SHETH & SURA ENGINEERS PVT. LTD.,PUNE vs. DEPUTY COMMISSIONER OF INCOME TAX, PUNE

आदेश / ORDER PER ANIL CHATURVEDI, AM :

Assessee is a Private Limited Co., stated to be a Government Contractor for Water Supply Projects. Assessee electronically filed its return of income for A.Y. 2012-13 on 28.09.2012 declaring total income

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of Rs.2,45,25,322/-. The case was selected for scrutiny and thereafter

assessment was framed u/s 143(3) of the Act vide order dt.27.03.2015

and the total income was determined at Rs.9,68,89,480/-. Aggrieved

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

vide order dt.28.10.2016 (in appeal No.PN/CIT(A)-4/DCIT, Circle-6,

Pune/25/2015-16) / granted substantial relief to the assessee.

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

and has raised the following grounds :

“1. The learned CIT(A) has erred in confirming the disallowance made by the learned AO related to payment of Labour Charges. The disallowance of labour charges were made merely on ad hoc / estimated basis to the tune of Rs.27,89,884/- ignoring the facts submitted. This amount was worked out being 5% of the total Labour Charges of Rs.5,48,14,324/-.

ground is with respect to disallowance of labour charges and he further

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submitted that in the ground the amount was erroneously stated as

Rs.27,40,716/- and it should be read as Rs.27,89,884/-.

disallowance on account of labour expenses was made at 5%. He noted

that the probability of similar discrepancies as in A.Ys 2010-11 and

2011-12 cannot be ruled out in the present case. He therefore following

the decision of his predecessor, out of the total labour expenses of

Rs.55,797,661/- worked out the disallowance at 5% and disallowed

Rs.27,89,884/-. Aggrieved by the order of AO, assessee carried the

matter before Ld.CIT(A), who upheld the order of AO by observing as

under :

“7.3 DECISION:- I have perused the assessment order and the submission made by the appellant as above carefully. I find that Ld. CIT (A)-2, Pune, vide order in Appeal no. PN/CIT (A)-2/JCIT Rage- 6/PN/311/2014-15 and Appeal no. PN/CIT(A)-2/JCIT Rage- 6/PN/116/2013-14 dated 05/01/2016, for AY. 2010-11, had allowed the labour expenses partly after a detailed discussion vide para 9 to 9.2 of the appellate order and the disallowance was restricted to Rs.25,14,015/- i.e. 5% of Rs.5,02,80,288/- and had given relief of Rs. 2,71,05,131/- and vide order no. Appeal no. PN/CIT (A)- 2/JCIT Rage-6/PN/267/2014-15 and Appeal no. PN/CIT(A)-2/JCIT Rage- 6/PN/181/2014-15 dated 05/01/2016, for A.Y. 2011-12 had confirmed the addition on account of disallowance of Rs.27,40,716/-, being 5% of Rs.5,48,14,324/ - vide para 7 to 7.2 of the appellant order. While confirming the said addition on account of disallowance of labour expenses, the Ld. CITCA) after discussing the facts elaborately in A.Y.2011-12 held in para 7.2 as below :

7.2. I have considered the facts of the issue as mentioned in the assessment order. It is seen that the assessing officer has discuss about the deficiencies in the books of account as regards claim under labour expenses. the major deficiency was that the most of the claim has been made by way of self made vouchers. It was also noticed that details of recipients are not mentioned on the vouchers. Furthermore, writing on the vouchers appears to be of the same persons. The appellant: has also not maintained any muster roll or wage register. No amount has been deducted on account of EPF or ESIC. Also the payees are non verifiable. These facts have not been disputed by the appellant also. I therefore, feel that the assessing officer was justify in making disallowance at 5% of the total claim under the head "labour expenses", which is most reasonable. Considering the overall factual position, I confirm

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the disallowance on account of labour charges to the extent of 5% of Rs.5,48,14,324/- i.e. Rs.27,40,716/-. Accordingly, this ground of appeal is DISMISSED."

