2014 (3) TMI 366 - AT - Income Tax

Addition made on outstanding liability - Labour charges as bogus Held that - The decision in CIT Vs. Bhogilal Ramjibhai Atara 2014 (2) TMI 794 - GUJARAT HIGH COURT followed - For invoking the provisions of section 41(1), there has to be cessation or remission of liability during previous year relevant to the Assessment Year under consideration - where the liability itself seems to be under serious doubt, the liability as it stands, perhaps holds that there was no cessation or remission or liability and therefore the amount in question cannot be added back as deemed income u/s 41(1) of the Act - The outstanding labour charge which was added by the Assessing Officer to the income of the assessee was the brought-forward opening balance of earlier years - No material was brought on record by the Revenue to show that either the liability was actually discharged by the assessee during the year from some undisclosed source or the liability ceased to exist or remitted during the year under consideration Additions made are set aside. Addition of labour charges Held that - Both the lower authorities have doubted that the liability for labour charges was bogus as the same was outstanding for more than one month - the suspicion, they have brought no material on record after examination that the liability was not genuine or that the assessee did not make the payments for the same in the subsequent years - suspicion howsoever grave, cannot take place of proof - the payment outstanding was of labour contractor and not labour - there cannot remain outstanding liability to labour contractor for more than one month thus, disallowance sustained by the CIT(A) out of labour charges cannot sustained Decided in favour of Assessee.

Summary

Issues:
1. Addition of outstanding liability for labour charges as bogus.
2. Confirmation of addition of labour charges without TDS.

Analysis:
1. The appeal was against the order confirming the addition of outstanding liability for labour charges as bogus. The Assessing Officer observed an opening balance of Rs 1,89,854 on account of labour charges, which remained unpaid. The Assessing Officer doubted the genuineness of the liability based on the statement of a labourer. However, the CIT(A) upheld the addition, considering self-made vouchers as self-serving documents. The assessee argued that the liability was genuine, citing a High Court decision. The Tribunal, following the High Court's decision, set aside the lower authorities' orders and deleted the addition, as no evidence showed the liability ceased to exist or was remitted during the relevant year.

2. The second issue pertained to the addition of labour charges without TDS. The Assessing Officer disallowed Rs 7,67,566 of labour charges, suspecting the genuineness of payments to labourers. The CIT(A) partially sustained the disallowance, citing improbability in payment timelines. The assessee relied on the High Court decision and argued against the disallowance based on probability. The Tribunal observed that suspicion alone cannot replace proof and noted the absence of evidence questioning the genuineness of the liability. It further highlighted that the disallowance was based on suspicion and lacked material support. Consequently, the Tribunal deleted the addition of Rs 7,67,566, allowing the appeal.

In conclusion, the Tribunal ruled in favor of the assessee, deleting both additions related to outstanding labour charges, emphasizing the necessity of concrete evidence to support disallowances and rejecting mere suspicion as a basis for additions.