IN THE HIGH COURT OF KARNATAKA AT BENGALURU

DATED THIS THE 2

ND

DAY OF SEPTEMBER, 2021

PRESENT

THE HON’BLE MRS.JUSTICE S.SUJATHA

AND

THE HON’BLE MR. JUSTICE RAVI V. HOSMANI

I.T.A.No.468/2018 c/w I.T.A.No.816/2017,

I.T.A.No.817/2017, I.T.A.No.818/2017,

I.T.A.No.819/2017, I.T.A.No.820/2017,

I.T.A.No.821/2017, I.T.A.No.469/2018,

I.T.A.No.470/2018, I.T.A.No.471/2018,

I.T.A.No.472/2018 & I.T.A.No.473/2018

IN I.T.A.No.468/2018:

BETWEEN :

1 . THE PR. COMMISSIONER OF INCOME TAX

C.R.BUILDING, ATTAVARA

MANGALURU-575001

2 . THE ASST. COMMISSIONER OF INCOME TAX

CENTRAL CIRCLE-1, PRESENT ADDRESS

ACIT, CIRCLE -1(1), C.R.BUILDING

ATTAVARA, MANGALURU-575001 ...APPELLANTS

(BY SRI K.V.ARAVIND, ADV.)

AND :

M/s HASSAN HAJEE & CO.,

NO.20-8-678,

NEAR OLD MUNICIPAL OFFICE

BUNDER, MANGALURU-575001 …RESPONDENT

(BY SRI M.THIRUMALESH, ADV.)

- 2 -

THIS INCOME TAX APPEAL IS FILED UNDER SECTION

260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER

DATED 28.02.2018 PASSED BY THE INCOME-TAX APPELLATE

TRIBUNAL, BENGALURU IN M.P.NO.194/BANG/2017 (IN ITA

NO.1358/BANG/2015) FOR THE ASSESSMENT YEAR 2006-200 7,

PRAYING TO I. FORMULATE THE SUBSTANTIAL QUESTIONS O F

LAW ST+ATED ABOVE. II. ALLOW THE APPEAL AND SET ASI DE

THE ORDERS PASSED BY THE INCOME-TAX APPELLATE

TRIBUNAL, BENGALURU IN M.P.NO.194/BANG/2017 (IN ITA

NO.1358/BANG/2015) DATED 28.02.2018 AND CONFIRM THE

ORDER OF THE APPELLATE COMMISSIONER CONFIRMING THE

ORDER PASSED BY THE ASST. COMMISSIONER OF INCOME

TAX, CIRCLE-1(1), MANGALURU.

IN I.T.A.No.816/2017:

BETWEEN :

1 . THE PR. COMMISSIONER OF INCOME TAX

C.R.BUILDING, ATTAVARA

MANGALURU-575001

2 . THE ASST. COMMISSIONER OF INCOME TAX

CENTRAL CIRCLE-1,

PRESENT ADDRESS ITO,

WARD-1(1), C.R.BUILDING

ATTAVARA, MANGALURU-575001 ...APPELLANTS

(BY SRI K.V.ARAVIND, ADV.)

AND :

M/s HASSAN HAJEE & CO.,

NO.20-8-678,

NEAR OLD MUNICIPAL OFFICE

BUNDER, MANGALURU-575001 …RESPONDENT

(BY SRI M.THIRUMALESH, ADV.)

THIS INCOME TAX APPEAL IS FILED UNDER SECTION

260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER

DATED 02.05.2017 PASSED IN ITA NO.1358/BANG/2015 FO R

- 3 -

THE ASSESSMENT YEAR 2006-2007, PRAYING TO

I. FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATE D

ABOVE. II. ALLOW THE APPEAL AND SET ASIDE THE ORDER S

PASSED BY THE INCOME-TAX APPELLATE TRIBUNAL,

BENGALURU IN ITA NO.1358/BANG/2015 DATED 02.05.2017

AND CONFIRM THE ORDER OF THE APPELLATE

COMMISSIONER CONFIRMING THE ORDER PASSED BY THE

INCOME TAX OFFICER, WARD-1(1), MANGALURU.

