Ita/22/2011 Of Commissioner Of Income Tax v. Sri Clifford D Soza

® IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 24 DAY OF FEBRUARY, 2015PRESENT THE HON'BLE MR. JUSTICE VINEET SARAN AND| THE HON’BLE MRS. JUSTICE S.SUJATHA| ITA NO.22/2011 BETWEEN: 1.|COMMISSIONER OF INCOME.TAX, C.R.BUILDINGS,ATTAWARA,MANGALORE-575 O01. 2 |ASSISTANT COMMISSIONER.OF INCOME TAX,CIRCLE-1(1), MANGALORE. ~, APPELLANT (BY SRI E.LSANMATHI, ADV.,) AND: SRI CLIFFORD [ID’SOZPROP. EXPORT TRADEMARKAGENCIES, PUNJA BUILDING,MANGALORE. — RESPONDENT (BY SRI S.PARTHASARATHI, ADV..,) THIS ITA IS FILED U/S. 260-A OF LT.ACT, 1961 ARISING|OUT|C)FORDER.DATED40.07.2010PASSED.IN|ITANO.1176/BANG/2009, FOR THE ASSESSMENT YEAR 2006-07,|PRAYING TO FORMULATE THE SUBSTANTIAL QUESTIONS OF|LAW STATED THEREIN, SET ASIDE THE ORDER DATED) 30.07.2010 PASSED BY THE ITAT, ‘A’ BENCH, BANGALORE IN|APPEAITPROCBKBEDINGITANO.1176/BANG/2009,DATED30-07-2010, AS SOUGHT FOR IN THIS APPEAL. THIS TTA COMING ON FOR ADMISSION THIS DAY,VINEET SARANJ.DEBLIVBERED THR KFOLLOWING JUDGMENT The respondent-assessee is carrying on the business as|clearing and forwarding agent at New Mangalore Port Trust (forbrevity “NMPT”’). The dispute in the present appeal is for theassessment year 2006-07 in which year the assessee had declaredits total income as Rs.1,11,03,920/-. By the assessment orderdated 28.11.2008, the Assessing Authority has disallowed 30% ofthe speed money and consequently a sum of Rs.67,59,784/- wasadded to the income of the respondent-assessee. Challenging thesaid order, the respondent-assessee filed an appeal before theCommissioner of Income Tax (Appeals), Mangalore, which wasallowed vide its order dated 21.10.2009. Being agerieved, therevenue filed an appeal against the said order of the CIT(Appeals), which was dismissed by the Tribunal vide its orderdated 30.07.2010. Aggrieved by the said orders, this appeal has been filed by the Department under Section 260-A of the IncomeTax Act, 1961. oDWe have heard Sri E.LSanmathi, learned counsel|appearingforthe appellants-DepartmentaS|wellSriS.Parathasarathi,learnedcounsel appearingforthe|respondent-assessee and perused the record. as 4The submission of the learned counsel for the'appellants is that payment was made by the respondent-assesseeto the sub-contractors, who in turn made payment to thelabourers for clearing goods on the port. Such payment was madeto four sub-contractors totaling to Rs.2,25,32,614/- out of whicha sum of Rs.21,38,941/- was paid in cash and the remainingamount was paid to the sub-contractors by cheques. It is not.disputed that the TDS was deducted by the respondent whilemaking payment to the sub-contractors and was deposited withthe Department. Further, it is submitted that the assesseee couldnot prove that the entire amount, which was paid to thecontractor, had been given to the labourers. It has also been submitted that it was not established by the respondent-assesseethat the sub-contractors were directly involved in the business ofproviding labourers. Learned counsel also submitted that in theprevious years, the payment was made directly to the labourerswhereas for the assessment year 1n question the payment wasmade to the labourers through four sub-contractors. It was lastlycontended that the Tribunal as well as the ClT(Appeals) havewrongly placed reliance on the decision of this Court in the caseot|Commissioner of Income Tax & another -vs- Konkan Marine Agencies(2009) 313 ITR 308as the facts of the said|case were different from the facts of the case on hand. 4.On the other hand, the learned counsel for the)respondent-assessee has submitted the very fact that 70% of thepayment made has been allowed by the Assessing Officer wouldbe a admission on the part of the Department that thesub-contractors were carrying on the business of providinglabourers to the respondent-assessee and hence the genuinenessot the transaction cannot be doubted. It is contended that the Marine Agencies(2009) 313 ITR 308as the facts of the said|case were different from the facts of the case on hand. 4.On the other hand, the