M/S. TOPS SECURITY LTD ( FORMERLY TOPS DETECTIVES & SECURITY SERVICES LTD), MUMBAI v. THE DCIT RG 8(3), MUMBAI

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH J MUMBAI. BEFORE SHRI SHRI J. SUDHAKAR REDDY ACCOUNTANT MEMB ER AND SHRI V.D. RAO JUDICIAL MEMBER. I.T.A. NO. 38 64/MUM/2007. ASSESSMENT YEAR : 2001-02. TOPS SECURITY LTD. DY. COMMISSIONER OF (FORMERLY TOPS DETECTIVE & VS. INCOME TAX RG-8(3) SECURITY SERVICES LTD.) MUMBAI. 5 SUJATA BUILDING JUHU TARA ROAD JUHU MUMBAI 400 049. PAN : AAACT0160F APPELLANT RESPONDENT I.T.A. NO.452 9/MUM/2007. ASSESSMENT YE AR : 2001-02. ASSTT. COMMISSIONER OF TOPS DETECTIVE & SECURITY INCOME TAX RANGE-8(3) VS. SERVICES LTD. MUMBAI. MUMBAI. ASSESSE E BY : SHRI CHETAN KARIA. DEPARTMENT BY : SHRI N.K. BAL ODIA. O R D E R PER J. SUDHAKAR REDDY A.M. THESE ARE CROSS APPEALS AND ARE DIRECTED AGAINST THE ORDER OF THE CIT(APPEALS) DATED 30-03-2007 FOR THE ASSESSMEN T YEAR 2001-02. 2. FACTS IN BRIEF : THE ASSESSEE IS IN THE BUSINESS OF SECURITY SERVI CES AND IT FILED ITS RETURN OF INCOME ON 31-10-2001 DECLARING A TOTAL INCOME OF RS.2 75 85 408/-. THE AO COMPLETED THE ASSESSMENT U /S 143(3) ON 19-03- 2 2004 INTER ALIA MAKING DISALLOWANCES UNDER VARIOU S HEADS INCLUDING DELAYED PAYMENT OF P.F. EVENT EXPENSES AND SALARY AND WAGES ETC. HE ASSESSED THE INCOME AT RS.12 84 42 505/-. AGGRIEVED THE ASSESSEE CARRIED THE MATTER IN APPEAL. THE FIRST APPELLATE AUTHORITY GRANTED PART RELIEF. 3. ON THE ISSUES WHERE THE FIRST APPELLATE AUTHORI TY HELD AGAINST THE ASSESSEE THE ASSESSEE FILED THE APPEAL AND ON THE ISSUES WHERE THE FIRST APPELLATE AUTHORITY GRANTED RELIEF TO THE ASSESSEE THE REVENUE IS IN APPEAL. 4. WE FIRST TAKE UP THE ASSESSEES APPEAL. THE FIRST GROUND RELATES TO DISALLOWANCE OF EMPLO YEES AND EMPLOYER ESI AND CONTRIBUTION TO PROVIDENT FUND BEY OND THE GRACE PERIOD ALLOWED UNDER THE RESPECTIVE STATUTE. THE ASSESSEE S CASE IS THAT THE SECOND PROVISO TO SECTION 43B IS OMITTED BY THE FIN ANCE ACT 2003 AND THAT IT IS RETROSPECTIVE IN NATURE. 4.1 AFTER HEARING THE RIVAL CONTENTIONS WE FIND T HAT THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. ALOM EXTRUSIO NS LTD. 319 ITR 306 HELD THAT THE AMENDMENT TO PROVISO TO SECTION 43B A S PER FINANCE ACT 2003 IS RETROSPECTIVE IN NATURE. BUT IN THIS CASE T HE DISALLOWANCE HAS BEEN MADE IN RESPECT OF EMPLOYEES CONTRIBUTION ALSO. THE EMPLOYEES CONTRIBUTION TOWARDS P.F. AND ESIC ARE TREATED AS I NCOME U/S 2(24) OF THE ACT AND THEREAFTER ARE ALLOWABLE AS A DEDUCTION U/ S 36(1)(VA) OF THE ACT. THERE IS NO AMENDMENT IN SECTION 36(1)(VA). AS THIS EXPENDITURE IS SPECIFICALLY GOVERNED BY SECTION 36(1)(VA) THE CLA IM CANNOT BE ALLOWED U/S 37. SECTION 43B COMES INTO PLAY IF THE EXPENSE IS OTHERWISE ALLOWABLE UNDER THE ACT. AS THE EMPLOYEES CONTRIBUTION IN THI S CASE IS NOT ALLOWABLE U/S 36(1)(VA) OF THE ACT FOR THE REASON THAT THE S AME IS NOT PAID WITHIN THE 3 DUE DATE WE UPHOLD THE ORDER OF THE FIRST APPELLAT E AUTHORITY AND DISMISS THIS GROUND OF THE ASSESSEE 4.2 COMING TO THE EMPLOYEES CONTRIBUTION AND ESI P AYMENT WE SET ASIDE THE ISSUE TO THE FILE OF THE AO FOR FRESH ADJUDICATION IN THE LIGHT OF THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF ALOM EXCLUSIONS AS THE DATES OF PAYMENT ARE NOT ON RECO RD AND ALLOW PAYMENTS MADE BEFORE THE DUE DATE OF FILING OF THE RETURN. 