IN I.T.A.No.817/2017:

BETWEEN :

1 . THE PR. COMMISSIONER OF INCOME TAX

C.R.BUILDING, ATTAVARA

MANGALURU-575001

2 . THE ASSISTANT COMMISSIONER

OF INCOME TAX, CENTRAL CIRCLE-1,

PRESENT ADDRESS ITO,

WARD-1(1), C.R.BUILDING

ATTAVARA, MANGALURU-575001 ...APPELLANTS

(BY SRI K.V.ARAVIND, ADV.)

AND :

M/s HASSAN HAJEE & CO.,

NO.20-8-678,

NEAR OLD MUNICIPAL OFFICE

BUNDER, MANGALURU-575001 …RESPONDENT

(BY SRI M.THIRUMALESH, ADV.)

THIS INCOME TAX APPEAL IS FILED UNDER SECTION

260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER

DATED 02.05.2017 PASSED IN ITA NO.1359/BANG/2015 FO R

THE ASSESSMENT YEAR 2007-2008, PRAYING TO

I. FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATE D

ABOVE. II. ALLOW THE APPEAL AND SET ASIDE THE ORDER S

PASSED BY THE INCOME-TAX APPELLATE TRIBUNAL,

BENGALURU IN ITA NO.1359/BANG/2015 DATED 02.05.2017

AND CONFIRM THE ORDER OF THE APPELLATE

- 4 -

COMMISSIONER CONFIRMING THE ORDER PASSED BY THE

INCOME TAX OFFICER, WARD-1(1), MANGALURU.

IN I.T.A.No.818/2017:

BETWEEN :

1 . THE PR. COMMISSIONER OF INCOME TAX

C.R.BUILDING, ATTAVARA

MANGALURU-575001

2 . THE ASSISTANT COMMISSIONER

OF INCOME TAX, CENTRAL CIRCLE-1,

PRESENT ADDRESS ITO,

WARD-1(1), C.R.BUILDING

ATTAVARA, MANGALURU-575001 ...APPELLANTS

(BY SRI K.V.ARAVIND, ADV.)

AND :

M/s HASSAN HAJEE & CO.,

NO.20-8-678,

NEAR OLD MUNICIPAL OFFICE

BUNDER, MANGALURU-575001 …RESPONDENT

(BY SRI M.THIRUMALESH, ADV.)

THIS INCOME TAX APPEAL IS FILED UNDER SECTION

260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER

DATED 02.05.2017 PASSED IN ITA NO.1360/BANG/2015 FO R

THE ASSESSMENT YEAR 2008-2009, PRAYING TO

I. FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATE D

ABOVE. II. ALLOW THE APPEAL AND SET ASIDE THE ORDER S

PASSED BY THE INCOME-TAX APPELLATE TRIBUNAL,

BENGALURU IN ITA NO.1360/BANG/2015 DATED 02.05.2017

AND CONFIRM THE ORDER OF THE APPELLATE

COMMISSIONER CONFIRMING THE ORDER PASSED BY THE

INCOME TAX OFFICER, WARD-1(1), MANGALURU.

- 5 -

IN I.T.A.No.819/2017:

BETWEEN :

1 . THE PR. COMMISSIONER OF INCOME TAX

C.R.BUILDING, ATTAVARA

MANGALURU-575001

2 . THE ASSISTANT COMMISSIONER

OF INCOME TAX, CENTRAL CIRCLE-1,

PRESENT ADDRESS ITO,

WARD-1(1), C.R.BUILDING

ATTAVARA, MANGALURU-575001 ...APPELLANTS

(BY SRI K.V.ARAVIND, ADV.)

AND :

M/s HASSAN HAJEE & CO.,

NO.20-8-678,

NEAR OLD MUNICIPAL OFFICE

BUNDER, MANGALURU-575001 …RESPONDENT

(BY SRI M.THIRUMALESH, ADV.)

THIS INCOME TAX APPEAL IS FILED UNDER SECTION

260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER

DATED 02.05.2017 PASSED IN ITA NO.1361/BANG/2015 FO R

THE ASSESSMENT YEAR 2009-2010, PRAYING TO

I. FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATE D

ABOVE. II. ALLOW THE APPEAL AND SET ASIDE THE ORDER S

PASSED BY THE INCOME-TAX APPELLATE TRIBUNAL,

BENGALURU IN ITA NO.1361/BANG/2015 DATED 02.05.2017

AND CONFIRM THE ORDER OF THE APPELLATE

COMMISSIONER CONFIRMING THE ORDER PASSED BY THE

INCOME TAX OFFICER, WARD-1(1), MANGALURU.

