ORDER
Deepak R. Shah, Accountant Member.
These cross appeals by revenue and assessee are directed against the order of learned Commissioner (Appeals), Mangalore dated 21-1-2002.
2. The assessee is a C & F Agent, mainly dealing with handling of cargo of timber and granite blocks. The assessee declared clearing charges receipt of Rs. 277 lakhs. The net profit on the same declared was 6.82 per cent. For immediately preceding assessment year, the assessee has declared net profit of 6.08 per cent on gross receipts of Rs. 154 lakhs. The assessee clairried deduction of Rs. 46,90,354 being clearing expenses paid to labourers of New Mangalore Port Trust (NMPT). The said payment was made to unlisted labourers operating in the Port Trust. The assessing officer asked the assessee to produce necessary evidence in support of its claim. The assessee furnished explanation vide its letter dated 23-1-2001. After considering the reply of assessee, the assessing officer held as under:-
2. The assessee is a C & F Agent, mainly dealing with handling of cargo of timber and granite blocks. The assessee declared clearing charges receipt of Rs. 277 lakhs. The net profit on the same declared was 6.82 per cent. For immediately preceding assessment year, the assessee has declared net profit of 6.08 per cent on gross receipts of Rs. 154 lakhs. The assessee clairried deduction of Rs. 46,90,354 being clearing expenses paid to labourers of New Mangalore Port Trust (NMPT). The said payment was made to unlisted labourers operating in the Port Trust. The assessing officer asked the assessee to produce necessary evidence in support of its claim. The assessee furnished explanation vide its letter dated 23-1-2001. After considering the reply of assessee, the assessing officer held as under:-
‘The assessee’s explanation is not acceptable since the labour charges in respect of clearing and forwarding expenses are taken care of by the New Mangalore Port Trust Registered Cargo Handling Workers Administrative Wing and the expenses of Rs. 42,47,722 on that account has been debited to the profit and loss account. It is also to be mentioned here that the clearing and forwarding agents make these payments to their administrative wing and in turn over the administrative wing pays to the registered workers. The assessee has failed to produce any evidence to the effect that the unlisted workers are operating within the NMPT administrative wing and incentives have been paid to the workers for speeding up the work allotted. The assessee has also failed to produce any evidence to show that the labourers have been engaged by the C&F agents. The vouchers maintained by the assessee do not show the voucher number, the address of the recipient of cash and also the signature of the cashier who has distributed the labour charges.
However, considering the volume of business carried out by the assessee, and the claim of the assessee that it is customary in all the ports to engage unlisted workers by the C & F agents and the labourers are engaged on priority basis to speed up the work so as to avoid payment of demurrage, 50 per cent of Rs. 46,90,354 debited in respect of clearing expenses is allowed as business expenditure and the balance of 50 per cent is disallowed as fictitious claim.”
2.1 Against the said disallowance, the matter was carried to learned Commissioner (Appeals). In the appellate proceedings, the assessee reiterated his arguments. He also filed copy of agreement between the Management of NMPT and representative of Unions representing Cargo Handling workers. It was submitted that the payment is required to make as per the terms of said agreement and assessee has to necessarily hire unlisted workers. The services are procured through gang leaders and gang leaders have signed the vouchers at the time of receiving the payments. Learned Commissioner (Appeals), after considering the submission of assessee, held as under:-
2.1 Against the said disallowance, the matter was carried to learned Commissioner (Appeals). In the appellate proceedings, the assessee reiterated his arguments. He also filed copy of agreement between the Management of NMPT and representative of Unions representing Cargo Handling workers. It was submitted that the payment is required to make as per the terms of said agreement and assessee has to necessarily hire unlisted workers. The services are procured through gang leaders and gang leaders have signed the vouchers at the time of receiving the payments. Learned Commissioner (Appeals), after considering the submission of assessee, held as under:-
“I have gone through the above order passed by the Honble Settlement Commission. However, it is found that the claim relating to the payments made to the non-listed workers in the above case for the assessment years 1988-89 to 1993-94 varied from 15 per cent to 70 per cent of the total payments made to the NMPT listed workers, as mentioned above. In the present case, the payments made to the non-listed workers is very substantial as it is to the tune of Rs. 46,90,354 as against the amount paid to the NMPT listed workers for Rs. 42,47,722. The appellant has submitted that on the basis of the Honble Settlement Commission’s above order the disallowance in respect of the above expenditure may be restricted to 20% of the total claim. However, having regard to the substantial increase in the expenditure and also taking into account the unverifiable nature of the documentary evidence maintained by the appellant, I hold that a disallowance to the extent of 30 per cent of the total claim of Rs. 46,90,354 which comes to Rs. 14,07,106 would be quite reasonable on the facts and circumstances of the present case. Accordingly, the disallowance is restricted to Rs. 14,07,106 (Relief : Rs. 9,38,071)”
2.2 Whereas the revenue challenges the deletion of disallowance, the assessee challenges retention of balance disallowance.
2.2 Whereas the revenue challenges the deletion of disallowance, the assessee challenges retention of balance disallowance.
2.3 learned departmental Representative Shri Chattaraj heavily relied upon the assessment order. He submitted that the Commissioner (Appeals) has erred in directing the assessing officer to restrict the disallowance to 30 per cent and 50 per cent respectively as against 50% and 100% towards payment made to unlisted cargo handling workers and incentives paid to trailer and truck drivers without any basis/ fresh evidences produced by the assessee. The reasoning adopted by the Commissioner (Appeals) is not judicious. The Commissioner (Appeals) ought to have appreciated the fact that the assessing officer has made the disallowance after considering all the evidences/ vouchers produced by the assessee at the time of assessment proceedings. The Commissioner (Appeals) has failed to realize the fact that the payment to unlisted workers was Rs. 46,90,354 as against Rs. 42,47,722 to listed workers which is most unrealistic. The Commissioner (Appeals) has erred in applying the decision of Settlement Commission in the case of Ws. Evergreen Suppliers to this case. The decision of Settlement Commission was based on different facts and circumstances. This cannot be considered as a basis for relief in this case.
