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Facts
The assessee, a civil contractor, was subjected to a survey, leading to an assessment for AY 2016-17 and 2017-18. The primary grievances concerned the disallowance of labor food and welfare expenses and disallowance for non-deduction of TDS on labor charges.
Held
The Tribunal partly allowed the appeal for AY 2016-17, restricting the addition for labor food and welfare expenses to Rs.1 Lac. For the labor charges disallowance, it was held that the payments were made to an intermediary for labor, not a subcontractor, and the disallowance was deleted. For AY 2017-18, the addition for labor food and welfare expenses was deleted.
Key Issues
Whether disallowance of labor food and welfare expenses is justified when supported by bills from shopkeepers, and whether disallowance for non-deduction of TDS on labor charges is sustainable when payments were made to an intermediary for laborers.
Sections Cited
143(3), 40(a)(ia)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “A” BENCH, CHANDIGARH
Before: HON’BLE SHRI RAJPAL YADAV & HON’BLE SHRI MANOJ KUMAR AGGARWAL, AM
O R D E R Manoj Kumar Aggarwal (Accountant Member) 1. Aforesaid appeals by assessee for Assessment Years (AY) 2016- 17 and 2017-18 have common grounds. First, we take up appeal for AY 2016-17 which arises out of an order of learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi [CIT(A)] dated 20-12-2023 in the matter of an assessment framed by Ld. Assessing Officer [AO] u/s. 143(3) of the Act on 25-12-2018.
The grievance of the assessee is two-fold i.e., (i) Confirmation of Labour Food and Welfare expenses for Rs.10.67 Lacs; (ii) Disallowance u/s 40(a)(ia) for Rs.20.86 Lacs for non-deduction of TDS on certain payments. Having heard rival submissions and upon perusal of case records, the same are disposed-off as under. The assessee being resident corporate assessee is stated to be engaged as a civil contractor. The assessee was subjected to survey on 08-03-2017 which led to impugned assessment on the assessee.
Disallowance of Labour Food & Welfare Expenses. 3.1 The assessee debited expenses of Rs.13.17 Lacs under this head. The supporting bills were stated to be issued by various shopkeepers. Upon verification from shopkeepers, the claim could be verified partially and accordingly, Ld. AO made addition of Rs.10.67 Lacs. The Ld. CIT(A) confirmed the same against which the assessee is in further appeal before us. 3.2 From assessee’s submissions, it emerges that the assessee has not made direct purchases from the vendors but the purchases are made by the laborers as hired by the assessee to carry out projects at remote sites. The same would explain denial by the vendors that they have sold the goods to the assessee company. In fact, Shri Keshav Ram (Shopkeeper), in reply to Q. No.7, has admitted that the laborers of the company used to purchase ration from him and the payments were made by themselves. The laborers, in turn, have claimed the same from the assessee-company. Considering the same, we would hold that there is substantial force in the argument of Ld. AR that the expenditure could not be held to be bogus expenditure in its entirety. Nevertheless, to plug any possible leakage of revenue, we deem it fit to restrict impugned addition to lump-sum amount of Rs.1 Lacs and delete the remaining addition as made by Ld. AO. The corresponding grounds stand partly allowed.
Disallowance u/s 40(a)(ia) 4.1 The assessee paid labor charges to M/s Sharma Construction, Chamba for Rs.69.53 Lacs without deduction of TDS. The assessee stated that labor payments were made through one of the persons. The assessee furnished ledger copy and stated the payments were made through cheques. The payee is also stated to have received these amounts from the assessee. However, holding the payee as sub- contractor, Ld. AO disallowed 30% of these payments u/s 40(a)(ia). The Ld. CIT(A) confirmed the same against which the assessee is in further appeal before us. 4.2 It is admitted fact by Ld. AO that the payee has confirmed receipt of impugned amount from the assessee. During appeal proceedings, the assessee also submitted that a site-work was being carried out at very tough terrains and to facilitate labor payments, the assessee paid the amount to M/s Sharma Contractor who, in turn, use to make payments to laborers on behalf of the assessee. It was also demonstrated with documents that the aforesaid amount was reflected in the books of the payee and the same was in the nature of imprest payment only. A certificate from payee to that effect was also furnished. The assessee also furnished attendance cards and labor wages register for this particular site. These laborers were directly employed by the assessee. On these facts, it could very well be said that the claim of the assessee was backed up by sufficient documentary evidences and it could not be said that the payee acted as sub- contractor for the assessee. On these facts, the impugned disallowance is not sustainable on facts. By deleting the same, we allow the corresponding grounds as raised by the assessee. The appeal stand partly allowed. Assessment Year 2017-18 5. The sole grievance of the assessee is confirmation of addition of labor food and welfare expenses for Rs.1.47 Lacs as paid by the assessee under similar circumstances to shopkeeper Shri Kheti Ram. We find that the purchases from this vendor were accepted by Ld. AO in AY 2016-17 and therefore, there is no reason to sustain the same in this year. By deleting the same, we allow the appeal of the assessee. Conclusion 6. stand party allowed whereas ITA No.156/Chandi/24 stand allowed. Orders pronounced on 24-03-2025. (RAJPAL YADAV) (MANOJ KUMAR AGGARWAL) VICE PRESIDENT लेखा सद" /ACCOUNTANT MEMBER Dated: 24-03-2025 आदेश की "ितिलिप अ"ेिषत / Copy of the Order forwarded to : 1. अपीलाथ"/Appellant 2. ""थ"/Respondent 3. आयकरआयु"/CIT 4. िवभागीय"ितिनिध/DR 5. गाड"फाईल/GF