In the lack of adequate verification of the provided evidence, disallowance is unjustifiable: ITAT Mumbai
Fact and Issue of the case
The brief facts of the case, as emanating from the record, are: The assessee is a firm and is engaged in the business of construction of roads, small bridges, irrigation, etc. in remote areas. For the year under consideration, the assessee filed its return of income on 01/11/2017, declaring total income of Rs. 54,63,150. Assessee has shown to have income under the head income from business of engineers and contractors, construction of buildings, roads and such other business. During the course of assessment proceedings, upon perusal of profit and loss account it was observed that the assessee has claimed labour charges amounting to Rs. 1,24,75,743. Accordingly, the assessee was asked to submit party-wise labour charges details, payment proof, bank statement, labour charges register, vouchers etc. In reply, assessee submitted a list containing names of the labourers and labour charges paid to them in cash. The assessee also submitted that labour charges were paid for various work done on-site i.e. fabrication, shattering, pouring concrete, excavation of hard and soft top strata, steel bar binding, sand collection, metal breaking, etc. The Assessing Officer (‘AO‟) vide order dated 25/12/2019, passed under section 143(3) of the Act disallowed 10% of labour charges paid in cash by the assessee. Being aggrieved by the order, the assessee is filed an appeal with ITAT Mumbai.
Observation of the court
The Tribunal has considered the rival submissions and perused the material available on record.
1. In the present case, assessee has claimed to be in business of construction of roads, small bridges, irrigation, etc., in the remote areas, since past 30 years. As per the assessee, it takes the contract for construction from PWD, Central Railways, etc. During the year under consideration, assessee claimed labour charges amounting to Rs. 1,24,75,743. As per the assessee, these works are done by unskilled labour availed from nearby villages and for getting these work done, the assessee has to pay only cash in small amounts from time to time. Further, it is submitted that since these people are not having any establishment, therefore, their names and addresses, etc. are not available. During the course of assessment proceedings, assessee filed list containing names of labourers and labour charges paid in cash, which forms part of the paper book from page No. 43 – 47. Apart from these details, no other information in the nature of daily labour register, vouchers, details regarding duration of project etc. is brought on record. There is also no mention of the site at which each of these labours have worked for the assessee, during the year under consideration, for which charges in cash was paid by the assessee. We find that in assessment year 2015–16, the AO vide order dated 22/12/2017 passed under section 143 (3) of the Act disallowed 10% of labour charges incurred by the assessee in cash. In further appeal, learned CIT(A) vide order dated 13/05/2019 granted partial relief to the assessee and restricted the disallowance to 5% of labour charges incurred in cash. During the course of hearing, it was agreed by both the sides that no further appeal has been preferred against the aforesaid order of learned CIT(A) and the disallowance at 5% of labour charges has been accepted. Since, in the present case neither assessee could provide complete details in support of its claim nor Revenue treated the entire payment to be bogus, therefore, we deem it appropriate to restrict the disallowance of labour charges paid in cash to 5%. We order accordingly. As a result, ground No. 1 raised in assessee’s appeal is partly allowed.
2. In the present case, in response to queries raised by the AO, assessee furnished details of sub-contract expenses, wherein assessee provided PAN, sub-contracted amount and TDS amount paid. These details forms part of the paper book from page 48 – 49. Despite these details being furnished, the AO insisted that the assessee has not provided complete names, address, telephone No. of the sub-contractors, nature of work carried out by them with evidence, supporting bills, work orders, agreement between assessee and the sub-contractors, etc. From the record it is evident that even after receipt of PAN details of the parties, to whom sub-contract amount was paid by the assessee and TDS being deducted, no further action was taken by the AO either by issuing notice under section 133 (6) of the Act or by issuing summons under section 131 of the Act to these parties, in order to determine the veracity of assessee’s claim. It is also evident that the AO has also not cross verified the details of TDS amount furnished by the assessee from the record available with the Department. Once the PAN of the parties to whom sub-contract amount has been paid was available with the AO, all the basic details as sought from the assessee could have been easily traceable from the data available with the Department. However, no such efforts by the AO are evident from record. Therefore, in view of the above, we find no merits in sustaining the addition of even 10% of sub-contract expenses claimed by the assessee. Accordingly, we direct the AO to delete the impugned addition of 10% of sub-contract expenses claimed by the assessee. As a result, ground No. 2 raised in assessee’s appeal is allowed.
Conclusion
The Tribunal observed that in the present case neither assessee could provide complete details in support of its claim nor Revenue treated the entire payment to be bogus, therefore, the tribunal deem it appropriate to restrict the disallowance of labour charges paid in cash to 5%. It is also evident that the AO has also not cross verified the details of TDS amount furnished by the assessee from the record available with the Department. Once the PAN of the parties to whom sub-contract amount has been paid was available with the AO, all the basic details as sought from the assessee could have been easily traceable from the data available with the Department. However, no such efforts by the AO are evident from record. Therefore, in view of the above, the tribunal finds no merits in sustaining the addition of even 10% of sub-contract expenses claimed by the assessee. The Tribunal partly allowed the appeal and ruled in favour of the assessee.
Ajaipal-Mangal-Co.-Vs-ACIT-ITAT-Mumbai
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