2024 (2) TMI 1388 - AT - Income Tax

Disallowance for the payments to contractors for loading, unloading and packaging - main plank of AO s action was that these labour suppliers are either bogus or ex-employees of the assessee that these persons were not found at their respective addresses - CIT(A) deleted addition - HELD THAT - CIT (A) in his order has given a finding that during the remand proceedings, 5 out of 6 contractors were produced before the AO and statements of these contractors were recorded by the AO. All of them confirmed that they have provided labour to the assessee company for packing and loading of finished product - As before the ld. CIT (A), assessee produced the sixth contractor whose statement was also recorded. In his statement, he confirmed to have supplied labor for packing, loading and unloading. Another plank of AO is that the employee of the assessee company used to withdraw cash from the contractor s bank account. CIT (A) has noted that he has perused the banks accounts and the entries of withdrawal were self. Therefore, he held that cash withdrawn by the contractors and the contractors during the statement accepted that the employee of the assessee company used to accompany him at the time of withdrawal of cash from the bank and cash used to be carried in company s vehicle and this arrangement was used to ensure for the payment distributed to labourers hired for the work of the company. Another plank of the AO is that these contractors are ex-employees of the assessee company. It has been submitted that this fact has been accepted. For this explanation, the assessee submitted that for continuous supply of labour, only reliable and known person can be deployed. Another plank of AO is that in the computer of the assessee, bills of these contractors were found. It has been submitted that all the contractors have prepared the bills at the premise of the assessee as these contractors were only supplying labour and did not have separate infrastructure. CIT (A) has also found that the salary and wages per kg. production is in the range of 10% to 25% of other industries and there was no adverse findings in this regard in the assessment order. Furthermore, books have not been rejected. Decided in favour of assessee.

Summary

Issues involved: Appeals by Revenue against common order of CIT (Appeals) for assessment years 2010-11, 2011-12 & 2012-13 regarding disallowance of expenses paid to contractors for loading, unloading, and packaging.

Issue 1 - Disallowance of Expenses:
- The assessee company engaged in manufacturing faced disallowance of expenses paid to contractors for loading, unloading, and packaging.
- During search proceedings, bills related to these expenses were extracted, but contractors' addresses were untraceable or non-operational.
- AO disallowed significant amounts for these expenses across the assessment years.
- CIT (A) deleted the addition after detailed consideration, citing contractor verification, production of contractors before AO, and submission of documentary evidence by the appellant.
- CIT (A) found no excess payment for services rendered by contractors, considering factors like salary comparisons and lack of adverse findings in assessment order.
- Revenue appealed, but ITAT upheld CIT (A)'s decision, noting contractor verification and lack of infirmity in CIT (A)'s order.

Issue 2 - Contractor Verification and Cash Withdrawals:
- AO raised concerns about contractors' authenticity and cash withdrawals from their bank accounts by the assessee's employee.
- CIT (A) found that contractors were indeed providing labor, as confirmed by their statements and the arrangement for cash withdrawals.
- CIT (A) noted that contractors being ex-employees was accepted, with the explanation that known persons are preferred for continuous labor supply.
- CIT (A) also addressed the presence of bills on the company's computer, stating that contractors prepared bills at the company's premise due to their role as labor suppliers.
- CIT (A) highlighted the salary and wage comparison with other industries, finding no issues in this regard and no rejection of books.
- ITAT affirmed CIT (A)'s decision, emphasizing the lack of flaws in the CIT (A)'s reasoning and confirming the dismissal of Revenue's appeals.

Conclusion:
- The ITAT upheld the CIT (A)'s decision to delete the disallowance of expenses paid to contractors for loading, unloading, and packaging, based on contractor verification and lack of evidence supporting excess payments.