2019 (9) TMI 626 - AT - Income Tax

Allowance of wage expenses - CIT(A) allowing 90% of wages expenses claimed by the assessee related to two projects - Case was selected for scrutiny assessment as per CASS, followed by serving of notices u/s 143(2) 142(1) - HELD THAT - There is no representation from the side of the assessee to bring on the facts and relevant financial statement on record - necessary details have been examined including the muster roll. CIT(A) seems to be satisfied with the details mentioned therein and also referred to minor discrepancy in the records. Mainly various vouchers of labour payments are unsigned. It is also noteworthy that the assessee being a building construction project has declared huge loss. No details have been filed for the tax deducted at source if any on the labour contract charges. Site wise details were also not available on record. Allegedly, most of the payments have been made in cash. Submissions given by the assessee before the CIT(A) is general in nature. Labour licence stood expired on 31.03.2013. Though 100% disallowance by AO was not justified but in the given facts and circumstances of the case, disallowance of 20% of the total impugned wages will meet the end to justice for both the parties. Appeal of the Assessee is partly allowed.

Summary

Issues involved:
Disallowed wages expenses related to two projects - whether 90% disallowance justified, proper maintenance of records, disallowance percentage, justification for disallowance, absence of representation from the assessee.

Detailed Analysis:

1. Disallowed wages expenses related to two projects - whether 90% disallowance justified:
The Revenue appealed against the Ld. CIT(A)'s decision to allow 90% of wages expenses claimed by the assessee related to two projects. The Ld. CIT(A) found that the assessee, a builder engaged in construction, had employed daily wage workers for civil work on two projects. The AO disallowed the expenses due to incomplete details and lack of a labor license. The Ld. CIT(A) reviewed the documents and decided on a 10% disallowance, considering the incomplete details. The Revenue contended that the details provided were insufficient, and the disallowance was unjustified.

2. Proper maintenance of records:
The Ld. CIT(A) observed that the appellant maintained proper books of accounts, which were audited under the Companies Act and Income Tax Act. The muster roll provided detailed information on payments to daily wage workers, including names, attendance, payment details, and signatures. The Ld. CIT(A) considered the muster roll as a voucher for accounting entries, indicating proper record-keeping by the appellant.

3. Disallowance percentage and justification for disallowance:
The Ld. CIT(A) limited the disallowance to 10% of the wages expenses, citing the appellant's maintenance of full payment records despite minor discrepancies. However, the Revenue argued for a 20% disallowance, considering the incomplete details, expired labor license, cash payments, and lack of site-wise details. The Tribunal agreed with the Revenue, ordering a 20% disallowance of the total wages, amounting to ?34,82,408, to ensure justice for both parties.

4. Absence of representation from the assessee:
During the proceedings, no representation was made on behalf of the assessee. Despite the absence of the assessee, the Ld. CIT(A) examined the necessary details, including the muster roll, to make an informed decision. The Tribunal considered the lack of representation and the general nature of the submissions, leading to a decision based on the available facts and circumstances.

In conclusion, the Tribunal partially allowed the Revenue's appeal, ordering a 20% disallowance of the total wages expenses claimed by the assessee for the two projects. The judgment emphasized the importance of proper record-keeping, the significance of labor licenses, and the need for detailed representations during legal proceedings to ensure a fair decision-making process.