SHETH AND SURA ENGINEERS P.LTD,,PUNE vs. ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE - 6,, PUNE

This is an appeal filed by the assessee directed against the order of ld. Commissioner of Income Tax (Appeals)- 4, Pune [‘CIT(A)’ for short] dated 16.10.2018 for the assessment year 2015-16.

The appellant raised the following grounds of appeal :- “The following grounds are taken without prejudice to each other - On facts and in law, 1) The learned CIT (A) has erred in confirming the disallowance made by the learned A.O. from payment of Labour Charges. The disallowance of labour charges were made merely on ad Rs. 14,95,431/- ignoring the facts submitted and assigning any specific reason. This amount was worked out being 5% of the total Labour Charges of Rs.2,99,05,616/-. 2) The learned CIT (A) erred in not following the ratio of the Pune ITAT decision in the case of the appellant company for preceding previous years. 3) The appellant craves leave to add, alter, amend or delete any of the above grounds of appeal and/or to lay the additional evidences at the time of hearing.”

Being aggrieved by the above decision of the ld. CIT(A), the appellant is before us in the present appeal.

When the appeal was called on, none appeared on behalf of the assessee despite due service of notice of hearing, therefore, we proceed to dispose of the appeal after hearing the ld. Sr. DR. 7. The issue in the present appeal relates to the disallowance of labour charges on ad-hoc basis. During the course of assessment proceedings, the Assessing Officer noticed that the vouchers in support of the labour charges are self-made and unverifiable. Accordingly, the Assessing Officer disallowed a sum of Rs.14,95,431/- being 5% of the total labour charges of Rs.2,99,05,616/-. The Assessing Officer also extracted the scanned images of vouchers in the assessment order. Even on appeal before the ld. CIT(A), the findings of the Assessing Officer are confirmed. We have carefully gone through the orders of the lower authorities and the scanned images of the vouchers as extracted by the Assessing Officer in the assessment order, it is evident that the vouchers are duly signed by the payees. It is a trade practice in the line of business of civil constructions, the vouchers in respect of labour charges are always self-made. The identical issue dealt by the Co-ordinate Bench of this Tribunal by the same combination in B.C. Biyani Project Pvt. Ltd. vs. JCIT, Range-1, Jalgaon in for the assessment year 2010-11 and others vide order dated 14.12.2021 by observing as under :- “22. From the perusal of the order of the ld. CIT(A), it is clear that the ld. CIT(A) had accepted factum of incurring the expenditure by observing that the works could not have been completed without engagement of the labourers. Thus, the genuineness of the expenditure is beyond the doubt but what is doubted by the ld. CIT(A) is the reasonableness of its expenditure having regard to the fact that the vouchers are self-made. The approach of the ld. CIT(A) cannot be sustained for the reason that having regard to the trade business practices, the vouchers in respect of the labour payments are clearly self-made by acknowledgement of receipt from the labourers or his gang leaders, which is not in doubt in present case. There is no doubt on cash entries made in the books of accounts, no material was brought on record by the ld. CIT(A) casting doubts on the genuineness of the labour payments. Recently, the Hon’ble Karnataka High Court in the context of payment of speed money to port workers, the approach of the lower authorities making ad-hoc disallowance was not accepted in the case of Sri Ganesh Shipping Agency vs. ACIT, 435 ITR 143 following its earlier decisions in the case of (i) CIT vs. Clifford D'Souza (IT Appeal No. 22 of 2011, dated 24-2-2015) and (ii) CIT vs. Konkan Marine Agencies, 313 ITR 308 (Kar.). Similarly, the Hon’ble Rajasthan High Court in the case of CIT vs. Consulting Engineering Group Ltd., 365 ITR 284 held that in the absence of evidence of bogus payment, the disallowance of part of payment on estimate basis was held to be unjustified. Further, the jurisdiction of the ld. CIT(A) is only confined to deciding the reality of the expenditure which means the ld. CIT(A) has to render a finding as to whether the amount claimed as deduction was actually expended or laid out wholly or exclusively for the purpose of business. The reasonableness of the expenditure should be gone into only for the purpose of determining whether the amount was paid.

In the present case, nothing is discernable from the perusal of the order of the ld. CIT(A) that the ld. CIT(A) had made an attempt to test the reality of the expenditure. Nor can be it said that he doubted the reality of the expenditure, it cannot be also said that the total labour charges incurred is excessive or unreasonable having regard to the fact that tender documents computed 30% of the contract value as a labour component and the actual charges only 33% of the contract value which is merely 10% excess. Thus, in any event, it cannot be said that the labour charges incurred are excessive or unreasonable. Therefore, the decision of the ld. CIT(A) making the ad-hoc