TMI Blog2019 (5) TMI 416X X X X Extracts X X X X X X X X Extracts X X X X ..... r expenditure relating to the collection of fresh fruit bunches and clearance of empty bunches under any other head and there is no dispute 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). 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. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aised 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 ₹ 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 ₹ 3,28,27,958/- towards Fresh Fruit Bunching expenses. The break-up of the expenditure is as follows : (i) Purchase Expenses - ₹ 1,69,48,021/- (ii) Loading and Unloading Expenses - ₹ 32,76,400/- (iii) Empty bunches handling charges - ₹ 44,21,250/- Total - ₹ 2,46,45,671/- The asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h collection centers located at different places. In the whole process of collection and disposal of fresh fruit bunches, unskilled labourers are involved at various stages like weighing, loading, grading, unloading at factory, stacking, loading into cages, clearing the empty bunches etc. The company found it 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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f such transactions with the company. Both the above persons have further stated that soon after the deposit, the amount was withdrawn by other employees of the company and they had no role whatsoever in these transactions. It is further observed by the AO from the statements recorded that they did not have resources or expertise to execute such contract works of handling and transportation for 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AO recorded the statement u/s 131 from the contractors i.e B.Vasudev Rao, V.Padma, P.Satyanarayana, K.Vamsikrishna and V.Hima Bindu all of them have categorically denied having the knowledge of contract work with the assessee company. In the case of Shri B.Vasudev Rao, Ld.D.R stated that he is working as supervisor in the assessee company and was not aware of the transactions in his bank account and the fresh fruit bunch handling expenses. He has not entered into any contract 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the assessee for booking the expenditure is not in order, the entire expenditure cannot be disallowed by the AO for the A.Y. 2013-14 and the disallowance of 80% of expenditure in the A.Y. 2014-15 is also unreasonable and arbitrary. The Ld.A.R further stated that there was no other expenditure of transportation, loading, unloading charges claimed by the assessee in the P L account under any other head. Therefore, argued that the expenditure is reasonable and genuine, hence, requested to set aside the orders of 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3. Markondaputti 90 Km 4. Gaisala 90 Km 5 Saiuru 65 Km 6. Gogadavalsa 85 Km 7. Chintalvaisa 85 Km 8. Kanduiapadam 85 Km 9. G Doravalsa 85 Km 10 Tunda 95 Km 11 GaMdi Local 50 Km The company procured total quantity of 24569.460 MTs of FFBs of Palm Fruit and this fact is verifiable from the report published by the Department of Horticulture on annual basis. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the volume density ratio of the FFB, unless the truck body is modified with higher sides, optimum quantity cannot be loaded as per the truck capacity. Hence the labour has to climb up a ramp to load the high truck. The procurement is throughout the year and hence the labour has to load the material even at night, holidays, Sunday or any festival days. Labour demand extra charges for working on other than working days and working hours. The normal wages payable in the above locations are ₹ 400 per day per person. Considering on an average 7 persons are required, the total wages for each day works out to ₹ 2800 per day. On an average these group of 7 persons can handle only 1OMT per day. Thus, the charges per MT work out to ₹ 280 per MT. The total charges of ₹ 60,31,515 paid by the company works out to ₹ 245/- per MT as the total quantity procured was 24569.460 MT. This is marginally less than aforesaid calculation of ₹ 280 per MT. C: FFB CAGES LOADING AND UNLOADING CHARGES: Expenditure incurred under this head is towards loading FFBs in the cages (capacity of 3 Mt each) for pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ineness 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 not make any disallowance. The Ld.DR or the AO did not place any evidence to show that the process explained by the assessee in the note is faulty or the expenditure allowed by the Ld.CIT(A) is unreasonable and or excessive. Therefore, considering the facts and merits of the case, we are of the considered opinion that disallowance of expenditure to the extent of 30% appears to be reasonable. Accordingly, we uphold the order of the Ld.CIT(A) and dismiss the appeals of the revenue as well as the assessee. 11. The AO raised the ground stating that the assessee had agreed for the disallowance of expenditure and came on appeal which is not acceptable and Ld.CIT(A) should have considered that the addition was made on agreed basis. We have observed from the assessment order that the assessee had agreed for the disallowance due to paucity of time and subject to not to initiat ..... X X X X Extracts X X X X X X X X Extracts X X X X
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