2.3 learned departmental Representative Shri Chattaraj heavily relied upon the assessment order. He submitted that the Commissioner (Appeals) has erred in directing the assessing officer to restrict the disallowance to 30 per cent and 50 per cent respectively as against 50% and 100% towards payment made to unlisted cargo handling workers and incentives paid to trailer and truck drivers without any basis/ fresh evidences produced by the assessee. The reasoning adopted by the Commissioner (Appeals) is not judicious. The Commissioner (Appeals) ought to have appreciated the fact that the assessing officer has made the disallowance after considering all the evidences/ vouchers produced by the assessee at the time of assessment proceedings. The Commissioner (Appeals) has failed to realize the fact that the payment to unlisted workers was Rs. 46,90,354 as against Rs. 42,47,722 to listed workers which is most unrealistic. The Commissioner (Appeals) has erred in applying the decision of Settlement Commission in the case of Ws. Evergreen Suppliers to this case. The decision of Settlement Commission was based on different facts and circumstances. This cannot be considered as a basis for relief in this case.
2.4 learned counsel for assessee on the other hand submitted that in view of the impending situation, the assessee was required to employ the unlisted workers. This was in terms of the agreement arrived at between the Union representative and Port Trust authorities. The results declared for the year are better as compared to earlier year’s result. Since the expenses are incurred wholly and exclusively for the purpose of business, such expenses are required to be allowed in appeal.
2.4 learned counsel for assessee on the other hand submitted that in view of the impending situation, the assessee was required to employ the unlisted workers. This was in terms of the agreement arrived at between the Union representative and Port Trust authorities. The results declared for the year are better as compared to earlier year’s result. Since the expenses are incurred wholly and exclusively for the purpose of business, such expenses are required to be allowed in appeal.
3. We have carefully considered the relevant facts and the arguments advanced. We find sufficient force in the submission by learned counsel for assessee. When the expenses are incurred towards cargo handling, the same are wholly and exclusively for the purpose of business. If the total payment is Rs. 46,90,354, we fail to understand as to how 50 per cent of such expenses can be considered as ‘wholly and exclusively for the purpose of business’ and balance 50 per cent as fictitious. When it is an accepted fact that the assessee was required to employ the unlisted workers and the same was in the course of business, nothing can be disallowed merely on presumption. The assessee has furnished necessary details as to how the payment is made and how the same in the course of business. The details of cargo handling are also filed, which was filed before the assessing officer. Once the expenses are held to be incurred in the course of business, partial disallowance is not permissible under law. When the expenses are claimed under section 37(1) of the Act, either the expenses are incurred ‘wholly and exclusively for the purpose of business’ or not so incurred. We accordingly delete the disallowance in respect of payments made to unlisted workers engaged by the assessee.
3. We have carefully considered the relevant facts and the arguments advanced. We find sufficient force in the submission by learned counsel for assessee. When the expenses are incurred towards cargo handling, the same are wholly and exclusively for the purpose of business. If the total payment is Rs. 46,90,354, we fail to understand as to how 50 per cent of such expenses can be considered as ‘wholly and exclusively for the purpose of business’ and balance 50 per cent as fictitious. When it is an accepted fact that the assessee was required to employ the unlisted workers and the same was in the course of business, nothing can be disallowed merely on presumption. The assessee has furnished necessary details as to how the payment is made and how the same in the course of business. The details of cargo handling are also filed, which was filed before the assessing officer. Once the expenses are held to be incurred in the course of business, partial disallowance is not permissible under law. When the expenses are claimed under section 37(1) of the Act, either the expenses are incurred ‘wholly and exclusively for the purpose of business’ or not so incurred. We accordingly delete the disallowance in respect of payments made to unlisted workers engaged by the assessee.
4. The next issue in both the appeals is against deletion of partial disallowance in respect of incentive paid to Trailer Drivers, Crane Operators etc.
4. The next issue in both the appeals is against deletion of partial disallowance in respect of incentive paid to Trailer Drivers, Crane Operators etc.
4.1 The assessee claimed expenditure towards incentive to Crane Operators, Drivers etc. The assessing officer disallowed the entire payment holding that evidence in support of such expenses has not been produced. Learned Commissioner (Appeals) on the facts and circumstances, restricted the disallowance to 50 per cent of Rs. 2,64,620. The revenue as well as the assessee challenges the order of learned Commissioner (Appeals).
4.1 The assessee claimed expenditure towards incentive to Crane Operators, Drivers etc. The assessing officer disallowed the entire payment holding that evidence in support of such expenses has not been produced. Learned Commissioner (Appeals) on the facts and circumstances, restricted the disallowance to 50 per cent of Rs. 2,64,620. The revenue as well as the assessee challenges the order of learned Commissioner (Appeals).
4.2 Identical arguments were advanced as advanced in respect of earlier issues.
4.2 Identical arguments were advanced as advanced in respect of earlier issues.
5. On careful consideration of relevant facts, we find that the assessee has furnished necessary details in respect of incentives paid to Trailer, Truck Drivers, Crane Operators etc. In view of the finding in respect of earlier issues, we delete the disallowance of such payments.
5. On careful consideration of relevant facts, we find that the assessee has furnished necessary details in respect of incentives paid to Trailer, Truck Drivers, Crane Operators etc. In view of the finding in respect of earlier issues, we delete the disallowance of such payments.
In the result, the appeal of revenue is dismissed and that of assessee is allowed.