4.3 IN THE RESULT GROUND NO. 1 IS PARTLY ALLOWED. 5. GROUND NO. 2 IS ON VARIOUS ADHOC DISALLOWANCES MADE BY THE AO AND SUSTAINED BY THE FIRST APPELLATE AUTHORI TY. 5.1 AFTER HEARING THE RIVAL CONTENTIONS WE HOLD A S FOLLOWS : 5.2 THE FIRST ISSUE IS REGARDING ADHOC DISALLOWANC E OF RS.3 34 902/- OUT OF GENERAL EXPENSES. THE CIT(APPE ALS) HAS RESTRICTED THE DISALLOWANCE TO 10%. THE LEARNED COUNSEL FAIRLY SUBMITTED THAT IN VIEW OF THE SMALLNESS OF THE QUANTUM HE WOULD NOT PRESS THIS GROUND. IN VIEW OF THE ABOVE SUBMISSION WE DISMISS THIS GROUN D AS NOT PRESSED. 5.3 THE NEXT ISSUE IS DISALLOWANCE OF TELEPHONE EX PENSES. THE TELEPHONE IN QUESTION IS INSTALLED AT THE DIRECTOR S RESIDENCE. THE ENTIRE EXPENDITURE HAS BEEN DISALLOWED BY THE AO. THE CIT( APPEALS) OBTAINED THE REMAND REPORT AND SUSTAINED THE DISALLOWANCE OF RESIDENTIAL TELEPHONE EXPENSES. THE ASSESSEES CASE IS THAT RESIDENTIAL T ELEPHONES ARE ALSO PARTLY USED FOR BUSINESS AS THE DIRECTOR ARE FULL TIME IN VOLVED IN THE BUSINESS OF THE ASSESSEE. WE AGREE WITH THIS STATEMENT AND REST RICT THE DISALLOWANCE OF RESIDENTIAL TELEPHONE EXPENSES TO 50% OF RS.1 82 05 4. THUS THE ASSESSEE GETS A PART RELIEF. 4 5.4 THE NEXT ISSUE IS DISALLOWANCE OF CONVEYANCE E XPENSES ON THE GROUND THAT PROPER VOUCHERS WERE NOT PRODUCED. THE AO AS IN THE CASE OF GENERAL EXPENSES DISALLOWED 50% AND THE CI T(APPEALS) RESTRICTED THE DISALLOWANCE TO 10%. THE LEARNED COU NSEL FOR THE ASSESSEE SUBMITTED BEFORE US THAT IN VIEW OF THE SMALLNESS O F THIS AMOUNT HE IS NOT PRESSING THIS GROUND. HENCE THIS GROUND IS DISMISSE D AS NOT PRESSED. 5.5 SIMILARLY THE LEARNED COUNSEL HAS NOT PRESSED THE DISALLOWANCE ON ACCOUNT OF STAFF WELFARE EXPENSES W HICH IS RESTRICTED TO RS.1 LAKH BY THE CIT(APPEALS) IN VIEW OF THE SMALL NESS OF THE AMOUNT. HENCE WE DISMISS THIS GROUND AS NOT PRESSED. 5.6 SIMILARLY WE DISMISS THE GROUND AGAINST THE D ISALLOWANCE OF RS.1 76 995/- OUT OF LABOUR WELFARE EXPENSES AS NOT PRESSED IN VIEW OF THE SMALLNESS OF THE AMOUNT. 5.7 SIMILARLY DISALLOWANCES ON TRAVELLING EXPENSE S AND TIFFIN ALLOWANCES ARE ALSO DISMISSED. 5.8 IN THE RESULT GROUND NO. 2 OF THE ASSESSEES APPEAL IS ALLOWED IN PART. 6. GROUND NO. 3 IS AGAINST THE DISALLOWANCE OF RS. 2 45 682/- BEING PAYMENT OF PF AND ESIC WHICH WAS DISALLOWED IN THE PREVIOUS YEAR BY INVOKING SECTION 43B AND WHICH HAVE BEEN P AID DURING THE CURRENT YEAR. 6.1 AFTER CONSIDERING THE FACTS THE PAYMENT OF PR OVIDENT FUND DURING THE YEAR WHICH WAS DISALLOWED U/S 43B IN TH E EARLIER YEAR WOULD ENTITLE THE ASSESSEE FOR A DEDUCTION. AS ONLY EMPLO YERS CONTRIBUTION IS 5 DISALLOWED BY APPLYING SECTION 43B THE SAME SHOULD BE ALLOWED ON PAYMENT BASIS. 