2022 (11) TMI 462 - AT - Income Tax

Disallowance being 10% of labor charges paid in cash - HELD THAT - During the course of hearing, it was agreed by both the sides that no further appeal has been preferred against the aforesaid order of learned CIT(A) and the disallowance at 5% of labour charges has been accepted. Since, in the present case neither assessee could provide complete details in support of its claim nor Revenue treated the entire payment to be bogus, therefore, we deem it appropriate to restrict the disallowance of labour charges paid in cash to 5%. We order accordingly. As a result, ground No. 1 raised in assessee s appeal is partly allowed. Disallowance of sub-contract expenses - HELD THAT - From the record it is evident that even after receipt of PAN details of the parties, to whom sub-contract amount was paid by the assessee and TDS being deducted, no further action was taken by the AO either by issuing notice under section 133 (6) of the Act or by issuing summons under section 131 of the Act to these parties, in order to determine the veracity of assessee s claim. It is also evident that the AO has also not cross verified the details of TDS amount furnished by the assessee from the record available with the Department. Once the PAN of the parties to whom sub-contract amount has been paid was available with the AO, all the basic details as sought from the assessee could have been easily traceable from the data available with the Department. However, no such efforts by the AO are evident from record. Therefore, in view of the above, we find no merits in sustaining the addition of even 10% of sub-contract expenses claimed by the assessee. Accordingly, we direct the AO to delete the impugned addition of 10% of sub-contract expenses claimed by the assessee. As a result, ground No. 2 raised in assessee s appeal is allowed.

Summary

Issues:
1. Disallowance of 10% of labor charges paid in cash.
2. Disallowance of 10% of sub-contract expenses paid.

Analysis:

Issue 1: Disallowance of 10% of labor charges paid in cash:
The appellant, engaged in construction business, challenged the disallowance of 10% of labor charges paid in cash for the assessment year 2017-18. The Assessing Officer (AO) disallowed the amount due to lack of proper records and supporting evidence. The appellant failed to provide complete details such as names, addresses, and supporting vouchers of the laborers. The Commissioner of Income Tax (Appeals) upheld the disallowance, questioning the genuineness of the appellant's contentions. However, during the appeal hearing, it was revealed that in previous assessment years, a similar issue did not result in disallowance. Considering the nature of business and lack of complete details, the Tribunal partially allowed the appeal, restricting the disallowance to 5% of labor charges paid in cash.

Issue 2: Disallowance of 10% of sub-contract expenses:
The appellant contested the disallowance of 10% of sub-contract expenses debited during the assessment year. The AO disallowed the amount citing insufficient details provided by the appellant regarding sub-contractors' information and work carried out. The Commissioner of Income Tax (Appeals) dismissed the appeal, emphasizing the need for complete information to verify the genuineness of transactions. However, during the appeal hearing, it was argued that all payments were made through cheques with TDS deductions. The Tribunal observed that despite the appellant furnishing PAN details and TDS amounts paid, the AO did not take further steps to verify the claims. Consequently, the Tribunal directed the AO to delete the disallowance of 10% of sub-contract expenses, as the basic details were traceable from available data. As a result, the appeal on this issue was allowed.

In conclusion, the Tribunal partly allowed the appellant's appeal, restricting the disallowance of labor charges paid in cash to 5% and directing the deletion of the disallowance of 10% of sub-contract expenses. The judgment highlighted the importance of maintaining proper records and providing complete information to substantiate expenses in business transactions.