JLC ELECTROMET PVT. LTD., Jaipur V. ADDL. CIT, Jaipur

ITA 511/JPR/2013

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 5437 (ITAT-JAIPUR)
• Duration Of Justice: 2 year(s) 11 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-02-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2009-2010
• Appeal Filed On: 07-03-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: O P BHATEJA CIT DHK
• Keywords: Opportunity of being heard; Maximum Marginal Rate; Fair market value; Corroborative evidences
• Section: 143(3); 37(1); 2

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES, JAIPUR JH VH-VKJ-EHUK] YS[KK LNL; ,OA JH YFYR DQEKJ] U;KF; D LNL; DS LE{K BEFORE: SHRI T.R.MEENA, AM & SHRI LALIET KUMAR, JM VK;DJ VIHY LA -@ ITA NO. 511/JP/2013 FU/KZKJ.K O'K Z @ ASSESSMENT YEAR : 2009-10 M/S JLC ELECTROMET PVT. LTD., E-153-A, ROAD NO. 11-H, VKI AREA, JAIPUR. CUKE VS. ADDL. COMMISSIONER OF INCOME TAX, RANGE-4, JAIPUR. LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO. AABCJ 8786 A VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT FU/KZKFJRH DH VKSJ LS@ ASSESSEE BY : SHRI MAHENDRA GARGIEYA (ADV) JKTLO DH VKSJ LS@ REVENUE BY : SHRI O.P. BHATEJA (ADDL.CIT) LQUOKBZ DH RKJH[K@ DATE OF HEARING : 28/01/2016 MN?KKS'K .KK DH RKJH[K @ DATE OF PRONOUNCEMENT : 24/02/2016 VKNS'K@ ORDER PER T.R. MEENA, A.M. THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER DATED 11/03/2013 OF THE LEARNED CIT(A)-II, JAIPUR FOR A.Y. 2009-10. THE EFFECTIVE GROUNDS OF APPEAL ARE AS UNDER:- 1 THE LEARNED CIT-(A) ERRED IN LAW AS WELL AS ON TH E FACTS OF THE CASE IN PARTLY CONFIRMING THE DISALLOWA NCE OF RS. 38,67,600/- OUT OF PROCESSING OF MATERIAL AN D HANDLING CHARGES. THE DISALLOWANCES SO MADE AND 2 ITA NO. 511/JP/2013 M/S JLC ELECTROMET PVT. LTD. VS ADDL.CIT PARTLY CONFIRMED BY THE CIT(A) BEING TOTALLY CONTRAR Y TO THE PROVISIONS OF LAW AND FACTS OF THE CASE, KIND LY BE DELETED IN FULL. 2. THE LEARNED CIT(A) ERRED IN LAW AND ON FACTS IN UPHOLDING THE BALANCE ADDITION OF RS. 7,98,808/- FR OM OUT OF STAFF WELFARE EXPENSES MADE BY THE LEARNED A.O WHICH WAS DULY SUPPORTED BY EVIDENCES. 3. THE LEARNED CIT(A) ERRED IN LAW AND ON FACTS IN UPHOLDING THE DISALLOWING OF RS. 13,298/- IN RESPECT OF PRIOR PERIOD EXPENSES MADE BY THE LEARNED A.O. 4. THE LEARNED CIT(A) ERRED IN LAW AND ON FACTS IN UPHOLDING THE ADDITION OF RS. 6,34,187/- MADE BY TH E LEARNED A.O. AS ADDITIONAL INTEREST INCOME FROM BAN K ON THE BASIS OF TDS CERTIFICATES. 2. THE 1 ST GROUND OF THE ASSESSEES APPEAL IS AGAINST AD HOC DISALLOWANCE OF RS. 38,67,600/- OUT OF PROCESSING OF MATERIAL AND HANDLING CHARGES. THE ASSESSEE FIRM IS ENGAGED IN TH E BUSINESS OF MANUFACTURING OF WIRE AND OTHER PRODUCT MADE OF VARI OUS METALS INCLUDING NICKEL, COPPER, IRON, CHROMIUM ETC. THE ASSESSEE COM PANY FILED ITS RETURN ON 24/09/2009 DECLARING TOTAL INCOME OF RS. 11,76,2 7,560/-. THE CASE WAS SCRUTINIZED U/S 143(3) OF THE INCOME TAX ACT, 196 1 (IN SHORT THE ACT). THE LD ASSESSING OFFICER OBSERVED THAT THE AS SESSEE HAD CLAIMED EXPENSES ON ACCOUNT OF PROCESSING OF MATERIAL AND H ANDLING CHARGES OF RS. 1,24,87,317/- FOR THE YEAR UNDER CONSIDERATION AS AGAINST RS. 57,46,478/- CLAIMED IN THE IMMEDIATELY PRECEDING PR EVIOUS YEAR. THE 3 ITA NO. 511/JP/2013 M/S JLC ELECTROMET PVT. LTD. VS ADDL.CIT MATERIAL HANDLING EXPENSES ARE DIRECTLY RELATABLE T O THE SALES