6.2 IN THE RESULT GROUND NO. 3 OF THE ASSESSEE IS ALLOWED IN PART. 7. GROUND NO. 4 IS REGARDING ADDITION ON ACCOUNT O F UNDISCLOSED INCOME OF RS.5 71 953/-. THE AO ADDED T HIS AMOUNT AS UNDISCLOSED INCOME ON THE GROUND THAT THE ASSESSEE HAD NOT CORRELATED CERTAIN EXPENDITURE WITH INCOME AND THUS THERE WAS UNRECORDED INCOME. AT PAGE 19 AND 20 OF THE ASSESSMENT ORDER PARA 14 THE AO OBSERVED THAT EVENT EXPENSES WERE DEBITED AS INCURRED ON SECURITY CHARGES FOR SPECIFIC EVENTS SUCH AS EXHIBITION AT AURANGABAD TARAPUR P UNE ETC. THE ASSESSEE WAS NOT ABLE TO CORRELATE THE EXPENDITURE WITH THE INCOME. UNDER THE CIRCUMSTANCES THE AO ADDED CERTAIN AMOUNTS AS INC OME NOT RECORDED IN THE BOOKS OF ACCOUNT. THE CIT(APPEALS) CONFIRMED TH E ADDITION ON THE GROUND THAT NO DOCUMENTARY PROOF IS PRODUCED. 7.1 AFTER HEARING THE RIVAL CONTENTIONS WE ARE OF THE CONSIDERED OPINION THAT THIS ADDITION HAS BEEN MADE PURELY ON SURMISES AND CONJECTURES. THE GENUINENESS OF THE EXPENDITURE HAS NOT BEEN DOUBTED AND IN FACT HAS BEEN ALLOWED IN FULL. THE ASSESSEE HAS SHOWN A HUGE TURNOVER OF RS.47.22 CRORES THIS YEAR. THERE IS NO EVIDENCE WHATSOEVER THAT THE ASSESSEE HAS NOT RECORDED ANY INCOME IN IT S BOOKS OF ACCOUNT. THERE IS NO ENQUIRY OR EVIDENCE COLLECTED BY THE RE VENUE TO SUBSTANTIATE ITS CLAIM THAT THE ASSESSEE HAS RECEIVED CERTAIN AM OUNTS IN CASH AND HAS NOT ACCOUNTED FOR THE SAME IN THE BOOKS OF ACCOUNT. THE ASSESSEES SUBMISSION THAT DUE TO PASSAGE OF TIME AND HAVING R EGARD TO THE SMALLNESS OF THE AMOUNT THE ASSESSEE COULD NOT CORRELATE THE RECEIPTS WITH EXPENDITURE INCURRED IS A PLAUSIBLE EXPLANATION. THE ASSESSEE FURTHER SUBMITTED THAT THE EXPENDITURE IN QUESTION WERE INC URRED IN THE EARLIER 6 YEARS ALSO AND DURING THIS YEAR FOR THE PURPOSE OF CLARITY SUB DIVISION OF EXPENDITURE HAS BEEN MADE IN DIFFERENT HEADS. THIS IS A PLAUSIBLE EXPLANATION AND THE AMOUNT IN QUESTION IS A SMALL A S COMPARED TO THE TOTAL TURNOVER OF THE ASSESSEE. THUS IN VIEW OF ABOVE DI SCUSSION WE ARE OF THE CONSIDERED OPINION THAT THE ADDITION IN QUESTION IS NOT WARRANTED. THUS WE DELETE THE ADDITION OF RS.5 71953/- AS UNDISCLOSED INCOME. 7.2 THUS GROUND NO. 4 OF THE ASSESSEE IS ALLOWED. 8. IN THE RESULT THE APPEAL OF THE ASSESSEE IS AL LOWED IN PART. 9. THIS BRINGS US TO THE REVENUES APPEAL IN ITA NO.4529/MUM/2007. 10. GROUND NO. 1 IS ON THE ISSUE WHETHER THE CIT(A PPEALS) WAS RIGHT IN ALLOWING THE EMPLOYERS AND EMPLOYEES CON TRIBUTION TOWARDS PF AND ESIC MADE AFTER THE DUE DATES BUT WITHIN THE G RACE PERIOD ALLOWABLE UNDER THE RESPECTIVE ACTS. THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE BY THE DECISION OF HONBLE MADRAS HIGH COURT IN THE CASE OF SALEM COOPERATIVE SPINNING MILL MILL LTD. 284 ITR 621 (MAD.) WHICH HAS BEEN FOLLOWED BY THE JURISDICTIONA L HIGH COURT IN INCOME TAX APPEAL NO. 1155 OF 2007 ORDER DATED 9-10 -2007. RESPECTFULLY FOLLOWING THE SAME THIS GROUND OF THE REVENUE IS DISMISSED. 