2018 (4) TMI 710 - AT - Income Tax

Disallowance of labour expenses - Held that - There is no restriction or bar on the part of an assessee to put his signature in vernacular or in English, as per his choice, and thus no adverse inference on the said count could have validly be drawn in the hands of the assessee. We are of the view that it is not the case of the A.O that on verification got done from the forensic laboratory, it was proved that the said two signatures were not of the same person/persons. We, thus, are of the view that as the assessee had placed on record substantial documentary evidence to substantiate the authenticity of his claim of expenses towards labour charges, which we are afraid had not been thoroughly verified by the lower authorities, who rather adopting a half hearted approach had hushed through the matter and on the basis of premature observations have drawn adverse inferences in the hands of the assessee, therefore, are unable to persuade ourselves to sustain the addition of ₹ 8.45 lac sustained by the CIT(A) in respect of payments made by the assessee to the aforesaid five parties. Thus, the addition of ₹ 8.45 lac sustained by the CIT(A) is deleted. Addition on account of redevelopment/deemed rental income - Held that - In case the CIT(A) had any doubts as regards the veracity of the said documents, he could have directed the Assessing Officer to have made necessary verifications from the said respective builders, so that the truth may have surfaced. We are further of the view that as the assessee had claimed that the huts under consideration were demolished, therefore, the alternative view of the Assessing Officer that in case the addition made towards redevelopment allowance does not survive, the addition would be called for in the hands of the assessee on account of deemed rental income also cannot be accepted. We are of the view that as claimed by the A.R, now when the huts in itself were demolished and were no more in existence, therefore, the aforesaid alternative contention of the department cannot be sustained. Nothing has been placed on our record or canvassed before us by the ld. D.R to controvert the aforesaid contention of the A.R. In terms of our aforesaid observations, delete the addition of ₹ 2.30 lakhs made by the AO on account of redevelopment/deemed rental income. Reopening of assessment - Held that - No contention was advanced by the ld. A.R to support the challenge thrown to the validity of the reassessment proceedings before us. We, thus, in absence of any contention having been raised by the ld. A.R on the issue under consideration, are unable to find any infirmity in the order of the CIT(A) upholding the validity of the reopening of the assessment made by the Assessing Officer under section 147 of the Act.

Summary

Issues Involved:
1. Disallowance of labour expenses.
2. Addition on account of redevelopment allowance/deemed rental income.
3. Reopening of assessment under section 147 of the Income Tax Act, 1961.
4. Disallowance of telephone expenses.

Detailed Analysis:

1. Disallowance of Labour Expenses:
The assessee challenged the disallowance of ?8,45,000/- as labour expenses, which the CIT(A) had upheld on the grounds of non-furnishing of details and signature mismatches. The CIT(A) had allowed ?4,00,000/- to Maa Durga Constructions but disallowed the remaining amount to other parties, citing inconsistencies in signatures and incomplete addresses. The Tribunal found that the assessee had provided substantial documentary evidence, including ledger accounts, bills, PAN numbers, and bank statements, to support the genuineness of the payments. The Tribunal noted that the revenue authorities could have verified the claims using the income tax records of the parties involved. The Tribunal concluded that the disallowance was unjustified and deleted the addition of ?8,45,000/-.

2. Addition on Account of Redevelopment Allowance/Deemed Rental Income:
The assessee contested the addition of ?2,30,000/- made by the Assessing Officer on an estimated basis for redevelopment allowance. The CIT(A) upheld the addition, assuming that the assessee received redevelopment allowance or alternative accommodation rent, despite the assessee providing confirmation letters from the redevelopers denying such payments. The Tribunal found that the addition was based on mere assumptions without concrete evidence. The Tribunal also rejected the alternative view of deemed rental income, as the properties were demolished. Consequently, the Tribunal deleted the addition of ?2,30,000/-.

3. Reopening of Assessment under Section 147:
For A.Y. 2011-12, the assessee challenged the reopening of the assessment, arguing that there was no tangible material to justify the formation of belief by the Assessing Officer. However, during the hearing, no specific arguments were advanced by the assessee's representative on this issue. The Tribunal, therefore, did not find any infirmity in the CIT(A)'s decision upholding the validity of the reopening of the assessment.

4. Disallowance of Telephone Expenses:
The assessee also contested the disallowance of ?25,746/- for telephone expenses incurred for two close relatives, arguing that the expenses were wholly and exclusively for business purposes. The Tribunal did not specifically address this issue in detail, as the primary focus was on the larger disallowances and additions.

Conclusion:
The Tribunal allowed the appeal for A.Y. 2010-11, deleting the disallowance of labour expenses and the addition for redevelopment allowance. For A.Y. 2011-12, the Tribunal partly allowed the appeal, following the same rationale for the disallowance of labour expenses and the addition for redevelopment allowance, while upholding the reopening of the assessment under section 147. The disallowance of telephone expenses was not pressed by the assessee.