MADE AND THE PROCESSING OF MATERIAL CHARGES ARE DIRECTLY REL ATABLE TO THE PRODUCTION. IT IS FURTHER OBSERVED BY THE ASSESSING OFFICER THA T THE ASSESSEE HAD CLAIMED MORE THAN DOUBLE THE EXPENSES COMPARED TO P REVIOUS YEAR. IT IS FURTHER FOUND THAT 50% OF THESE EXPENSES WERE PAID T O SISTER CONCERNS NAMELY M/S GEM ELECTRO MECHANICAL PVT. LTD. AND M/S NEW AGE ALLOYS PVT. LTD.. THE DETAILS OF PAYMENTS ARE REPRODUCED AS UNDE R:- NAME CURRENT YEAR PREVIOUS YEAR 1 GEM ELECTRO MECHANICALS PVT. LTD. 19,55,892/- NIL 2 GEM CLAD WIRES PVT. LTD. 2,52,641/- 1,00,080/- 3 NEW AGE ALLOYS PRIVATE LIMITED 33,85,933/- NIL TOTAL 55,94,466/- THE LD ASSESSING OFFICER FOUND THAT THESE PAYMENTS TO BE EXCESSIVE FOR WHICH HE GAVE REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE, WHO ALSO SUBMITTED REPLY. IT WAS SUBMITTED BEFORE THE LD ASSESSING OFFICER THAT THE ASSESSEE COMPANY STARTED MANUFACTURING A N EW PRODUCT NAMELY NICKEL PLATED DUMENT WIRE DURING THE YEAR UNDER CON SIDERATION, WHICH WAS SOLD BOTH IN LOCAL MARKET AND OVERSEAS MARKET. F ROM M/S GEM ELECTRO MECHANICAL PVT. LTD. AND M/S NEW AGE ALLOYS PVT. LTD ., THE ASSESSEE GOT THE WIRE DRAWING PROCESSING WORK DONE IN EARLIER YEARS . THIS WORK WAS DONE BY THE ASSESSEE COMPANY ITSELF. AFTER CONSIDER ING THE ASSESSEES REPLY, THE LD ASSESSING OFFICER HELD THAT THE ASSES SEE COMPANY HAS BEEN 4 ITA NO. 511/JP/2013 M/S JLC ELECTROMET PVT. LTD. VS ADDL.CIT MANUFACTURING WIRES AND OTHER PRODUCTS MADE OF NICKE L, COPPER, IRON AND OTHER METALS INCLUDING ALLOY OF ALL METALS AT VKI A REA, JAIPUR SINCE LAST 25 YEARS. EVEN IF IT IS CONSIDERED THAT A NEW PRODUCT H AS COME INTO EXISTENCE DURING THE YEAR UNDER CONSIDERATION, THEN ALSO IT I S SEEN THAT THERE IS ONLY AN INCREASE OF 24.68% OVER THE LAST YEAR, IN RESPEC T OF THE TOTAL PRODUCTION MADE WHEREAS THE MATERIAL PROCESSING AND HANDLING CHARGES HAVE BEEN INCREASED BY 117%. SINCE THESE CHARGES HA VE BEEN MAINLY PAID TO THE SISTER CONCERNS, THEY ARE TREATED TO BE EXCESSIVE AND UNREASONABLE HAVING REGARD TO THE FAIR MARKET VALUE OF THE SERVICES FOR WHICH THE PAYMENT HAS BEEN MADE AND HENCE SHE HELD T HESE EXPENSES DISALLOWABLE. HE CALCULATED THE DISALLOWANCES AS UNDE R:- CURRENT YEAR PREVIOUS YEAR INCREASE OVER THE PREVIOUS YEAR PRODUCTION 12,39,693 KG. 9,94,237 KG 24.68% SALES 12,35,108 KG. 10,04,575 KG 22.95% PROCESSING & HANDLING CHARGES 1,24,87,317/- 57,46,478 KG 117.3% SHE FURTHER HELD THAT THESE ABOVE EXPENSES HAD BEEN CLAIMED IN EXCESSIVE THAN THE ACTUAL INCREASE IN THE PRODUCTIO N AND SALES RATIO OVER THE PREVIOUS YEAR. IF THE PRODUCTION HAS INCREASED BY 24.68% AND THE SALES HAVE INCREASED BY 22.95% OVER THE PREVIOUS YE AR, THEN THE PROCESSING AND HANDLING CHARGES SHOULD ALSO BE IN T HE SAME RATIO. 5 ITA NO. 511/JP/2013 M/S JLC ELECTROMET PVT. LTD. VS ADDL.CIT HOWEVER, SINCE THE ASSESSEE HAD PRODUCED A NEW ITEM D URING THE YEAR UNDER CONSIDERATION AS CLAIMED BY IT, IT WOULD BE RE ASONABLE IF 50% AS AGAINST 117.3% INCREASE OVER THE PREVIOUS YEAR IN R ESPECT OF PROCESSING AND HANDLING CHARGES IS ALLOWED DURING THE YEAR UNDE R CONSIDERATION, MOREOVER BECAUSE THESE PAYMENTS HAVE BEEN MADE TO S ISTER CONCERNS COVERED U/S 40A(2)(B) AND NO COMPARABLE CASE HAS BE EN QUOTED TO JUSTIFY THE PAYMENT SO MADE TO THESE CONCERNS. THUS, HE DISA LLOWED EXPENSES OF RS. 38,67,600/-. 