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Facts
The assessee, an individual contractor, filed his return of income. During assessment, the AO made additions for excess PF and 10% of total labour charges. The CIT(A) deleted the PF addition but confirmed the labour charges disallowance.
Held
The Tribunal found that the disallowance of labour charges was made on estimation basis without considering the labour register. To conclude the litigation, the disallowance was restricted to 6% instead of 10%.
Key Issues
Whether the disallowance of labour charges made on estimation basis by the AO is justified, and if so, to what extent.
Sections Cited
250, 1961
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Income Tax Appellate Tribunal, AHMEDABAD “SMC” BENCH
Before: DR. B.R.R. KUMAR, VICE-SHRI SIDDHARTHA NAUTIYAL
ORDER
PER : DR. BRR KUMAR, VICE PRESIDENT:
Delay Condoned This appeal has been filed by the assessee against the order of the Ld. Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi (hereinafter referred to as "CIT(A)" for short) dated 26.04.2023 passed under Section 250 of the Income-tax Act, 1961 [hereinafter referred to as "the Act" for short], for Assessment Year (AY) 2017-18.
The assessee has raised the following grounds of appeal: “Learned AO CIT(A) erred in law as well as on facts in upholding an addition of Rs.20,88,220/- being disallowance of 10 percent of Page No labor/wage expenses debited in profit and loss account on conjecture and surmises.”
3. The brief facts of the case are that the assessee is an individual, who is engaged/worked as a contractor for the year under consideration. The return of income for the year under consideration was filed on 20.08.2017 declaring total income of Rs.8,34,910/-. During the course of assessment proceedings, the Assessing Officer made two additions on account of (i) disallowance towards excess PF of Rs.4,55,435/- and (ii) disallowance of Rs. 20,88,230/- being 10% of the total labour charges debited in profit & loss account of the assessee.
4. Aggrieved by the aforesaid additions made by the Assessing Officer, the assessee filed appeal before the ld. CIT(A) who deleted the addition of Rs.4,55,435/-, but confirmed the addition of Rs.20,88,220/- being disallowance of 10% of labour charges of Rs.2,08,82,197/-, debited in profit and loss account of the assessee.
5. Aggrieved by the order of the Ld. CIT(A) confirming the addition of Rs.20,88,220/-, the assessee is now in appeal before the Tribunal.
6. Before us, Ld. AR submitted that the assessee has submitted the detailed labour register mentioning all the details before the Assessing Officer during the assessment proceedings, but he did not consider the same and made the disallowance on estimation basis. He further submitted that AY 2018-19 was also scrutinized on the same reason which was finalized without any addition. The Ld. AR therefore urged Page No that the addition of Rs.20,88,230/- made by the Assessing Officer towards disallowance of labour charges be deleted.
The Ld. DR, on the other hand, relied on the orders of the authorities below.
Rebutting the stands of the Revenue, the Ld. AR submitted that, in order to end up the protracted litigation, the disallowance @ 6% would be agreeable provided that the same cannot be treated as a precedent for reopening of the case for the earlier years or for determination of the profit for the subsequent years.
Heard both the parties and perused the material available on record. We find that the Assessing Officer had disallowed Rs.20,88,220/- being 10% of the total labour charges debited in Profit & Loss account of the assessee. The sole reason for disallowance was that all the vouchers were not produced before the Assessing Officer and disallowance was made on estimation basis. Keeping in view the entire facts and the profits declared by the assessee, we hold that disallowance be restricted to 6% instead of 10%.