CENTURY CONSTRUCTION,GWALIOR vs. DCIT/ACIT 1(1), GWALIOR

The Ground No. 1 raised by the Assessee is challenging the disallowance of direct labour and contract expenses.

We have heard the rival submissions and perused the materials available on record. The Assessee Century Construction is a Government Civil Contractor engaged in construction of roads, bridges, dams and other public infrastructure projects. The Assessee filed its return of income for assessment year 2018-19 on 30-10-2018 declaring total income of Rs 62,32,780. The Assessee furnished the audited books of accounts, entire payment summaries and labour payment sheets as maintained by it at six construction sites before the Learned AO. During the year, the Assessee incurred direct labour and contract expenses of Rs 7,79,23,577 out of which Rs 5,33,37,307 was paid to individual labourers in small amounts depending on site requirements and Rs 2,58,98,470 was paid to subcontractors after deduction of tax at source which was duly deposited and accepted by the Learned AO. The Assessee explained that since construction activities were carried out at six different work sites, labour was required to be hired locally and paid periodically in small amounts. The copies of payment summaries, labour registers and site wise sheets were submitted by the Assessee before the Learned AO. The Learned AO on verification of the same observed that there are certain deficiencies thereon and in order to cover up the deficiencies, an adhoc disallowance of 30% of labour expenses amounting to Rs 1,60,01,192 was made in the assessment. This action of the Learned AO was upheld by the Learned CITA.

It is not in dispute that the entire labour summary sheets and site-wisee labour details were indeed filed by the Assessee before the lower authorities. However, the details furnished by the Assessee did carry some deficiencies. Hence, to cover up the deficiencies, ad hoc disallowance of expenses need to be made in the instant case. However, we find that a disallowance on ad hoc basis at the rate of 30% is on a very high side. Hence, in our considered opinion, ad hoc disallowance of 10% of labour expenses would meet the ends of justice in the peculiar facts and circumstances of the instant case. We make it very clear that the said ad hoc disallowance shall not act as a precedent for other Assessees and even for this Assessee in other assessment years. Accordingly, the Ground No. 1 raised by the Assessee is partly allowed.

The Ground No. 2 raised by the Assessee is challenging the disallowance of interest paid on delayed payment of TDS.

We have heard the rival submissions and perused the materials available on record. It is not in dispute that the TDS has been remitted by the Assessee belatedly and Assessee had indeed suffered interest for the said delay. The law is very well settled that the interest payment made on delayed payment of TDS is not an allowable deduction. Reliance in this regard is placed on the decision of Hon’ble Madras High Court in the case of CIT vs Chennai Properties & Investment Ltd reported in 239 ITR 435 (Mad) wherein it was held that interest paid on delayed payment of tax is not an allowable deduction as interest partakes the character of the principal portion i.e. tax and that since tax is not an allowable deduction, the interest thereon would also not be allowed as deduction. Drawing the same analogy, we hold that the interest paid on delayed payment of TDS has been rightly disallowed by the lower authorities. Hence the Ground No. 2 raised by the Assessee is dismissed.

The Ground No. 3 is interconnected with Ground No. 1 raised by the Assessee which has already been disposed of.

The Ground No. 4 is general in nature and does not require any specific adjudication.

In the result, the appeal of the Assessee is partly allowed.