3. BEING AGGRIEVED BY THE ORDER OF THE LD ASSESSING OFFICER, THE ASSESSEE CARRIED THE MATTER BEFORE THE LD CIT(A), WH O HAD CONFIRMED THE ADDITION BY OBSERVING AS UNDER:- WRITTEN SUBMISSION OF THE APPELLANT IS PLACED ON RECORD WHICH IS REPETITION OF WHAT WAS STATED BEFORE THE AO. THE THRUST OF THE APPELLANTS ARGUMENT IS THAT THE QUANTITY OF PRODUCTION SOLD INCREASED OVER LAST YEA R AND THEREFORE EVEN IF PROCESSING OF MATERIAL AND HANDLI NG CHARGES INCREASED IN COMPARISON TO LAST YEAR THEY SHOULD BE ALLOWED. IT WAS ALSO STATED THAT THE AO H AD WRONGLY PRESUMED THAT THE APPELLANT PAID EXCESSIVE PROCESSING CHARGES TO ITS SISTER CONCERNS WHICH HAD NOT BEEN PAID AT ALL LAST YEAR: 6 ITA NO. 511/JP/2013 M/S JLC ELECTROMET PVT. LTD. VS ADDL.CIT (I) M/S GEMS ELECTRO MECHANICALS PVT. LTD. RS 19,55,892. (II) M/S NEW AGE ALLOYS PVT LTD. RS 33,85,933/- THE APPELLANT HAS STATED THAT DURING THIS YEAR IT STARTED MANUFACTURING A NEW PRODUCT NAMELY NICKEL PLATTED DUMET WIRE THE PLATTING AND OXIDIZING PROCESSING OF WHICH WAS GOT DONE FROM THE FIRST SIS TER CONCERN. THAT TO THE SECOND SISTER CONCERN WIRE DRAWING CHARGES WERE PAID WHICH IN THE EARLIER YEAR WAS DONE BY THE ASSESSEE ITSELF. THE ARGUMENT OF THE APPELLANT IS NOT ACCEPTABLE BECAUSE THE OBJECTION OF THE AO THAT PROCESSING OF MATERIAL AND HANDLING CHARGES INCREASED BY 117.3% IN COMPARISON TO LAST YEAR HAS NOT BEEN DISPUTED. THIS YEAR PROCESSING OF MATERIAL AND HANDLING CHARGES HA VE BEEN CLAIMED OF RS 1,24,87,317 AS AGAINST OF RS 57,46,478 OF LAST YEAR WHEREAS THE SALES INCLUDING EXPORTS AND DOMESTIC HAVE DECREASED THIS YEAR TO RS 139.87 CRORE AS AGAINST RS 140.61 CRORE OF LAST YEA R. THE APPELLANT HAS NOT BEEN ABLE TO EXPLAIN WHY SUCH HIGH WIRE DRAWING CHARGES WERE PAID TO M/S NEW AGE ALLOYS PVT. LTD. OF RS 33,85,933 ITS SISTER CONCERN, WHEN TILL LAST YEAR THIS WORK WAS DONE BY THE APPELLANT ITSELF. THE AO WAS THEREFORE RIGHT IN COMMENTING ABOUT EXCESSIVE CHARGES BEING PAID TO THE SISTER CONCERNS , BUT THE AO HAS NOT MADE ANY DISALLOWANCE OUT OF THE 7 ITA NO. 511/JP/2013 M/S JLC ELECTROMET PVT. LTD. VS ADDL.CIT CHARGES PAID TO SISTER CONCERNS, AND HAS ONLY USED IT AS AN EXAMPLE TO STATE HER POINT THAT INCREASE BY 117% IN PROCESSING AND HANDLING CHARGES WAS NOT JUSTIFIED. THE AO HAS NOT BEEN UNREASONABLE AS SHE H AS ACCEPTED 50% INCREASE IN PROCESSING OF MATERIAL AND HANDLING CHARGES OVER LAST YEAR, TREATING RS 86,19, 717 (RS 57,46,478 + 50% OF RS 57,46,478 WHICH IS RS 28,73,239 AS INCREASE) RS 28,73,239) AS REASONABLE PROCESSING OF MATERIAL AND HANDLING CHARGES, INSTEA D OF RS. 1,24,87,317 CLAIMED BY THE APPELLANT SHOWING 117.3% INCREASE OVER LAST YEAR WHICH IS CERTAINLY TOO MUCH OF INCREASE IN EXPENSES NOT SUPPORTED BY COMMENSURATE SALES WHICH DECLINED THIS YEAR. IN VIEW OF THE ABOVE DISCUSSION THE PROCESSING OF MATERIAL AND HANDLING CHARGES OUT OF RS 1,24,87,317 CLAIMED ARE HELD REASONABLE OF RS 86,19,717 AND THE BALANCE DISALLOWANCE OF RS 38,67,600 (RS1,24,87,317 - RS 86,19,717) IS UPHELD. 