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TMI Blog2018 (11) TMI 41X X X X Extracts X X X X X X X X Extracts X X X X ..... y 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 its return of income on on 25.09.2011 declaring income of Rs. 33,29,730 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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: Assessment year Sales GP GP% NP NP% Assessment u/s 2010-11 12,84,32,241 5,43,01,426 42.28 1,76,23,915 13.72 143(1) 2011-12 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iture 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 legislative history of section 37 of the Income-tax Act, 1961 which corresponds to section 10(2)(xv) of the Act. An attempt was made in the Income-tax Bill of 1961 to lay down the "necessity" of the expenditure as a condition for claiming deduction under section 37. Section 37(1) in the Bill ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vant 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 the human body and is subjected to more than 30 tests before being considered fit for human use. The precision quality and hygienic standards are a must for their product which requires a lot of trained and experienced labour. The requirement of labour is mainly for assembly section wherein the labour is made to be sit in a Clea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 alongwith PF and salary details 134-156 vii) Letter from Labour commissioner, Haryana regarding increase in minimum salary subject to Consumer Price Index. 162 viii) Ledger account of PF payable 165 ix) Ledger account of PF payable 166 3.7 It is settled law that, no disallowance can be made and sustained on the basis of suspicion. Reliance for the proposition is placed on Uma Charan Shaw & Bros. Co. vs. CIT reported in 37 ITR 271. It has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 view whether the amount was advanced for earning profits. 32. We wish to make it clear that it is not our opinion that in every case interest on borrowed loan has to be allowed if the assessee advances it to a sisterconcern. It all depends on the facts and circumstances of the respective case. For instance, if the directors of the sister-concern utilize the amount advanced to it by the assessee for their personal benefit, obviously it cannot be said that such money was advanced as a measure of commercial expediency. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ow 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 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 Rs. 25.38 lacs in preceding year to Rs. 31.33 lacs in the year under consideration. We ..... X X X X Extracts X X X X X X X X Extracts X X X X
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