11. GROUND NO. 2 IS AGAINST THE DELETION OF DISALL OWANCE RS.50 LAKHS MADE BY THE AO OUT OF CAR AND JEEP HIRE CHARG ES. THE AO MADE THE DISALLOWANCE ON THE GROUND THAT THERE IS SUBSTA NTIAL INCREASE IN THE EXPENDITURE CLAIMED FROM RS.28 LAKHS TO RS.90 LAKHS AND THE ASSESSEE IS ALSO NOT IN A POSITION TO SUBSTANTIATE AS TO HOW M ANY VEHICLES WERE USED BY IT AND FOR WHICH BRANCH AND AS TO WHY THERE IS A STEEP INCREASE IN EXPENDITURE. THE FIRST APPELLATE AUTHORITY ALLOWED THE CLAIM OF THE 7 ASSESSEE BY OBSERVING THAT THE ASSESSEE HAD FURNISH ED ALL THE EVIDENCES AND DETAILS BEFORE THE AO AND NO DEFECTS HAVE BEEN FOUND. THE FIRST APPELLATE AUTHORITY FURTHER OBSERVED THAT THOUGH N O LOG BOOK WAS MAINTAINED VEHICLES ARE REQUIRED FOR BUSINESS. HE ALSO OBSERVED THAT THE AO HAS NOT BROUGHT ON RECORD EVIDENCE TO SHOW THAT THE EXPENSES ARE BOGUS AND ARE NOT ACTUALLY INCURRED. ON THE COMMEN TS OF THE AO THAT RS.58 60 000/- HAS BEEN PAID TO M/S TOP FLEET MANAG EMENT SERVICES (TFMS) WHICH IS A PROPRIETARY CONCERN OF ONE OF THE DIRECTORS THE LEARNED FIRST APPELLATE AUTHORITY STATED THAT HAD T HE ASSESSEE PURCHASED THE VEHICLES INSTEAD OF HIRING THEM IT WOULD HAVE INCU RRED THE EXPENSES WHICH HAVE NOW MET BY TFMS. HE FURTHER OBSERVED TH AT AN AMOUNT OF RS.10 LAKHS OUT OF ALL THE CLAIM OF RS.90 LAKHS WAS IN RESPECT OF HIRING OF FURNITURE AND FIXTURES AT THE CORPORATE OFFICE OF T HE ASSESSEE AND THIS EXPENDITURE HAS BEEN ALLOWED BOTH IN THE PREVIOUS YEAR AND SUBSEQUENT YEAR BY THE DEPARTMENT. AGGRIEVED THE REVENUE IS I N APPEAL. 12. AFTER HEARING THE RIVAL SUBMISSIONS WE FIND T HAT THE ASSESSEE HAD FILED PARTY-WISE DETAILS OF THE EXPENSES AS WEL L AS COPY OF THE AGREEMENT WITH TFMS. THE INCOME-TAX ACKNOWLEDGEMEN T AND BALANCE SHEET OF THE RESPECTIVE PARTIES HAVE BEEN FILED. DU RING THE COURSE OF ASSESSMENT PROCEEDINGS THE AO ACKNOWLEDGED THAT SI MILAR EXPENDITURE WAS CLAIMED AND INCURRED DURING THE PREVIOUS YEAR A ND THE EXPENDITURE WAS RS.28 00 709/-. THE CIT(APPEALS) CALLED FOR THE REMAND REPORT AND THE AO FOUND THAT ALL THE VEHICLES IN QUESTION WERE PURCHASED BY TFMS. THE ASSESSEE SUBMITTED THAT IN THE BUSINESS OF PROV IDING SECURITY SERVICES USE OF VEHICLES IS EXTREMELY ESSENTIAL AND INSTEAD THE ASSESSEE HIMSELF PURCHASING THE VEHICLES IT TOOK THE SAME ON HIRE F ROM TFMS AND THE AMOUNT RECEIVED BY TFMS HAS BEEN OFFERED TO TAX IN ITS HANDS. IT WAS POINTED OUT THAT ONLY EXPENSES CLAIMED BY TFMS FRO M OUT OF THIS 8 PAYMENT OF RS.58 60 000/- WAS INTEREST AND FINANCE CHARGES INSURANCE CHARGES REGISTRATION CHARGES AND DEPRECIATION. COM PLETE DETAILS OF CAR NOS. NAME OF USER AND DESIGNATION OF THE PERSON US ING THE VEHICLES WERE GIVEN BY THE ASSESSEE. ON THESE FACTS THE FIRST AP PELLATE AUTHORITY IN OUR HUMBLE OPINION RIGHTLY DELETED THE ADDITION. WE UP HOLD THE SAME AND DISMISS THIS GROUND OF THE REVENUE. 