2018 (4) TMI 500 - AT - Income Tax

Disallowance of labour charges and purchases made form Buildwel Bricks and sand - Held that - We found that detailed finding has been recorded by CIT(A) after verifying all the details viz job card, detailed sheet of wages working, vouchers etc asked for by AO and which were duly submitted to the AO for his verification and consideration. The detailed finding so recorded by CIT(A) at para 4.5 have not been controverted by DR by bringing any positive material on record - no reason to interfere in the finding so recorded by CIT(A) resulting into deletion of addition made on account of labour payment. AO has also made an addition on account of purchases made from M/s. Buildwel Bricks & Sand Suppliers. CIT(A) has given a finding to the effect that assessee has furnished confirmation in respect to the purchase made from Buildwel Bricks & Sand Suppliers alongwith a copy of its own bank account indicating the payment so made, copies of the bills raised by the said party alongwith supporting delivery challans which also contains truck number and such truck numbers were also found to be mentioned in the delivery challans and also match with the truck number stated in the concerned bills issued by Buildwel Bricks & Sand Suppliers. Accordingly, genuineness of the purchases is not in doubt. As during the appellate proceedings, the CIT(A) has also called the remand report and after considering the same, reached to the conclusion that M/s. Buildwel Bricks and Sand Suppliers is a proprietary concern of Lukman Mohamed Ibrahim Patel and assessee had made genuine purchase from these parties. The detailed finding so recorded by CIT(A) after considering the remand report was not controverted by learned DR by bringing any positive material on record. No reason to interfere in the order of CIT(A).

Summary

Issues Involved:

1. Disallowance of labour charges and wages.
2. Disallowance of purchases from Buildwel Bricks and Sand Suppliers.

Issue-wise Detailed Analysis:

1. Disallowance of Labour Charges and Wages:

The core issue revolves around the disallowance of labour charges and wages amounting to ?1,72,00,660 by the Assessing Officer (AO). The AO disallowed these expenses on the grounds that the cash vouchers were drawn in the name of one person, but the signatures for having received the amount were of different persons whose identities were not provided by the assessee. The AO contended that the payments were not made directly to the daily wage labourers employed by the assessee, thus invoking the provisions of section 40(a)(ia) and section 40A(3) of the Income Tax Act.

The Commissioner of Income Tax (Appeals) [CIT(A)] deleted the disallowance after detailed examination. The CIT(A) observed that the assessee, a civil contractor, paid wages through a systematic process involving Mokadams (supervisors) who managed the labourers. The methodology included preparing summary lists of labourers' wages, which were then sent to the head office for cash voucher preparation. The cash was subsequently distributed to the labourers by the Mokadam or another labourer who collected the cash.

The CIT(A) found that the payments were well-documented with supporting daily attendance sheets and summary lists, demonstrating that the wages were indeed paid to individual labourers. The CIT(A) concluded that the provisions of section 40(a)(ia) and section 40A(3) were not applicable as the payments were made to individual labourers without any markup by third parties or Mokadams. The CIT(A) directed the AO to delete the disallowance of ?1,72,00,660.

The Tribunal upheld the CIT(A)'s findings, noting that the detailed verification of job cards, wage sheets, and vouchers supported the assessee's claim. The Tribunal found no reason to interfere with the CIT(A)'s decision, as the disallowance was not substantiated by any positive material from the Revenue.

2. Disallowance of Purchases from Buildwel Bricks and Sand Suppliers:

The AO disallowed purchases amounting to ?22,85,925 from Buildwel Bricks and Sand Suppliers, claiming that the purchases were not proved. The CIT(A) deleted this addition after considering the additional evidence submitted by the assessee, including confirmations of purchases, bank account statements indicating payments, bills, and delivery challans with matching truck numbers.

The CIT(A) addressed the AO's concerns regarding the address of the supplier, the timing of the bills, and the PAN number discrepancy. It was clarified that Buildwel Bricks and Sand Suppliers was a proprietary concern of Lukman Mohamed Ibrahim Patel, and the additional evidence corroborated the genuineness of the purchases.

The Tribunal upheld the CIT(A)'s decision, finding that the detailed examination and remand report supported the genuineness of the purchases. The Tribunal saw no reason to interfere with the CIT(A)'s order, as the Revenue did not provide any positive material to counter the findings.

Conclusion:

The Tribunal upheld the CIT(A)'s decisions on both issues, confirming the deletion of disallowances related to labour charges and purchases. The order was pronounced in the open court on 02/04/2018.