IN I.T.A.No.820/2017:

BETWEEN :

1 . THE PR. COMMISSIONER OF INCOME TAX

C.R.BUILDING, ATTAVARA

- 6 -

MANGALURU-575001

2 . THE ASSISTANT COMMISSIONER

OF INCOME TAX, CENTRAL CIRCLE-1,

PRESENT ADDRESS ITO,

WARD-1(1), C.R.BUILDING

ATTAVARA, MANGALURU-575001 ...APPELLANTS

(BY SRI K.V.ARAVIND, ADV.)

AND :

M/s HASSAN HAJEE & CO.,

NO.20-8-678,

NEAR OLD MUNICIPAL OFFICE

BUNDER, MANGALURU-575001 …RESPONDENT

(BY SRI M.THIRUMALESH, ADV.)

THIS INCOME TAX APPEAL IS FILED UNDER SECTION

260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER

DATED 02.05.2017 PASSED IN ITA NO.1362/BANG/2015 FO R

THE ASSESSMENT YEAR 2010-2011, PRAYING TO

I. FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATE D

ABOVE. II. ALLOW THE APPEAL AND SET ASIDE THE ORDER S

PASSED BY THE INCOME-TAX APPELLATE TRIBUNAL,

BENGALURU IN ITA NO.1362/BANG/2015 DATED 02.05.2017

AND CONFIRM THE ORDER OF THE APPELLATE

COMMISSIONER CONFIRMING THE ORDER PASSED BY THE

INCOME TAX OFFICER, WARD-1(1), MANGALURU.

IN I.T.A.No.821/2017:

BETWEEN :

1 . THE PR. COMMISSIONER OF INCOME TAX

C.R.BUILDING, ATTAVARA

MANGALURU-575001

2 . THE ASSISTANT COMMISSIONER

OF INCOME TAX, CENTRAL CIRCLE-1,

PRESENT ADDRESS ITO,

WARD-1(1), C.R.BUILDING

- 7 -

ATTAVARA, MANGALURU-575001 ...APPELLANTS

(BY SRI K.V.ARAVIND, ADV.)

AND :

M/s HASSAN HAJEE & CO.,

NO.20-8-678,

NEAR OLD MUNICIPAL OFFICE

BUNDER, MANGALURU-575001 …RESPONDENT

(BY SRI M.THIRUMALESH, ADV.)

THIS INCOME TAX APPEAL IS FILED UNDER SECTION

260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER

DATED 02.05.2017 PASSED IN ITA NO.1363/BANG/2015 FO R

THE ASSESSMENT YEAR 2011-2012, PRAYING TO

I. FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATE D

ABOVE. II. ALLOW THE APPEAL AND SET ASIDE THE ORDER S

PASSED BY THE INCOME-TAX APPELLATE TRIBUNAL,

BENGALURU IN ITA NO.1363/BANG/2015 DATED 02.05.2017

AND CONFIRM THE ORDER OF THE APPELLATE

COMMISSIONER CONFIRMING THE ORDER PASSED BY THE

INCOME TAX OFFICER, WARD-1(1), MANGALURU.

IN I.T.A.No.469/2018:

BETWEEN :

1 . THE PR. COMMISSIONER OF INCOME TAX

C.R.BUILDING, ATTAVARA

MANGALURU-575001

2 . THE ASST. COMMISSIONER OF INCOME TAX

CENTRAL CIRCLE-1,

PRESENT ADDRESS ACIT,

CIRCLE -1(1), C.R.BUILDING

ATTAVARA, MANGALURU-575001 ...APPELLANTS

(BY SRI K.V.ARAVIND, ADV.)

- 8 -

AND :

M/s HASSAN HAJEE & CO.,

NO.20-8-678,

NEAR OLD MUNICIPAL OFFICE

BUNDER, MANGALURU-575001 …RESPONDENT

(BY SRI M.THIRUMALESH, ADV.)

