2015 (8) TMI 1022 - AT - Income Tax

Addition of Labour charges paid by way of cheques - CIT(A) restricted addition to 10% of the expenses - Held that - The assessee itself has offered a sum of ₹ 2.00 crores to cover up deficiencies in respect of both cash and cheque payments. Hence the AO was not right in presuming that the above said offer would cover only cash payments. We have already noticed that the Ld CIT(A) also did not agree with the view taken by the AO that the entire cash expenses, which are not supported by primary evidences, should be disallowed. Under these set of facts, we are of the view that the present dispute should be settled by making some estimates. The dispute relating to disallowance of part of labour expenses would meet the ends of justice, if we restrict the disallowance to ₹ 2.00 crores (being the amount offered by the assessee) plus 10% of the labour expenses incurred by way of cheque. We order accordingly. The decision rendered by the Ld CIT(A) on this issue would stand modified accordingly. - Decided partly in favour of assessee. Disallowance of Repairs and Maintenance expenses - CIT(A) deleted the addition - Held that - The assessee has incurred the expenses towards purchase of concrete silo. The Ld CIT(A) noticed that it formed part of ready mix concrete plant having no independent functioning. Before us, the Ld A.R submitted that the said part is required to be replaced frequently. Accordingly, the Ld CIT(A) held that the same is revenue expenditure. On consideration of the above facts, we do not find any infirmity in the order of Ld CIT(A) on this issue. - Decided in favour of assessee.

Summary

Issues:
1. Disallowance of Labour charges paid by cheque
2. Disallowance of Labour charges paid by cash
3. Disallowance of Repairs and Maintenance expenses

Issue 1: Disallowance of Labour charges paid by cheque:
The case involved cross-appeals against the order of Ld CIT(A) concerning the assessment year 2009-10. The AO observed discrepancies in labour charges paid by cheques, leading to the disallowance of Rs. 4.16 crores. The AO found that cheques were encashed by employees or payees were unavailable, thus questioning the genuineness of payments. The Ld CIT(A) confirmed this disallowance. However, the ITAT noted that the offer of Rs. 2.00 crores by the assessee covered both cash and cheque payments. The ITAT decided to restrict the disallowance to Rs. 2.00 crores plus 10% of cheque payments, modifying the Ld CIT(A)'s decision.

Issue 2: Disallowance of Labour charges paid by cash:
Regarding cash payments, the AO disallowed Rs. 1.97 crores due to lack of primary evidence. The Ld CIT(A) restricted this disallowance to Rs. 43.84 lakhs, granting relief of Rs. 1.53 crores. The ITAT acknowledged the deficiencies but disagreed with the AO's presumption that the offer of Rs. 2.00 crores only covered cash payments. It concluded that estimates should resolve the dispute, restricting the disallowance to the amount offered by the assessee and 10% of cheque expenses.

Issue 3: Disallowance of Repairs and Maintenance expenses:
The AO disallowed Rs. 5.60 lakhs as capital expenditure for purchasing a concrete silo, treating it as revenue expenditure. The Ld CIT(A) allowed this claim, considering the silo's frequent replacement necessity. The ITAT found no fault in the Ld CIT(A)'s decision on this issue.

In conclusion, the ITAT partially allowed the appeals, modifying the disallowances related to labour charges paid by cash and cheque, and upholding the decision on Repairs and Maintenance expenses. The judgment aimed to balance the disallowances based on evidence and estimates to ensure justice in the assessment.