2011 (7) TMI 533 - AT - Income Tax

Labour charges disallowed - Held that - Assessee s claim for labour charges payment is bogus inasmuch as the assessee was involved in a systematic inflation of expenses by using bogus bank accounts in the name of certain persons even as these accounts were actually used and operated by the assessee himself - the assessee has to furnish details of all the labour bills accounted for in a particular year, and produce the same for verification, and the labour charges allowable will have to be computed by adopting Rs. 3 per meter in respect of the quantities for which the bills are raised - In case the assessee is unable to do so or to produce any other sound basis on which computations of production quantities can be done, the CIT(A) will be at liberty to adopt the production figures on the basis of tax audit report - Subject to correction of mistakes as pointed out by the assessee, and compute the admissible labour charges at Rs. 3 per meter multiplied to the quantities so worked out - Direct the assessee to fully cooperate in expeditious disposal of the remanded proceedings and make it clear that in the absence of assessee s furnishing the required details and pointing out specific mistakes, if any, in the computations in Tax Audit Report quantitative details and computations in the assessment order, no relief will be admissible. Disallowance of expenses by invoking the provisions of Section 40(a)(ia) - Held that - Since the certificates under section 197(1) on from 15 AA, as produced by the assessee, covered payments upto Rs. 30,00,000 and the total payments aggregated to Rs. 67,33,740 - Therefore, it is not the complete absence of certificates u/s 197(1) but monetary limitation on the quantum of payments on these certificates, which is the basis of disallowance. Brokerage payment - Provisions of Section 40(a)(ia) - Tax has not been deducted at source - Held that - No specific arguments were advanced in support of this grievance - In any case, having perused the orders of the authorities below on the issue and in the absence of anything to demonstrate infirmity in the stand so taken, confirm the action of the CIT(A) on merits as well - No interference is called for - Thus the appeal is dismissed.

Summary

Issues Involved:
1. Disallowance of inflated labor charges for assessment years 2004-05 and 2005-06.
2. Disallowance of expenses under Section 40(a)(ia) for assessment year 2005-06.
3. Disallowance of brokerage expenses under Section 40(a)(ia) for assessment year 2005-06.

Detailed Analysis:

1. Disallowance of Inflated Labor Charges for Assessment Years 2004-05 and 2005-06:
The primary grievance of the assessee for both assessment years 2004-05 and 2005-06 is the confirmation of additions made by the Assessing Officer (AO) regarding alleged inflated labor charges. The AO concluded that the assessee inflated labor expenses by using bogus accounts and claimed labor charges at an inflated rate of Rs. 6.50 per meter, whereas the actual payment was between Rs. 1.50 to Rs. 2.00 per meter. The AO disallowed Rs. 30,82,893 for 2004-05 and Rs. 20,57,946 for 2005-06. The CIT(A) upheld the AO's decision, noting that the assessee deliberately inflated expenses to reduce the tax burden, supported by findings of blank signed cheques and statements from employees admitting to the inflation.

The Tribunal noted that the assessee's grievance was limited to the quantum of disallowance and the production quantities used for the computation. The Tribunal directed the assessee to furnish details of all labor bills for verification and allowed the computation of allowable labor charges at Rs. 3 per meter for the quantities billed. The matter was remitted to the CIT(A) for corrections based on the provided details, with the direction to give the assessee a reasonable opportunity of hearing.

2. Disallowance of Expenses under Section 40(a)(ia) for Assessment Year 2005-06:
The assessee challenged the disallowance of Rs. 37,33,740 under Section 40(a)(ia) due to non-deduction of tax at source. The assessee claimed that certificates under Section 197(1) were misplaced but could be furnished if the matter was remitted. The Tribunal noted that the disallowance was due to the monetary limitation of the certificates produced, covering payments only up to Rs. 30,00,000. Since the assessee could not demonstrate that the disallowed amount was covered by the certificates, the Tribunal upheld the disallowance, suggesting that the assessee could file a rectification petition if the certificates were found later.

3. Disallowance of Brokerage Expenses under Section 40(a)(ia) for Assessment Year 2005-06:
The assessee also contested the disallowance of Rs. 1,18,980 for brokerage payments under Section 40(a)(ia) due to non-deduction of tax at source. The Tribunal observed that no specific arguments were advanced in support of this grievance. Given the absence of any evidence to counter the authorities' findings, the Tribunal confirmed the CIT(A)'s decision to disallow the brokerage expenses.

Conclusion:
The appeal for the assessment year 2004-05 was allowed for statistical purposes, remitting the matter to the CIT(A) for recalculations based on the provided labor bills. The appeal for the assessment year 2005-06 was partly allowed for statistical purposes, confirming the disallowance under Section 40(a)(ia) but allowing for potential rectification if certificates were found. The brokerage disallowance under Section 40(a)(ia) was upheld. The Tribunal directed the CIT(A) to provide a reasonable opportunity of hearing to the assessee and to issue a speaking order in accordance with the law.