THIS INCOME TAX APPEAL IS FILED UNDER SECTION

260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER

DATED 28.02.2018 PASSED BY THE INCOME-TAX APPELLATE

TRIBUNAL, BENGALURU IN M.P.NO.195/BANG/2017 (IN ITA

NO.1359/BANG/2015) FOR THE ASSESSMENT YEAR 2007-200 8,

PRAYING TO I. FORMULATE THE SUBSTANTIAL QUESTIONS O F

LAW STATED ABOVE. II. ALLOW THE APPEAL AND SET ASID E

THE ORDERS PASSED BY THE INCOME-TAX APPELLATE

TRIBUNAL, BENGALURU IN M.P.NO.195/BANG/2017 (IN ITA

NO.1359/BANG/2015) DATED 28.02.2018 AND CONFIRM THE

ORDER OF THE APPELLATE COMMISSIONER CONFIRMING THE

ORDER PASSED BY THE ASST. COMMISSIONER OF INCOME

TAX, CIRCLE-1(1), MANGALURU.

IN I.T.A.No.470/2018:

BETWEEN :

1 . THE PR. COMMISSIONER OF INCOME TAX

C.R.BUILDING, ATTAVARA

MANGALURU-575001

2 . THE ASST. COMMISSIONER OF INCOME TAX

CENTRAL CIRCLE-1,

PRESENT ADDRESS ACIT,

CIRCLE -1(1), C.R.BUILDING

ATTAVARA, MANGALURU-575001 ...APPELLANTS

(BY SRI K.V.ARAVIND, ADV.)

AND :

M/s HASSAN HAJEE & CO.,

NO.20-8-678,

- 9 -

NEAR OLD MUNICIPAL OFFICE

BUNDER, MANGALURU-575001 …RESPONDENT

(BY SRI M.THIRUMALESH, ADV.)

THIS INCOME TAX APPEAL IS FILED UNDER SECTION

260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER

DATED 28.02.2018 PASSED BY THE INCOME-TAX APPELLATE

TRIBUNAL, BENGALURU IN M.P.NO.196/BANG/2017 (IN ITA

NO.1360/BANG/2015) FOR THE ASSESSMENT YEAR 2008-200 9,

PRAYING TO I. FORMULATE THE SUBSTANTIAL QUESTIONS O F

LAW STATED ABOVE. II. ALLOW THE APPEAL AND SET ASID E

THE ORDERS PASSED BY THE INCOME-TAX APPELLATE

TRIBUNAL, BENGALURU IN M.P.NO.196/BANG/2017 (IN ITA

NO.1360/BANG/2015) DATED 28.02.2018 AND CONFIRM THE

ORDER OF THE APPELLATE COMMISSIONER CONFIRMING THE

ORDER PASSED BY THE ASST. COMMISSIONER OF INCOME

TAX, CIRCLE-1(1), MANGALURU.

IN I.T.A.No.471/2018:

BETWEEN :

1 . THE PR. COMMISSIONER OF INCOME TAX

C.R.BUILDING, ATTAVARA

MANGALURU-575001

2 . THE ASST. COMMISSIONER OF INCOME TAX

CENTRAL CIRCLE-1,

PRESENT ADDRESS ACIT,

CIRCLE -1(1), C.R.BUILDING

ATTAVARA, MANGALURU-575001 ...APPELLANTS

(BY SRI K.V.ARAVIND, ADV.)

AND :

M/s HASSAN HAJEE & CO.,

NO.20-8-678,

NEAR OLD MUNICIPAL OFFICE

BUNDER, MANGALURU-575001 …RESPONDENT

(BY SRI M.THIRUMALESH, ADV.)

- 10 -

THIS INCOME TAX APPEAL IS FILED UNDER SECTION

260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER

DATED 28.02.2018 PASSED BY THE INCOME-TAX APPELLATE

TRIBUNAL, BENGALURU IN M.P.NO.197/BANG/2017 (IN ITA

NO.1361/BANG/2015) FOR THE ASSESSMENT YEAR 2009-201 0,

PRAYING TO I. FORMULATE THE SUBSTANTIAL QUESTIONS O F

LAW STATED ABOVE. II. ALLOW THE APPEAL AND SET ASID E

THE ORDERS PASSED BY THE INCOME-TAX APPELLATE

TRIBUNAL, BENGALURU IN M.P.NO.197/BANG/2017 (IN ITA

NO.1361/BANG/2015) DATED 28.02.2018 AND CONFIRM THE

ORDER OF THE APPELLATE COMMISSIONER CONFIRMING THE

ORDER PASSED BY THE ASST. COMMISSIONER OF INCOME

TAX, CIRCLE-1(1), MANGALURU.