4. NOW THE ASSESSEE IS IN APPEAL BEFORE US. THE LD AR OF THE ASSESSEE HAS SUBMITTED THAT DURING THE YEAR UNDER CONSIDERAT ION A NEW PRODUCT NAMELY NICKEL PLATED DUMET WIRE WAS PRODUCED AND SOL D IN LOCAL AND OVERSEAS MARKET, WHICH WAS GOT MANUFACTURED THROUGH GEM ELECTRO AND HENCE, THERE WAS NO OCCASION TO MAKE ANY PAYMENT TO THEM IN THE PRECEDING YEAR. FURTHER THE WIRE DRAWING PROCESSING WA S BEING DONE BY 8 ITA NO. 511/JP/2013 M/S JLC ELECTROMET PVT. LTD. VS ADDL.CIT THE ASSESSEE ITSELF. HOWEVER, THIS YEAR IT WAS OUTSOU RCED AND GOT DONE ON JOB BASIS THROUGH NEW AGE. HENCE, THERE WAS NO SUCH P AYMENT IN THE PRECEDING YEAR. HE ADMITTED THAT THERE IS AN INCREA SE IN THE EXPENSES DURING THE YEAR UNDER CONSIDERATION. THE EXPORT AND DOMESTIC SALE HAVE DECREASED FROM RS. 140.61 CRORE FOR PRECEDING YEAR TO RS. 139.87 CRORE THIS YEAR. THE LD ASSESSING OFFICER HAD NOT MADE DI SALLOWANCE OUT OF THE PAYMENT MADE TO THE SISTER CONCERNS BUT DISALLOWED D UE TO INCREASE BY 117.3% IN PROCESSING AND HANDLING CHARGES. THE PAYME NTS MADE TO THE SISTER CONCERNS HAD NOT BEEN CHALLENGED BY THE REVE NUE ON THE BASIS OF FINDING GIVEN BY THE LD CIT(A). THE ONLY QUESTION TO ANSWER BEFORE THE HONBLE COURT THAT THESE EXPENSES WERE INCURRED WHOL LY AND EXCLUSIVELY FOR THE BUSINESS PURPOSES U/S 37(1) OF THE ACT OR N OT? THE LD ASSESSING OFFICER AS WELL AS THE LD CIT(A) PARTLY ACCEPTED THA T THESE EXPENSES WERE INCURRED FOR THE BUSINESS PURPOSES BUT WHATEVER DISA LLOWANCE MADE BY THE ASSESSING OFFICER AND CONFIRMED BY THE LD CIT(A) WERE MADE ONLY SUSPICION, SURMISES AND CONJECTURE. THE REASONABLENE SS OF THE EXPENDITURE HAS TO BE JUDGED FROM BUSINESSMAN POINT OF VIEW FOR WHICH HE RELIED ON THE DECISION IN THE CASE OF T.T. PVT. LTD. V/S CIT (1980) 121 ITR 551 (KAR.), UDHOJI SHRIKRISHANDAS (1987) 139 ITR 827 (MP), (1969) JK WOOLEN MANUFACTURERS 72 ITR 612 (SC). THE WHOLE EXPEN DITURE WAS 9 ITA NO. 511/JP/2013 M/S JLC ELECTROMET PVT. LTD. VS ADDL.CIT INCURRED ON PROCESSING NOT ON HANDLING AS THIS HEAD OF EXPENDITURE HAS BEEN COMING SINCE FROM PREVIOUS YEARS, THEREFORE, H ANDLING CHARGES HAS BEEN SHOWN WRONGLY BY THE ASSESSEE. IT IS UNDISPUTED FACT THAT THE ASSESSEES SALE HAS SLIGHTLY GONE DOWN BUT IN TERMS OF QUANTITY, THERE WAS AN INCREASE IN THE TURNOVER FOR THE REASONS THAT IN TERMS OF QUANTITY THIS YEAR IT STOOD AT 12,39,693 KG AS AGAINST 10,04,575 KG IN PRECEDING YEAR. THERE WAS AN INCREASE IN QUANTITY PRODUCTION OF 23% D URING THE YEAR AS THE ASSESSEE STARTED A NEW PRODUCT NAMELY NICKEL PLATED DUMET WIRE THE JOB WORK OF PLATTING AND OXIDIZING PROCESS WAS OUTSOU RCED TO M/S GEM ELECTRO TO WHOM THE ASSESSEE PAID DUMET PLATING PROC ESSING CHARGES @ RS.80/- PER MTR. THE APPELLANT WAS NOT HAVING THE FAC ILITY OF NICKEL PLATING AND OXIDIZING PROCESS. EARLIER THIS PRODUCT BY IMPO RTED. NO ONE ELSE IN THE COUNTRY IS MANUFACTURING THE SAME EXCEPT M/S GEM EL ECTRO. THE ASSESSEE EXPORTED, THIS YEAR MORE THAN RS. 2.46 CRORES AND HAD SHOWN BETTER G.P. COMPARED TO PRECEDING YEAR. 4.1 SIMILARLY PAYMENT MADE TO M/S GEM CLAD WIRES PV T. LTD. OF RS.2,52,641/- FOR THE WORK DONE BY THE COMPANY I.E. CUT LENGTH, PLATTING, SPOOLING, CLEANING AND CUT CHARGES WORK OF STEEL WIRE . PAYMENT TO NEW AGE OF RS.33,85,933/- THE ASSESSEE COMPANY GOT THE WIRE DRAWING, 10 ITA NO. 511/JP/2013 M/S JLC ELECTROMET PVT. LTD. VS ADDL.CIT ANNEALING AND SPOOLING PROCESSING WORK DONE FROM THE SAID COMPANY TO WHOM WIRE DRAWING CHARGES WERE PAID @ RS.60/- PER KG FOR NICKEL ALLOY MIX WIRE AND @ RS.25/- PER KG FOR STEEL WIRE. THE ASS ESSEE COMPANY WAS DOING THIS BUSINESS IN THE PRECEDING YEAR, BUT THE CAPACITY AVAILABLE WITH THE ASSESSEE WAS INADEQUATE, THEREFORE, IT WAS OUTSOU RCED. IT IS FURTHER ARGUED THAT ALL THE MANUFACTURING ACTIVITIES