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TMI Blog2010 (11) TMI 1127X X X X Extracts X X X X X X X X Extracts X X X X ..... of the AO. On the other hand, the learned Counsel for the assessee reiterated the submissions made before the authorities below. 3. Ground No.1 of the appeal of the revenue reads as under: "1 On the facts and in the circumstances of the case and in Law, the Ld. CIT(A)-III, Surat has erred in restricting the addition of Rs.26,82,206/- to Rs. 1,00,000/-, made by the Assessing Officer on the ground of disallowance of labour charges." 4. The AO disallowed Rs.26,82,206/- being 30% of the labour charges/payments. The AO observed that the assessee was engaged in construction activity and had subcontracted the work to other contractors. The total payments made to five sub contractors was Rs.89,40,688/-. The AO issued summons u/s 131 of the IT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d before the learned CIT(A) that all the labour contractors had in their statements recorded by the AO confirmed having worked for the assessee and having received the payments. Proper bills were raised for the work contract and the income was disclosed in their returns of income. The labour contract payment was 28.90% of the total turn over which was the lowest in the last four years. The net profit also increased to 2.22% compared to 1.16% last year whereas gross profit increased to 12.69% compared to 5.58% last year. No defect was found in the books of account and the sub contractors made weekly payments to their workers but actually it is only the weekly expenditure which was paid to them and total calculation of their labour was made t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xpenditure like food and miscellaneous items would be taken care of by the main contractor a the construction site itself and they would be paid their entire wages at the time of their annual break for going to their villages. Therefore, AO's contention that the payments were not made to the laborers is without appreciating the practicality of the construction business. Further, all the sub contractors confirmed working for the appellant and each of them in their statement before the AO categorically stated that they received total payments for the work done by them. Further, the AO's observation that the sub contractor also did not know about the receivables from the appellant is also not material since they would not be expected to mainta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed that the disallowance is totally unjustified. Since the payments have been accepted by the sub contractors and the payments were subjected to TDS and also were made by account payee cheques, therefore, there was no reason to presume that the payments withdrawn by the sub contractors from their accounts have returned back to the assessee. In the absence of any specific material available against the assessee on record, we do not find it to be a fit case for interference. The AO without considering the entire material on record disallowed 30% out of the expenditure which is the major component for earning income by the assessee. No basis has been given as to why 30% out of the total labour payment was disallowed. The findings of the AO thu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elements of personal use of telephone and motor car as always likely. For use of telephone, personal expenditure was found to be in order. Similarly, disallowance for petrol expenses was found to be in order. Vehicle expense was related to business purposes for which disallowance were deleted. The learned CIT(A) accordingly restricted the addition to Rs.41,190/-. On consideration of the rival submissions, we do not find it to be a fit case for interference. The learned CIT(A) on proper appreciation of the facts and material on record rightly restricted the addition to the above amount because on several heads expenses were not found to be personal in nature because they were connected with the business activities of the assessee. In the ab ..... X X X X Extracts X X X X X X X X Extracts X X X X
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