13. THE NEXT ISSUE IS IN GROUND NO. 3 WHICH IS AGA INST THE DISALLOWANCE OF 10% OF TOTAL WAGES AND SALARY AMOUN TING TO RS.3 34 80 156/-. THE AO MADE THE DISALLOWANCE IN Q UESTION ON THE GROUND THAT THE CLAIM OF THE ASSESSEE THAT ALL THE SECURITY GUARDS HAVE OPENED BANK ACCOUNTS AND ONE CONSOLIDATED CHEQUE FO R EACH UNIT IS SENT IS NOT FULLY CORRECT AS THERE ARE CERTAIN BRANCHES WH ERE THERE IS NO BANK ACCOUNT GUARD-WISE. AFTER ENCASHING THE CONSOLIDATE D CHEQUES THE AMOUNTS WERE PAID TO THE GUARDS IN CASH. THE AO HEL D THAT THE ASSESSEE WAS NOT ABLE TO FURNISH DOCUMENTARY EVIDENCE FOR IN CREASE IN SALARY AND WAGES IN THE FORM OF PF AND ESIC RECORDS OF NEW REC RUITS AND RECONCILIATION OF THE SAME. THE FIRST APPELLATE AU THORITY OBSERVED THAT THE AO VERIFIED THE MUMBAI OFFICES RATIO OF EXPENSES I N REMAND PROCEEDINGS AND THIS HAD SHOWN NO DISCREPANCY. HE FURTHER OBSE RVED THAT THE AO CONSIDERED ABSOLUTE INCREASE AND NOT PERCENTAGE INC REASE IN EXPENDITURE. HE OBSERVED THAT THE RATIO OF SALARIES AND WAGES T O TURNOVER OVER A PERIOD OF THREE YEARS IS CONSISTENT AND THE COMPARISON OF WAGES BY BIFURCATION AS DONE BY THE AO IS TOTALLY WRONG. THE CIT(APPEALS) C ALLED FOR THE REMAND REPORT AND THE AO SUBMITTED TWO SEPARATE REPORTS ON E DATED 4-2-2005 AND THE OTHER DATED 25-9-2005. 14. ON HEARING BOTH THE PARTIES WE FIND THAT THE CIT(APPEALS) AT PAGES 19 20 AND 21 LAST PARA HELD AS FOLLOWS : 9 I HAVE CONSIDERED THE FACTS OF THE CASE REPORT O F AO AND SUBMISSIONS MADE BY AR/APPELLANT. BEFORE COMING TO THE MERIT OF THE ISSUE IT HAS TO BE POINTED OUT THAT THERE HAS BEEN SOME MISTAKE IN ASSESSMENT ORDER REGARDING THE QUANTIFICATION OF THE DISALLOWANCE. INITIALLY THE DISALLOWANCE HAS BEEN MADE UNDER THIS HEAD AMOUNTING TO RS.4 72 29 283/-. HOWEVER THIS H AS BEEN RECTIFIED U/S 154 BY AO AND THE DISALLOWANCE HAS BE EN RESTRICTD TO RS.3 34 80 156/-. HENCE THIS GROUND IS MODIFIED TO THAT EXTENT SO FAR AS THE QUANTUM IS CONCERNED. THE FACTS INVOLVED IN THIS ISSUE AND THE CLAIMS AND COUNTER CLAIMS MADE I HAVE ALREA DY BEEN RECORDED EARLIER IT WILL BE USEFUL TO RECAPITULATE CERTAIN BASIC FACTS OF THIS CASE. APPELLANT IS IN THE BUSINESS OF PROVI DING SECURITY AND SECURITY RELATED DEVICES TO ITS CLIENTS. FOR PROVID ING SECURITY APPELLANT HAS TO EMPLOY GUARDS. IT CAN BE SEEN FROM THE ACCOUNTS OF THE APPELLANT THAT THE MAIN SOURCE OF INCOME IS REC EIPT ON ACCOUNT OF DEPLOYMENT OF GUARDS FOR SECURITY PURPOSES AND M AJOR EXPENDITURE IS ALSO IN RESPECT OF SALARIES AND OTHE R EXPENDITURE RELATED TO SECURITY GUARDS. DURING THE YEAR SALARY AND WAGES EXPENDITURE IN RESPECT OF SECURITY GUARDS IS RS.36 13 74 295/-. EXPENDITURE UNDER THIS HEAD FOR THREE YEARS AND RAT IO OF THIS EXPENDITURE TO THE RECEIPTS ARE GIVEN BELOW : YEAR ENDING SECURITY SERVICE AND DETECTION CHARGES WAGES & SALARIES % 31-03-1999 250 860 010.65 290 692 234.71 76.02% 31-03-2000 336 757 070.00 254 975 222.00 75.72% 31-03-2001 472 292 836.00 361 374 295.00 76.51% AO HAD MADE THE DISALLOWANCE BECAUSE ON THE BASIS O F INFORMATION FURNISHED DURING THE COURSE OF ASSESSME NT PROCEEDINGS IT WAS NOTICED THAT THERE WAS INCREASE OF MORE THAN 2% UNDER THIS HEAD OF EXPENDITURE. THIS WAS APPARENTLY BECAUSE TH E FIGURES