2015 (9) TMI 385 - AT - Income Tax

Disallowance of outstanding labour charges to various contractors - Held that - The assessee files a chart showing identical unpaid labour charges paid/accepted in assessment years 2008-09 to 2012-13; respectively. We reiterate that these random cases duly confirm to have made available their services at respective BSNL offices. There is no dispute raised about their identity since identity cards form part of the case file. There are many other confirmations in the same backdrop of facts. It transpires from page 100 of the paper book that assesse s net profits since Assessment Year 2005-06 to Assessment Year 2011-12 read 4.19%, 6.29%, 5.27%, 5.21%, 3.52%, 3.85 and 4.59% respectively. The Revenue seeks to cast doubts on these documents by reiterating the lower authorities findings. However, it fails to controvert the above referred specific evidence. We take into account all this material and find that on facts well as consistency, the assessee has been able to prove its claim in question of the outstanding labour charges of ₹ 29,37,728/- to have been incurred in carrying out his contractual assignments. The Revenue s arguments on mere assumptions and presumptions accordingly stand rejected. The impugned disallowance is deleted. - Decided in favour of assessee.

Summary

Issues:
Challenge to disallowance of outstanding labour charges.

Analysis:
The assessee's appeal for A.Y. 2007-08 challenged the disallowance of outstanding labour charges to various contractors. The Assessing Officer disallowed the amount of Rs. 29,37,728 as outstanding labour charges, claiming it would enhance the corresponding expenses of the said months to be more than 50%. The assessee submitted a list of payees involving 204 instances, each with a sum of less than Rs. 20,000. The Assessing Officer sought details of work done, nature of services, and reasons for nonpayment. However, the Assessing Officer found lack of evidence proving the expenditure was wholly and exclusively incurred for business purposes. The Assessing Officer held that the labour charges were in the nature of accommodation entries to reduce taxable income. The CIT(A) partly affirmed the Assessing Officer's findings, directing deletion of certain amounts based on confirmations received.

The Tribunal observed that the appellant provided a chart showing identical unpaid labour charges paid/accepted in subsequent assessment years. Confirmations of payees were submitted, and ledger accounts were produced to support the outstanding balances. The Tribunal noted that the payees had provided services at respective BSNL offices, and their identities were confirmed through identity cards. The appellant's net profits from previous assessment years were also considered. Despite the Revenue's doubts and lower authorities' findings, the Tribunal found that the appellant had proven the claim of outstanding labour charges incurred in carrying out contractual assignments. The Tribunal rejected the Revenue's arguments based on assumptions and presumptions and deleted the impugned disallowance.

In conclusion, the Tribunal allowed the assessee's appeal, pronouncing the order in open court on 26-08-2015.