M/S S.S. CROP CARE LIMITED,BHOPAL vs. THE JCIT RANGE-3, BHOPAL

आदेश /O R D E R

PER SHRI C.M. GARG, JM

These are the cross appeals by the assessee and the revenue

against the order of the first learned CIT(A), Bhopal-2, dated

18.1.2016 in First Appeal No. CIT A(2)/BPL/IT-187/2014-15 for the

assessment year 2011-12.

as under :-

(i) “That on the facts and in the circumstances of the case, the learned CIT(Appeals) erred in allowing the relief of Rs.78,73,790/- only out of the total addition of Rs.83,96,574/- and thereby confirming the addition of Rs. 5,22,784/- on account of casual labour without accepting the explanation offered by the assessee and without appreciating the fact that the assessee maintains regular and proper books of accounts and the expenses of casual labour are fully supported by proper voucher.

(ii) That on the facts and in the circumstances of the case, the learned CIT(Appeals) erred in giving the relief of Rs.8,02,800/- out of the total expenses claimed Rs.13,02,800/- under the head foreign travel expenses without considering the explanation offered by the assessee and without c9onsidering the fact that the expenses incurred for foreign travelling are for business purposes only and there is no personal element in this expenditure. Thus, the order passed by the learned CIT confirming the addition of Rs. 5,00,000/- is unjust and unfair.” 2

SS Crop Care Ltd. ITA No.243/Ind/2016 & ITA No. 197/Ind/2016 The grounds of appeal raised by the revenue-appellant read as

under :-

“1. Whether on the facts and in the circumstances of the case, the ld. CIT(A) was justified in restricting the disallowance of the casual labour expenses to Rs.5,22,784/- out of expenses Rs.83,96,574/- which is 6% of the said expenses as against 38% sustained in A.Y. 2007-08 when the assessee has failed to substantiate the genuineness of the said claim.

labour expenses. During the course of assessment proceedings

the Assessing Officer noticed that the assessee has debited an

amount of Rs.1,29,62,637/- for labour and wages. The

Assessing Officer required the assessee to substantiate its claim.

The assessee vide its reply dated 27.11.2013 submitted copy of

ledger account of labour and wages. On going through the ledger

accounts, the Assessing Officer noticed that the assessee has

debited the amount of Rs.45,66,063/- for permanent labour and

Rs.83,96,574/- for casual labour. The Assessing Officer also 3

SS Crop Care Ltd. ITA No.243/Ind/2016 & ITA No. 197/Ind/2016 found that on permanent labour the assessee company is paying

ESIC, PF, etc. whereas for casual labour, no such statutory

payments were made. The Assessing Officer again asked the

assessee to substantiate its claim for casual labour as the said

payments were made in cash which were also not in proportion

with the manufacturing. In response the assessee produced

muster roll for casual labour with the submission that except

muster roll, no other ledger or vouchers are maintained for

casual labour payments which were made in cash. On

verification of the claim of the assessee, the Assessing Officer

observed as under :-

(a) All payments for casual labour, etc. are made in cash by the company. Only muster roll is maintained for such payments. The assessee itself has agreed that no other ledger or vouchers are maintained for such payments.

(b) The company is paying ESIC, PF etc. for permanent labour but no such statutory payments are made for casual labours. The provisions of PF, ESIC Acts are such that the assessee has to make such payments.

(c) During the course of assessment proceedings the assessee has submitted monthwise details of casual labour payment vis a vis monthwise as under :-

SS Crop Care Ltd. ITA No.243/Ind/2016 & ITA No. 197/Ind/2016 Month Production(MT) Casual Labour labour cost per MT April 921.865 3,06,170 332.12 May 808.535 6,89,715 853.04 June 1086.082 8,46,835 779.72 July 1350.092 12,62,139 934.23 Aug 717.425 7,22,456 1007.01 Sept. 277.379 4,20,649 1511.06 Oct 142.233 5,62,980 3958.15 Nov 174.437 5,78,340 3315.46 Dec 165.538 5,58,420 3373.36 Jan 643.461 7,69,800 1196.34 Feb 946.655 8,27,090 873.69 March 643.081 8,51,980 1314.84

On going through the above table one interesting point can very well be noticed that when production is 92.865 MT labour is 3,06,170/- whereas when production is 174.437 labour is 5,78,340/- meaning thereby that less production but labour is more which is not possible at all. From above table it can very well be seen that there is no system of payment of labour in comparison to production. The reason for such discrepancy in payment vis a vis production has not been clarified by the assessee. It is well knon that if labour payment is higher production will also be high but reverse is the case of the assessee. It seems that the assessee has debited the labour as per availability of cash in its books of accounts. When cash in hand is more, higher labour has been debited and vise versa.

