2017 (9) TMI 315 - HC - Income Tax

Bogus expenses - materials consumed in respect of sand, dust and bajri - no supporting bills/vouchers - genuine expenditure - Held that - However, out of the total amount of material consumed , supporting evidence in the form of bills/vouchers were not available for an amount of ₹ 46,84,809/- and it is that which has been disallowed by the AO and added back to the income of the assessee. The learned counsel for the revenue submits that there was absolutely no basis for the CIT(A) or the tribunal to have reduced the disallowance from ₹ 46,84,809/- to ₹ 9,36,962/- and ultimately to ₹ 4.00 lacs respectively.- Therefore, we are in agreement with the learned counsel for the revenue that the finding of the tribunal in limiting the disallowance to ₹ 4.00 lacs has no basis at all and there is no evidence to back the same.- Decided in favor of revenue. Addition of Site Expenses - no supporting bills/vouchers - Held that - All the authorities below recognized the fact that expenditure in respect of site expenses has to be allowed though not in toto. The disallowance by all the three authorities has been based on their respective estimates. Since the tribunal is the final fact finding authority, we have nothing before us to challenge the estimation of the tribunal by restricting the addition to ₹ 4.00 lacs. In fact, we agree with the learned counsel for the assessee that this question is purely one of fact and is not a substantial question of law. - Decided in favor of revenue. Addition of non verifiable labour expenses made in cash - Held that - The assessee had debited an amount of ₹ 4,82,25,191/- under labour expenses and the AO had made a disallowance of 5% thereon amounting to ₹ 24,11,260/- which was confirmed by the CIT(A). The reasoning adopted by the AO was that as the genuineness of payments to the aforesaid extent could not be ascertained, therefore, he considered it appropriate to disallow 5% of the expenditure as the same was made in cash and were not properly verifiable . However, the tribunal being the final fact finding authority has taken the stand that the muster roll which contained all the details of the labour and the payments made had not been rejected by the Assessing Officer and, therefore, no disallowance could be made on this account.- Decided in favour of assessee.

Summary

Issues:
1. Disallowance of material consumed without supporting bills/vouchers
2. Disallowance of site expenses without supporting bills/vouchers
3. Disallowance of labour expenses for non-verifiable payments made in cash

Analysis:

Issue 1: Disallowance of Material Consumed
The tribunal upheld the disallowance of ?46,84,809 for material consumed due to lack of supporting bills/vouchers. The CIT(A) reduced it to ?9,36,962, further reduced by the tribunal to ?4,00,000. The tribunal justified this reduction based on the submissions made by the assessee, indicating all details were submitted. However, the High Court found no factual basis for the reduction, as no evidence was presented for the disallowed amount. Consequently, the court decided in favor of the revenue, upholding the disallowance of material consumed.

Issue 2: Disallowance of Site Expenses
The Assessing Officer disallowed ?17,55,312 of alleged site expenses without supporting bills/vouchers. The CIT(A) reduced it to 10% of the claimed amount, ?8,77,656. The tribunal further limited the disallowance to ?4,00,000, recognizing that expenses were incurred but not fully supported by vouchers. As the tribunal is the final fact-finding authority, the court accepted the tribunal's decision as a question of fact and not substantial law, ruling in favor of the assessee.

Issue 3: Disallowance of Labour Expenses
The Assessing Officer added ?24,11,260 for non-verifiable labour expenses made in cash, which the CIT(A) confirmed but the tribunal deleted. The tribunal considered the muster roll containing all details of labor and payments as sufficient evidence. As the Assessing Officer did not reject this evidence, the tribunal found no basis for the disallowance. The High Court upheld the tribunal's decision, ruling in favor of the assessee against the revenue.

In conclusion, the High Court partially allowed both appeals, upholding the disallowance of material consumed, limiting site expenses disallowance, and rejecting the disallowance of labor expenses.