TAKEN WERE INCORRECT. AS PER THE CORRECT FIGURES AS NOTED ABOVE THE INCREASE IS LESS THAN 1%. AO HAD ALSO DISPUTED THE APPELLANTS CONTENTION THAT ALL THE PAYMENTS UNDER THIS HEAD AR E MADE THROUGH BANK ACCOUNT. IT WAS NOTED BY AO THAT THERE ARE CER TAIN UNITS (PARTICULARLY THE NEW ONES) WHERE THERE ARE NO BANK ACCOUNTS GUARD-WISE AND AFTER ENCASHING THE CONSOLIDATED CHE QUES THE 10 AMOUNTS ARE PAID TO THE GUARDS IN CASH. HE HAS HOWE VER NOR IDENTIFIED ANY SUCH SPECIFIC EXISTENCE. HE HAS ALSO ASKED THE APPELLANT TO FURNISH DOCUMENTARY EVIDENCE WITH REFE RENCE TO PF AND ESIC RECORDS OF NEW RECRUITMENT. THE SAME WAS N OT PRODUCED BEFORE AO BECAUSE THERE WAS NO SUFFICIENT TIME AVAI LABLE FOR THE SAME. THE MATTER THEREFORE WAS REFERRED TO AO TO VERIFY THE APPELLANTS CLAIM WITH ALL THE EVIDENCES AVAILABLE. IN THE REMAND REPORT AO HAS STATED THAT THERE IS INCREASE OF APP ROXIMATELY 50% UNDER THIS HEAD FROM LAST YEAR. THE AO FURTHER POIN TED OUT THAT WAGES OF THE PERSONNEL EMPLOYED BY THE APPELLANT CO ULD BE DIVIDED INTO TWO CATEGORIES . ONE CATEGORY WAS WAGES CONTRO LLED BY THE LABOUR BOARD AND OTHER WAS WAGES NOT CONTROLLED BY THE LABOUR BOARD HE FURTHER NOTED THAT WAGES INCOME RATIO IN RESPECT OF WAGES CONTROLLED BY THE LABOUR BOARD IS APPROXIMATE LY 70% WHEREAS FOR THOSE NOT CONTROLLED BY THE LABOUR BOAR D IT IS 81%. AO ALSO REFERRED TO THE CASE OF M/S DYNAMIC SECURIT Y AND DETECTIVES AGENCIES PVT. LTD. WHERE DISALLOWANCE O F 10% UNDER THIS HEAD HAS BEEN UPHELD BY LEARNED CIT(A)-VIII M UMBAI. AO IN HIS REMAND REPORT DATED 25.09.2006 HAS FAIRLY A DMITTED THAT VERIFICATION OF THIS EXPENDITURE ON TEST CHECK BASI S IN RESPECT OF MUMBAI BRANCH II SHOWED NO DISCREPANCY. MUMBAI-II I S THE SECOND LARGEST BRANCH OF THE APPELLANT. HE HAS ALSO STATED THAT EXPENSES CLAIMED BY APPELLANT ON ACCOUNT OF SALARY AND WAGES FOR THE MUMBAI BRANCH II WERE FOUND TO BE CORRECT. IN I TS REJOINDER APPELLANT HAS STATED THAT ACTUAL INCREASE UNDER THI S HEAD FOR LAST YEAR IS LESS THAN 61% AND NOT 50% AS INCORRECTLY ME NTIONED BY AO. AO HAS ERRONEOUSLY CONSIDERED THE ABSOLUTE INCREASE AND NOT THE PERCENTAGE INCREASE VIS--VIS THE TOTAL TURNOVER. A PPELLANT HAS ALSO POINTED OUT THAT IN SUBSEQUENT YEAR SUCH EXPENDITU RE HAS BEEN ACCEPTED AND NO ADDITION HAS BEEN MADE. IT IS APPAR ENT THAT AO HAS MISLEAD HIMSELF IN BELIEVING THAT INCREASE IS 50% U NDER THIS HEAD DURING THE YEAR COMPARED TO LAST YEAR. THE ACTUAL INCREASE AS NOTED ABOVE IS LESS THAN 1% WHICH CANNOT BE CONSID ERED AS EXCESSIVE. THIS IS ALSO UNDISPUTED FACT THAT THE PA YMENT UNDER THIS HEAD IS MADE THROUGH BANK ACCOUNT. APPELLANT HAS FU RNISHED DETAILS SHOWING THAT THERE IS A SYSTEM IN PLACE WHERE A GUA RD IS REQUIRED TO MAINTAIN BANK ACCOUNT AT NEARBY BRANCH AND HE RECEI VES SALARY THROUGH THAT ACCOUNT ONLY. AO HAS ALSO VERIFIED EXP ENDITURE IN RESPECT OF MUMBAI BRANCH II AND DID NOT FIND ANY DI SCREPANCY. UNDER THE CIRCUMSTANCES TO PRESUME THAT THE EXPEND ITURE CLAIMED IS NOT CORRECT OR IT IS EXCESSIVE OR