7.3.1 I find from the assessment order that the AO while disallowed the labour expenses had also quoted the relevant portion of the AO's findings for A.Y.2011-12 wherein various discrepancies were noted by the said AO in payments of labour charges. Photo copies of vouchers pointing out such discrepancies were also pasted in the assessment order. Since the AO during this relevant assessment year had also noticed the identical nature of vouchers and claim of labour expenses by the appellant as in A.Ys.· 2010-11 and 2011-12, on the basis of which the Ld. CIT(A) had confirmed 'the disallowance to the extent of 5~ of such expenses" I inclined to uphold the findings of the AO of disallowing of Rs.27,89,884/-, being 5% of the labour expenses of Rs.5,57,97,661/-, as allegedly claim by the appellant. Accordingly, such addition is confirmed. Ground 3 raised by the appellant is accordingly Dismissed.

Aggrieved by the order of Ld.CIT(A), assessee is now in appeal

before us.

out any expenditure which was bogus or not allowable, AO has simply

followed the assessment order for A.Y.s 2010-11 and 2011-12 and has

disallowed the labour charges and the same has been confirmed by

Ld.CIT(A). He submitted that against the appeal in A.Ys. 2010-11 and

2011-12 when the matter was carried before the Tribunal, the Tribunal

vide order dt.15.12.2017 in Appeal Nos.457 & 458/PUN/2016 has

restricted the disallowance to 3% of labour charges. He further

submitted that the facts of the case in the year under appeal are

identical to that of earlier years. He therefore submitted that in such

circumstances, the disallowance of expenses on 5% is uncalled for.

Ld.D.R. on the other hand, supported the order of AO and Ld.CIT(A).

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

disallowance of expenses on account of labour charges. We find that

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AO, following the decision of his predecessor in assessee’s own case in

A.Ys. 2010-11 and 2011-12 has disallowed, 10% of labour charges by

noting that the facts in the year under appeal are identical to that of

earlier years and the order of AO was also confirmed by Ld.CIT(A). We

find that against the order of Ld.CIT(A) in A.Ys.2010-11 and 2011-12,

when the matter was carried by the assessee before the Tribunal, the

Co-ordinate Bench of the Tribunal has restricted the disallowance to the

extent of 3% of labour charges by observing as under :

“11. We have heard the rival contentions and perused the record. The assessee had incurred labour expenses at various sites totaling Rs.5.02 crores. The Revenue has not controverted the findings of CIT(A) in this regard. Now, the question which arises in the present appeal is disallowance made out of said labour charges by the authorities below. The reason for disallowance is discrepancies noted in the vouchers maintained, wherein writing on the vouchers appeared to be the same person. Further, the assessee had failed to maintain any muster roll or wage register. Also, no amount was deducted on account of Provident Fund and ESIC. The payees were also not verifiable. The case of assessee was that majorly payment was made through cheque. In the totality of the above said facts and circumstances, we find merit in the aforesaid disallowance made by the authorities below. However, we restrict the same to 3% of labour charges. The grounds of appeal raised by the assessee are thus, partly allowed. 12. The facts and issues in ITA No.458/PUN/2016 are identical to the facts and issues in ITA No.457/PUN/2016 and our decision in ITA No.457/PUN/2016 shall apply mutatis mutandis to ITA No.458/PUN/2016.”

Before us, Revenue has not pointed out any distinguishing feature

in the facts of the case in the year under consideration and that of

earlier years. We therefore, following the order of Co-ordinate Bench of

the Tribunal for A.Ys. 2010-11 and 2011-12 and for similar reasons,

restrict the disallowance to 3% as against the disallowance of 5% made

by the AO. Thus, the grounds of the assessee are partly allowed.

ITA No.382/PUN/2017

Order pronounced on 22nd day of January, 2019.

Sd/- Sd/- (P.S. CHAUDHURY) (ANIL CHATURVEDI) �या�यक सद�य / JUDICIAL MEMBER लेखा सद�य / ACCOUNTANT MEMBER

पुणे Pune; �दनांक Dated : 22nd January, 2019. Yamini

आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to :

आदेशानुसार/ BY ORDER

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