2016 (12) TMI 1803 - AT - Income Tax

Disallowance of wages paid considering the same as excessive - HELD THAT - AO simply disallowed 20% of the wage payment as excessive without supporting material and evidences to prove that the payment made to skilled workers was excessive. AO has not disproved the supporting vouchers and registers maintained by the assessee and other related supporting record maintained like provident fund and ESI contributions indicating the genuineness of these expenses. The observation made by the AO about excessive wage payment was of general nature ignoring the fact that wages were paid on the basis of number of working days. AO had not considered the fact that the nature of the business of the assessee relate to job work of mechanical and engineering on contract basis with organization like refineries, petrochemicals such as IPCL IOCL Gail. Some of the jobs were of highly labor intensive involving skilled and experienced physical labour force at the site of the work. - Thus AO is not justified in making disallowance - Decided against revenue. Payment of hiring charges for Hydra Machine at Barauni site - CIT (A) has deleted the disallowance made stating that the party to whom the payments was made not a related party and there was nothing on record to show that the part of the payment had been received back by the assessee - HELD THAT - Disallowance made by the assessing officer in respect of hiring of crane payment to M/s Upendra Prasad Singh Hitech Construction Pvt. Ltd, in this connection we noticed that this disallowance was not based on cogent or justifiable reasons. We find that the hiring charges paid was not related to the persons covered under section 40A(2)(b) of the act and the assessing officer had made this disallowance on estimated basis without any supporting evidences to prove that the same was excessive and unreasonable. Considering the above facts and findings, we are not inclined to interfere in the findings of the Ld. Commissioner of Income Tax(A). - Decided against revenue. Disallowance u/s. 43B of service tax payable - HELD THAT - Out of total service tax liability of ₹ 22,07,221/- only amount of ₹ 18,25,992/- service tax was paid on 5th July, 2008 and there was remark in the audit report that the sum for ₹ 3,81,229/- service tax was not due and hence not paid. We considered that there was no liability of the assessee to pay the above referred service tax as on 31-03-2008 and this service tax of ₹ 3,81,229/- was also not debited to the P L a/c , therefore, the Ld. Commissioner of Income Tax(A) is justified in deleting the addition made by the assessing officer. - Decided against revenue.

Summary

Issues Involved:
1. Deletion of disallowance of ?35,97,667/- on account of excessive wages paid.
2. Deletion of addition of ?20,00,000/- on account of excessive hiring charges paid.
3. Deletion of disallowance of ?3,81,229/- under section 43B on account of service tax payable.

Detailed Analysis:

1. Deletion of Disallowance of ?35,97,667/- on Account of Excessive Wages Paid:
The assessing officer (AO) disallowed ?35,97,667/- considering it as excessive wages paid by the assessee. The AO argued that the average salary paid to hired contract laborers was ?400/- to ?750/- per day and disallowed 20% of the wage payment amounting to ?1,79,88,336/- without substantial evidence. The Commissioner of Income Tax (Appeals) [CIT(A)] deleted the disallowance, stating that the AO failed to provide any material evidence to support the excessive payment claim. The CIT(A) noted that the work performed was highly skilled and time-bound, with contracts involving significant penalties for delays. The CIT(A) found that the AO did not disprove the vouchers and registers maintained by the assessee, which indicated the genuineness of the expenses. The Tribunal upheld the CIT(A)'s decision, noting that the AO's disallowance lacked supporting material and evidence.

2. Deletion of Addition of ?20,00,000/- on Account of Excessive Hiring Charges Paid:
The AO disallowed ?20,00,000/- of the hiring charges paid to M/s Upendra Prasad Singh, Hi Tech Construction Pvt. Ltd., and H.D. Engg. Services, Baroda, considering them excessive. The AO compared the hiring charges and found them exorbitant without substantial evidence. The CIT(A) deleted the disallowance, noting that the payments were made to unrelated parties and there was no evidence of the payments being received back by the assessee. The CIT(A) observed that the local rates of hiring were high and the payments were reasonable. The Tribunal upheld the CIT(A)'s decision, stating that the AO's disallowance was not based on cogent or justifiable reasons and lacked supporting evidence.

3. Deletion of Disallowance of ?3,81,229/- under Section 43B on Account of Service Tax Payable:
The AO disallowed ?3,81,229/- under section 43B, stating that the assessee could not furnish a proper explanation for the service tax payable. The CIT(A) deleted the disallowance, explaining that the service tax amount of ?3,81,229/- had not become due and payable as of the audit date. The CIT(A) noted that the service tax was not debited to the Profit & Loss account, and the ratio of the Delhi High Court decision in CIT v/s Noble and Hewitt India Ltd. applied. The Tribunal upheld the CIT(A)'s decision, confirming that there was no liability on the assessee to pay the service tax as on 31-03-2008 and the amount was not debited to the P & L account.

Cross Objections:
The assessee filed cross objections supporting the CIT(A)'s order, which included:
1. Deletion of ?35,97,667/- being addition made by the AO as excessive wages paid.
2. Deletion of ?20,00,000/- being lump sum addition made by the AO as excessive hiring charges paid.
3. Deletion of ?3,81,229/- disallowed by the AO as service tax payable.
4. Deletion of interest charged under section 234.

Since the Tribunal dismissed the revenue's appeal, the cross objections filed by the assessee were deemed redundant.

Conclusion:
The Tribunal dismissed the revenue's appeal and the cross objections of the assessee, upholding the CIT(A)'s decisions on all issues. The order was pronounced in the open court on 06-12-2016.