Payment of speed money to workers to get work completed quickly allowable as business exp.: High Court

Case details: Sri Ganesh Shipping Agency v. ACIT - [2021] 128 taxmann.com 106 (Karnataka).

Judiciary and Counsel Details

• • Alok Aradhe and Nataraj Rangaswamy, JJ.
  • S. Annamalai and M. Lava, Advs. for the Appellant.
  • Dilip Kumar, Adv. And K.V. Aravind, Advs. for the Respondent.

Facts of the Case

Assessee was a partnership firm engaged in the business as a clearing and forwarding agent and steamer agent. Assessee filed its return of income. Assessing Officer (AO) disallowed 20% of the expenses incurred by assessee as speed money which was paid to the workers for speedy completion of their work. Aggrieved by order of AO, assessee preferred an appeal before the CIT(A). The CIT(A) restricted the disallowances of 10%. ITAT upheld the order passed by the CIT(A).

Assessee contended that payment of speed money is a trade practice followed by assessee and similar business concerns functioning for speedy completion of their work. Therefore, revenue had grossly erred in disallowing the claim to the extent of 10% of the expenditure incurred by assessee on account of speed money which was paid to the workers.

High Court Held

On further appeal, Karnataka High Court held that disallowances were made solely on the ground that assessee had produced self-made cash vouchers, which showed that the payment was made by cash to each gang leader. The identity of the gang leader was not verifiable, and the recipients were not assessee’s employees. CIT(A), as well as ITAT, had affirmed the said findings. However, the books of account had not been touted by any of the authorities.

A Bench of the Court has held that admittedly the normal practice in the line of business of assessee is to pay certain extra amounts to port labourers as speed money for promptly and speedily carrying out the labour work of handling cargo beyond working hours. In the absence of any challenge to the entries made in the books of account by the authorities, the finding recorded by AO as well as ITAT that it denied the claim of assessee for expenditure to the extent of 10% on account of payment of speed money, was perverse as the documentary evidence duly supports the same.

Case Review

• • CIT v. Konkan Marine Agencies [2009] 313 ITR 308 (Kar.) followed
  • CIT v. CLIFFORD D’SOUZA [IT Appeal NO. 22 of 2011, dated 24-2-2015 (para 5) followed

List of Cases Referred to