WERE CA RRIED UNDER THE SUPERVISION OF THE EXCISE DEPARTMENT. THE EXCISE RE CORD WAS PRODUCED BEFORE THE ASSESSING OFFICER DURING THE ASSESSMENT PROCEEDINGS. THE LD ASSESSING OFFICER HAD NOT REJECTED THE BOOKS OF ACC OUNT U/S 145(3) OF THE ACT. SUCH DISALLOWANCE UNDER THE LAW IS NOT PERMITTED FOR WHICH HE RELIED ON THE DECISION IN THE CASE OF MAHARAJA SHREE UMMAID MILLS VS. CIT 192 ITR 565 (RAJ.) THE OVERALL PERFORMANCES OF THE COMPAN Y ARE BETTER COMPARED TO PRECEDING YEAR. THE GP HAS GONE DOWN FOR 11.19% IN PRECEDING YEAR TO 18.47%. SIMILARLY THE NP RATE FRO M 5.05% TO 8.52%. THE QUANTITY PRODUCTION HAS GONE UP, HOWEVER, IN TERM OF VALUE THE ALE HAS SLIGHTLY DECLINED DUE TO THE FALL IN PRICE PER TON. BOTH THE SISTER CONCERNS ALSO PAYING MAXIMUM MARGINAL RATE TAX, THE REFORE, THERE IS NO REVENUE LOSS. IT IS LEGITIMATE BUSINESS NEED TO O UTSOURCE THIS WORK TO THESE COMPANIES. IT IS FURTHER ARGUED THAT SIMILAR PAYMENT MADE IN SUBSEQUENT YEAR HAD BEEN ALLOWED ASSESSING OFFICER H IMSELF WHEREIN 11 ITA NO. 511/JP/2013 M/S JLC ELECTROMET PVT. LTD. VS ADDL.CIT ASSESSMENT WAS MADE U/S 143(3) OF THE ACT. THE ASSESS ING OFFICER HAD NOT POINTED OUT ANY COMPARABLE CASE, WHICH PROVED FA IR MARKET VALUE WAS PAID MUCH MORE THAN PREVAILING IN THE MARKET. THE LD AR RELIED ON THE DECISION IN THE CASE OF JAGDAMBA ROLLERS FLOUR MILL LTD. V/S CIT (2009) 121 TTJ 761/20 DTR 370/117 ITD 260 (NAG) (TM) WHEREIN IT HAS BEEN HELD THAT NO ENQUIRY WAS MADE BY THE ASSESSING OFFIC ER TO ASCERTAIN WHETHER THE PAYMENT WAS EXCESSIVE OR UNREASONABLE HAV ING REGARD TO THE FAIR MARKET VALUE OF THE SERVICE. THUS, NO DISALLOWA NCE U/S 40A((2)(A) CAN BE MADE. HE FURTHER RELIED ON THE DECISION IN THE C ASE OF UPPER INDIA PUBLISHING HOUSE P. LTD. (1979) 117 ITR 569 (SC) WHE REIN IT HAS BEEN HELD THAT EXPENDITURE MUST BE PROVED AS EXCESSIVE U /S 40A(2)(A) OF THE ACT. THEREFORE, HE PRAYED TO DELETE THE ADDITION. 5. AT THE OUTSET, THE LD DR HAS VEHEMENTLY SUPPORTE D THE ORDER OF THE LOWER AUTHORITIES. 6. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON THE RECORD. IT I S UNDISPUTED FACT THAT THE ASSESSEES EXPENSES UNDER THE HEAD PROCESSING A ND HANDLING HAD GONE UP TWICE COMPARED TO PRECEDING YEAR BUT DURING THE YEAR UNDER CONSIDERATION, A NEW PRODUCT NAMELY NICKEL PLATED DU MENT WIRE HAD BEEN 12 ITA NO. 511/JP/2013 M/S JLC ELECTROMET PVT. LTD. VS ADDL.CIT STARTED BY THE ASSESSEE, FOR WHICH THE ASSESSEE HAD TAKEN SERVICES FROM ITS SISTER CONCERNS NAMELY M/S GEM ELECTRO MECHANIC AL PVT. LTD. AND M/S NEW AGE ALLOYS PVT. LTD. THE ASSESSEES SALE HAS SLIG HTLY GONE DOWN BUT IN QUANTITY PRODUCTION HAS GONE UP. THIS FACT HAS NO T DISPUTED BY THE REVENUE EVEN GP AS WELL AS NP HAS GONE UP COMPARED T O PRECEDING YEAR. THE ASSESSEES NEW PRODUCT WAS GOT MANUFACTURED FROM M /S GEM ELECTRO MECHANICAL PVT. LTD. WHO HAS FACILITY OF PLATTING AN D OXIDIZING, WHICH WAS NOT AVAILABLE WITH THE ASSESSEE. IT WAS CLAIMED BY TH E ASSESSEE THAT IT IS AN IMPORT SUBSTITUTE ITEM AND NO ONE WAS MANUFACTURI NG IN THE INDIA. THEREFORE, THE ASSESSEE HAD TO PAY THESE CHARGES TO IT TO GET THE SERVICES DONE. THE REMAINING PAYMENTS WERE MADE TO OTHER SISTE R CONCERN NAMELY M/S NEW AGE ALLOYS PVT. LTD. FOR WIRE DRAWING, ANNEAL ING AND SPOOLING PROCESSING WORK MADE PER KG WHEREAS PLATTING AND OXID IZING, THE PAYMENTS WERE MADE IN PER METER. THE ASSESSEE DID