KUNAL PANDEY,ARRAH, BHOJPUR, BIHAR vs. DC/AC, CIRCLE 1, PATNA, ITD, LOK NAYAK BHAWAN, DAK BANGLOW ROAD, PATNA

IN THE INCOME TAX APPELLATE TRIBUNAL PATNABENCH, PATNA BEFORE SHRI DUVVURU R.L. REDDY, VICE PRESIDENT AND SHRI RAJESH KUMAR, ACCOUNTANT MEMBER I.T.A. No.458/PAT/2026 Assessment Year: (2020-21) (Hybrid Hearing) Kunal Pandey, DC/AC, Narayan Niwas, Near Barhara Block Vs. Circle – 1, Office, Barhara, Bhojpur, Patna – Patna 802311, Bihar [PAN: AJPPP6921M] (Appellant) .. (Respondent) Appellant by : Shri Soumitra Chowdhury, Advocate Respondent by: Shri Bharat Bhusan Garg, CIT-DR Date of Hearing 25.08.2026 Date of Pronouncement 30.10.2026

O R D E R PER RAJESH KUMAR, ACCOUNTANT MEMBER:

This appeal is preferred by the assessee against the order passed u/s 250 of the Income-tax Act, 1961 (In short, ‘the Act’) by learned Commissioner of Income Tax (Appeals),National Faceless Appeal Centre, Delhi(hereinafter referred to as the “ld.CIT(A)”], dated27.05.2026 for the Assessment Year (AY) 2020-21.

ITA No.458/Pat/2026/A.Y.2020-21 Kunal Pandey vs. DC/AC 3. The facts of the case in brief are that the assessee has filed return of income on 24.03.2021, declaring total income of Rs.9,24,14,380/-, which was processed u/s 143(1) of the Act. The case of the assessee was selected for scrutiny through CASS and statutory notices u/s 143(2) and 142(1) of the Act along with questionnaire were issued and served upon the assessee. During the assessment proceedings, the assessee has complied the notices issued by the AO by filing various details/evidences as called for. The AO, on perusal of the details submitted by the assessee as well as profit and loss account and balance sheet , noted that the assessee has claimed two ledger expenditure on account of contract of major expenses of Rs.41,62,22,098/- and direct material of Rs.83,73,34,742/- in the profit and loss account for the year under consideration. The AO also noted that assessee has shown current liability at Rs.62,06,74,974/- and sundry creditors at Rs.46,17,65,976/-. The AO noted that the total expenditure incurred by the assessee in respect of labour charges were Rs.41,62,22,098/- whereas the labour charges payable were shown at ₹ 62,06,74,974/-. The AO noted that assessee has not furnished other details such as PANs, addresses, identities of the labourers to whom the labour expenses were claimed to be payable by the assessee. Thereafter, the AO extracted the details of other liabilities at Pages 4 & 5 of the assessment order and noted that the total labour expenses of Rs.62,06,74,974/- has remained outstanding as on 31.03.2020 and was shown under the head other current liability in the balance sheet. Moreover, the assessee has not given the details of work done by a particular worker and how many numbers of days he worked. The AO noted that assessee has shown labour wages payable ranging of Rs.80,000/- to 99,000/-, which was not paid and remained pending as on 31.03.2020 and same workers appearing repeatedly. Consequently, the assessee was called upon to furnish the details of unabated/outstanding