(d) In the assessment year 2007-08 disallowance of Rs.3,50,000/- was made out of casual labour charges which was subsequently enhanced by the CIT(A)-II, Bhopal to Rs.38,84,778/- vide order no. CIT(A)- II/Bhopal/IT-185/09-10 dated 23.01.2012 after looking into the defects in claim of the assessee. The said enhanced addition was further maintained at Rs.19,42,389/- by the ITAT vide order no. 401/Ind/2012 dated 11.02.2013. The order of the 5

SS Crop Care Ltd. ITA No.243/Ind/2016 & ITA No. 197/Ind/2016 ITAT was further maintained by the Hon'ble jurisdictional High Court vide order no. 79/2013.

(e) During the course of assessment proceedings the assessee has submitted few pages of muster roll. On going through the said muster roll pages, it is seen that some of the signatures of the workers does not match with that signed in one page to signature on other page. For example ShriSantosh Giri, Shri Rajesh, etc.

(f) In the muster roll of casual labour there is column for ESIC but no amount is filled in that as the same has not been paid by the assessee company.

of the ITAT, in the assessee’s own case for the assessment year

2007-08 which was affirmed by the Hon'ble jurisdictional High

Court vide order no. 79/2013, the Assessing Officer held “it is

clear that the casual labour debited by the assessee is not

genuine”. The learned Assessing Officer, therefore, disallowed

Rs.85,96,574/- and added the same to the total income of the

assessee.

Assessing Officer, the assessee went in appeal before the

Commissioner of Income Tax (Appeals). The Commissioner of

Income Tax (Appeals), after considering the facts and

SS Crop Care Ltd. ITA No.243/Ind/2016 & ITA No. 197/Ind/2016 circumstances of the case, in the light of the material available

on record, held as under :-

“5.5 Upon due consideration of the foregoing facts,

the action of the A.O. in disallowing 100% of the casual

labour expenditure cannot be upheld. Taking into

account the expenditure under this head

claimed/allowed in various assessment years, it would

be reasonable to allow expenditure under the head

labour and wages @ 27% of the job work receipts ofRs.

4,60,72,531/- i.e. at Rs.1,24,39,853/-. Out of this,

permanent labour is Rs.45,66,063/- about which there

is no dispute. The remaining expenditure on casual

labour thus would be Rs.78,73,790 which is allowed.

Addition of Rs.5,22,784 (Rs.83,96,574 (-)

Rs.78,73,790) is upheld out of the addition of

Rs.83,96,574/- made by the A.O.

Income Tax (Appeals), the assessee is in appeal against part

maintenance of addition whereas the revenue is in appeal

against the relief granted to the assessee. 7

SS Crop Care Ltd. ITA No.243/Ind/2016 & ITA No. 197/Ind/2016 7. Before us, the learned counsel for the assessee submitted

that the Commissioner of Income Tax (Appeals) was not justified

in maintaining the addition of Rs.5,22,784/- towards casual

labour charges. The learned counsel for the assessee further

submitted that no specific discrepancy in cash payments has

been pointed out by the Assessing Officer and the Assessing

Officer has brought no material on record in support of his claim

that the assessee has debited the labour charges as per

availability of cash in its books of accounts. He, therefore,

submitted that addition sustained by the Commissioner of

Income Tax (Appeals) is not justified and deserves to be deleted.

upon the assessment order, submitted that all the payments to

casual labourers are made in cash and are not verifiable. He

further submitted that on permanent labour, the assessee

company is paying ESIC, PF, etc. whereas for casual labour, no

such statutory payments were made and the payments are not

in proportion to monthly production. The learned DR brought to

our notice that except muster roll, no other ledger or vouchers

are maintained for cash payments and the signatures of casual 8

SS Crop Care Ltd. ITA No.243/Ind/2016 & ITA No. 197/Ind/2016 labourers are different on different pages, which is a clear proof

in itself that the labour payments made in cash are bogus. The

learned DR further submitted that before making the

disallowance, the Assessing Officer has given detailed reasons

therefor and as such the order of the Commissioner of Income

Tax (Appeals) deserves to be set aside and that of the Assessing

Officer maintained.

