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Income Tax Appellate Tribunal, INDORE BENCH, INDORE
Before: SHRI C.M. GARG & SHRI O.P. MEENA
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.
The grounds of appeal raised by the assessee-appellant read
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.
Whether on the facts and in the circumstances of the case, the ID CIT(A) was justified in restricting the disallowance of foreign travel expenses of the Directors to Rs.5,00,000/- out of Rs. 13,02,800/- instead of Rs.8,02,800/- disallowed by the Assessing Officer without appreciating the facts narrated by the Assessing Officer.”
Ground no. (i) of the assessee and revenue relates to casual
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.
Keeping in view the reasons mentioned above and the order
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.
Having been aggrieved with the disallowance made by the
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.
Being aggrieved with the order of the Commissioner of
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.
On the other hand, the learned DR while strongly relying
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.
We have considered the rival submissions of both the
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).”
Against the above order of the Tribunal in the assessee’s
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 the assessment year 2007-08 as noted by the Tribunal
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.
With the above directions, this common ground in the
assessee’s and revenue’s appeal is disposed off.
The next common issue involved in these cross-appeals is
regarding the expenses claimed under the head ‘Foreign Travel
Expenses’.
The facts, in nutshell, are that the assessee claimed an
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.”
Having been dis-satisfied with the disallowance made by
the Assessing Officer, the assessee went in appeal before the
Commissioner of Income Tax (Appeals).
The Commissioner of Income Tax (Appeals), after
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.”
Felt aggrieved with the order of the Commissioner of
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.
On the other hand, the learned DR while supporting the
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.
On consideration of the rival submissions in view of the
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.
On careful consideration of the rival submissions and from the
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.
In the result, the appeals of the assessee and the revenue are
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/