2022 (6) TMI 1108 - AT - Income Tax

Disallowance of labour expenses - disallowance on account of cash payments towards land development agreement - HELD THAT - As discrepancies pointed out by the AO while disallowing the claim of the assessee for labour charges paid to the said two contractors were also explained and clarified by the assessee during the course of remand proceedings and the same was apparently accepted even by the learned AO - The details of work executed by the said contractors for the assessee were also duly supported by the copies of bills and certificates issued by Engineer Geometric Consultant. CIT(A) found that the onus that lay on the assessee was satisfactorily discharged by him by filing all possible details including confirmations/affidavits and TDS; and, the business expediency as well as genuineness of the labour expenses was successfully established by the assessee. At the time of hearing before us, the learned DR has not been able to dispute this finding of fact specifically recorded by the learned CIT(A) on the basis of details and documents furnished by the assessee to give relief to the assessee by deleting the disallowance made by the AO on account of labour expenses. We, therefore, find no justifiable reason to interfere with the impugned order of CIT(A) giving relief to the assessee on this issue and upholding the same, we dismiss Ground No. 1 of the Revenue s appeal. Liability accrued under development agreement was not provided for by the assessee in the books of account - HELD THAT - As noted by the CIT(A) in his impugned order on the basis of the relevant clause 3.4 of the Development Agreement, there was an understanding between both the parties that the land would finally be transferred to the prospective buyers of the bungalows in the scheme directly and because of this understanding the liability was not provided for in the books of accounts of the assessee. In any case, as rightly observed by the CIT(A) in his impugned order, there was no question of any loss to the Revenue by this accounting treatment given by the assessee because had the liability been provided in the books of accounts of the assessee, the profit declared by the assessee would have decreased to that extent. As rightly concluded by the learned CIT(A), it was thus not a case of any postponement of tax liability by the assessee but was a case of preponement of tax liability. Keeping in view all these facts of the case, we are of the view that the addition made by the Assessing Officer on this issue was rightly deleted by the learned CIT(A) vide his impugned order and upholding the same, we dismiss Ground No.2 of the Revenue s appeal.

Summary

Issues Involved:
1. Disallowance of labour expenses amounting to Rs. 1,58,36,330/-.
2. Disallowance on account of cash payments towards land development agreement amounting to Rs. 60,00,000/-.

Issue-wise Detailed Analysis:

1. Disallowance of Labour Expenses:
The assessee, a partnership firm engaged in the business of developer and builder, claimed unusually high labour expenses in its Profit and Loss account. The Assessing Officer (AO) noted discrepancies in the ratio of material purchases to labour expenses, which was significantly higher than normal. The AO also found issues with the documentation and verification of labour expenses, particularly payments made to Shri Babubhai Vanzara and Shri Ashok K. Thakor. The AO contended that the assessee failed to prove the genuineness of these expenses, leading to the disallowance of Rs. 1,58,36,330/-.

Upon appeal, the CIT(A) examined the facts, including affidavits and other documents provided by the assessee. The CIT(A) noted that the AO did not reject the books of account under Section 145(3) and conducted a comprehensive inquiry during remand proceedings. The CIT(A) found that the payments to Shri Ashok K. Thakor and Shri Babubhai Vanzara were genuine, supported by TDS deductions, affidavits, and verification of payments through bank passbooks. The CIT(A) concluded that the assessee had discharged its onus of proving the genuineness of the expenses, leading to the deletion of the disallowance.

2. Disallowance on Account of Cash Payments Towards Land Development Agreement:
The AO disallowed Rs. 60,00,000/- claimed by the assessee as payable under a land development agreement, arguing that the liability was not accounted for in the books. The AO believed the assessee had paid this amount in cash from unaccounted income. The CIT(A), however, found that the landowners, who were also partners in the firm, had an understanding that the land would be transferred directly to the prospective buyers, and thus, the liability was not immediately required to be paid or accounted for. The CIT(A) concluded that the non-provision of this liability did not result in any loss to the Revenue, as it would have merely decreased the taxable profits. The CIT(A) deleted the disallowance, stating it was a case of preponement, not postponement, of tax liability.

Tribunal's Decision:
The Tribunal upheld the CIT(A)'s decision on both issues. It found no justifiable reason to interfere with the deletion of the disallowance of labour expenses, as the assessee had satisfactorily discharged its onus of proving the genuineness of the expenses. Similarly, the Tribunal agreed with the CIT(A) that the non-provision of the Rs. 60,00,000/- liability did not result in any loss to the Revenue and was correctly deleted. Consequently, the Tribunal dismissed the Revenue's appeal.

Conclusion:
The Tribunal's judgment affirms the CIT(A)'s findings, emphasizing the importance of detailed verification and the adequacy of evidence provided by the assessee in substantiating its claims. The appeal by the Revenue was dismissed, upholding the deletions made by the CIT(A).