NOT HAVE SUFFICIENT CAPACITY FOR DRAWING, ANNEALING AND SPOOLING, THEREF ORE, HE HAD OUTSOURCED THIS WORK TO M/S NEW AGE. THE ASSESSEES MA NUFACTURING ACTIVITIES ARE UNDER THE SUPERVISION OF THE EXCISE DEPARTMENT. THE LD ASSESSING OFFICER HAD NOT BROUGHT ON RECORD ANY EVI DENCE THAT PAYMENTS MADE TO THE SISTER CONCERNS WERE MORE THAN FAIR MARK ET VALUE, AS SUCH NO COMPARABLE CASE HAS BEEN CONSIDERED BY THE ASSESSIN G OFFICER OR LD 13 ITA NO. 511/JP/2013 M/S JLC ELECTROMET PVT. LTD. VS ADDL.CIT CIT(A). THE RECIPIENT COMPANY ALSO PAYING MAXIMUM MA RGINAL RATE OF TAX, AS SUCH THERE IS NO REVENUE LOSS. A SIMILAR CLAIM WA S ALSO ALLOWED IN SUBSEQUENT YEARS BY THE ASSESSING OFFICER EVEN IN S CRUTINY ASSESSMENT. THE CASE LAWS CITED BY THE ASSESSEE ARE SQUARELY APP LICATION ON THE PRESENT ISSUE BEFORE US. THEREFORE, WE DELETE THE ADD ITION CONFIRMED BY THE LD CIT(A). ACCORDINGLY, FIRST GROUND OF THE ASSE SSEES APPEAL IS ALLOWED. 7. THE 2 ND GROUND OF THE ASSESSEES APPEAL IS AGAINST CONFIRM ING THE ADDITION OF RS. 7,98,808/- OUT OF STAFF WELFARE EXPE NSES. THE LD ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAD CLAIMED STAF F WELFARE EXPENSES AT RS. 16,49,402/- AS AGAINST RS. 5,67,063/- PAID IN T HE IMMEDIATE PRECEDING YEAR. THE ASSESSING OFFICER GAVE REASONABLE OPPORTUN ITY OF BEING HEARD ON THIS ISSUE. THE ASSESSEE ALSO FILED EXPLANATION AND BREAK UP OF STAFF WELFARE OF THE PREVIOUS YEAR AS WELL AS CURRENT YEAR. IT WAS SUBMITTED BY THE ASSESSEE THAT DURING THE YEAR UNDER CONSIDERATI ON, THE MAIN REASON FOR INCREASE IN THESE EXPENSES WAS DUE TO INCREASE I N EXPENDITURE INCURRED ON ACCOUNT OF UNIFORMS AND SHOES, WHICH ARE REQUIRED TO PAY AS PER AGREEMENT OF THE WORKERS AS WELFARE ACTIVITIES. A FTER CONSIDERING THE ASSESSEES REPLY, THE LD ASSESSING OFFICER HAS HELD THAT AS PER AGREEMENT, 14 ITA NO. 511/JP/2013 M/S JLC ELECTROMET PVT. LTD. VS ADDL.CIT THIS BENEFITS ARE TO BE PROVIDED EVERY YEAR AS THE ASSESSEE HAD PROVIDED SHOES AND UNIFORMS ONCE IN THREE YEARS. ON VERIFICA TION OF STAFF WELFARE VOUCHERS, SHE NOTICED THAT SOME OF THE VOUCHERS WERE SELF MADE AND HANDMADE AND WITHOUT SUPPORTING EVIDENCE. SOME OF TH E VOUCHERS LACKED COMPLETE NARRATION OR COMPLETE ADDRESS OF THE PERSO NS TO WHOM IT WAS PAID. SOME OF THE EXPENSES WERE INCURRED IN CASH, TH EREFORE, THESE EXPENSES ARE NOT VERIFIABLE FROM THE THIRD PERSON. THEREFORE, SHE DISALLOWED 50% OUT OF TOTAL EXPENSES CLAIMED UNDER T HIS HEAD. 8. BEING AGGRIEVED BY THE ORDER OF THE ASSESSING OF FICER, THE ASSESSEE CARRIED THE MATTER BEFORE THE LD CIT(A), WHO HAD ALL OWED THE APPEAL PARTLY BY OBSERVING AS UNDER:- AFTER GOING THROUGH RIVAL SUBMISSIONS IT IS SEEN T HAT THE APPELLANT CLAIMED STAFF WELFARE EXPENSES OF RS 5,67, 063 LAST YEAR, BUT THE EXPENSES INCREASED BY 3 TIMES TH IS YEAR COMING TO RS16,49,402. THE ARGUMENT OF THE AO THAT THE STAFF WELFARE EXPENSES WERE NOT TOTALLY VERIFIABLE AND WERE SUPPORTED BY SELF MADE VOUCHERS HAS NOT BEEN DISPUTED. ACCEPTING 50% INCREASE IN EXPENSES OVER LAST YEAR, (RS 5,67,063 CLAIMED LAST YEAR PLUS 50% OF RS 5,67,063 THAT IS RS 2,83,531 = RS 8,50,594) . STAFF WELFARE EXPENSES OF RS 8,50,594 AR E 15 ITA NO. 511/JP/2013 M/S JLC ELECTROMET PVT. LTD. VS ADDL.CIT ACCEPTED AND THE BALANCE DISALLOWANCE OF RS 7,98,808 (RS16,49,402 - RS 8,50,594 ) IS UPHELD. THE APPELLAN T GETS RELIEF OF RS 25,893 (RS 8,24,701 - RS 7,98,808 ). 