EVONIK CATALYSTS INDIA P.LTD,THANE vs ASST CIT CIR -I, MUMBAI

Income Tax Appellate Tribunal, “B” BENCH, MUMBAI

For Appellant: Shri Naresh Kumar, AR, Shri Varun Sankhesara &

Evonik Catalysts India P. Ltd. Asst. Commissioner of Income Tax, Erstwhile Monarch Catalysts P. Ltd. Cir-I Vs. F1/MIDC, Ph-1, Dombaivli (E) Mumbai. Thani-421-203 Appellant .. Respondent PAN No. AAACM5013G Assessee by .. Shri Naresh Kumar, AR .. S/Shri Varun Sankhesara & Revenue by Tehmton Wadia, DR Date of hearing .. 09-03-2017 Date of pronouncement .. 09-03-2017 O R D E R PER MAHAVIR SINGH, JM:

This appeal by the assessee is arising out of the order of CIT(A)-2, Mumbai, in appeal No. 058/THN/2011-12 dated 12-06-2015. The Assessment was framed by ACIT Range-1, Mumbai for the A.Y. 2009-10 vide order dated 28-12-2011 u/s 143(3) of the Income Tax Act, 1961 (hereinafter ‘the Act’).

The only issue in this appeal of assessee is against the order of CIT(A) confirming the disallowance made by AO of factory wages at Rs. 25 lakhs on adhoc basis. For this assessee has raised following ground No. 1.1: -

“1.1 On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in confirming the action of the ACIT Circle -1, Kalyan (‘the AO’) of disallowing factory wages to the extent of Rs 25,00,000/- on adhoc basis..”

Briefly stated facts are that the assessee during the year under consideration debited a sum of Rs.2,65,03,816/-on account of the factory wages against the sale of Rs.77,34,02,669/- which comes to 3.5% of the sales. According to AO comparatively in the immediate preceding year the assessee

Evonik Catalysts India P. Ltd.; A.Y:09-10 has debited expenses of Rs.1,50,03,656/- against sale of Rs.113,50,82,863/- which comes to 1.32% of the sales. According to AO, there is a fall in sales and increase in the wages to the tune of 2.08%. Accordingly, AO restored to adhoc disallowances of 25 lakhs out of total factory wages expenses of Rs.2,65,03,816/-. Aggrieved assessee preferred appeal before CIT(A), who also confirmed the action of the AO. Aggrieved, now assessee is in second appeal before Tribunal.

Before us, the learned the learned Counsel for the assessee stated that the basic finding of the AO that the payments are in cash is totally without any basis rather the entire payment is made by cheque. To prove its case, the learned Counsel for the assessee during the course of hearing drew our attention at pages 2 to 18 wherein complete details of cheque payment of factory wages for 2 months i.e. April 2008 and May 2008 is enclosed on sample basis. The learned Counsel stated that he can produce the entire details of payment of wages made by cheque, if required. The learned Counsel stated that the recent increase in factory wages for AY 2008-09 is that during the FY 2007-08 relevant to AY 2008-09 for the reason that the company achieved the turnover to Rs. 113 crore and this was achieved due to team work of the management, employees and workers of the factory particularly. Hence, the contribution of the factory workers was appreciated by the management and accordingly, revision in their pay during FY 2008-09 relevant to AY 2009-10 was made and there was increase in cost on account of the salary and wages of factory workers. The AO nowhere doubted the genuineness of expenses. Once this is the case, no adhoc disallowance can be made. On the other hand, the learned Sr. DR supported the orders of the lower authorities and only made arguments that let this expenses be verified by the AO.

After hearing the rival contentions and going through the facts and circumstances of the case, we find that timely payments are made by cheque in respect to salary and wages of factory workers and the assessee has filed details of the same in his paper book on sample basis for the month of April and May 2008. Admittedly, all the payments are by cheque and genuineness of expenses Page 2 of 3

Evonik Catalysts India P. Ltd.; A.Y:09-10 are not doubted by the AO or CIT(A). The assessee has given reason for increase in salary and wages of factory workers and due to that there is increase in expenses. We find that the assessee’s expenses are genuinely claimed and no disallowance of this account can be made. Accordingly, this issue of the assessee’s appeal is allowed.

In the result, the appeal of assessee is allowed. Order pronounced in the open court on 09-03-2017.

EVONIK CATALYSTS INDIA P.LTD,THANE vs. ASST CIT CIR -I, MUMBAI