TMI Blog2016 (5) TMI 868X X X X Extracts X X X X X X X X Extracts X X X X ..... g payments were made to other sister concern namely M/s New Age Alloys Pvt. Ltd. for wire drawing, annealing and spooling processing work made per kg whereas platting and oxidizing, the payments were made in per meter. The assessee did not have sufficient capacity for drawing, annealing and spooling, therefore, he had outsourced this work to M/s New Age. The assessee’s manufacturing activities are under the supervision of the excise department. The ld Assessing Officer had not brought on record any evidence that payments made to the sister concerns were more than fair market value, as such no comparable case has been considered by the Assessing Officer 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. - Decided in favour of assessee Addition of staff welfare expenses - Held that:- 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 wel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Welfare Expenses made by the learned A.O which was duly supported by evidences. 3. The learned CIT(A) erred in law and on facts in upholding the disallowing of ₹ 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 ₹ 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 ₹ 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 ₹ 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 ₹ 1,24,87,317/- for the year under consideration as against ₹ 57,46,478/- claimed in the immediately precedin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lue of the services for which the payment has been made and hence she held these expenses disallowable. He calculated the disallowances as under:- Current year Previous year Increase over the previous year Production 12,39,693 Kg. 9,94,237 kg 24.68% Sales 12,35,108 Kg. 10,04,575 kg 22.95% Processing Handling charges 1,24,87,317/- 57,46,478 kg 117.3% She further held that these above expenses had been claimed in excessive than the actual increase in the 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 ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t increase by 117% in processing and handling charges was not justified. The AO has not been unreasonable as she has accepted 50% increase in processing of material and handling charges over last year, treating ₹ 86,19,717 (Rs 57,46,478 + 50% of ₹ 57,46,478 which is ₹ 28,73,239 as increase) ₹ 28,73,239) as reasonable processing of material and handling charges, instead of ₹ 1,24,87,317 claimed by the appellant showing 117.3% increase over last year which is certainly too much of increase in expenses not supported by commensurate Sales which declined this year. In view of the above discussion the processing of material and handling charges out of ₹ 1,24,87,317 claimed are held reasonable of ₹ 86,19,717 and the balance disallowance of ₹ 38,67,600 (Rs1,24,87,317 - ₹ 86,19,717) 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 preced ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ro. The assessee exported, this year more than ₹ 2.46 crores and had shown better G.P. compared to preceding year. 4.1 Similarly payment made to M/s Gem Clad Wires Pvt. Ltd. of ₹ 2,52,641/- for the work done by the company i.e. cut length, platting, spooling, cleaning and cut charges work of steel wire. Payment to New Age of ₹ 33,85,933/- the assessee company got the wire drawing, annealing and spooling processing work done from the said company to whom wire drawing charges were paid @ ₹ 60/- per kg for Nickel Alloy Mix Wire and @ ₹ 25/- per Kg for Steel Wire. The assessee company was doing this business in the preceding year, but the capacity available with the assessee was inadequate, therefore, it was outsourced. It is further argued that all the manufacturing activities were carried under the supervision of the Excise Department. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee. It was claimed by the assessee that it is an import substitute item and no one was manufacturing in the India. Therefore, the assessee had to pay these charges to it to get the services done. The remaining payments were made to other sister concern namely M/s New Age Alloys Pvt. Ltd. for wire drawing, annealing and spooling processing work made per kg whereas platting and oxidizing, the payments were made in per meter. The assessee did not have sufficient capacity for drawing, annealing and spooling, therefore, he had outsourced this work to M/s New Age. The assessee s manufacturing activities are under the supervision of the excise department. The ld Assessing Officer had not brought on record any evidence that payments made to the sister concerns were more than fair market value, as such no comparable case has been considered by the Assessing Officer 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elief of ₹ 25,893 (Rs 8,24,701 - ₹ 7,98,808). 9. Now the assessee is in appeal before us. The ld AR of the assessee has submitted that there was an agreement between the assessee and workers. As per this agreement, there is contractual obligation upon the assessee. The expenditure incurred on shoes and uniform is as per terms and conditions of the agreement and accordingly incurred wholly and exclusively for the business purposes. The ld Assessing Officer had not pointed out any specific defects in the vouchers produced before her. She had made general remark on the vouchers produced before her. In preceding and succeeding year, no such disallowance was made by the Assessing Officer. It is assessee s business to decide in which year it has to incur the expenditure on staff welfare. The Assessing Officer cannot step into shoe of the business man, therefore, it is a decision of a prudent business man to entertain 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... DS certificate. The ld Assessing Officer observed that the assessee had declared interest on FDR from banks at ₹ 42,57,512/- in the return of income. However, on perusal of TDS certificate furnished during the course of assessment proceedings, the total interest credited in the name of assessee was ₹ 48,51,699/- upon which TDS of ₹ 10,07,691/- had been deducted by the bank. Therefore, he made addition of ₹ 6,34,187/-, which was confirmed by the ld CIT(A) on the basis that the prematuring of the FDRs happened on 11/4/2007 while the appellant is reverting interest on 31/3/2009. The interest reversal is not proved by any bank document. The ld AR of the assessee before us has submitted that the interest on FDR already accounted for which he has drawn our attention on page No. 87-88 of paper book. The assessee had encashed FDRs prematurely, therefore bank had reverted or debited the interest of ₹ 6,08,117/- in the F.Y. 2007-08. The assessee had 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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