R.S. Padvekar, Judicial Member

1. In this appeal the assessee has challenged the impugned order of the Ld. CIT Mumbai dated 08.07.2010 for the A.Y. 2005-06. When this appeal was called for the hearing, one person, Shri Kamalesh who is peon from the office of the Chartered Accountant representing assessee, appeared before the Bench and presented an application for adjournment. In our opinion, seeking an adjournment in Court proceeding in any case, itself is a judicial proceeding and no unauthorised person can appear in the Court. Moreover, we are seriously concerned about the approach of the Chartered Accountant who preferred to send his Peon to appear in the Court proceedings instead to remain present in person, when he was professionally bound to do so as he has filed Power of Attorney to represent assessee. Under the circumstances we reject the application for adjournment presented by the Peon of the Chartered Accountant and proceed to dispose off present appeal on merit after hearing the Ld.

D.R. The assessee has taken the following effective grounds in the appeal:-

1. The Ld. CIT (A) erred in confirming disallowance of ` 3,81,075/- out of salary expenses as claimed being payment to relatives of the employees, treating such expenses as non-business, without property appreciating the fact that payment has been made for the purpose of the business of the appellant company.

2. The Ld. CIT (A) erred in confirming disallowance of ` 6,07,283/- out of the payment made to the contractors being relatives of the employees, without appreciating the fact that such relatives have been paid for the labour supplied for the manufacturing operations of the appellant and hence such payments are allowable deductions.

2. Briefly stated the facts which are revealed from the record as under. A search and seizure operation u/s. 132 of the Act was carried out on 10.10.2007 at the business and residential premises of Jimtex Group and Directors / Partners of the companies and firms in the said Group. The assessee is one of the Group concerns in the Jimtex Group, which was also covered in the search. In consequence of the search and seizure operation notice u/s. 153A was issued directing the assessee to file the return of income. The assessee filed the return of income for the A.Y. 2005-06 declaring an undisclosed income of ` 2,95,45,431/- which was admitted during the course of the survey u/s. 133A, being un accounted sale of waste material and payment to the labour contractor. In this case apart from the search and seizure operation there was survey action u/s. 133A on 5.1.2006 and during the course of the survey action the assessee has surrendered the additional income in the hands of the different concerns. It was revealed that the assessee has sold Fents and chindies which were not recorded in the books of account. Fents and chindies are waste which is generated during the course of the business activities of the assessee. Fents and chindies are sold in cash and this cash was not recorded in the books of account of the assessee. As per the statement given by the assessee, out of the sale of Fents and chindies of ` 2,95,45,431/- various payments of labour contractors and other expenses had been made. It was also found that salary was paid to the relatives of certain employees. The assessee claimed the same expenditure as a business expenditure by stating that payment on account of salary was made to the relatives of the employees as part of pay package of employees. The A.O. made disallowance to the extent of ` 3,81,075/-. The assessee challenged the disallowance before the Ld. CIT (A) who confirmed the order of the A.O. by giving the following reasons:-

1.4 I have carefully considered the reply of the appellant and perused the assessment order. The Assessing Officer has found that the expenses has not been incurred for the purpose of business as no tax has been deducted from the salary paid the relatives. Moreover the employees have also not paid tax on the same. It is an admitted fact that the relatives of the employees have not rendered any services to the appellant. Therefore payment made to the assessee is not business expenditure and rather exgratia payment to the relatives of the employees which is not allowable as business expenditure. In view this fact the Assessing Officer is justified in making disallowance of these expenses. The disallowance made by the Assessing Officer is confirmed. The first ground of appeal is not allowed.

3. We have heard the Ld. D.R. who supported the orders of the authorities below. As per the reasons recorded by the A.O. we find that the relatives of the employees have not rendered any services to the assessee. Hence, the expenditure claimed by the assessee cannot be said to have been incurred for the purpose of the business. In our opinion, the Ld. CIT (A) has rightly confirmed the addition. We find no reason to interfere with the order of the Ld. CIT (A) on this issue. Accordingly, the same is confirmed and ground no. 1 is dismissed.