9. NOW THE ASSESSEE IS IN APPEAL BEFORE US. THE LD AR OF THE ASSESSEE HAS SUBMITTED THAT THERE WAS AN AGREEMENT BETWEEN THE ASSESSEE AND WORKERS. AS PER THIS AGREEMENT, THERE IS CONTRACTUAL OBLIGATION UPON THE ASSESSEE. THE EXPENDITURE INCURRED ON SHOES AND UNI FORM IS AS PER TERMS AND CONDITIONS OF THE AGREEMENT AND ACCORDINGLY INC URRED WHOLLY AND EXCLUSIVELY FOR THE BUSINESS PURPOSES. THE LD ASSES SING OFFICER HAD NOT POINTED OUT ANY SPECIFIC DEFECTS IN THE VOUCHERS PR ODUCED BEFORE HER. SHE HAD MADE GENERAL REMARK ON THE VOUCHERS PRODUCED BE FORE HER. IN PRECEDING AND SUCCEEDING YEAR, NO SUCH DISALLOWANCE WAS MADE BY THE ASSESSING OFFICER. IT IS ASSESSEES BUSINESS TO DEC IDE IN WHICH YEAR IT HAS TO INCUR THE EXPENDITURE ON STAFF WELFARE. THE ASSESS ING OFFICER CANNOT STEP INTO SHOE OF THE BUSINESS MAN, THEREFORE, IT I S A DECISION OF A PRUDENT BUSINESS MAN TO ENTERTAIN AND PROVIDE WELFARE FACILI TIES. THEREFORE, HE PRAYED TO DELETE THE ADDITION CONFIRMED BY THE LD. CIT(A). 10. AT THE OUTSET, THE LD DR HAS VEHEMENTLY SUPPORT ED THE ORDER OF THE LD CIT(A). 16 ITA NO. 511/JP/2013 M/S JLC ELECTROMET PVT. LTD. VS ADDL.CIT 11. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON THE RECORD. THERE IS A SUBSTANTIAL INCREASE IN THE STAFF WELFARE EXPENSES DURING THE YE AR UNDER CONSIDERATION BUT THE ASSESSEE HAS JUSTIFIED THE INCREASE UNDER T HIS HEAD. THERE IS AN AGREEMENT BETWEEN THE ASSESSEE AND THE WORKER REGARDI NG STAFF WELFARE IS TO BE INCURRED ON THE EMPLOYEE. ACCORDINGLY, THE ASSESSEE HAD PROVIDED UNIFORM AND SHOWS DURING THE YEAR UNDER CONSIDERATIO N. THE ASSESSEE HAS PRODUCED ALL THE BILL AND VOUCHERS BUT THE ASSESSIN G OFFICER MADE DISALLOWANCE ON SURMISES AND CONJECTURE, WHICH IS NOT JUSTIFIED. THEREFORE, WE DELETE THE ADDITION CONFIRMED BY THE LD CIT(A). 12. THE 3 RD GROUND OF THE APPEAL IS AGAINST CONFIRMING THE DIS ALLOWANCE OF RS. 13,298/- UNDER THE HEAD PRIOR PERIOD EXPENSE S. THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAD CLAIMED PRIO R PERIOD EXPENSES AT RS. 13,298/- AS TAX AUDIT REPORT. THE ASSESSEE FILED RELEVANT DETAIL BEFORE THE ASSESSING OFFICER FOR CLAIMING EXPENSES AND PRO VED THE LIABILITY, HAD BEEN CRYSTALLIZED DURING THE YEAR UNDER CONSIDERATI ON BUT THE LD ASSESSING OFFICER MADE ADDITION OF RS. 13,298/- BEING PRIOR P ERIOD EXPENSES WHICH HAS BEEN CONFIRMED BY THE LD CIT(A) BY HOLDING THAT THESE ADDITIONS WERE MADE BY THE ASSESSING OFFICER ON THE BASIS OF AUDIT REPORT. THE LD AR FOR 17 ITA NO. 511/JP/2013 M/S JLC ELECTROMET PVT. LTD. VS ADDL.CIT THE ASSESSEE HAS NOT PROVED DURING THE APPELLATE PR OCEEDINGS THAT THESE EXPENSES CRYSTALLIZED DURING THE YEAR UNDER CONSIDE RATION. THE LD AR SUBMITTED BEFORE US THAT IT IS SETTLED LEGAL POSITI ON THAT UNDER ACCRUAL BASIS OF ACCOUNTING EXPENDITURE MAY RELATE TO PRIOR PERIOD YET THE LIABILITY THERETO ACCRUED ONLY WHEN IT IS ASCERTAINED AND QUAN TIFIED. THIS LIABILITY HAD BEEN UTILIZED DURING THE YEAR UNDER CONSIDERATI ON, THEREFORE, SAME MAY BE DELETED. AT THE OUTSET, THE LD AR HAS VEHEME NTLY SUPPORTED THE ORDER OF THE LD CIT(A). 13. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON THE RECORD AS WELL AS OBSERVATIONS MADE BY THE LOWER AUTHORITIES. EVEN LD AR OF THE ASSESSEE HAD NOT BEEN ABLE TO PROVE THESE EXPENSES WERE CRYSTALLIZED DURING THE YE AR UNDER CONSIDERATION. THEREFORE, ORDER OF THE LD CIT(A) IS U PHELD. ACCORDINGLY, THIS GROUND OF THE ASSESSEES APPEAL IS DISMISSED. 