ITA No.458/Pat/2026/A.Y.2020-21 Kunal Pandey vs. DC/AC liabilities at the year end. The assessee furnished the details as called for by the AO. The AO noted that assessee has shown total labour and wages expenses payable at Rs.62,06,74,974/- at the year-end whereas despite the fact that the assessee has sufficient cash and bank balances amounting to Rs.47,49,54,664/- in the form of FDR, cash in hand, cash and bank balance of Rs.6,16,01,119/-. The AO noted that how could the assessee carry out his business activities without paying wages to the workers since almost 100% of the total wages clamed are outstanding at the year-end? Therefore, a show cause notice was issued on 23.02.2022 and asked as to why an amount of Rs.51,72,29,114/- was computed by reducing at Rs.10,34,45,830/-, which was fallen during the month of February and March, 2020 (assuming the total labour/wages for whole year at ₹ 62,06,74,974/- and then averaging the same and calculating monthly wages at ₹ 5,17,22,915/-) of total unpaid wages of Rs.62,06,74,974/- and the same was treated as unexplained labour and wage charges. The AO also rejected the books of account u/s 145(3) of the Act on the ground that the accounts of the assessee did not represent true and correct state of affairs. Therefore, the said amount was added by the AO as unexplained labour and wage charges in the assessment framed u/s 143(3) r.w.s. 144B of the Act, dated 20.09.2022.

ITA No.458/Pat/2026/A.Y.2020-21 Kunal Pandey vs. DC/AC rejected the plea of the assessee that labourers are not having the I-card in most of the cases. The ld. CIT(A) affirmed the order of AO on the issue of rejection of books of account that assessee did not provide a true statement of income of the assessee. 5. Per contra , the ld. Dr while strongly opposing the arguments of the ld. AR submitted that the case of the assessee was rightly assessed by the AO by making addition in respect of bogus labour charges shown as payable in the balance sheet. The ld. DR submitted that it is very ridiculous that entire wages and labour charges for the whole financial year remained outstanding . The ld. therefore prayed that the appellate order may kindly be uphold. 6. In the rebuttal the ld. AR submitted that the assessee is following the mercantile system of accounting and he has to account for the labour charges which pertained to the current financial year only. The ld. AR submitted that substantial part of the billing for the contracts was done in the month of March and realized in the subsequent financial year and the outstanding liability in respect of labour charges was discharged. The ld. AR submitted that the said fact is apparent from the details of labour payable account in the subsequent year. The ld. AR therefore prayed that the appeal of the assessee may be allowed. 7. We have heard rival submissions and perused the materials available on record. We find that assessee is a Govt contractor and has been executing projects for the Government and receiving in consideration the contractual payments, which were duly shown in the books of account. During the year, we note that the assessee got/received contract receipts of Rs.149,82,47,293/- on which the assessee’s returned profit of Rs.8,57,94,134/- and filed return of income showing total income of 4

ITA No.458/Pat/2026/A.Y.2020-21 Kunal Pandey vs. DC/AC Rs.9,24,14,380/-. We note that during the assessment proceedings, the assessee furnished before the AO all the evidences including details of labour charges, wage expenses and labour/wages charges payable at the year-end. It is also disputed that assessee debited total labour charges of Rs.41,62,22,098/- to the profit and loss account. However, the outstanding labour/wages under the head liabilities were shown at Rs.62,69,74,132/-. The AO treated the labour charges payable as bogus and non-genuine merely on the ground that the PANs, addresses and other details qua the labour were not produced whereas on the other hand we observe that the assessee has furnished all the details including labour register with all the details of the no of persons engaged , their attendances, daily wage along with supporting documentary details/evidences etc before the AO and the AO did not point out any defect in the books of accounts and reached a erroneous conclusion that the books of account were not stating the correct state of affairs of the assessee. Therefore, the rejection of books of account without pointing out any defects is wrong and cannot be sustained as the same is not in accordance with the provisions of section 145(3) of the Act. Therefore, we are not in agreement with the ld. CIT(A) on the issue of rejection of books of account and consequently, we are inclined to set-aside the order of ld. CIT(A) on this point by holding that the books of accounts were wrongly rejected u/s 145(3) of the Act. 8. So far as the second issue is concerned, which is qua the confirmation of disallowance of Rs.51,72,29,144/- out of total labour and wages payable which was computed by the AO by taking into account the total wages and labour charges outstanding during the month of February and March, 2020 as has been discussed above. We note that total billing for work done by the assessee stood at Rs.60,33,20,621.82/- in the month of March, 2020 alone 5

