M/S SRI. GANESH SHIPPING AGENCY,MANGALORE vs. ACIT, MANGALORE

The only issue that arises for consideration in these appeals by the assessee is as to, whether the CIT(Appeals) was justified in sustaining disallowance to the extent of 10% from and out of disallowance to the extent of 20% made by the AO in respect of expenditure incurred towards speed money. According to the assessee, the entire disallowance made by the AO ought to have been deleted by the CIT(Appeals).

The assessee is a partnership firm. It is engaged in the business of acting as clearing and forwarding and steamer agents. In the course of assessment proceedings, the Assessing Officer noticed that the assessee paid Rs.62,22,126, Rs.56,96,397 and Rs.66,52,331 for the AYs 2007-08 to 2009-10 in cash to various port workers towards incentive (Speed Money) through vouchers, over and above the regular payment through New Mangalore Port Trust (NMPT). The Assessing Officer noticed that the said payments made were only supported by self vouchers and that the payments were made to the Gang Leaders. The Assessing Officer held that the expenditure claimed was not incurred wholly and exclusively towards the business of the assessee and considering the defects in the vouchers, especially the unverifiable nature of the documentary evidence, made a disallowance of 20% thereof as not genuine and accordingly added a sum of Rs.13,30,446, Rs.12,44,425 and Rs.11,39,280 to the assessee's income in the order of assessment passed under Section 143(3) of the Act for the AYs 2007-08 to 2009-10.

Aggrieved by the said order of assessments, the assessee preferred appeals before the CIT(Appeals), Mysore. The learned CIT(A) placing reliance on the decision of the co-ordinate bench of the ITAT, Bangalore Bench in the assessee's own case for Assessment Year 2004-05 in dt.18.7.2008, reduced the disallowance from 20% of the expenditure claimed to 10%. Aggrieved by the order of the CIT(Appeals), the assessee has preferred the present appeals before the Tribunal.

At the outset, the learned DR submitted that there was no error in the impugned order of the learned CIT(A) as he had followed the order of the co-ordinate bench of the ITAT, Bangalore in the assessee's own case for Assessment Year 2004-05 in dt.18.7.200, wherein similar disallowance made in the assessee's case was considered. In view of the above, it was prayed that assessee’s appeals on this issue are liable to be dismissed.

We have heard the rival contentions and perused and carefully considered the material on record; including the judicial decision cited. We find that similar disallowance on account of speed money payments was considered in the assessee's own case for Assessment Year 2004-05 (supra) and at para 3 thereof it has been held as under :-

“3. The main issue pertains to disallowance made by the A.O. at Rs.14,37,370 on account of expenses incurred in respect of incentive paid to port labourers for assessment year 2004-05. From the facts it is seen that the A.O. has disallowed 20% of the claim of Rs.71,86,854 (Rs.14,37,370). The learned CIT (Appeals), when the matter travelled before him considered the arguments of the assessee's authorised representative and granted part relief to the assessee by reducing the addition by ½ (Rs.7,18,685). From the facts appearing on record, it is seen that the Assessing Officer himself made the estimated disallowance. The learned CIT (Appeals), after having noted various factors such as incentive paid to labourers, additional payment on account of extra hours of work etc., again estimated the same by reducing it to Rs.7,18,685. Considering this aspect, we do not find any infirmity in the order of the learned CIT (Appeals). At the time of hearing, ld. D.R. was unable to assail the conclusion drawn by the learned CIT (Appeals) with any convincing material. We, therefore, confirm the order of the learned CIT (Appeals). It is ordered accordingly.”

Following the aforesaid decision of the co-ordinate bench of this Tribunal in the assessee's own case for Assessment Year 2004-05 (supra), we hold that the learned CIT(A) was justified in deleting the disallowance on account of speed money expenditure claimed to the extent of 50% thereof, thereby restricting it to 10% of the said expenditure claimed.