September 2021

Business expenditure – Clearing and forwarding business – Payment of speed money to port labourers through gang leaders to expedite completion of work – Acceptance of books of accounts and payments supported by documentary evidence – Payment of speed money accepted as trade practice – Restriction of disallowance on the ground vouchers for cash payments were self-made – Unjustified

K. B. Bhujle
Advocate

45 Ganesh Shipping Agency vs. ACIT [2021] 435 ITR 143 (Karn) A.Ys.: 2007-08 to 2009-10; Date of order: 6th February, 2021 S. 37 of ITA, 1961

Business expenditure – Clearing and forwarding business – Payment of speed money to port labourers through gang leaders to expedite completion of work – Acceptance of books of accounts and payments supported by documentary evidence – Payment of speed money accepted as trade practice – Restriction of disallowance on the ground vouchers for cash payments were self-made – Unjustified


The assessee was a firm which carried on business as a clearing and forwarding and steamer agent. For the A.Ys. 2007-08, 2008-09 and 2009-10, the A.O. disallowed, u/s 37, 20% of the expenses incurred by the assessee as speed money which was paid to the workers for speedy completion of their work on the grounds that (a) the assessee produced self-made cash vouchers for the cash payments to each gang leader, (b) the identity of the gang leader was not verifiable, and (c) the recipients were not the assessee’s employees.

The Commissioner (Appeals) restricted the disallowance to 10% which was confirmed by the Tribunal.

The Karnataka High Court allowed the appeal filed by the assessee and held as under:

‘i) The authorities had accepted the books of accounts produced by the assessee. The A.O., in his order, had admitted that the payment of speed money was a trade practice which was followed by the assessee and similar business concerns functioning for speedy completion of their work. However, the disallowance of 20% of the expenses was made solely on the ground that the assessee had produced self-made cash vouchers and the finding had been affirmed by the Commissioner (Appeals) and the Tribunal.

ii) However, the books of accounts had not been doubted by any of the authorities. The Tribunal was not justified in sustaining the disallowance of expenses at 10% of the expenses paid to port workers as incentive by the assessee in relation to the A.Ys. 2007-08, 2008-09 and 2009-10.

iii) In the result, the impugned order of the Tribunal dated 29th May, 2015 insofar as it contains the findings to the extent of disallowance of 10% of the expenses incurred by the assessee in relation to the A.Ys. 2007-08, 2008-09 and 2009-10 is hereby quashed. Accordingly, the appeal is allowed.’

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