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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 ..... 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 substantia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unds of appeal : 1.) That the learned Commissioner of Income Tax (Appeals)-5, New Delhi has erred both in law and on facts in upholding the addition of ₹ 28,71,280.00 on account of wages claimed by the aggrieved appellant ignoring the submissions made during the assessment proceedings as well as appellate proceedings before the CIT respectively. 2.) That the learned Commissioner of Income Tax (Appeals) while upholding the addition, has mechanically proceeded to rely on findings in the order of assessment, disregarding the submission and explanation tendered by 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l to increase in the same proportion, therefore a sum of ₹ 28,71,820/- (difference of 2,07,94,935-1,79,23,115) is being disallowed and added back to the income of the assessee company worked out as under:- Wage bill for FY 2009-10 1,18,34,346.00 Add: 10% for increase in Minimum Wages 11,83,435.00 Add: 30% Increase in wages due to increased production 39,05,334.00 Add: Increase of cost by 15% due to employment of contractual labour 10,00,000.00 Total Wages for FY 2010-11 and added back to the income of the assessee 1,79,23,115.00 The assessee carried the matter in appeal before the ld. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ax (Appeals) and relevant findings contained in para 4 to 4.2 at pages 11 to 13 of order of Commissioner of Income Tax (Appeals). The aforesaid deletion of addition by the learned Commissioner of Income Tax (Appeals) has not been challenged by the revenue in this appeal. 3. Apart from above, the learned Assessing Officer in the impugned order had also made the disallowance of ₹ 28,71,820/- out of expenditure incurred on wages by the appellant company. This disallowance had been sustained by the learned Commissioner of Income Tax (Appeals) vide her findings at pages 13 to 18 in paras 5 to 5.23 and, operative findings are at pages 17 to 18 of the order. 3.1 The basis of the aforesaid disallowance is as under: Sr. No. Particulars Amount (Rs.) i) Wage bill for financial year 2009-10 1,18,34,346 ii) Add: 10% for increase in minimum wages 11,83,435 iii) Add: 30% increase in wage due to increased production 39,05,334 iv) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the expenditure should not come in the way of an expenditure being allowed by way of deduction under section 10(2)(xv) of the Act if it satisfies otherwise the tests laid down by law. This view is in accord with the following observations made by this Court in CIT v. Chandulal Keshavlal Co. [1960] 3 SCR 38 at page 48 : Another fact that emerges from these cases is that if the expense is incurred for fostering the business of another only or was made by way of distribution of profits or was wholly gratuitous or for some improper or oblique purpose outside the course of business then the expense is not deductible. In deciding whether a payment of money is a deductible expenditure one has to take into consideration questions of commercial expediency and the principles of ordinary commercial trading. If the payment or expenditure is incurred for the purpose of the trade of the assessee it does not matter that the payment may inure to the benefit of a third party-Usher's Wiltshire Brewerv v. Bruce 6 TC 399 (HL). Another test is whether the transaction is properly entered into as a part of the assessee's legitimate commercial undertaking in order to facilitate t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... side India. c) During the year under review the company had on account of constant turnover of labour appointed contractors to supply the labour which was expensive to the tune of 15% being the margin availed by the contractor on the total wages plus fringe benefit of PF and ESI. As against the total contractual labour payment of ₹ 16.75 lacs in FY 2009-10, the company incurred a sum of ₹ 71.80 lacs on contractual labour. As already stated, the operations of the company involve lot of manual labour which needs to be trained labour. Constant entry exit of labour due to unrest in the area was affecting the quality of the production and hence in order to ensure continuous supply of trained labour, the company appointed labour contractors to supply labour. Copy of Labour contractors accounts are being submitted. The company had paid ESI and PF liability on all payment to contractual labour too which is reflected in the amount spent on PF/ESIC rising to ₹ 31.33 lacs from ₹ 25.38 lacs in FY 2008-09. d) Due to increase in Minimum Wages by Haryana Government during the year under review resulting in increase in cost by 10%. The company has also appoi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y, 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 been further held in the following cases that suspicion howsoever strong cannot take the place of proof : i) 37 ITR 151(SC) Omar Salay Mohammad Sait v CIT ii) 26 ITR 736 (SC) Dhirajlal Girdharilal v CIT, Bombay iii) 26 ITR 775 (SC) Dhakeshwari Cotton Mills ltd. v CIT iv) 37 ITR 288 (SC) Lal Chand Bhagat Ambica Ram v CIT 3.7 Furthermore, the learned Commissioner of Income Tax (Appeals) has upheld the di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. 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. However, money can be said to be advanced to a sister-concern for commercial expediency in many other circumstances (which need not be enumerated here). However, where it is obvious that a holding company has a deep interest in its subsidiary, and hence if the holding company advances borrowed money to a subsidiary and the same is used by the subsidiary for some business purposes, the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ₹ 25.38 lacs in preceding year to ₹ 31.33 lacs in the year under consideration. We also find that 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 assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X
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