IT IS NOT RELA TED TO BUSINESS PURPOSES COULD NOT BE JUSTIFIED. IN THIS CASE THE IMPORTANT FACT WHICH IS NOTICED IS THAT ALL THE PAYMENTS ARE MADE THROUGH THE 11 BANK ACCOUNTS AND NO PAYMENTS MADE IN CASH. THOUGH AO HAS DOUBTED THIS BUT HAS NOT POINTED OUT ONE SINGLE INS TANCE WHEREIN THE PAYMENT HAS BEEN MADE IN CASH. AO HAS REFERRED TO THE CASE OF M/S DYNAMIC SECURITY AND DETECTIVE AGENCIES PVT. LT D. WHEREIN 10% DISALLOWANCE HAS BEEN UPHELD UNDER THIS HEAD BY THE CONCERNED CIT(A). AO HAS HOWEVER NOT PROVIDED FURTH ER DETAILS AS TO THE SCALE OF BUSINESS DONE BY M/S DYNAMIC SECURI TY AND DETECTIVE AGENCIES PVT. LTD. AS ALSO BY ALL THE EXP ENDITURE UNDER THE HEAD WAGES AND SALARIES IS INCURRED THROUGH BAN K ACCOUNT OR IN CASH. APPELLANT HAS ARGUED THAT THE CASE OF M/S DYN AMIC SECURITY AND DETECTIVE AGENCIES PVT. LTD. IS NOT COMPARABLE BECAUSE THE SAID COMPANY OPERATES IN AN UNORGANIZED SECTOR WHI LE THE APPELLANT COMPANY CATERS TO MULTINATIONALS AND BIG INDUSTRIAL HOUSE WHERE VARIOUS LAWS ARE APPLICABLE AND REQUIRED TO B E FOLLOWED NOT ONLY BY THE AGENCIES CONCERNED BUT ALSO BY THE CLIE NTS. IT HAS ALSO BEEN POINTED OUT THAT THE TURNOVER OF M/S DYNAMIC S ECURITY AND DETECTIVE SERVICES PVT.LTD. WAS RS.115 LAKHS IN A.Y . 2001-02 WHILE IT IS RS.4 722.92 LAKHS IN THE CASE OF APPELL ANT. THEREFORE THE REFERENCE TO THAT CASE CANNOT BE BASIS FOR DISALLOW ANCE IN THIS CASE PARTICULARLY WHEN IN THIS CASE THE EXPENDITURE HAS BEEN INCURRED THROUGH BANK ACCOUNTS AND NO DISCREPANCY HAS BEEN N OTICED AFTER DETAILED EXAMINATION. APPELLANT HAS ALSO RELIED UPO N THE PAST HISTORY OF THE CASE AS ALSO THE SUBSEQUENT ACCEPTAN CE BY THE DEPARTMENT THAT EXPENDITURE TO THAT EXTENT IT IS C LAIMED UNDER THIS HEAD HAVE BEEN FOUND PROPER BY THE DEPARTMENT. REGA RDING AOS OBSERVATION THAT PERCENTAGE OF WAGE-INCOME RATIO FO R THOSE CONTROLLED BY LABOUR BOARD IS 70% AND THOSE NOT CON TROLLED BY LABOUR BOARD IS 81%. APPELLANT HAS DISPUTED THIS FA CT ALSO AND HAS FURNISHED A CHART. IT HAS BEEN STATED THAT THIS CHA RT WAS FURNISHED TO AO ALSO. ACCORDING TO APPELLANT AO HAS BIFURCATED THE REASONS IN MUMBAI AND OTHERS. THIS IS INCORRECT BECAUSE MAHARA SHTRA SECURITY GUARD BOARD ACT IS APPLICABLE TO WHOLE OF MAHARASHT RA WHILE REST OF THE COUNTRY IS COVERED BY MINIMUM WAGES ACT BY L AW WHICH VARIES FROM STATE TO STATE. THEREFORE CLUBBING OF OTHER REGIONS OF MAHARASHTR WITH REST OF THE COUNTRY IS NOT CORRECT. ACCORDING TO APPELLANT THE REGIONS CONTROLLED BY LABOUR BOARD I .E. THE WHOLE OF MAHARASHTRA THE WAGES-INCOME RATIO IS 75.24% WHILE IN RESPECT OF OTHER THAN MAHARASHTRA IT IS 79.31%. THE DIFFERENC E BETWEEN WAGES-INCOME RATIO OF TWO REGIONS IS BECAUSE THERE IS BETTER REALIZATION AS THE COMPOSITION OF CUSTOMERS ARE MAI NLY CORPORATE CLIENTS BANKS AND MULTINATIONAL COMPANIES. IT HAS BEEN SUBMITTED THAT THE APPELLANT IS ISO 9001:2000 CERTIFIED COMPA NY AND COMPLIES TO THE INTERNATIONAL STANDARD IN THIS REGA RD. CONSIDERING 12 THESE FACTS I SEE NO REASON TO JUSTIFY ANY DISALLO WANCE UNDER THIS HEAD. ACCORDINGLY THE ADDITION IS DELETED. 