IN I.T.A.No.472/2018:

BETWEEN :

1 . THE PR. COMMISSIONER OF INCOME TAX

C.R.BUILDING, ATTAVARA

MANGALURU-575001

2 . THE ASST. COMMISSIONER OF INCOME TAX

CENTRAL CIRCLE-1,

PRESENT ADDRESS ACIT,

CIRCLE -1(1), C.R.BUILDING

ATTAVARA, MANGALURU-575001 ...APPELLANTS

(BY SRI K.V.ARAVIND, ADV.)

AND :

M/s HASSAN HAJEE & CO.,

NO.20-8-678,

NEAR OLD MUNICIPAL OFFICE

BUNDER, MANGALURU-575001 …RESPONDENT

(BY SRI M.THIRUMALESH, ADV.)

THIS INCOME TAX APPEAL IS FILED UNDER SECTION

260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER

DATED 28.02.2018 PASSED BY THE INCOME-TAX APPELLATE

- 11 -

TRIBUNAL, BENGALURU IN M.P.NO.198/BANG/2017 (IN ITA

NO.1362/BANG/2015) FOR THE ASSESSMENT YEAR 2010-201 1,

PRAYING TO I. FORMULATE THE SUBSTANTIAL QUESTIONS O F

LAW STATED ABOVE. II. ALLOW THE APPEAL AND SET ASID E

THE ORDERS PASSED BY THE INCOME-TAX APPELLATE

TRIBUNAL, BENGALURU IN M.P.NO.198/BANG/2017 (IN ITA

NO.1362/BANG/2015) DATED 28.02.2018 AND CONFIRM THE

ORDER OF THE APPELLATE COMMISSIONER CONFIRMING THE

ORDER PASSED BY THE ASST. COMMISSIONER OF INCOME

TAX, CIRCLE-1(1), MANGALURU.

IN I.T.A.No.473/2018:

BETWEEN :

1 . THE PR. COMMISSIONER OF INCOME TAX

C.R.BUILDING, ATTAVARA

MANGALURU-575001

2 . THE ASST. COMMISSIONER OF INCOME TAX

CENTRAL CIRCLE-1,

PRESENT ADDRESS ACIT,

CIRCLE -1(1), C.R.BUILDING

ATTAVARA, MANGALURU-575001 ...APPELLANTS

(BY SRI K.V.ARAVIND, ADV.)

AND :

M/s HASSAN HAJEE & CO.,

NO.20-8-678,

NEAR OLD MUNICIPAL OFFICE

BUNDER, MANGALURU-575001 …RESPONDENT

(BY SRI M.THIRUMALESH, ADV.)

THIS INCOME TAX APPEAL IS FILED UNDER SECTION

260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER

DATED 28.02.2018 PASSED BY THE INCOME-TAX APPELLATE

TRIBUNAL, BENGALURU IN M.P.NO.199/BANG/2017 (IN ITA

NO.1363/BANG/2015) FOR THE ASSESSMENT YEAR 2011-201 2,

- 12 -

PRAYING TO I. FORMULATE THE SUBSTANTIAL QUESTIONS O F

LAW STATED ABOVE. II. ALLOW THE APPEAL AND SET ASID E

THE ORDERS PASSED BY THE INCOME-TAX APPELLATE

TRIBUNAL, BENGALURU IN M.P.NO.199/BANG/2017 (IN ITA

NO.1363/BANG/2015) DATED 28.02.2018 AND CONFIRM THE

ORDER OF THE APPELLATE COMMISSIONER CONFIRMING THE

ORDER PASSED BY THE ASST. COMMISSIONER OF INCOME

TAX, CIRCLE-1(1), MANGALURU.

THESE APPEALS COMING ON FOR HEARING, THIS

DAY, S. SUJATHA, J., DELIVERED THE FOLLOWING:

J U D G M E N T

Since the common and alike questions are

involved in these appeals, the same are heard and

disposed of by this common judgment.

2. ITA Nos.816/2017, 817/2017, 818/2017,

819/2017, 820/2017, 821/2017 are directed against

the common order dated 02.05.2017 passed in ITA

Nos.1358/Bang/2015, 1359/Bang/2015, 1360/Bang/

2015, 1361/Bang/2015, 1362/Bang/2015, 1363/

Bang/2015 by the Income Tax Appellate Tribunal,

Bangalore [‘Tribunal’ for short] relating to the

- 13 -

assessment years 2006-07, 2007-08, 2008-09, 2009-10 ,

2010-11, 2011-12 respectively.