parties in the wake of the facts and the material available on

record. At the very outset from the order of the ITAT, Indore

Bench, dated 11.2.2013 passed in the assessee’s own appeal in

ITA No. 401/Ind/2012 for the assessment year 2007-08, we

observe that the Tribunal granted part relief to the assessee with

the following observations :-

“As per the Assessing Officer, the assessee duly maintained the vouchers of payment and wages so far as the staff mentioned in column nos. 1 to 3 of the above chart whereas no such account was maintained for Sr. No. 5(casual worker/labour). The Assessing Officer observed that no casual workers/labourare normally employed for hazardous industry. Thus, a lum sum disallowance of Rs. 3,50,000/- was made by the Assessing Officer. There is an observation in the impugned order also that some casual staff may be deployed for non-hazardous function like loading, unloading, thus the amount of Rs.12 lacs was allowed out of Rs.50,84,778/- and the balance amount of Rs.38,84,778/- was upheld. The assessee is a limited company, maintains proper books of accounts and vouchers and the accounts are audited u/s 44AB of the Act as well as Companies Act. Even both the authorities have mentioned that

SS Crop Care Ltd. ITA No.243/Ind/2016 & ITA No. 197/Ind/2016 proper registers are maintained for regular employees/workers and EPS and ESIC contributions are also properly deducted. The Assessing Officer made a lump sum disallowance on ad hoc basis but no specific amount was pointed out and reasoning for such disallowance. If the totals of work receipts and the direct expenditure as summarised in the aforesaid table no. 1, we find 6 that reasonable expenditure has already been disallowed. If the issue/expenses are analysed with respect to gross profit, we find that it is in the increasing trend as the net profit for the A.Y. 2005-06 was Rs. 16,14,741/-, Rs.15,87,642/- (A.Y. 2006-07) and Rs. 54,05,901/- (A.Y. 2007-08). If this profit is analysed in terms of percentage, it rose to 23.83% (A.Y. 2007-08) in comparison to 9.52% for the A.Y. 2005-06. So far as non-employment of casual worker in hazardous industry is concerned, the learned counsel invited our attention to a letter no. 986 dated 8.12.2011 (page 54 of the paper book) issued by Joint Controller, Industrial Health and Safety, Bhopal, mentioning that there is no such restriction of keeping casual labour in pesticide formulation industries. The whole dispute pertains to the payment mentioned at Sl. No. 5 of Table No. 2. If this issue is analysed with respect to net profit, as mentioned earlier, it is reasonably in good increasing trend. At the same time, the assessee is expected to maintain the record of casual labour also because no payment is made in the air and at least to the satisfaction of the Assessing Officer, some record was expected to be maintained for casual labour also. If we send this issue to the file of the Assessing Officer, the assessee will be entangled in further litigation causing undue hardship, therefore, 7 to reduce litigation and to cut short the matter, keeping in view the increasing trend in the profit, we reduce the disallowance further to 50% against Rs. 38,84,778/- sustained by the learned CIT(A).”

own case for the assessment year 2007-08, the matter was

carried to the Hon'ble High Court but remained empty handed

as the appeal of the assessee i.e. ITA No. 79/Ind/2013 was

dismissed by the Hon'ble High Court vide order dated

17.12.2015 and the order of the Tribunal dated 11.2.2013 was

upheld. There are various rival contentions of both the sides

which have been placed before us during the course of

SS Crop Care Ltd. ITA No.243/Ind/2016 & ITA No. 197/Ind/2016 arguments. However, neither the assessee nor the revenue could

show us any factum establishing that the facts and

circumstances of assessment year 2007-08 are distinct from the

assessment year 2011-12. Rather they agreed to this proposition

that the facts relating to this issue are constantly identical and

similar righty from the assessment year 2007-08 to the present

Assessment year 2011-12, therefore, in our considered opinion

we have no alternate but to respectfully follow the order of the

Tribunal and of the Hon'ble M.P. High Court for the assessment

year 2007-08.

in para 3, the total payment of casual workers was Rs.

