2021 (2) TMI 550 - HC - Income Tax

Disallowance of expenses being 10% of the expenses paid to port workers as incentives - books of account have been accepted are not rejected by pointing to any defects therein - as per assessee entire expenditure is supported by documentary evidence on the facts and circumstances of the case - HELD THAT - In the absence of any challenge to the entries made in the books of accounts by the authorities, in our opinion, 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. Insofar as the submission made by revenue that Commissioner the assessee himself had restricted the payment of speed money to 10% is concerned, it is pertinent to note that the restriction was made by the assessee in respect of Assessment Year 2004 05 and from the grounds of memorandum of appeal before the Tribunal, we find that the assessee had challenged the aforesaid finding which is evident from paragraphs 1 and 2, therefore, the aforesaid submission is of no assistance to the revenue. Substantial question of law involved in this appeal is answered against the revenue and in favour of the assessee.

Summary

Issues: Disallowance of expenses under the Income Tax Act for Assessment Years 2007-08, 2008-09, and 2009-10.

Analysis:
1. The appeal was filed under Section 260-A of the Income Tax Act challenging the disallowance of expenses paid to port workers as incentives. The main question of law was whether the Income Tax Appellate Tribunal was justified in sustaining the disallowance of expenses when the books of account were accepted, and the expenditure was supported by documentary evidence. The assessee, a partnership firm, engaged in clearing and forwarding agent and steamer agent business, had filed returns for the relevant years. The Assessing Officers disallowed 20% of the expenses as speed money paid to workers for speedy work completion. The Commissioner of Income Tax (Appeals) restricted the disallowance to 10%, leading to the appeal.

2. The counsel for the assessee argued that the entire expenditure was supported by documentary evidence and accepted by the authorities. The Assessing Officer acknowledged that speed money payment was a trade practice, but the disallowance was made based on cash payments without verifiable details. The Tribunal upheld the 10% disallowance. The counsel cited relevant case laws to support the argument that the disallowance was unjustified.

3. On the other hand, the revenue's counsel contended that while speed money was a common trade practice, the lack of proper documentation for cash payments justified the disallowance. The revenue highlighted that the issue was not conclusively decided on merits due to procedural reasons.

4. The Court noted that the authorities accepted the books of accounts and acknowledged the trade practice of speed money payments. The disallowance was primarily based on the lack of verifiable details for cash payments. Citing previous judgments, the Court found the disallowance of 10% to be unjustified as the documentary evidence supported the expenditure. The Court rejected the revenue's argument regarding the restriction on speed money payment made by the assessee in a previous year.

5. Consequently, the substantial question of law was decided in favor of the assessee, and the Tribunal's order sustaining the 10% disallowance was quashed for the relevant assessment years. The appeal was allowed in favor of the assessee.