2015 (10) TMI 1399 - AT - Income Tax

Disallowance of labour expenses - Held that - Assessee firm is in business of project development etc. for immovable property. Assessing Officer observed that labour cost was proportionately higher as compared to usual rate in real estate business. He has shown higher labour payments in comparison to the payment for materials. The entire labour expenditure of ₹ 38,48,068/- with regard to Saket-II Project plus ₹ 18,28,063/- with regards to Saket-III Project were claimed to be incurred by assessee. The same could not be verified because all payments were not through cheques and cash payments have also been made. Accordingly, disallowance was made on this account. In appeal, CIT(A) restricted the disallowance to 10% of labour expenses of ₹ 56,76,131/-. Taking all facts and circumstances, disallowance is restricted to 5% instead of 10% done by CIT(A). Assessing Officer is directed accordingly. - Decided partly in favour of assessee.

Summary

Issues:
1. Disallowance of pending expenditure of PV sets/PV sheets by the Assessing Officer.
2. Disallowance of a part of labour expenses by the Departmental Authorities.

Analysis:

Issue 1: Disallowance of pending expenditure of PV sets/PV sheets
The Revenue filed an appeal challenging the deletion of disallowance of Rs. 7,00,000 made by the Assessing Officer regarding pending expenditure of PV sets/PV sheets for the assessment year 2007-08. The tax effect on the deleted additions was less than the threshold limit of Rs. 4 lacs. The Revenue argued that the revised monetary limits for filing appeals were not applicable to pending appeals. However, the Tribunal referred to relevant instructions and court decisions, including a Supreme Court order, and held that the appeal was not maintainable due to the tax effect being less than Rs. 4 lacs. Consequently, the Revenue's appeal was dismissed on technical grounds without commenting on the merit of the issue.

Issue 2: Disallowance of a part of labour expenses
The assessee, a project development firm, faced a disallowance of labour expenses by the Assessing Officer due to higher labour costs compared to the usual rate in the real estate business. The CIT(A) restricted the disallowance to 10% of the total labour expenses, but the Tribunal further reduced it to 5% after considering all facts and circumstances. The disallowance was directed to be adjusted accordingly. As a result, the Revenue's appeal was dismissed, and the assessee's appeal was partly allowed.

In conclusion, the Tribunal dismissed the Revenue's appeal on technical grounds related to the tax effect threshold and partially allowed the assessee's appeal regarding the disallowance of labour expenses. The judgment provided a detailed analysis of each issue, citing relevant legal instructions and court decisions to support the decisions made.