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2018 (11) TMI 41 - AT - Income TaxAddition on account of wages payment - allowable busniss deduction u/s 37 - Held that:- Through the entire material available on record and we find no justification to sustain the impugned order. It is pertinent to note that the ld. Authorities below while disallowing the impugned wages payments have nowhere observed that any of the wages expenses claimed was not incurred wholly and exclusively for the purpose of business, particularly when the said expenditure were incurred by the assessee, debited in the books of account and supported by bills and vouchers. AO has stressed on wages expenditure, which could be payable by the assessee as per his own hypothetical calculations without 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). For this view, we stand fortified by catena of decision of Hon’ble Apex Court in Sasson J. David & Co. (P) Ltd. vs. CIT [1979 (5) TMI 3 - SUPREME COURT] relied by the assessee and various other decisions. As 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 ₹ 16,75,000/- in A.Y. 2010-11 to ₹ 71,80,000/- in A.Y. 2011-12, i.e., the year under consideration. Since this payment of ₹ 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. AO has also not made any addition on this score. Therefore, in our opinion, once the main hike was in contractual labour payment and this payment was accepted by the ld. Authorities below as genuine, the working of the authorities below cannot be sustained for disallowance of wages expenses. Moreover, the ld. Authorities below appear to have not considered the explanation of the assessee in right perspective that the assessee has paid substantial amounts of ESI/PF on all the wages payments, which resulted into substantial increase in the amount spent on ESIC/PF from ₹ 25.38 lacs in preceding year to ₹ 31.33 lacs in the year under consideration. If the contractual labour payments, on genuineness of which there is no dispute, are set apart, the increase in other labour payments is of only ₹ 34,54,759/- i.e., from ₹ 1,01,59,706/- to ₹ 1,36,14,465/-, which in view of increase in production and other factors relevant to such increase as explained by the assessee, cannot be said to be unreasonable. CIT(A) appears to have sustained the action of the AO on the premise that different individuals were employed every month, which goes to belie the explanation of the assessee that trained labour is needed for the manufacture of product. The monthly change of individuals, would not suggest that the changed labour was not trained one and such extraneous facts would not be suffice to disallow the wages payments claimed by the assessee. If the ld. CIT(A) had any doubt on the genuineness of labour payments made by assessee, he could call for examination of the payees exercising his powers vested u/s. 250(4) of the IT Act, which is lacking in the instant case. Therefore, mere on suspicion and fake presumption, no disallowance can be made, as held in plenty of decisions of various higher courts. The assessee has submitted a comparative chart before us giving various factors responsible for increase in labour payments, which stands uncontroverted on behalf of the Revenue. If the factors responsible for increase in wages payments as explained by the assessee are considered in right perspective, the wages payments claimed by the assessee cannot be said to be unreasonable. In the totality of facts and circumstances and in view of our above discussion, we, find the appeal of the assessee full of merits which deserves to be allowed. - Decided in favour of assessee.
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