AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2019 (5) TMI 416
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....9/2016-17/ACIT-C-3(1), VSP/2017-18 dated 21.06.2018. Cross Objections are also filed by the assessee supporting the orders of the Ld.CIT(A). Since the grounds raised in these appeals are identical, these appeals are clubbed, heard together and a common order is being passed for the sake of convenience as under. 3. The assessee has filed its return of income declaring loss of Rs. 1,18,01,012/- on 01.10.2013 for the A.Y.2013-14. The case was selected for scrutiny and the notice u/s 143(2) was issued to the assessee. During the course of assessment proceedings, the AO verified the books of accounts, bills and vouchers and found that the assessee has debited the sum of Rs. 3,28,27,958/- towards Fresh Fruit Bunching expenses. The break-up of the expenditure is as follows : (i) Purchase Expenses - Rs. 1,69,48,021/- (ii) Loading and Unloading Expenses - Rs. 32,76,400/- (iii) Empty bunches handling charges - Rs. 44,21,250/- Total - Rs. 2,46,45,671/- The assessee explained to the AO that the expenses were subcontract payments made to Shri Bongu Vasudev Rao, Ms V.Padma, P.Satyanarayana, K.Vamsikrishna and Ms V.Hima Bindu for handling and transportation of Fresh Fr....
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.... is difficult to employ the labour on permanent rolls and found it is convenient to engage the sub-contractors for handling and transportation of FFBs from various collection centers to the factory as collection centers are located at 9 different locations and it would be difficult for the company to coordinate with the transporters and to match the availability of vehicles as per the requirements. Therefore, it has engaged the employees who have rendered their services and made the payments through them. It is necessary for the company to carry out the above activities and to incur the expenditure for running the company and without the above activities, the company would not be able to procure the raw material to its factory and process further to manufacture its finished product. The assessee further stated that to transport the raw material from FFB centers to the factory, the transport charges are genuinely incurred and unavoidable. Further handling charges are necessary for the company to incur as the raw materials are fragile and prone to damage. It needs proper separation and cutting so as to avoid the loss of FFBs. The company needs to properly handle the empty bunches aft....
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....the company. The bills were also prepared by the company in the typed format and obtained signatures of the above persons as and when required. With regard to P.Satyanarayana who is working as clerk in the company, K.Vamsi Krishna in whose name the handling charges were claimed by the assessee was a computer operator in the company and both of them have stated that they are aware of the transactions, but no supporting evidence like agreement with the assessee for execution of the handling and transportation of FFB and empty bunches was produced by them. In the case of V.Hima Bindu in whose name also, the bills were raised towards FFB loading charges, the person has not appeared in response to summons, nor did she confirm the transactions. The modus operandi and the pattern are same and the amounts were deposited in her account and withdrawn soon after the deposits were made in the account. Therefore, the AO disbelieved the genuineness of the expenditure and accordingly disallowed the entire expenditure of Rs. 2,46,45,671/-. 4. For the A.Y. 2014-15, the assessee had incurred FFB expenditure of Rs. 3,17,99,320/- and the AO disallowed 80% of the above expenditure amounting to Rs. 2,5....
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....t with the assessee and stated that he had not received any amount and neither submitted the bills nor received the amount. The company used to deposit the amount into his bank account, takes signatures on the blank cheques. As observed by the AO, the monies were deposited in his bank account and withdrawn no sooner it was deposited by some other employees of the company. As per the statement recorded from Smt.V.Padma, though she had accepted that she has undertaken the work of handling and transportation of raw material, the entire business activity was said to be taken care of by her husband Shri P.Satyanarayana which is unbelievable. The statement recorded from other contractors also reveals that they do not have capacity to handle the work and the signatures of the above persons were obtained by the company in advance and the bills were raised as and when required. There was no contract between the company and the contractors and there were no supporting evidences produced by the contractors. In case of V.Hima Bindu, she did not respond to the summons issued u/s 131. The entire process of statements recorded from the contractors, clearly shows that the bogus expenditure was bo....
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....f the Ld.CIT(A) and allow the entire expenditure. The Ld.AR further submitted that the conditional surrender of income by the assessee at the time of assessment proceedings was sheer ignorance and should not be taken cognizance. Further the Ld.AR argued that having not accepted the conditional offer given at the time of assessment proceedings, acceptance has lost it's relevance and the department should not harp on the same. Therefore, requested to set aside the orders of the Ld.CIT(A) and allow the entire expenditure. 10. We have heard both the parties, perused the material placed on record. In the instant case, the AO has disallowed the entire expenditure of transportation and handling charges for fresh fruit bunches for the A.Y. 2013-14 and disallowed 80% of the expenditure for the A.Y.2014-15 which indicates that FFB expenditure is not bogus. The nature of expenditure incurred by the assessee is that of loading, unloading charges at collection centers, transportation expenses from collection center to manufacturing unit, further loading and unloading charges from manufacturing centre to the empty bunches clearance centre and the identical expenditure of transportation from man....
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.... Other locations 23131.950 The total transportation charges on the basis of the aforesaid details works Out as under: 23131.950*450 Rs. 1,04,09,377 1437.690*300 Rs. 4,31,307 TOTAL Rs. 1,08,40,684 Thus, the transportation charges claimed by the appellant are very much reasonable. B: FFB Handling Charges: The expenditure incurred under this head is towards the following jobs: Unloading FFBs from vehicles Grading for unripe quality Segregating of long stack bunches Cutting the same as per norms Loading and unloading FFBs on weighing machine for weighment in small basket of 200 / 500 Kgs Heaping and loading into vehicles for transportation Dispose-off the waste generated during segregation and cutting For carrying out the aforesaid operations large number of labor is required to complete the collection and loading work faster to ensure that the FFBs reach the factory in time, without being soiled as the FFBs are to be processed within 24 hours of harvesting. The Oil Palm FFB (Fresh Fruit Bunch) is most difficult fruit to handle. It has thorns and it is very difficult for the manual labor to handle the same. Due to the volume density ratio of the FFB,....
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....pute on this issue. The assessee has adopted the method of contractual payments instead of factual and actual expenditure and the modus operandi adopted by the assessee for booking the above expenditure is not in order as rightly observed by the Ld.CIT(A). However, after going through the note, we agree with the observation of the Ld.CIT(A) that without carrying on the above activities and incurring the expenditure, the company cannot run it's basic operations and make finished product. It is basic requirement for the company to collect the fresh fruit bunches of palm from collection centers to the manufacturing unit and clear the empty bunches as per the pollution control norms. The AO did not make any personal inspection to estimate the probable / reasonable expenditure to be incurred on said activities of the company. The AO also did not reject the books of accounts when he suspected the genuineness of expenditure. The assessee has submitted the comparative chart of the expenditure incurred in the earlier years and on comparative study, the expenditure allowed by the CIT(A) appears to be reasonable. Though the identical expenditure was debited in the earlier years, the AO did....