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TMI Blog2016 (5) TMI 868X X X X Extracts X X X X X X X X Extracts X X X X ..... e disallowing of Rs. 13,298/- in respect of prior period expenses made by the learned A.O. 4. The learned CIT(A) erred in law and on facts in upholding the addition of Rs. 6,34,187/- made by the learned A.O. as additional Interest Income from Bank on the basis of TDS Certificates." 2. The 1st ground of the assessee's appeal is against ad hoc disallowance of Rs. 38,67,600/- out of processing of material and handling charges. The assessee firm is engaged in the business of manufacturing of wire and other product made of various metals including Nickel, copper, iron, chromium etc. The assessee company filed its return on 24/09/2009 declaring total income of Rs. 11,76,27,560/-. The case was scrutinized U/s 143(3) of the Income Tax Act, 1961 (in short the Act). The ld Assessing Officer observed that the assessee had claimed expenses on account of processing of material and handling charges of Rs. 1,24,87,317/- for the year under consideration as against Rs. 57,46,478/- claimed in the immediately preceding previous year. The material handling expenses are directly relatable to the sales made and the processing of material charges are directly relatable to the production. It is furth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... production and sales ratio over the previous year. If the production has increased by 24.68% and the sales have increased by 22.95% over the previous year, then the processing and handling charges should also be in the same ratio. However, since the assessee had produced a new item during the year under consideration as claimed by it, it would be reasonable if 50% as against 117.3% increase over the previous year in respect of processing and handling charges is allowed during the year under consideration, moreover because these payments have been made to sister concerns covered U/s 40A(2)(b) and no comparable case has been quoted to justify the payment so made to these concerns. Thus, he disallowed expenses of Rs. 38,67,600/-. 3. Being aggrieved by the order of the ld Assessing Officer, the assessee carried the matter before the ld CIT(A), who had confirmed the addition by observing as under:- "Written submission of the appellant is placed on record which is repetition of what was stated before the AO. The thrust of the appellant's argument is that the quantity of production sold increased over last year and therefore even if processing of material and handling charges increased ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,717) is upheld." 4. Now the assessee is in appeal before us. The ld AR of the assessee has submitted that during the year under consideration a new product namely Nickel Plated Dumet Wire was produced and sold in local and overseas market, which was got manufactured through Gem Electro and hence, there was no occasion to make any payment to them in the preceding year. Further the wire drawing processing was being done by the assessee itself. However, this year it was outsourced and got done on job basis through New Age. Hence, there was no such payment in the preceding year. He admitted that there is an increase in the expenses during the year under consideration. The export and domestic sale have decreased from Rs. 140.61 crore for preceding year to Rs. 139.87 crore this year. The ld Assessing Officer had not made disallowance out of the payment made to the sister concerns but disallowed due to increase by 117.3% in processing and handling charges. The payments made to the sister concerns had not been challenged by the revenue on the basis of finding given by the ld CIT(A). The only question to answer before the Hon'ble Court that these expenses were incurred wholly and exclusi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... artment. The excise record was produced before the Assessing Officer during the assessment proceedings. The ld Assessing Officer had not rejected the books of account U/s 145(3) of the Act. Such disallowance under the law is not permitted for which he relied on the decision in the case of Maharaja Shree Ummaid Mills vs. CIT 192 ITR 565 (Raj.) The overall performances of the company are better compared to preceding year. The GP has gone down for 11.19% in preceding year to 18.47%. Similarly the NP rate from 5.05% to 8.52%. The quantity production has gone up, however, in term of value the ale has slightly declined due to the fall in price per ton. Both the sister concerns also paying maximum marginal rate tax, therefore, there is no revenue loss. It is legitimate business need to outsource this work to these companies. It is further argued that similar payment made in subsequent year had been allowed Assessing Officer himself wherein assessment was made U/s 143(3) of the Act. The Assessing Officer had not pointed out any comparable case, which proved fair market value was paid much more than prevailing in the market. The ld AR relied on the decision in the case of Jagdamba Rollers F ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or ld CIT(A). The recipient company also paying maximum marginal rate of tax, as such there is no revenue loss. A similar claim was also allowed in subsequent years by the Assessing Officer even in scrutiny assessment. The case laws cited by the assessee are squarely application on the present issue before us. Therefore, we delete the addition confirmed by the ld CIT(A). Accordingly, first ground of the assessee's appeal is allowed. 7. The 2nd ground of the assessee's appeal is against confirming the addition of Rs. 7,98,808/- out of staff welfare expenses. The ld Assessing Officer observed that the assessee had claimed staff welfare expenses at Rs. 16,49,402/- as against Rs. 5,67,063/- paid in the immediate preceding year. The Assessing Officer gave reasonable opportunity of being heard on this issue. The assessee also filed explanation and break up of Staff welfare of the previous year as well as current year. It was submitted by the assessee that during the year under consideration, the main reason for increase in these expenses was due to increase in expenditure incurred on account of uniforms and shoes, which are required to pay as per agreement of the workers as welfare acti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tertain and provide welfare facilities. Therefore, he prayed to delete the addition confirmed by the ld. CIT(A). 10. At the outset, the ld DR has vehemently supported the order of the ld CIT(A). 11. We have heard the rival contentions of both the parties and perused the material available on the record. There is a substantial increase in the staff welfare expenses during the year under consideration but the assessee has justified the increase under this head. There is an agreement between the assessee and the worker regarding staff welfare is to be incurred on the employee. Accordingly, the assessee had provided uniform and shows during the year under consideration. The assessee has produced all the bill and vouchers but the Assessing Officer made disallowance on surmises and conjecture, which is not justified. Therefore, we delete the addition confirmed by the ld CIT(A). 12. The 3rd ground of the appeal is against confirming the disallowance of Rs. 13,298/- under the head prior period expenses. The Assessing Officer observed that the assessee had claimed prior period expenses at Rs. 13,298/- as tax audit report. The assessee filed relevant detail before the Assessing Officer fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ad claimed these expenses during the year under consideration, therefore, it amounts to double taxation. Accordingly, he prayed to delete the addition. At the outset, the ld DR has vehemently supported the order of the ld CIT(A) and argued that the relevant debit entry is not pertained to year under consideration. 15. We have heard the rival contentions of both the parties and perused the material available on the record. It is undisputed fact that the interest has been shown as income by the assessee in earlier year on FDRs and these FDRs were encashed by the appellant, therefore bank has charged interest on premature FDRs. The AR tried to explain on the basis of evidence that how the bank had debited the interest expenses on FDRs. Accordingly, this issue is required to verify from the record with reference to disclosure of the interest income of FDRs and claiming interest expenses on premature of the FDRs. It appears that the liability is pertained to F.Y. 2007-08 whereas the assessee has claimed this expenditure in A.Y. 2009-10. Therefore, Assessing Officer is directed to verify the claim of the assessee and decide the issue as per law. Accordingly, this ground of appeal is set ..... X X X X Extracts X X X X X X X X Extracts X X X X
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