50,84,778/- and after allowing Rs. 12 lacs for some casual staff

to be payable for non-hazarrdous functions like loading,

unloading, balance amount of Rs.38,84,778/- was disallowed by

the authorities below. Keeping in view the totality of the facts

and circumstances of the case, the Tribunal reduced the

disallowance further to 50% as against Rs. 38,84,778/- as

sustained by the Commissioner of Income Tax (Appeals). In the

present case, undisputedly the payment of casual labour in cash 11

SS Crop Care Ltd. ITA No.243/Ind/2016 & ITA No. 197/Ind/2016 in the assessment year 2011-12 as per the table submitted by

the assessee at page 2 of synopsis, was Rs.83,96,574/-. Be that

as it may, we direct the Assessing Officer to make the

disallowance as per the order of the Tribunal for the assessment

year 2007-08 in the following manner :-

(i) The Assessing Officer shall first reduce the amount towards casual staff deployed for non-hazardous functions like loading, unloading, in the same proportion as was allowed for the assessment year 2007-08 i.e. Rs. 12 lacs out of Rs.50,84,778/- which comes to 23.60% of total payments on casual labour.

(ii) Thereafter, 50% would be further disallowed out of the remaining amount calculated as per the directions given in (i) above.

assessee’s and revenue’s appeal is disposed off.

regarding the expenses claimed under the head ‘Foreign Travel

Expenses’.

amount of Rs.13,02,800/- under the head ‘Foreign Travelling

Expenses’. On examination of the claim of the assessee in the

SS Crop Care Ltd. ITA No.243/Ind/2016 & ITA No. 197/Ind/2016 light of the documents and the submissions of the assessee, the

Assessing Officer observed as under :-

“On going through the details of foreign travels, it is

observed that these trips by the director were for personal

purposes only. It is observed that the letters issued by the

foreign companies pertain to the year 1996 and 1999. The

photographs submitted by the assessee company also

pertain to 1996 and 1999 only. Further, the details of stay of

the directors and inland travelling are not given to explain

the utilisation of dollars purchased by the company. In view

of the above the amount of Rs. 13,02,800/- claimed under

the head foreign travelling expenses is added to the total

income of the assessee.”

the Assessing Officer, the assessee went in appeal before the

Commissioner of Income Tax (Appeals).

considering the facts of the issue involved and the arguments of

the assessee, observed as under :-

SS Crop Care Ltd. ITA No.243/Ind/2016 & ITA No. 197/Ind/2016 “6.4 I have considered the facts of the case and the

written submissions and arguments of the appellant. The

A.O. has not brought any material on record on the basis of

which he has summarily recorded the finding that the trips

of the directors were for personal purposes. The appellant

has produced sufficient evidence before the A.O. to establish

its claim for expenditure on foreign travel. The business

purpose is established from the letter from ICC and the visits

from the copies of the air tickets, the stamped passports and

the bills of purchase of foreign exchange filed by the

appellant. However, as held by the A.O., the assessee

could not furnish details of the inland travelling and the

places visited in the foreign countries. Since personal

element in the expenditure incurred cannot be ruled out,

disallowance of Rs.5,00,000 is upheld. Addition of

Rs.8,02,800 (Rs.13,02,800 (-) Rs.5,00,000) is deleted.”

Income Tax (Appeals), the revenue is in appeal against the relief

granted whereas the assessee is in appeal against the addition

maintained by the Commissioner of Income Tax (Appeals). 14

SS Crop Care Ltd. ITA No.243/Ind/2016 & ITA No. 197/Ind/2016 18. Before us, the learned counsel for the assessee submitted

that the assessee has submitted all the relevant details in

support of its claim of foreign travelling expenses such as letter

from ICC, air tickets, passports and the bills of purchase of

foreign exchange, etc. and as such the Commissioner of Income

Tax (Appeals) was not justified in maintaining the part addition.

