2015 (5) TMI 1183 - AT - Income Tax

Payment as speed money - Payment made to labourers at MPT - addition u/s 37(1) - assessee is a company engaged in the business of acting as clearing and forwarding agents mainly in the Mangalore Port Trust (MPT). - assessee has to pay the charges to MPT only towards wages payable to workers who in turn pay the same to the workers. Apart from the payment made to Port authorities the assessee also pays wages directly to workers - AO disallowed 20% of the expenditure - HELD THAT - As decided in assessee s own case for A.Y. 2009-10 relying on KONKAN MARINE AGENCIES 2008 (7) TMI 362 - KARNATAKA HIGH COURT considering 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 - Decided in favour of assessee.

Summary

Issues:
1. Disallowance of expenditure on account of "speed money" by the Assessing Officer.
2. Appeal by the revenue against the order of the CIT(Appeals) relating to A.Y. 2010-11.
3. Reliance on previous Tribunal decisions and High Court judgment regarding similar issues.

Analysis:
1. The assessee, engaged in the business of acting as clearing and forwarding agents, claimed a deduction for payments made to laborers at Mangalore Port Trust (MPT). The revenue contended that such payments, termed as "speed money," were illegal under section 37(1) of the Act. The Assessing Officer disallowed a portion of the expenditure, resulting in an addition to the total income of the assessee. However, the CIT(Appeals) deleted the addition based on previous Tribunal decisions and the High Court judgment in a similar case, emphasizing the necessity of such payments for the timely completion of work.

2. The revenue, aggrieved by the CIT(Appeals) order, appealed to the Tribunal. The Tribunal noted that a prior decision in the assessee's case for A.Y. 2009-10 had already ruled in favor of the assessee regarding the disallowance of expenditure on "speed money." The Tribunal upheld the CIT(Appeals) decision, citing the earlier Tribunal ruling and the High Court judgment, which highlighted the business necessity and ordinary course of such payments, ultimately dismissing the revenue's appeal.

3. The Tribunal's decision was based on the principle that the payments made as "speed money" were essential for the business operations of the assessee, aligning with the prevailing trade practices and business requirements. By following the precedent set in the assessee's previous cases and considering the High Court's interpretation of business expenditures, the Tribunal confirmed the deletion of the disallowance, emphasizing the legitimacy and business purpose of such payments. The Tribunal's decision, consistent with previous rulings, upheld the order of the CIT(Appeals) and dismissed the revenue's appeal, thereby concluding the matter in favor of the assessee.