learned counsel for the)respondent-assessee has submitted the very fact that 70% of thepayment made has been allowed by the Assessing Officer wouldbe a admission on the part of the Department that thesub-contractors were carrying on the business of providinglabourers to the respondent-assessee and hence the genuinenessot the transaction cannot be doubted. It is contended that the question as to whether the sub-contractors had paid the amountto the labourers or not is not a question to be answered by therespondent-assessee as once the assessee has made major paymentto the sub-contractors through cheque and the TDS has also beendeducted, it is for the sub-contractors to prove and show to thedepartment in their assessment proceedings as to whether theyhave made payment to the labourers or not and that therespondent-assessee cannot be held responsible for the same. Itwas lastly contended by the learned counsel for the respondent-assessee that there is no basis for the Assessing Officer to cometo the conclusion that 30°% of the amount claimed to have beenpaid to the sub-contractors was not accepted as there was nomaterial to show the same or material available before theAssessing Officer to arrive at that figure. 5.Having heard learned counsel for the parties, we areof the opinion that no substantial question of law arises in thesecases for determination by this Court. Once 70% of the payment >made to the sub-contractors by the respondent-assessee 1s accepted, the business nexus between the respondent-assessee andthe sub-contractors cannot be disputed. The Assessing Officeralso did not doubt the genuineness of the business relationshipbut the only question which was decided by the Assessing Officerwas with regard to the quantum of the transaction. In ouropinion, there was no reason given by the Assessing Officer todisallow 30°% of the payment made by the respondent-assessee tothe sub-contractors. Learned counsel for the appellant does notdispute the fact that more than 90% of the payment was made bythe respondent-assessee to four sub-contractors by way ofcheques and only an amount of less than 10% was paid throughcash. It 1s also not disputed that TDS amount had been deductedand deposited by the respondent-assessee with the Department. —It may be reiterated that the question as to whether furtherpayment had been made by the sub-contractors to the labourerswould be a question to be answered by the sub-contractors intheir assessment proceedings. Merely because in the earlier yearsthe respondent-assessee had made payment to the labourersdirectly and for the assessment year 1n question they had shifted the mode of payment through the sub-contractors, cannot makethe entire transaction doubtful. The expenditure incurred by therespondent-assessee for the purpose in question through thesub-contractors cannot be said to be prohibited by law. Unlessthe payment through a sub-contractor is prohibited by law, merelybecause the assessee has switched over from direct payment modeto payment through sub-contractor cannot be said to be a reasonfor attracting the provisions of Section 37 of the IT Act anddisallowing the expenditure incurred by the assessee. It is notdisputed that the normal practice in the line of the business of theassessee 1s to pay certain extra amounts to port labourers as speedmoney for promptly and speedily carrying out the labour work ofhandling cargo beyond working hours. In our opinion, the ratioot the decision in theKonkan’scase (supra) applies to the facts|of the present case. The only difference in the said case 1s that thepayment was made directly to the labourers whereas in thepresentCASESthe|paymenthas.beenmadesub-contractors, which would not make any difference as making ~ through through payment to labourers through sub-contractors is not prohibitedby law and thus would be permissible. In view of the aforesaidfacts, we do not find that any substantial question of law arises inthe present case for determination of this Court. © The appeals are accordingly dismissed.No order as to’ coSts., Sd/- |JUDGESd/-JUDGETL|