3. ITA Nos.468/2018, 469/2018, 470/2018,

471/2018, 472/2018, 473/2018 are directed against

the common order dated 28.02.2018 passed in

M.P.No.194/Bang/2017 (ITA No.1358/Bang/2015),

M.P.No.195/Bang/2017 (ITA No.1359/Bang/2015),

M.P.No.196/Bang/2017 (ITA No.1360/Bang/2015),

M.P.No.197/Bang/2017 (ITA No.1361/Bang/2015),

M.P.No.198/Bang/2017 (ITA No.1362/Bang/2015),

M.P.No.199/Bang/2017 (ITA No.1363/Bang/2015) by

the Income Tax Appellate Tribunal, Bangalore [‘Tribunal’

for short] relating to the assessment years 2006-07 ,

2007-08, 2008-09, 2009-10, 2010-11, 2011-12

respectively.

4. These appeals were admitted to consider the

following substantial questions of law:-

- 14 -

ITA Nos.468/2018, 469/2018, 470/2018,

471/2018, 472/2018, 473/2018

“1. Whether on the facts and in the

circumstances of the case, the Tribunal is right in

law in giving a finding that it has not rendered

any finding as to the nature of the payments

found in the loose sheets?

2. Whether on the facts and

circumstances of the case, the order of the

Tribunal can be said as perverse in holding that

illegal payments were not made to the port

officials ignoring the evidences seized during the

course of search operations and the statements

recorded during the course of search?

3. Whether on the facts and in the

circumstances of the case, the Tribunal is right in

law in setting aside disallowance of unauthorized

payments made to port officials in the guise of

speed money ignoring Explanation (1) to Section

37(1) of the Act which bars from making claim

under said section in respect of unauthorized

payments?”

- 15 -

ITA Nos.816/2017, 817/2017, 818/2017,

819/2017, 820/2017, 821/2017.

“1. Whether on the facts and in the

circumstances of the case, the Tribunal is right in

law in deleting the disallowance made by the

assessing officer on account of speed money

claimed as labour charges in the books of

accounts?

2. Whether on the facts and in the

circumstances of the case, the Tribunal is right in

law in deleting the disallowance of labour

charges claimed as sub-contract payments by the

assessee ignoring contradictory statements given

by the assessee during appellate proceedings

before the CIT(A) and factual investigations

conducted by the CIT(A)?

3. Whether on the facts and in the

circumstances of the case, the Tribunal is right in

law in deleting disallowance of speed money

claimed as labour charges through employee sub-

contractors ignoring the evidence found during

the course of search and investigations which

suggested that the said expenses were not

genuine?

- 16 -

4. Whether on the facts and in the

circumstances of the case, the Tribunal is right in

law disallowance of speed money claimed as

labour charges to disguise payments made to port

officials not authorized by law, ignoring the

evidence found during the course of search action

and post search investigations?

5. Whether on the facts and

circumstances of the case, the Tribunal is right in

law in deleting the disallowance of labour

charges claimed on the basis of inadequate

supporting documents ignoring the fact that the

supporting documents suffered from various

discrepancies?”

5. The assessee is a partnership firm engaged

in the business of stevedoring, clearing, forwarding and

other services relating to the New Mangalore Port Trust

(NMPT). A search was conducted under section 132 of

the Income Tax Act, 1961 (“Act” for short), assessment

order came to be passed whereby the Assessing Officer

made certain additions by disallowing of speed money

claimed as labour charges paid through sub-

- 17 -

contractors. Being aggrieved, the assessee preferred

appeals before the CIT (A). The said authority partly

allowed the appeals vide order dated 10.07.2015,

against which the Revenue preferred appeals before the

Tribunal relating to the assessment years 2002-03 to

2003-04, 2006-2007 to 2011-2012 and the assessee

preferred appeal relating to the assessment year 2004-

05. The Tribunal has partially granted the relief to the

assessee with some directions. The assessee preferred

Miscellaneous Petition Nos.191 to 199/Bang/2017

seeking for modification of the order dated 02.05.2017.

The Tribunal passed the order dated 28.02.2018

observing that no finding was given or any observation

was made with regard to the nature of payments found

in loose sheets. Challenging the order of the Tribunal

dated 02.05.2017 as well as the order passed in

Miscellaneous Petitions dated 28.02.2018, the Revenue

has preferred appeals raising common substantial

- 18 -

questions of law and grounds for all the assessment

years in question.

