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2015 (10) TMI 1274 - AT - Income Tax


Issues Involved:
1. Ad-hoc disallowance of Rs. 1,95,854 on Labour, Lodging & Site Expenses.
2. Disallowance of Rs. 4,28,014 on account of interest paid on delayed Service Tax and M-VAT.
3. Disallowance of Rs. 4,29,514 on Motor Car Expenses.
4. Deletion of disallowance of Rs. 49,47,023 on account of labour charges.
5. Deletion of disallowance of Rs. 2,48,866 on account of interest paid on secured loans.

Issue-wise Detailed Analysis:

1. Ad-hoc Disallowance of Rs. 1,95,854 on Labour, Lodging & Site Expenses:
The assessee challenged the disallowance made by the AO and confirmed by the CIT(A) on the grounds that the expenses were necessary for the business and incurred for workers staying at various sites. The CIT(A) upheld the disallowance due to lack of third-party evidence and the fact that expenses were incurred in cash. The Tribunal, after reviewing the submissions and evidence, found that although some details were provided, they were not fully authentic. Therefore, the Tribunal directed the AO to reduce the disallowance to 10% of Rs. 9,79,271, providing partial relief to the assessee.

2. Disallowance of Rs. 4,28,014 on Account of Interest Paid on Delayed Service Tax and M-VAT:
The AO disallowed the interest paid on delayed Service Tax and M-VAT, considering it penal in nature. The assessee argued that the interest was compensatory and not penal. The Tribunal noted that the interest was paid within the framework of the law and was compensatory. Citing various judicial pronouncements, including Lachmandas Mathuradas vs. CIT, the Tribunal held that the interest on late payment of Service Tax and M-VAT is an allowable deduction under Section 37(1). Thus, the disallowance was deleted, and the ground was allowed in favor of the assessee.

3. Disallowance of Rs. 4,29,514 on Motor Car Expenses:
This ground was not pressed by the assessee and was subsequently dismissed by the Tribunal.

4. Deletion of Disallowance of Rs. 49,47,023 on Account of Labour Charges:
The AO made an ad-hoc disallowance of 10% of the labour charges, citing lack of documentary evidence and payments made in cash. The CIT(A) deleted the disallowance after verifying the labour registers, which included details of Provident Fund, ESI, and Professional Tax deductions. The Tribunal upheld the CIT(A)'s decision, noting that the AO had impounded and verified the labour registers and found no discrepancies. The Tribunal found no reason to interfere with the CIT(A)'s findings and confirmed the deletion of the disallowance.

5. Deletion of Disallowance of Rs. 2,48,866 on Account of Interest Paid on Secured Loans:
The AO disallowed the interest on the grounds that the assessee had given interest-free loans while having interest-bearing loans. The CIT(A) deleted the disallowance, noting that the assessee had sufficient interest-free funds from partners' capital accounts. The Tribunal upheld the CIT(A)'s decision, finding that the assessee had ample interest-free funds and the disallowance was not justified. The Tribunal confirmed the deletion of the disallowance.

Conclusion:
The assessee's appeal was partly allowed, providing partial relief on the ad-hoc disallowance and full relief on the interest paid on delayed Service Tax and M-VAT. The revenue's appeal was dismissed, upholding the deletions made by the CIT(A) on labour charges and interest on secured loans.

 

 

 

 

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