2016 (9) TMI 1665 - HC - Income Tax

Speed money Payments - Disallowance of wages - cash payment to gang leaders - allowable business expenditure or not? - Tribunal restricting addition to 1.6% in respect of an expenditure which is of such nature as covered by section 37(1) - HELD THAT - Tribunal while deciding the appeal has casually proceeded to sustain the order passed by the AO - None of the major points decided by the Appellate Commissioner are answered by the Tribunal while setting aside the order passed by the Appellate Commissioner. Though the order passed by the Tribunal runs to number of pages the crux of the matter is not adverted to by the Tribunal while arriving at the conclusion. On careful perusal of the order passed by the Tribunal we are of the opinion that the order of the Tribunal cannot be sustained inasmuch as the Tribunal has not applied its mind judiciously to the facts and circumstances of the case. In view of the same interest of justice requires that the matter has to be re-dealt by the Income Tax Appellate Tribunal Bangalore. By the said process no prejudice would be caused to either of the parties. Accordingly order passed by the Income Tax Appellate Tribunal stands set aside. The matter restored to the file of the Income Tax Appellate Tribunal Bangalore Bench A for fresh disposal in accordance with law.

Summary

Issues:
1. Interpretation of section 37(1) of the Income Tax Act, 1961 in relation to expenditure.
2. Assessment of wages for the assessment years 2002-03 and 2003-04.
3. Disallowance of cash payment to gang leaders by the Assessing Officer.
4. Enhancement of tax liability by the Appellate Commissioner.
5. Decision of the Income Tax Appellate Tribunal in restricting the addition to a certain amount.

Interpretation of Section 37(1) of the Income Tax Act:
The appeal raised substantial questions of law regarding the Tribunal's restriction of an expenditure to 1.6% under section 37(1) of the Income Tax Act, 1961. The Court noted a previous order related to the same assessee for the assessment year 2002-03 and remanded the matter to the Tribunal. The counsel for the appellant requested a similar order for the present appeal, which was not disputed by the respondent's counsel. The Court observed discrepancies in the Tribunal's order and set it aside, restoring the matter to the Tribunal for a fresh decision.

Assessment of Wages:
The case involved the payment of wages to labor force for stevedoring operations and loading/unloading work at the port. The Assessing Officer disallowed 20% of cash payments to gang leaders but allowed payments through cheques to NMPT Union and sub-contractors. The Appellate Commissioner enhanced the tax liability by setting aside the Assessing Officer's decision on payments to subcontractors through cheques. The Tribunal partially allowed the appeal, restricting the addition to Rs. 15,00,000 instead of Rs. 2,94,00,000 made by the Appellate Commissioner. The Court found discrepancies in the orders of the Appellate Commissioner and the Tribunal, leading to the matter being remanded for a fresh decision.

Disallowance of Cash Payment to Gang Leaders:
The Assessing Officer disallowed 20% of cash payments to gang leaders, which was challenged by the assessee. The Appellate Commissioner upheld the disallowance, leading to an appeal before the Tribunal. The Tribunal's decision to restrict the addition to Rs. 15,00,000 was set aside by the Court, emphasizing the need for a thorough reconsideration by the Tribunal.

Enhancement of Tax Liability:
The Appellate Commissioner enhanced the tax liability by setting aside the Assessing Officer's decision on payments made to subcontractors through cheques. The Tribunal partially allowed the appeal, leading to discrepancies in the decisions of the lower authorities. The Court found that the Tribunal did not address crucial points raised by the Appellate Commissioner, necessitating a fresh decision by the Tribunal.

Decision of the Income Tax Appellate Tribunal:
The Tribunal's decision to restrict the addition to a specific amount was set aside by the Court, emphasizing the lack of judicious consideration of facts and circumstances. The Court directed the matter to be re-dealt by the Tribunal for a fresh decision in accordance with the law. The Tribunal was instructed to apply its mind judiciously before arriving at a conclusion to ensure the interest of justice. The appeal was allowed, and the matter was restored to the Tribunal for further examination and decision-making.