ITA No.458/Pat/2026/A.Y.2020-21 Kunal Pandey vs. DC/AC which comes to Rs.67,57,19,095.76/- after including CGST and IGST. For the ready reference, we extract the details of total receipt received during the year:

ITA No.458/Pat/2026/A.Y.2020-21 Kunal Pandey vs. DC/AC 10. From the above table/statement, we note that the substantial portion of the billing for contractual work executed was done in the month of March and the labour charges were also booked accordingly and shown as payable at the year-end also note that. We also note that the payments for the work done in the current financial year were received in the subsequent financial year. We note that the outstanding labour charges were discharged in the subsequent year as it is apparent from the details furnished by the assessee, which are extracted below for ready reference:

ITA No.458/Pat/2026/A.Y.2020-21 Kunal Pandey vs. DC/AC A.Y. 2019-20 to 2023-24 that the G.P. ranges from 7.17% to 10.03% as it is apparent from the following table:

ITA No.458/Pat/2026/A.Y.2020-21 Kunal Pandey vs. DC/AC of ld. CIT(A) order, then the GP in the current year would be 41.69% which is unrealistic and is astronomically high and is practically unachievable. We note that even estimation of profit in the present case would not be made under the provisions of the Act as there is no basis for that. Moreover estimation G.P. cannot be resorted to merely for the reason that the G.P. is lower than the earlier and subsequent years. We even note that labour charges disallowed and added by the AO include opening balance of the labour charges payable. Moreover, in the subsequent year, the labour charges outstanding were Rs.2,58,051/- which proved beyond doubt that substantial part of the labour charges were paid when the contractual payments were received in the subsequent year. Moreover the books of accounts are audited and no adverse inference was drawn by the auditors in the audit report. We also note that the books were rejected because the some details were not furnished by the assessee in respect of labour employed by the assessee but that reason alone does not justify the rejection of books of accounts. The AO has to pin point specific defects in the books of accounts to justify that the books of accounts are not showing the actual income of the assessee and then estimate the income. But in the instant case the AO rejected the books of accounts and then accepting the result shown as per the books of accounts partly by adding labour charges payable (even some part of opening balance) by treating them as non-genuine which if sustained would make the GP rate at 41.69% which totally unrealistic and impracticable. We are unable to understand as to how the assessment was framed u/s 143(3) of the Act when the AO had rejected the books of accounts. Considering all these facts, we are not in position to sustain the appellate order. Consequently, the order passed by the ld. CIT(A) is set aside and The AO is directed to delete the addition. The appeal of the assessee is allowed.

ITA No.458/Pat/2026/A.Y.2020-21 Kunal Pandey vs. DC/AC 11. In the result, the appeal of the assessee is allowed.

The order is pronounced on 30/10/2026.

Sd/- Sd/- (Duvvuru R.L. Reddy) (Rajesh Kumar) VICE PRESIDENT ACCOUNTANT MEMBER Kolkata, Dated: 30/10/2026 SAMANTA आदेश �ȧ ĤǓ�ͧ �ͪ �\ Ē ȯͪ��/Copy of the Order forwarded to: \ �Ȣ�ȡ�ȸ/ The Appellant 1. 2. Ĥ×��ȸ/ The Respondent. 3. Ȳ�Ȳͬ��आयकर] �ǕÈ�/ Concerned CIT 4. आयकर] �ǕÈ�(अपील) / The CIT(A) 5. ��ȡ�Ȣ�ĤǓ�Ǔ�ͬ �, आयकर\ �Ȣ�ȣ�\ͬ ����,/ DR, ITAT, Kolkata 6. �ȡ�[ फाईल/ Guard file.

BY ORDER, // TRUE COPY // Deputy Registrar, ITAT, Kolkata Digitally signed Sangee by Sangeeta Sinha ta Sinha Date: 2026.11.03 13:37:21 +05'30'