6. Learned counsel for the Revenue submitted

that the Tribunal erred in deleting the disallowance

allowed by the Assessing Officer on account of speed

money claimed as labour charges in the books of

accounts claimed as sub-contract payments by the

assessee ignoring contradictory statements given by the

assessee during the appellate proceedings and before

the CIT(A) during the investigations conducted by the

said authority. The speed money claimed as labour

charges to disguise payments made to port officials not

being authorized by law, the same having been

discovered during the course of search and post-search

investigations, deleting such disallowance by the

Tribunal sans valid reasons is unjustifiable. Further the

Tribunal erred in setting side the additions made by the

Assessing Officer which indeed was duly supported with

- 19 -

material evidence. On the Miscellaneous Petitions filed

by the assessee, the finding given by the Tribunal that

no observation or finding was made with regard to the

legality of payments shown in loose sheets goes contrary

to the material on record and the same is perverse and

factually incorrect.

7. Learned counsel for assessee would submit

that on disallowance of expenditure towards speed

money in the appeal filed by the assessee, CIT(A) has

recorded that the Assessing Officer has not brought out

any material to restrict the speed money expenses to

Rs.26/- per metric ton. The Assessing Officer has

merely relied upon the vouchers relating to one ship

found at the time of the raid in 2011, applied the same

rate to all assessment years under consideration which

is not justified. Accordingly, the addition was deleted

for the reason that the assessment cannot be reopened

as it amounts to change of opinion. It was further

- 20 -

observed by the CIT (A) that the Assessing Officer has

also disallowed the amounts paid to the employees

through sub-contractors which were accounted under

the total speed money payment, 10% disallowance of

the entire speed money paid shall serve the ends of

justice. Against the said appellate order, both th e

assessee as well as the Revenue had preferred appeals

before the Tribunal. The Tribunal while deciding the

appeals of the Revenue, concluded that the disallowance

to the extent of 10% is just and proper without

adjudicating upon the challenge made by the Revenue

in respect of the allowance of speed money charges to

the extent of 90% i.e., over and above Rs.26/- per ton.

Indeed the appeals filed by the assessee are pending

consideration before the jurisdictional Tribunal. In the

Miscellaneous Petitions filed by the assessee seeking

rectification of the order dated 02.05.2017, relating to

the findings made that, “from the mere perusal of the

loose sheets it is clear that 10% of the cash payments

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was made to the officials of the port trust”, the Tribunal

has clarified that no finding was rendered as to the

nature of the payments found in the loose sheets.

Learned counsel placing reliance on the judgment of

this Court in the case of CIT, Mangalore vs. M/s.

Konkan Marine Agencies, Mangalore

(ITA.No.603/2004 DD 28.07.2008), CIT, Mangalore

vs. Sri Clifford D’Souza (ITA.No.22/2011 DD

24.02.2015), submitted that the speed money

payments made by the assessee to the sub-contractors,

to the labourers, is considered to be a normal practice

in the line of the business of the assessee to pay certain

extra amounts to port labourers as speed money for

promptly and speedily carrying on the labour work of

handling cargo beyond working hours. Thus, the

payment made through sub-contractors to labourers is

not prohibited by law.

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8. We have carefully considered the

submissions made by the learned counsel for the

parties and perused the material on record.

9. The search and seizure operation in the case

of assessee was carried out on 4.8.2011 in terms of the

provisions of the Act. During the course of search ,

certain incriminating evidence has been seized. On the

basis of the said incriminating material, it was noticed

by the Assessing Officer that the assessee was inflating

the expenditure substantially. In pursuance of the

search and seizure conducted, notices were issued to

the assessee under section 153A and 143(2) of the Act,

subsequent to which, the assessee filed the return of

income. The Assessing Officer has referred to the

statements recorded during the course of search and

seizure and analysed the statements given by different

persons namely Sri.Abdul Aziz, Accountant of the

assessee – Firm, Sri.Hemachandra Shetty, Manager of

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the assessee – Firm, Sri.Mohammed Shariff, Supervisor

of the assessee – Firm, Sri. Mohammed Amin, Parner of

the assessee – Firm, Sri.B.Kunhi Ahmed, partner

of the assessee – firm vis-à-vis the seized documents. It

is also recorded that the Department has made several

enquiries during the course of post-search investigation

by recording the statement of some of the port-labourers

under section 131 of the Act and collecting information

from around 500 port labourers under section 133 (6) of

the Act who have denied receipt of any amount from the

stevedoring or C & F agents. Speed money payments

said to have been paid through the sub-contractors to

whom the cheques were issued also got verified by

recording statements of those sub-contractors under

section 131 of the Act. Having extensively considered

the incriminating materials discovered at the time of

search and seizure and the statements of the relevant

persons recorded, disallowed the expenditure claimed.

