K R TRADERS,,PUNE vs. INCOME-TAX OFFICER,, PUNE

आदेश / ORDER PER ANIL CHATURVEDI, AM :

This appeal filed by the assessee is emanating out of the order of 1. Commissioner of Income Tax (A) – 7, Pune dated 10.02.2017 for the assessment year 2011-12.

Assessee is a partnership firm stated to be engaged as Civil Contractor, engaged in construction of residential and technical accommodation for Central Government. Assessee electronically filed its return of income for A.Y. 2011-12 on 30.09.2011 declaring total taxable

income of Rs.12,39,480/-. The case was selected for scrutiny and

thereafter assessment was framed u/s 143(3) of the Act vide order dated

25.03.2014 and the total income was determined at Rs.1,83,79,140/-.

Aggrieved by the order of AO, assessee carried the matter before

Ld.CIT(A), who vide order dt.10.02.2017 (in appeal No.PN/CIT(A)-7/Wd-

2(2)/306/2014-15) dismissed the appeal of assessee. Aggrieved by the

order of Ld.CIT(A), assessee is now in appeal before us and has raised

the following effective ground.

“The learned CIT(A)-VII, Pune has erred in law as well as in facts, in confirming the addition of Rs.41,86,961/- being 10% of labour charges, on ad hoc basis.”

assessee had claimed labour charges at Rs.4,18,69,611/-. On perusal,

the labour bills claimed as expenses, AO noticed that the entire

expenditure was incurred in cash. Considering the facts that the

payments were in cash and the vouchers were self made and not fully

verifiable, AO was of the view that the entire expenditure is not

allowable. He accordingly disallowed 10% of the labour expenses and

thus made addition of Rs.41,86,961/-. Aggrieved by the order of AO,

assessee carried the matter before Ld.CIT(A), who upheld the order of

AO.

Aggrieved by the order of Ld.CIT(A), assessee is now before us.

Ld.CIT(A) and further submitted that assessee is a Government

Contractor registered with M.E.S. Chief Engineer, Southern Command

and it receives contracts from MES for construction of buildings for

Central Government. He submitted that the payment to labourers have

to be made in cash and that though the AO has given a finding that the

payments are not covered u/s 40A(3) of the Act but the AO has not

doubted the payments and held the vouchers being self made are not to

be fully verifiable and disallowed 10% of the labour charges. He

submitted that in A.Y. 2009-10 on the gross receipts of Rs.8.87 crores

and labour charges of Rs.2.46 crores, the disallowance was made to the

extent of Rs.2,50,000/- and now the disallowance is on higher side. He

further submitted that if the reasonable disallowance is upheld by the

Tribunal, it would be acceptable to the assessee. Ld. D.R. on the other

hand, supported the order of AO.

record. The issue in the present ground is with respect to disallowance

of 10% of labour charges. It is an undisputed fact that assessee is a

Government Contractor registered with M.E.S. and undertakes the

work of construction of residential and technical accommodation of

Central Government and for which it has to employ the labour. We find

that the payment of labour charges has not been doubted by the AO and

further AO has also given a finding that the payments are not covered

u/s 40A(3) of the Act. The AO only for the reason that the vouchers are

not fully verifiable disallowed 10% of the expenses. Considering the

totality of the facts and the fact that in earlier year i.e., in A.Y. 2009-10

on a turnover of Rs.8.87 crores and labour charges of Rs.2.46 crores,

the disallowance was made to the extent of Rs.2,50,000/- and after

considering the submissions of Ld.A.R., we are of the view that in the

present case, the ends of justice shall be met if the disallowance is

restricted to 5% of labour charges. We therefore direct that the

disallowance be upheld to the extent of 5% of labour charges as against 10% made by the AO. We thus direct accordingly. Thus, the ground of assessee is partly allowed.

Order pronounced on 19th day of August, 2019.

Sd/- Sd/- (SUSHMA CHOWLA) (ANIL CHATURVEDI) �या�यक सद�य / JUDICIAL MEMBER लेखा सद�य / ACCOUNTANT MEMBER

पुणे Pune; �दनांक Dated : 19th August, 2019. Yamini

आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant 2. ��यथ� / The Respondent 3. CIT(A)-7, Pune. Pr. CIT-6, Pune. 4. 5 �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, “बी” / DR, ITAT, “B” Pune; गाड� फाईल / Guard file. 6.

आदेशानुसार/ BY ORDER

// True Copy // व�र�ठ �नजी स�चव / Sr. Private Secretary आयकर अपील�य अ�धकरण ,पुणे / ITAT, Pune.