2016 (4) TMI 1000 - AT - Income Tax

Disallowance u/s 40A(3) - Held that - As per the proviso below sub section 3A of Section 40A, it is seen that no disallowance is called for under section 40A(3) if it is found that there is business expediency for making payment in violation to the mode of payment specified in Section 40A(3). We have seen above that in the facts of the present case, the assessee is able to establish that there was business expediency to make cash payment to these nine parties because the assessee is getting supply only after some days of making cash payment and assessee also gets some help from Clause-f or Clause J of Rule 6DD although the assessee is not able to bring cogent evidence about applicability of these clauses of Rule 6D. But since, the assessee is able to establish business expediency by showing that the cash payment was made first and the supplies were received after a gap of five to ten days from all these nine parties and in view of applicability of Rule 6DD as claimed although could not be substantiated, we are of the considered opinion that disallowances u/s 40A(3) is not justified - Decided in favour of assessee Adhoc disallowance out of labour charges @ 10% - Held that - Regarding the objection that there is only self made vouchers, we are of the considered opinion that this objection is not valid because for making payment to labourers, there cannot be independent bill. Regarding non maintenance of the register or Muster Roll, it is explained by the assessee that labour were put to work at different locations or projects undertaken by the U.P. Nirman Nigam and the attendance and the wages roll were maintained by the project manager of different units of Nirman Nigam and the assessee has made payments to different labours as and when required by petty labour after withdrawing cash from its bank and the assessee has not paid more than ₹ 20,000/- in a day to any labour in cash. It is also submitted that the assessee has got due payments from U.P. Nirman Nigam after verifying the number of persons employed at different places of the project supervised by them. Hence, it is seen that the assessee has made payment for the labourers engaged at different locations and the assessee was getting payment after verification of the number of persons employed at different places and the projects supervised by the U.P. Nirman Nigam. Sample vouchers for labour payments are available on pages 171 to 209 and in the back of all these vouchers, the names, amount and thumb impression/signature of all the labours are available. Thus we are of the considered opinion that under these facts and in the absence of any adverse material, adhoc disallowance of 10% of labour charges is not justified, we, therefore, delete the same. - Decided in favour of assessee

Summary

Issues:
1. Validity of assessment order jurisdiction.
2. Disallowance of Rs. 28.00 lakh u/s 40A(3).
3. Adhoc disallowance of Rs. 38,88,175/- out of labour charges at the rate of 10%.

Issue 1: Validity of assessment order jurisdiction
The assessee contended that the assessment order dated 10.01.2013 lacked jurisdiction as subsequent notices under section 143(2) were issued by a different Income Tax Authority without any order transferring jurisdiction. The Ld. AR argued that the assessment order was valid as per Tribunal's previous orders. The Ld. AR conceded that the issue was against the assessee based on Tribunal's precedents. Consequently, the ground challenging the jurisdiction of the assessment order was rejected.

Issue 2: Disallowance of Rs. 28.00 lakh u/s 40A(3)
The Ld. AR argued for the disallowance made under section 40A(3) by the Assessing Officer, presenting various submissions. It was contended that certain payments were exempt under Rule 6DD of the Income Tax Rules 1962. The Tribunal examined the ledger accounts of the parties involved and noted that cash payments were made before the receipt of supplies. The Tribunal analyzed the provisions of Section 40A(3) and Rule 6DD, emphasizing business expediency for cash payments. Despite the lack of concrete evidence supporting the claims, the Tribunal found that business expediency existed in making advance cash payments. Consequently, the disallowance under Section 40A(3) was deemed unjustified and deleted.

Issue 3: Adhoc disallowance of Rs. 38,88,175/- out of labour charges at the rate of 10%
The Assessing Officer objected to the debited labour charges of Rs. 3,88,81,751, citing self-made vouchers and the absence of a register or Muster Roll. The Tribunal found the objection regarding self-made vouchers invalid for labour payments. Regarding the absence of a register or Muster Roll, the assessee explained that labourers were engaged at various project locations supervised by U.P. Nirman Nigam. The Tribunal observed that due payments were received after verification of employed persons. Sample vouchers for labour payments were presented, showing details of labours. Considering the explanations and evidence provided, the Tribunal concluded that the adhoc disallowance of 10% of labour charges was unwarranted and thus deleted.

In conclusion, the appeal of the assessee was partly allowed based on the detailed analysis and findings on the issues raised.