TaxTMI 
TaxTMI 
2018 (11) TMI 41
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...., disregarding the submission and explanation tendered by the assessee that wages have actually been paid by the appellant and without appreciating the fact that no prudent business man shall incur an expenditure which is unnecessary for running its business. 3.) That the learned Commissioner of Income Tax (Appeals) has upheld the additions made by Learned Assessing Officer on the premise that petty cash payments have been made to different set workers every month without appreciating the fact that it was on account of the Labour turnover, the assessee had taken Labour contractors on board to run the manufacturing operations. 4.) That it is therefore, prayed that, it be held that assessment made by the learned Deputy Commissioner of Income Tax and sustained by the learned Commissioner of Income Tax (Appeals) be quashed and, further addition so upheld by the learned Commissioner of Income Tax (Appeals) along with interest levied be deleted and appeal of the appellant be allowed. 2. Briefly stated, the facts of the case are that the assessee-company is engaged in the manufacturing of intravenous cannulae and other surgical disposables. The appellant company filed....
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....come of the assessee 1,79,23,115.00 The assessee carried the matter in appeal before the ld. CIT(A), who after considering the detailed submissions of the assessee and the assessment order, upheld the action of the Assessing Officer vide impugned order. Aggrieved, the assessee is in appeal before the Tribunal. 3. During the course of hearing, the ld. Authorized Representative of assessee, Shri Gautam Jain, Advocate, reiterated the submissions made before the ld. Authorities below and also submitted a per book containing 166 pages. He has also placed before us a written synopsis stating as under : "UNDISPUTED FACTS: 1 That the appellant is engaged in manufacturing of intravenous cannulae and other surgical disposables. 2 That unit of the appellant company is 100% EoU unit and eligible for deduction under section 10B of the Act. 2.1 That books of accounts are duly audited both under the Companies Act, 1956 and under section 44AB of the Act. 2.2 That books of accounts stood accepted in assessment framed under section 143(3) of the Act. 2.3 That the comparative chart of the sales, gross profits and net profit is as under: ....
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....94,935/- claimed by the appellant and therefore, the excess expenditure incurred is not allowable. 3.3 At the outset it is submitted that the above basis is contrary to scope of provisions contained in section 37(1) of the Act. It is respectfully submitted that once an expenditure has been incurred wholly and exclusively for the purpose of business then irrespective of the allegation that such expenditure was not necessary, deduction ought to have been allowed. The Hon'ble Apex Court in the case of Sassoon J. David & Co. (P) Ltd. v. CIT reported in 118 ITR 261 has held as under: "It has to be observed here that the expression "wholly and exclusively" used in section 10(2)(xv) of the Act does not mean "necessarily". Ordinarily it is for the assessee to decide whether any expenditure should be incurred in the course of his or its business. Such expenditure may be incurred voluntarily and without any necessity and if it is incurred for promoting the business and to earn profits, the assessee can claim deduction under section 10(2)(xv) of the Act even though there was no compelling necessity to incur such expenditure. It is relevant to refer at this stage to the le....
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....ndered by the appellant company. He has merely accepted the explanation and thus adopted percentages to compute the allowable expenditure which is a process unknown to law and therefore, not tenable. It is submitted that once expenditure has been incurred and debited in the books of accounts, duly supported by relevant vouchers and bills, there was no justification to deny the said claim of expenditure. Infact, explanation tendered by the appellant is extracted in para 4 of the order of assessment whereby it was stated as under: "a) Regarding in Wages Cost - During the year under assessment, the Company paid the wages amounting to Rs. 2,07,94,935.00 as compared to last year of Rs. 1,18,34,346.00. The Wages cost increased due to following reasons:- b) The Company is manufactured of I V Cannula which is manually assembled of different parts by the workers. During the year the Company increased the production of I V Cannula/other products from 271,24,465 pcs to 3,70,85,045 pcs. We are enclosing herewith the Month-wise Production and Wages for your kind perusal. It is also to be understood here that the company is manufacturing a product which has a direct touch with ....
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.... 11,834,346 Nil 143(1) 2011-12 167,271,829 20,794,935 2871820 143(3) (disputed in appeal) 2012-13 222,282,426 23,909,307 Nil 143(1) 2013-14 395,119,661 28,447,430 Nil 143(3) 2014-15 447,370,299 31,134,084 Nil 143(3) 2015-16 456,054,699 42,368,726 Nil 143(3) 3.6 Apart from the above, following evidences have been filed in support of the expenditure incurred on wages and claimed by the appellant company:- Sr. No. Nature of evidence Pages of Paper Book i) Agreement for labour /manpower contract dated 28.01.2009 between assessee and M/s Khemchand Enterprises 11-17 ii) Point discussed and to be followed regarding contract laobur in meeting dated 10.11.2009 with Ms Khemchand Enterprises 18 iii) Agreement for labour /manpower contract dated 23.03.2010 between assessee and M/s B & D Enterprises 19-25 iv) Agreement for labour /manpower contract dated 12.01.2011 between assessee and M/s Bull Eye Security and Housekeeping Services 26-33 v) Details of contractor wise/month wise salary, Provident Fund/ ESI payment 132 vi) Details of 985 contract labour ....
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.... expenditure. Reliance is placed on the following judicial pronouncements: i) 254 ITR 377 (Del) CIT vs. Dalmia Cement ii) 288 ITR 1 (SC) S.A. Builiders Ltd. vs. CIT "31. We agree with the view taken by the Delhi High Court in CIT vs. Dalmia Cement (Bharat) Ltd. (2002) 174 CTR (Del) 188 : (2002) 254 ITR 377 (Del) that once it is established that there was nexus between the expenditure and the purpose of the business (which need not necessarily be the business of the assessee itself), the Revenue cannot justifiably claim to put itself in the armchair of the businessman or in the position of the board of directors and assume the role to decide how much is reasonable expenditure having regard to the circumstances of the case. No businessman can be compelled to maximize its profit. The IT authorities must put themselves in the shoes of the assessee and see how a prudent businessman would act. The authorities must not look at the matter from their own viewpoint but that of a prudent businessman. As already stated above, we have to see the transfer of the borrowed funds to a sisterconcern from the point of view of commercial expediency and not from the point of ....
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....out pointing out that any such payment on wages or any such voucher/bill was disallowable in particular or was not laid wholly or exclusively for the purpose of business, being the true intent of section 37(1) of the IT Act. For this view, we stand fortified by catena of decision of Hon'ble Apex Court in Sasson J. David & Co. (P) Ltd. vs. CIT (supra) relied by the assessee and various other decisions. 6. Apart from the above we have examined the trading, profit & loss account in the light of explanation given by assessee before the ld. Authorities below and we find considerable substance in the contention of the assessee that owing to constant labour supply through contractors, the contractual labour payment was increased from Rs. 16,75,000/- in A.Y. 2010-11 to Rs. 71,80,000/- in A.Y. 2011-12, i.e., the year under consideration. Since this payment of Rs. 71,80,000/- was made through banking channel, the ld. Authorities below themselves have not doubted this payment anymore nor did they drew any adverse inference on the basis of this contractual labour payment. The Assessing Officer has also not made any addition on this score. Therefore, in our opinion, once the main hike was in....