2013 (11) TMI 1322 - AT - Income Tax

Allowability of labor expenses on self drawn vouchers of Assessee - The appellant had debited labour expenses amounting to Rs. 40,53,382/- and payment to the labourers were made in cash on self drawn vouchers, which are not verifiable. Besides this, the appellant had not maintained day-to-day records on consumption of raw materials Held that - The appellant made payment to the labour in cash but which has been signed by the recipients - The assessee had shown comparative chart not only with preceding year but site wise which shows that labour charges paid during A.Y. 06-07 were 14.74% of total expenses which has been reduced at 3.3% during the year under consideration. It reveals that more labours were used in A.Y. 06-07 and in A.Y. 07-08, this work has been executed either through sub-contractor or machine - A.O. had not pointed out any specific defect in the books of account, dis-respecting audit report before disallowing the labour expenses. There is no abnormal increase in the labour charges Decided against the Revenue. Expenses allowable u/s 43B of the Income Tax Act - Granting relief of Rs.25,12,296/- on account of disallowance u/s.43B of the Act and restricting the disallowance to Rs.52,054/- out of total liability of VAT u/s.43B of the Act Held that - The CIT(A) has verified all the accounts of the service tax as well as VAT account and finally he determined the total unpaid tax liability u/s. 43B Rs.41,643/- and other payments have already been made on or before due date of return filed by the assessee on the basis of service tax received by the appellant Confirmed the order of Commissioner(A) Decided against the Revenue. Disallowance u/s 40A(3) of the Income Tax Act - Cash payment exceeding Rs.20,000/- to Abada Musabhai Ismailbhai, subcontractor and violated the provisions of 40A(3) of the IT Act on four payments mentioned in the assessment order Held that - It is found that TDS has already been deducted by the appellant u/s. 194C of the IT Act and no single payment is more than Rs.20,000/- for which the evidence placed Assessee relied upon in case of CIT vs. S.S.P. (P.) Ltd. in 2010 (12) TMI 370 - PUNJAB AND HARYANA HIGH COURT and decided the issue in favor of Assessee Decided against the Revenue.

Issues Involved:
1. Deletion of disallowance of Rs. 3,00,000/- out of labour expenses.
2. Granting relief of Rs. 25,12,296/- on account of disallowance under Section 43B of the Act.
3. Restriction of disallowance to Rs. 52,054/- out of total VAT liability under Section 43B of the Act.
4. Deletion of disallowance of Rs. 23,414/- under Section 43A(3) of the Act.
5. Deletion of disallowance of Rs. 73,333/- out of vehicle expenses.
6. Deletion of disallowance of Rs. 16,750/- out of telephone expenses.

Detailed Analysis:

1. Deletion of Disallowance of Rs. 3,00,000/- out of Labour Expenses:
The assessee, a contractor in construction, had shown gross receipts of Rs. 12.27 crore with a gross profit of Rs. 43.99 lacs (3.59%) and net profit of 0.87%. The Assessing Officer (A.O.) noted a decline in gross and net profit compared to the previous year and made a lumpsum addition of Rs. 3,00,000/- under labour charges due to unverifiable cash payments on self-drawn vouchers and lack of day-to-day records. The CIT(A) deleted this addition, stating that without rejecting the books of accounts or pointing out specific defects, the disallowance was based on conjecture and surmises. The Tribunal confirmed the CIT(A)'s order, noting no abnormalities in labour charges and the absence of defects in the books of accounts.

2. Granting Relief of Rs. 25,12,296/- on Account of Disallowance under Section 43B:
The A.O. observed that the assessee had an outstanding service tax liability of Rs. 53,57,836/- as of 31.03.2007, with Rs. 25,53,939/- unpaid. The CIT(A) allowed relief of Rs. 25,12,296/- after verifying that the liability to pay service tax arises only upon receipt of payment for services rendered, and payments were made before the due date of filing the return. The Tribunal upheld the CIT(A)'s decision, agreeing that the provisions of Section 43B apply to sums payable and not paid.

3. Restriction of Disallowance to Rs. 52,054/- out of Total VAT Liability under Section 43B:
The A.O. disallowed Rs. 72,135/- out of VAT liability, but the CIT(A) restricted it to Rs. 52,054/-, noting that the appellant had paid Rs. 2,93,429/- out of the total VAT liability of Rs. 3,45,483/- before the due date of filing the return. The Tribunal confirmed the CIT(A)'s order, acknowledging the proper verification of accounts and adherence to Section 43B provisions.

4. Deletion of Disallowance of Rs. 23,414/- under Section 43A(3):
The A.O. disallowed 20% of expenses (Rs. 23,414/-) out of Rs. 1,17,067/- paid in cash to a subcontractor, citing a violation of Section 40A(3). The CIT(A) deleted the addition, stating that the payments were confirmed by the subcontractor, supported by vouchers, and no single payment exceeded Rs. 20,000/-. The Tribunal upheld the CIT(A)'s decision, noting compliance with TDS provisions and the absence of single payments exceeding the threshold.

5. Deletion of Disallowance of Rs. 73,333/- out of Vehicle Expenses:
The A.O. disallowed Rs. 73,333/- out of total vehicle expenses of Rs. 3,66,667/- for non-business purposes and lack of proper records. The CIT(A) deleted the addition, considering that the assessee had filed a return of Fringe Benefit Tax (FBT) covering personal expenses. The Tribunal confirmed the CIT(A)'s order, noting that FBT had been paid, and no further disallowance was warranted.

6. Deletion of Disallowance of Rs. 16,750/- out of Telephone Expenses:
The A.O. disallowed Rs. 16,750/- out of telephone expenses for non-business purposes. The CIT(A) deleted the addition, similar to the vehicle expenses, noting that the assessee's FBT return covered these expenses. The Tribunal upheld the CIT(A)'s decision, confirming that FBT had been paid, and no additional disallowance was justified.

Conclusion:
The Tribunal dismissed the Revenue's appeal on all grounds, confirming the CIT(A)'s deletions and restrictions of disallowances based on detailed verification of facts, proper application of legal provisions, and absence of specific defects in the assessee's records.

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