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TMI Blog2012 (8) TMI 676X X X X Extracts X X X X X X X X Extracts X X X X ..... ars to be reasonable considering the nature of work executed by the assessee direction of CIT (A) to restrict the disallowance at 5% on total expenditure - in favour of assessee. Disallowance of departmental recoveries - CIT (A) deleted the addition - Held that:- The recoveries were made by the government departments towards quality control charges in case of every contractor and the assessee has also produced evidence before CIT (A) relating to the recoveries made by the department on consideration of which the CIT (A) has allowed deduction claimed by the assessee - No reason to interfere with the finding of the CIT (A) on this issue - in favour of assessee. Disallowed u/s 40A(3) - Held that:- It is an accepted practice in such natur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mental recoveries, though the assessee failed to explain the nature of payment at the satisfactory of the AO. 4. The CIT (A) erred in holding that the assessee incurred expenditure towards labour payments though the assessee violated provisions u/s 40A(3) of Income-tax Act, 1961 by making payments exceeding Rs.20,000/-. 5. Any other ground of appeal that may be urged at the time of hearing. 3. Ground Nos. 1 and 5 are general in nature and they do not require any adjudication. 4. In ground No.2, the revenue has challenged the order of the CIT (A) in reducing disallowance from 15% to 5% on account of labour charges and metal purchases. 5. Brief facts of the case are, the assessee is engaged in civil contract works. In course of ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r of bitumen involve laying of three layers of metal over which it is laid. This involves more labour as earth has to be dug up to the required depth to facilitate three layers of metal. It is further contended that road work is subject to strict scrutiny therefore there is little scope to increase expenditure on labour and metal purchases exorbitantly. The CIT (A) after considering contentions of the assessee with regard to the nature of work executed and also the fact the assessee for the assessment year under consideration had declared profit at 11.5% before claiming deduction towards depreciation, directed the AO to restrict disallowance to 5% of the total expenditure claimed under labour charges and metal purchases. The CIT (A) also ob ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is. It is seen from the record that the assessee had declared 11.5% which appears to be reasonable considering the nature of work executed by the assessee. In view of aforesaid facts, direction of CIT (A) to restrict the disallowance at 5% on total expenditure claimed needs no interference. Hence, this ground stand rejected. 10. Ground No.3 relates to deletion of an amount of Rs.67,209 being the departmental recoveries. During the assessment proceedings, the AO found that the assessee had debited a sum of Rs.67,209/- towards recoveries by MCH, R B and Serilingampally Municipality. However, TDS certificates do not disclose the nature of such recoveries. From the annexure to the TDS certificates furnished by the MCH, the AO found that rec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... recoveries made by the departments. In view of the above, the disallowance of Rs.67,209/- stands explained and accordingly, the additions made on this count is deleted. 11. We have heard rival contentions of the parties and perused the material on record. It is seen from the order of CIT (A) which is quoted above, the recoveries were made by the government departments towards quality control charges in case of every contractor. The assessee has also produced evidence before CIT (A) relating to the recoveries made by the department on consideration of which the CIT (A) has allowed deduction claimed by the assessee. In this view of the matter, we do not find any reason to interfere with the finding of the CIT (A) on this issue. Hence, grou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eality the amount is aggregate of payment made to individual labourers working under team leader (mestri) and payment to each individual labourer is much less than Rs.20,000/-. If the AO s finding of treating each weekly payment as a single payment to be accepted, then it would effectively mean the assessee executed all the work by employing only one labourer to whom weekly payment was made. The CIT (A) after considering the explanation of the assessee and examining ledger extracts, allowed the appeal of the assessee with the following finding:- I have considered the submissions made by the AR of the appellant and the ledger extracts of the labour charges. As seen from the ledger extracts, the payments are made on weekly basis and they a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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