2022 (1) TMI 788 - AT - Income Tax

Disallowance of payment of Labour Charges @ 5% - AO noticed that the vouchers in support of the labour charges are self-made and unverifiable - HELD THAT - As vouchers are duly signed by the payees. It is a trade practice in the line of business of civil constructions, the vouchers in respect of labour charges are always self-made. The identical issue dealt by the Co-ordinate Bench of this Tribunal by the same combination in the case of B.C. Biyani Project Pvt. Ltd 2022 (1) TMI 705 - ITAT PUNE as held it cannot be said that the labour charges incurred are excessive or unreasonable. Therefore, the decision of the ld. CIT(A) making the ad-hoc disallowance of labour charges at 30% cannot be sustained in the eyes of law Even in the present case also, no material was brought by the Assessing Officer suggesting that the expenditure incurred on labour charges is bogus. The Assessing Officer merely disallowed payment of labour charges on the presumption and surmises. It is settled position of law that no addition can be made merely on the basis of presumption, surmises and conjectures. Hence, we do not find any justification to disallow 5% of labour charges on ad-hoc basis. Thus, the issue raised in the grounds of appeal stands allowed.

Summary

Issues:
1. Disallowance of labour charges on ad-hoc basis.

Detailed Analysis:
1. The appellant, a company, filed an appeal against the order of the CIT(A) confirming the disallowance of labour charges amounting to ?14,95,431, which was 5% of the total labour charges of ?2,99,05,616 for the assessment year 2015-16. The Assessing Officer disallowed the amount based on self-made and unverifiable vouchers. The CIT(A) upheld the disallowance. The appellant contended that the disallowance was made without specific reasons and contrary to the Pune ITAT decision in the appellant company's case for previous years.

2. The issue revolved around the disallowance of labour charges on an ad-hoc basis. The Assessing Officer disallowed the amount based on self-made vouchers, which were common in the civil construction business. The Tribunal noted that the vouchers were signed by payees and that self-made vouchers were a trade practice in the construction industry. Referring to a similar case, the Tribunal emphasized that the genuineness of the expenditure was not in doubt, and the reasonableness of the expenditure should only be questioned to determine if the amount was actually paid. The Tribunal held that without evidence of bogus payments, ad-hoc disallowance was unjustified.

3. The Tribunal emphasized that no material was presented to suggest that the expenditure on labour charges was bogus. The Assessing Officer's decision was based on presumption and surmises, which is not a valid basis for disallowance. The Tribunal reiterated that additions cannot be made solely on presumption and conjectures. Therefore, the Tribunal allowed the appeal, stating that there was no justification for the ad-hoc disallowance of 5% of labour charges. The decision was based on legal principles that require actual evidence of wrongdoing for disallowances, rather than assumptions.

This detailed analysis provides a comprehensive understanding of the judgment, focusing on the issue of disallowance of labour charges on an ad-hoc basis and the legal principles applied by the Tribunal in reaching its decision.