15. WE FULLY AGREE WITH THESE FINDINGS. THE COMPAR ATIVE ENHANCEMENT IN THE SALARY AND WAGES FOR THE LAST TH REE YEARS AS A PERCENTAGE TO THE TURNOVER IS ALMOST CONSTANT AND H ENCE NO ADVERSE INFERENCE OF ARTIFICIAL INFLATION IN EXPENDITURE CA N BE DRAWN. TOP TEN CLIENTS OF MUMBAI REGION WITH NUMBER OF GUARDS PROV IDED AND SECURITY CHARGES RECEIVED FROM THEM WERE SUBMITTED ALONG WIT H WAGE REGISTER AND BANK STATEMENT AND THE AO IN HIS REMAND REPORT DATE D 25-9-2005 HAS NOT FOUND ANY DISCREPANCY. THUS WE DISMISS GROUND NO. 3 OF THE REVENUE. 16. THE LAST GROUND OF THE REVENUE IS AGAINST THE DELETION OF RS.60 90 284/- UNDER THE HEAD UNIFORM DEPOSIT. TH IS ISSUE IS ADMITTEDLY COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE MUMBAI J-BENCH OF THE TRIBUNAL IN THE ASSESSEES OW N CASE IN ITA NO. 4964/MUM/2007 AND ITA NO. 5378/MUM/2007 FOR THE ASS ESSMENT YEAR 2003-04 VIDE ORDER DATED 20 TH NOV. 2009 WHERE AT PARA 16 IT IS HELD AS FOLLOWS : 16. WE ARE UNABLE TO AGREE WITH THE SUBMISSIONS OF THE LEARNED CIT-DR ON THIS ISSUE. THE UNDISPUTED FACT I S THAT THE ASSESSEE HAS BEEN TAKEN A DEPOSIT FROM THE SECURITY GUARDS AND HAS BEEN GIVING UNIFORMS. IN THE PAPER BOOK FROM PA GE NO. 346 TO 363 THE ASSESSEE HAS PROVIDED PHOTO STATE COPIES O F UNIFORM ISSUE REGISTER. THIS REGISTER IS MAINTAINED GUARDWI SE AND BATCHWISE AND MINUTE DETAILS AS TO THE UNIFORMS GIV EN SECURITY DEPOSIT TAKEN REFUNDS GIVEN ETC. ARE RECORDED. THE RE IS NO GAINSAYING THAT REFUNDABLE SECURITY DEPOSIT CANNOT BE CONSIDERED AS INCOME OF THE ASSESSEE. WE DO NOT SEE HOW THE EX PENDITURE INCURRED BY THE ASSESSEE TOWARDS UNIFORMS CAN BE HE LD AS THAT WHICH IS NOT THE EXPENDITURE OF THE ASSESSEE JUST B ECAUSE THE ASSESSEE TAKEN CERTAIN DEPOSITS FROM THE SECURITY G UARDS. IN OUR CONSIDERED OPINION THE FIRST APPELLATE AUTHORITY W AS RIGHT IN HOLDING THAT THE AO HAS DONE A FUNDAMENTAL MISTAKE WHILE 13 ANALYZING THE ACCOUNTING ENTRIES PASSED BY THE ASSE SSEE. THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE O F PUNJAB DISTILLING INDUSTRIES LTD. IS NOT APPLICABLE TO THE FACTS OF THE CASE AS THERE WERE CERTAIN DEPOSITS IN THAT CASE WHICH WERE NOT REFUNDED AND IN SUCH CIRCUMSTANCES THOSE DEPOSITS W ERE TREATED AS INCOME. IN THIS CASE IT IS NOT THE CASE OF THE R EVENUE THAT THE ASSESSEE HAD NOT REFUNDED THE SECURITY DEPOSIT. ON THESE FACTS WE UPHOLD THE FINDINGS OF THE FIRST APPELLATE AUTHO RITY AT PAGE 15 16 AND 17 OF HIS ORDER AND DISMISS THIS GROUND OF T HE REVENUE. 17. RESPECTFULLY FOLLOWING THE SAME WE DISMISS TH IS GROUND OF THE REVENUE. 18. IN THE RESULT THE APPEAL OF THE REVENUE IS DI SMISSED. ORDER PRONOUNCED ON THIS 27 TH DAY OF JANUARY 2010. SD/- SD/- (V.D. RAO) (J. SUDHAKAR REDDY) JUDICIAL MEMBER. ACCOUNTANT MEMBER. MUMBAI DATED : 27 TH JANUARY 2010. WAKODE COPY FORWARDED TO : 1. APPELLANT 2. RESPONDENT 3. C.I.T. 4. CIT(A) 5. DR J-BENCH (TRUE COPY) BY ORDER ASSTT.REGISTRAR ITAT MUMBAI BENCHES