NO.22/2011
BETWEEN:
COMMISSIONER OF INCOME TAX, C.R.BUILDINGS, ATTAWARA, MANGALORE-575 001.
ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-1(1), MANGALORE. …APPELLANTS (BY SRI E.I.SANMATHI, ADV.,)
AND:
SRI CLIFFORD D’SOZA PROP. EXPORT TRADEMARK AGENCIES, PUNJA BUILDING, MANGALORE.
…RESPONDENT (BY SRI S.PARTHASARATHI, ADV.,)
THIS ITA IS FILED U/S. 260-A OF I.T.ACT, 1961 ARISING OUT OF ORDER DATED 30.07.2010 PASSED IN ITA NO.1176/BANG/2009, FOR THE ASSESSMENT YEAR 2006-07, PRAYING TO FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED THEREIN, SET ASIDE THE ORDER DATED ®
30.07.2010 PASSED BY THE ITAT, ‘A’ BENCH, BANGALORE IN APPEAL PROCEEDINGS ITA NO.1176/BANG/2009, DATED 30-07-2010, AS SOUGHT FOR IN THIS APPEAL.
THIS ITA COMING ON FOR ADMISSION THIS DAY, VINEET SARAN J. DELIVERED THE FOLLOWING:
JUDGMENT
The respondent-assessee is carrying on the business as clearing and forwarding agent at New Mangalore Port Trust (for brevity ‘NMPT’). The dispute in the present appeal is for the assessment year 2006-07 in which year the assessee had declared its total income as Rs.1,11,03,920/-. By the assessment order dated 28.11.2008, the Assessing Authority has disallowed 30% of the speed money and consequently a sum of Rs.67,59,784/- was added to the income of the respondent-assessee. Challenging the said order, the respondent-assessee filed an appeal before the Commissioner of Income Tax (Appeals), Mangalore, which was allowed vide its order dated 21.10.2009. Being aggrieved, the revenue filed an appeal against the said order of the CIT (Appeals), which was dismissed by the Tribunal vide its order dated 30.07.2010. Aggrieved by the said orders, this appeal has
been filed by the Department under Section 260-A of the Income Tax Act, 1961.
We have heard Sri E.I.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.
The submission of the learned counsel for the appellants is that payment was made by the respondent-assessee to the sub-contractors, who in turn 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/- was paid in cash and 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 assesseee 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 not 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.
On the other hand, the learned counsel for the respondent-assessee has submitted the very fact that 70% of the payment made has been allowed by the Assessing Officer would be a admission on the part of the Department that the sub-contractors were carrying on the business of providing labourers to the respondent-assessee and hence the genuineness of the transaction cannot be doubted. It is contended that the
question as to whether the sub-contractors had paid the amount to the labourers or not is not a question to be answered by the respondent-assessee as once the assessee has made major payment to the sub-contractors through cheque and the TDS has also been deducted, it is for the sub-contractors to prove and show to the department in their assessment proceedings as to whether they have made payment to the labourers or not and that the respondent-assessee cannot be held responsible for the same. It was lastly contended by the learned counsel for the respondent- assessee that there is no basis for the Assessing Officer to come to the conclusion that 30% of the amount claimed to have been paid to the sub-contractors was not accepted as there was no material to show the same or material available before the Assessing Officer to arrive at that figure.
Having heard learned counsel for the parties, we are of the opinion that no substantial question of law arises in these cases for determination by this Court. Once 70% of the payment made to the sub-contractors by the respondent-assessee is
accepted, the business nexus between the respondent-assessee and the sub-contractors cannot be disputed. The Assessing Officer also did not doubt the genuineness of the business relationship but the only question which was decided by the Assessing Officer was with regard to the quantum of the transaction. In our opinion, there was no reason given by the Assessing Officer to disallow 30% of the payment made by the respondent-assessee to the sub-contractors. Learned counsel for the appellant does not dispute the fact that more than 90% of the payment was made by the respondent-assessee to four sub-contractors by way of cheques and only an amount of less than 10% was paid through cash. It is also not disputed that TDS amount had been deducted and deposited by the respondent-assessee with the Department. It may be reiterated that the question as to whether further payment had been made by the sub-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 sub-contractors cannot be 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 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. The appeals are accordingly dismissed. No order as to costs.
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JUDGE
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JUDGE