2021 (12) TMI 978 - AT - Income Tax

Disallowance at 2% of total labour expenditure - CIT-A deleted the addition partly - HELD THAT - We find that the CIT(A) has correctly concluded in Para 5.3 at Page No. 15 that from the documents brought on record by holding that Shri Krishna Dayaram Bhoi has fabricated his statement in order to suppress his own income, in our opinion, requires no interference from us, it is justified. The CIT(A) also observed the claim of deleting entire disallowance is not acceptable in view of holistic view considering the facts on the issue also clearly demonstrate that there was no evidence or adverse material against the books of the assessee to hold that the payments made to all these four entities are not genuine. Therefore, we do not accept the findings of CIT(A) in confirming the addition on the basis of ad hoc estimation and restricting the disallowance at 2% as against the 4% as held by AO, in our opinion, is not justified. Thus, the ground raised in cross objection by the assessee is allowed. Disallowance of labour expenses paid to BVG India Limited without giving an opportunity to the AO - All requisite documents and evidences were submitted by the assessee before the AO on 02-03-2016. There is no dispute the AO completed the assessment proceedings considering all the details. Further, as noted by us all the relevant details like work order, ledger extracts of BVG India Limited in the books of the assessee along with invoices and also ledger extracts of BESCOM in the books of the assessee and the invoices raised by the assessee on BESCOM were before the AO and there is no dispute in this regard which are all filed before us by way of a paper book. CIT(A) also examined the return of income, computation of income, audit report and bank statements of BVG India Limited which are also available before the AO during the course of assessment proceedings. Therefore, the contention of the ld. DR that the CIT(A) ought to have given an opportunity to the AO in the remand proceedings does not arise at all for the reason that no evidence brought on record before us that these documents were not before the AO in assessment proceedings and also the CIT(A) considered any additional evidence which was not before the AO. Therefore, the submissions of ld. DR that there was no opportunity for AO for examination of relevant details are rejected and the order of CIT(A) is justified. Thus, the grounds raised by the Revenue are dismissed.

Summary

Issues Involved:
1. Justification of CIT(A) in restricting the disallowance at 2% of total labour expenditure.
2. Deletion of disallowance of ?1,68,87,175/- on account of labour expenses by CIT(A).
3. Justification of CIT(A) in confirming the disallowance on labour expenses to an extent of ?16,63,524/-.
4. Deletion of disallowance of labour expenses of ?1,88,47,258/- paid to BVG India Limited.

Issue-wise Detailed Analysis:

1. Justification of CIT(A) in restricting the disallowance at 2% of total labour expenditure:

The assessee, a company engaged in civil and electrical contracts, faced scrutiny over increased labour expenses in A.Y. 2011-12 compared to A.Y. 2010-11. The AO questioned the genuineness of labour expenses, particularly payments to M/s. Krishna Electricals & Engineers and M/s. Rohan Electricals. The AO found discrepancies in the statements and documents provided by these subcontractors, leading to a disallowance of labour expenses. The CIT(A) restricted the disallowance to 2% of total labour expenditure, which the Tribunal found unjustified. The Tribunal noted that the AO's disallowance was based on presumptions and assumptions without concrete evidence against the assessee's books. Thus, the Tribunal allowed the assessee's cross objection, rejecting the ad hoc estimation by the CIT(A).

2. Deletion of disallowance of ?1,68,87,175/- on account of labour expenses by CIT(A):

For A.Y. 2012-13, the AO disallowed labour expenses on three entities (M/s. Rohan Electricals, M/s. Kalyani Electricals, and M/s. Sanjivani Electricals) based on previous years' assessments. The CIT(A) found the AO's disallowance at 4% of total labour expenses unjustified, restricting it to ?16,63,524/-. The Tribunal upheld the CIT(A)'s decision, noting that the AO's disallowance lacked independent enquiry for the year under consideration and was based on assumptions from previous years. The Tribunal dismissed the Revenue's appeal, supporting the CIT(A)'s detailed examination and deletion of major disallowances.

3. Justification of CIT(A) in confirming the disallowance on labour expenses to an extent of ?16,63,524/-:

The assessee contested the CIT(A)'s confirmation of ?16,63,524/- disallowance on labour expenses for A.Y. 2012-13. The Tribunal found that the AO did not conduct separate enquiries for the year under consideration and relied on previous years' data. The Tribunal noted that there were no discrepancies in the assessee's records for the said entities. Hence, the Tribunal allowed the assessee's cross objection, holding that the disallowance was not maintainable and the CIT(A)'s confirmation was unjustified.

4. Deletion of disallowance of labour expenses of ?1,88,47,258/- paid to BVG India Limited:

For A.Y. 2013-14, the AO disallowed labour expenses paid to BVG India Limited due to incomplete address details and non-receipt of confirmation. The CIT(A) deleted the disallowance, noting that all requisite documents and confirmations were submitted before the AO. The Tribunal upheld the CIT(A)'s decision, finding that the AO had all relevant details, including work orders, ledger extracts, and confirmations from BVG India Limited. The Tribunal dismissed the Revenue's appeal, rejecting the contention that the AO lacked an opportunity to examine the details, as all documents were available during the assessment proceedings.

Conclusion:

The Tribunal found that the AO's disallowances were based on assumptions and lacked proper enquiry for the respective years. The CIT(A)'s detailed examination and deletion of major disallowances were upheld, while ad hoc estimations were rejected. The Tribunal allowed the assessee's cross objections and dismissed the Revenue's appeals, emphasizing the need for concrete evidence and independent enquiry in disallowance cases.