INCOME TAX ACT, 1961

Section 37(1)

Business expenditure - Allowability - Labour expenses - AO made disallowance of rate of salary paid to temporary staff in excess to permanent staff

Assessee-company was engaged in business of mechanical and engineering job work. It hired two types of labours, i.e., permanent labours/staff and temporary labours. It paid monthly salary of Rs. 12,000 to its permanent labours, whereas paid monthly salary as high as 18,250 to its temporary labours. Thus, the AO sought justification for paying more salary to temporary labours. Assessee submitted that the temporary labours were paid more salary because they were working under highly hazardous conditions involving higher risk to their life. However, AO did not find any merit in the submission of the assessee and concluded that rate of salary paid to the temporary staff in excess to the permanent staff, who were more qualified and experienced, was unreasonable. Accordingly, he made disallowance on account of labour expenses. Held: It was found that payment of wages to temporary labours was made after deduction of professional tax and PF. Thus, the genuineness of the said payment could not be suspected. Once the genuineness of expenses is established, then the AO cannot occupy the armchair of the assessee and direct it to make payment of wages at particular rate. As such it was the wisdom of the assessee for making the payment of the wages at the particular rate, which could not be questioned by the AO. Further, it was also found that the work allotted to temporary labours involved skilled and experienced physical labour force. Therefore, the AO was not justified in making disallowance on account of labour expenses.

Followed:ACIT v. Radiant Engineers [ITA No. 2238/Ahd/2012 & CO No. 231/Ahd/2012, dt. 6-12-2016]

REFERRED :

FAVOUR : In assessee's favour

A.Y. : 2010-11

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