What did the Tribunal hold?

The Tribunal found that while the assessee's financial results showed improvement and a decline in the labour ratio, a discrepancy in the labour register could not be entirely ruled out. Therefore, a reduced disallowance was deemed appropriate.

The assessee, engaged in civil construction, claimed wage expenses of Rs. 3,41,86,878/-. The Assessing Officer disallowed 15% of this amount, totaling Rs. 51,28,031/-, suspecting manipulation of the wage payment register.

What were the issues?

Whether the disallowance of 15% of wage expenses was justified based on alleged manipulation of the wage payment register.

Gurucharan Singh Engineers Pvt… vs DCIT | ITAT Delhi 2019

Income Tax Appellate Tribunal, DELHI ‘B’ BENCH,

Before: SHRI N.K. BILLAIYA, & MS. SUCHITRA KAMBLE

For Appellant: Shri D.C. Agrawal, Shri R.N. Poonia, Advs

Hearing: 14.01.2019Pronounced: 14.01.2019

PER N.K. BILLAIYA, ACCOUNTANT MEMBER,

This appeal by the assessee is preferred against the order of the CIT(A)- 16, New Delhi dated 08.01.2016 pertaining to A.Y 2011-12.

The solitary grievance raised by the assessee is that the CIT(A) erred in confirming the addition of Rs. 51,28,031/- being 15% of the wage expenses.

Facts on record show that the assessee-company is engaged in the business of civil construction. During the course of scrutiny assessment proceedings, the Assessing Officer noticed that the assessee has claimed expenses on account of wages at Rs. 3,41,86,878/-. The assessee was asked to furnish the details of these expenses. On examination, the Assessing Officer found that the register for payment of wages has been prepared in one sitting and the signature/thumb impression obtained thereon involving four or five persons only. The Assessing Officer was of the firm belief that the books of account have been manipulated by inflating payment of wages and, accordingly, disallowed 15% of the wage expenditure and made addition of Rs. 51,28,031/-.

The assessee carried the matter before the CIT(A), but without any success.

Before us, the ld. AR stated that the assessee has shown better results during the year under consideration and it is incorrect to say that the wage register was manipulated. It is the say of the ld. AR that the addition is unwarranted and deserves to be deleted.

Per contra, the ld. DR strongly supported the findings of the lower authorities.

We have carefully considered the orders of the authorities below.

Summary of the profit and loss account for the five years can be understood from the following chart:

FY FY FY FY FY Sl. PARTICULARS 2009-10 2010-11 2011-12 2012-13 2013 -14 1 TURNOVER 429.66 1,557.69 721.73 1,368.63 1,914.91

2 GROSS PROFIT 79.32 210.75 164,07 288.59 328.47 GP RATIO 18.46 13.53 22.73 20.78 17.15

3 NET PROFIT 18.91 72.12 42.77 82.78 113.61 N P Rate 4.40 4.63 5.93 5.96 5.93 4 labour charges 197.65 596,19 339,44 645.77 709.37

5 LABOUR RATIO 46.00 38.27 47.03 46.50 37.04

From the above chart, it can be seen that the N.P. of the assessee for the year under consideration is better than that of the immediately preceding A.Y. Further, the turnover has increased three fold and the labour ratio has declined from 46% to 38.27%. These facts disprove the allegation of the Revenue that the labour register is manipulated. Be that as it may, the discrepancy in the labour register cannot be ruled out and, therefore, in the interest of justice and fair play, a disallowance of Rs. 10 lakhs should meet the ends of justice. We, accordingly, direct the Assessing Officer to restrict the disallowance to Rs. 10 lakhs.

In the result, the appeal of the assessee in is partly allowed.

The order is pronounced in the open court on 14.01.2019.

GURUCHARAN SINGH ENGINEERS PVT. LTD.,NEW DELHI vs. DCIT, NEW DELHI

What did the Tribunal hold?

What were the facts?

What were the issues?

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