14. THE 4 TH GROUND OF THE ASSESSEES APPEAL IS AGAINST CONFIRM ING THE ADDITION OF RS. 6,34,187/- ON ACCOUNT OF ADDITIONAL INTEREST INCOME FROM BANK ON THE BASIS OF TDS CERTIFICATE. THE LD ASSESS ING OFFICER OBSERVED THAT THE ASSESSEE HAD DECLARED INTEREST ON FDR FROM BANKS AT RS. 42,57,512/- IN THE RETURN OF INCOME. HOWEVER, ON PER USAL OF TDS 18 ITA NO. 511/JP/2013 M/S JLC ELECTROMET PVT. LTD. VS ADDL.CIT CERTIFICATE FURNISHED DURING THE COURSE OF ASSESSME NT PROCEEDINGS, THE TOTAL INTEREST CREDITED IN THE NAME OF ASSESSEE WAS RS. 48,51,699/- UPON WHICH TDS OF RS. 10,07,691/- HAD BEEN DEDUCTED BY TH E BANK. THEREFORE, HE MADE ADDITION OF RS. 6,34,187/-, WHICH WAS CONFIR MED BY THE LD CIT(A) ON THE BASIS THAT THE PREMATURING OF THE FDRS HAPPE NED ON 11/4/2007 WHILE THE APPELLANT IS REVERTING INTEREST ON 31/3/20 09. THE INTEREST REVERSAL IS NOT PROVED BY ANY BANK DOCUMENT. THE LD AR OF THE ASSESSEE BEFORE US HAS SUBMITTED THAT THE INTEREST ON FDR AL READY ACCOUNTED FOR WHICH HE HAS DRAWN OUR ATTENTION ON PAGE NO. 87-88 OF PAPER BOOK. THE ASSESSEE HAD ENCASHED FDRS PREMATURELY, THEREFORE B ANK HAD REVERTED OR DEBITED THE INTEREST OF RS. 6,08,117/- IN THE F.Y. 2007-08. THE ASSESSEE HAD CLAIMED THESE EXPENSES DURING THE YEAR UNDER CO NSIDERATION, THEREFORE, IT AMOUNTS TO DOUBLE TAXATION. ACCORDING LY, HE PRAYED TO DELETE THE ADDITION. AT THE OUTSET, THE LD DR HAS VEHEMENT LY SUPPORTED THE ORDER OF THE LD CIT(A) AND ARGUED THAT THE RELEVANT DEBIT ENTRY IS NOT PERTAINED TO YEAR UNDER CONSIDERATION. 15. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON THE RECORD. IT IS UNDISPUTED FACT THAT THE INTEREST HAS BEEN SHOWN AS INCOME BY THE ASSESSEE IN EARLIER YEAR ON 19 ITA NO. 511/JP/2013 M/S JLC ELECTROMET PVT. LTD. VS ADDL.CIT FDRS AND THESE FDRS WERE ENCASHED BY THE APPELLANT, THEREFORE BANK HAS CHARGED INTEREST ON PREMATURE FDRS. THE AR TRIED TO EXPLAIN ON THE BASIS OF EVIDENCE THAT HOW THE BANK HAD DEBITED THE INTERE ST EXPENSES ON FDRS. ACCORDINGLY, THIS ISSUE IS REQUIRED TO VERIFY FROM THE RECORD WITH REFERENCE TO DISCLOSURE OF THE INTEREST INCOME OF F DRS AND CLAIMING INTEREST EXPENSES ON PREMATURE OF THE FDRS. IT APPE ARS THAT THE LIABILITY IS PERTAINED TO F.Y. 2007-08 WHEREAS THE ASSESSEE HAS C LAIMED THIS EXPENDITURE IN A.Y. 2009-10. THEREFORE, ASSESSING OF FICER IS DIRECTED TO VERIFY THE CLAIM OF THE ASSESSEE AND DECIDE THE ISS UE AS PER LAW. ACCORDINGLY, THIS GROUND OF APPEAL IS SET ASIDE TO THE ASSESSING OFFICER FOR DENOVO. 16. IN THE RESULT, THE ASSESSEES APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 24/2/2016. SD/- SD/- YFYR DQEKJ VH-VKJ-EHUK (LALIET KUMAR) (T.R. MEENA) U;KF;D LNL;@ JUDICIAL MEMBER YS[KK LNL;@ ACCOUNTANT MEMBER TK;IQJ@ JAIPUR FNUKAD@ DATED:- 24 TH FEBRUARY, 2016 RANJAN* VKNS'K DH IZFRFYFI VXZSFKR @ COPY OF THE ORDER FORWARDED TO: 1. VIHYKFKHZ @ THE APPELLANT- M/S JLC ELECTROMET PVT. LTD., JAIPUR. 20 ITA NO. 511/JP/2013 M/S JLC ELECTROMET PVT. LTD. VS ADDL.CIT 2. IZR;FKHZ @ THE RESPONDENT- THE ADDL.CIT, RANGE-4, JAIPUR. 3. VK;DJ VK;QDR @ CIT 4. VK;DJ VK;QDRVIHY @ THE CIT(A) 5. FOHKKXH; IZFRFUF/K] VK;DJ VIHYH; VF/KDJ.K] T;IQJ @ DR, ITAT, JAIPUR 6. XKMZ QKBZY @ GUARD FILE (ITA NO. 511/JP/2013) VKNS'KKUQLKJ @ BY ORDER, LGK;D IATHDKJ @ ASST. REGISTRAR