On specific query by the Bench regarding non-submission of

details of in-land travelling and the places visited in the foreign

countries before the Assessing Officer, the learned counsel for

the assessee submitted that without the inland travel, it is not

feasible to travel to foreign countries.

order of the Commissioner of Income Tax (Appeals) submitted

that since the assessee has not filed all the documents relating

to foreign travel, the Commissioner of Income Tax (Appeals) was

not justified in giving part relief to the assessee. The learned DR

further submitted that in such trips, personal element in

expenditure incurred cannot be ruled out. The learned DR,

therefore, prayed that the order of the Commissioner of Income

SS Crop Care Ltd. ITA No.243/Ind/2016 & ITA No. 197/Ind/2016 Tax (Appeals) deserves to be set aside and that of the Assessing

Officer maintained.

material available on record, we find that the Assessing Officer

has not brought any material on record in support of his

allegation that the trips of the directors were for personal

purposes. The Commissioner of Income Tax (Appeals) has noted

that the assessee has produced sufficient evidence before the

Assessing Officer to establish its claim of expenditure on foreign

travel and business purpose is also established from the letter of

ICC and the visits from the copies of air tickets, stamped

passport and the bills of purchase of foreign exchange filed by

the assessee. It is the main contention of the revenue that the

Commissioner of Income Tax (Appeals) has granted part relief to

the assessee without appreciating the facts and allegations made

by the Assessing Officer. Per contra, it is the allegation of the

assessee in its cross appeal that the Commissioner of Income

Tax (Appeals) erred in partly confirming the addition of Rs.5 lacs

without considering the explanation offered by the assessee and

without considering the fact that the expenses incurred for 16

SS Crop Care Ltd. ITA No.243/Ind/2016 & ITA No. 197/Ind/2016 foreign travel are for business purposes only and there is no

personal element in this expenditure.

relevant part of the assessment order i.e. para 4.2, we observe that

after considering the reply of the assessee the Assessing Officer held

that from the details of foreign travel, it is observed that these trips

of directors were for personal purposes only. The Assessing Officer

noted that the letters issued by the foreign companies and

photographs submitted by the assessee are pertaining to

assessment years 1996-97 and 1998-99 and the details in relation

to travelling are not given to explain the utilisation of dollars

purchased by the company. Before us the assessee has filed ledger

for travelling expenses, bills issued by the travel agents, foreign

currency purchase bills, copies of passport of Mr. Jahir Qureshi

and his wife Faiza Qureshi but there is no explanation regarding

the fact that the impugned expenses incurred on travelling and

foreign currency were for the purpose of business of the assessee.

The Assessing Officer has not given any finding regarding the

purpose of trips. The main contention of the assessee is that the

letters and photographs submitted by the assessee are relating to 17

SS Crop Care Ltd. ITA No.243/Ind/2016 & ITA No. 197/Ind/2016 the period 1996 to 1999. The Commissioner of Income Tax

(Appeals) observed that the assessee has produced sufficient

evidence before the Assessing Officer to establish its claim for

expenditure on foreign travelling and business purpose is

established from the letter of ICC but we are unable to see that

letter in the paper book. However, copy of the same has been filed

by the assessee along with synopsis as Annexure-1 dated

20.6.2010. From the copy of the ledger account of travelling

expenses, we see that the entries from dated 7.4.2010 to

26.10.2010 are prior to this letter. Be that as it may, in our

considered opinion, the issue has not been properly examined by

the Assessing Officer and the Commissioner of Income Tax

(Appeals) has partly allowed the claim without any justified

reasoning and basis and by way of incorrect appreciation of the

material and documents placed before the Assessing Officer as well

as before the Commissioner of Income Tax (Appeals). In these

circumstances, we have no alternate but to restore the issue to the

file of the Assessing Officer for fresh adjudication with the direction

that he shall allow the assessee to file the entire evidence pertaining

to its claim regarding the foreign travel expenses incurred on its 18

SS Crop Care Ltd. ITA No.243/Ind/2016 & ITA No. 197/Ind/2016 directors during the period under consideration, after affording due

opportunity of hearing to the assessee and without being prejudiced

from the earlier assessment and the first appellate order.

Accordingly, common ground no. 2 of the assessee and the revenue

is allowed for statistical purposes in the manner as indicated above.

partly allowed for statistical purposes.

23 The order has been pronounced in open Court on 3rd May,

2017.

Sd/- sd/-

लेखा सद�य �या�यक सद�य (O.P.Meena) (C.M. Garg) Accountant Member Judicial Member

May 3rd , 2017. Dn/