While determining the quantum of speed money of

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Rs.26/- per ton against the claim of Rs.50/- per ton

made by the assessee, held that the same is based on

evidence, but the assessee has failed to establish that

the same is more than Rs.26/- per ton. Relating to the

amounts which have been paid to the Government

officials, opined that the same amounts to an offence

prohibited under law by making illegal gratification for

undue favours, such expenditure cannot be allowed in

the pretext of speed money.

10. The Appellate Authority has consolidated the

entire issues and disallowed 10% of the entire speed

money expenditure claimed. As could be seen, appeals

filed by the assessee relating to the disallowance of 10%

speed money expenditure is still pending before the

jurisdictional Tribunal. Tribunal while considering the

case of the Revenue relating to the assessment years in

question, challenging the allowance of 90% of speed

money observed that “mere perusal of the loose sheets it

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is clear that about 10% of the cash payments was made

to the officials of the port trust”. Consequently, held that

disallowance to the extent of 10% is just and proper.

This order amounts to allowing the appeals filed by the

assessee which are still pending where the challenge is

made to the extent of disallowance of 10%. On further

miscellaneous petitions filed by the assessee, strangely

the Tribunal has held that no finding has been rendered

as to the nature of payments found in loose sheets

which is ex-facie contrary to the finding recorded in the

order dated 02.05.2017. This would indicate that the

Tribunal has not applied its mind while arriving at the

conclusion. The Tribunal being the last fact finding

authority ought to have discussed the factual aspects,

more importantly when the Assessing Officer has made

efforts to discover the tax evasion, placing reliance on

the incriminating materials seized and the statements of

the relevant persons recorded. Instead of adjudicating

on the challenge made by the Revenue, passing the

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orders to the effect of deciding the subject matter of the

appeals filed by the assessee which were not before the

Tribunal, amounts to perversity and suffers from patent

illegality. The impugned orders lack application of mind

and reasoning. Given the circumstances, we have no

other option except to set aside the impugned orders

and remand the matter to the Tribunal for

reconsideration, keeping open all the rights and

contentions of the parties sans answering the

substantial questions of law.

11. The Tribunal is directed to club these

matters along with the appeals filed by the assessee and

shall take appropriate decision in accordance with law

in an expedite manner. Hence, the following:

ORDER

Appeals are allowed in part.

The impugned common order dated 02.05.2017

passed by the Tribunal in ITA Nos.1358/Bang/2015,

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1359/Bang/2015, 1360/Bang/2015, 1361/Bang/2015,

1362/Bang/2015, 1363/Bang/2015 relating to the

assessment years 2006-07, 2007-08, 2008-09, 2009-10 ,

2010-11, 2011-12 respectively and the common order

dated 28.02.2018 passed by the Tribunal in

M.P.No.194/Bang/2017 (ITA No.1358/Bang/2015),

M.P.No.195/Bang/2017 (ITA No.1359/Bang/2015),

M.P.No.196/Bang/2017 (ITA No.1360/Bang/2015),

M.P.No.197/Bang/2017 (ITA No.1361/Bang/2015),

M.P.No.198/Bang/2017 (ITA No.1362/Bang/2015),

M.P.No.199/Bang/2017 (ITA No.1363/Bang/2015)

relating to the assessment years 2006-07, 2007-08,

2008-09, 2009-10, 2010-11, 2011-12 respectively ar e

set aside.

The appeals are restored to the file of the Tribunal

for re-consideration, keeping open all the rights and

contentions of the parties. The Tribunal shall club these

matters along with IT (SS) A Nos.1 to 6/Pan/2015 filed

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by the assessee and after providing reasonable

opportunity of hearing to both the parties shall take

appropriate decision in accordance with law in an

expedite manner, keeping in mind the search and post

search investigation reports of the Assessing Authority.

Such exercise shall be made in an expedite manner in

accordance with law.

Sd/-

JUDGE

Sd/-

JUDGE

BSS/PMR/NC.