4. So far as ground no. 2 is concerned, it is against the disallowance made of ` 6,07,283/- which was payment made to the relatives of the employees.

5. Briefly stated the facts are as under. The A.O. has noted that clinching evidences were gathered showing payments made to labour charges to the relatives of the employees amounting to ` 6,07,283/- and the assessee contended that the payments had been made for supply of labour. As the assessee failed to prove the payment for the purpose of the business the A.O. made the disallowance made of ` 6,07,283/- which was confirmed by the Ld. CIT (A).

6. We have heard the Ld. D.R. who argues that unless the payment is made for the purpose of the business and supporting evidence is led to prove the same then only the deduction can be allowed. He submits that though few bills were produced before the Ld. CIT (A) but those were not genuine as even the bill numbers were missing on so called bills. The Ld. D.R. prayed for confirming the order of the Ld. CIT (A) on this issue. We find that the Ld. CIT (A) has given the detailed reasoning for rejecting the claim of the assessee. The assessee tried to prove the payment of the labour charges incurred for the purpose of the business by producing some bills but there were serious contradictions. The Ld. CIT (A) has in detail discussed how the bills were not reliable and operative part of the Ld. CIT (A) is as under:-

2.3 I have carefully considered the reply given by the appellant and perused the assessment order. The appellant has paid labour charges of ` 6,07,263/- to the relatives of the employees namely Shri N.P. Lahoti and Priya Nair. The appellant has claimed that the payment has been made to prove that the expenditure has been incurred for the purpose of business. The appellant has filed copy of Bill from Shri NP Lahoti labour contractor. From the production bill dated 10.04.2004, it is seen that no bill number has been given and total bill has been raised for ` 27,055/-. The details of Bill is reproduced as under:

Dated 10/4/04

Bill No. ______

M/s. Valiant Glass Works (P) Ltd.

MIDC Tarapur Dhall Stenoter No.2 Monte Marg

Total Production 18,41,432 X 0.15 = ` 27,621

Less: TDS ` 566/` 27,055

=====

`

Twenty Seven Thousand Fifty five only Perusal of this bill shows that labour charges has been calculated @ 0.015 has not stated these are rupees or paisa. Further the remuneration for production like meter for clothes has not been given. Contractor has deduced TDS although the same is to be deducted by the appellant as payer of the amount. The appellant was required to file agreement with the Contractor for supply of labour, but he has failed to produced any agreement.

The appellant has also filed labour charges Bill dated 08.03.2004 in which total production taken at 113980 @ 1.50% which is more than ten times of the rate quoted in the bill dated 10.04.2004. The appellant has not explained the discrepancy in this regard. The appellant has also filed Bill dated 08.02.2005, even bill Number is missing and total labour charges has been shown at ` 24,669/-, and basis of labour charges has no been. The Contractor has deducted TD of ` 28,286/-. Similar position is with regard to Bill dated 02.11.2004 where neither Bill No. is given nor basis of payment has been given. In Bill dated 25.05.2004 the rate of production has been taken @ 0.02 NP which is different from the earlier bills. Perusal of these bills shows that neither there is any rate uniformity nor uniform labour charges has been given. The appellant has not filed copy of any bill raised by Priya Nair. Thus it is clear that the appellant has failed to explain that this expenditure of ` 6,07,263/- has been incurred for the purpose of business as the same is not supported by proper bills. Moreover the appellant has surrendered substantial amount of ` 2,95,25,451/- during the survey u/s. 133A due to payment of labour contract. In view of this fact the Assessing Officer is justified in making disallowance of ` 6,07,283/-. The disallowance made by the Assessing Officer is confirmed. Second ground of appeal is not allowed.

7. In our opinion, as rightly argued by the Ld. D.R. the assessee failed to prove that the payment was made for the purpose of the business of the assessee. We find no reason to interfere with the order of the Ld. CIT (A) accordingly, ground no. 2 is dismissed.

8. In the result, assessees appeal is dismissed.

Order pronounced in the open court on this day of 23rd December, 2011.