The Karnataka High Court quashed the disallowance of 10% expenses paid to port workers as incentives.
The assessee, Ganesh Shipping Agency is a partnership firm engaged in the business as clearing and forwarding agent and steamer agent. The assessee filed its returns for the Assessment Years in question. The Assessing Officers, by order in respect of Assessment Years 2007-08, 2008-09 and 2009-10, respectively, disallowed 20% of the expenses incurred by the assessee as speed money which was paid to the workers for speedy completion of their work.
The assessee filed an appeal before Commissioner of Income Tax (Appeals) in respect of the Assessment Years in question, wherein the CIT(A) restricted the disallowance of 10%. The assessee thereupon approached the Tribunal by filing an appeal. The Tribunal, by the impugned order has maintained the disallowance of 10% of the expenses.
Mr. S.Annamalai, the counsel on behalf of the appellant submitted that the authorities have accepted the books of accounts and the entire expenditure is supported by documentary evidence.
Mr. Annamalai further pointed out from the order of assessment that the Assessing Officer himself has accepted that 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 and therefore, under the Act, grossly erred in disallowing the claim to the extent of 10% of the expenditure incurred by the assessee on account of speed money which was paid to the workers.
On the other hand, Mr. Dilip Kumar, counsel for the revenue submitted that the revenue does not dispute the fact that payment of speed money for timely completion of the work is a trade practice which is followed by the assessee as well as other business concerns. However, it is submitted that the assessee has paid the entire amount by cash and has produced the vouchers which do not contain the details of payment made to the workers. Therefore, the Assessing Officer had rightly disallowed the expenditure incurred by the assessee.
The division bench of Justice Alok Ardhe and Justice Natraj Rangaswamy opined that the finding recorded by the Assessing Officer as well as the Tribunal that it denied the 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.
Therefore, the court held that the Tribunal’s order insofar as it contains the findings to the extent of disallowance of 10% of the expenses incurred by the assessee in relation to the Assessment Years 2007-08, 2008-09 and 2009-10 is hereby quashed.
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