DCIT Vs Shalaka Infra Tech (India) Pvt Ltd (ITAT Pune)
Whether the CIT(A) is justified in deleting the disallowance of Rs.1,68,87,175/- as against Rs.1,88,63,786/- made by the AO on account of labour expenses in the facts and circumstances of the case.
Heard both the parties and perused the material available on record. We note that vide Para No. 5 of the assessment order that the assessee had debited an amount of Rs.46,37,67,463/- as labour charges under the head “Other Expenses” in Note No. 20 of the profit and loss account. The AO requested the assessee to file the details of parties against whom labour charges claimed. The assessee filed details of eight labour contractors vide its submission dated 09-03-2015. The AO proceeded to disallow on three entities called M/s. Rohan Electricals, M/s. Kalyani Electricals and M/s. Sanjivani Electricals. We find that in Para No. 501 of the assessment order, without there being any examination and verification proceeded to disallow labour expenses being excessive payment by the assessee on M/s. Rohan Electricals and M/s. Kalyani Electricals only on presumption that in A.Ys. 2010-11 and 2011-12 disallowance were made against two entities. On perusal of the assessment order from Para Nos. 5.2 we find that the AO mentioned profit and loss account for the period from 0 1-04- 2010 to 31-03-2011 which is relevant to A.Y. 2011-12 which amply proves that there was no enquiry and examination by the AO in respect of above said three entities separately concerning the year under consideration. We also note that the statements of Shri Krishna Dayaram Bhoi representing M/s. Krishna Electricals and Engineers and bills raised by the M/s. Krishna Electricals and Engineers were reproduced at Para Nos. 4, 5 and 6 of the paper book which clearly demonstrate that the statements of Shri Krishna Dayaram Bhoi representing M/s. Krishna Electricals and Engineers and bills raised by M/s. Krishna Electricals and Engineers shown A.Y. 2010-11 but not to the year under consideration. Further, the AO also reproduced ledger account of assessee in the books of M/s. Rohan Electricals and statement thereon at Page Nos. 8, 9, 10, 12, 13, 14 and 15 clearly shows those are relevant to A.Ys. 2009-10 and 2010-11 but not to the year under consideration. Likewise, without having any independent enquiry the AO made disallowance on estimation basis @ 4% of total labour expenditure at Rs.1,85,50,699/- (Rs.46,37,67,463/- at 4%).
Further, we find the CIT(A) discussed the entire issue in the impugned order at Para No. 6.3. The CIT(A) held the disallowance made by the AO at 4% of total labour expenses is not justified in view of the disallowance made on the basis of preceding assessment years but however, the CIT(A) restricted the disallowance to Rs. 16,63,524/- against M/s. Kalyani Electricals, M/s. Rohan Electricals and M/s. Sanjivani Electricals.
The contention of the ld. DR is that the AO conducted enquiries concerning the A.Ys. 2009-10 and 2010-11 and on the basis of which the AO also examined the accounts of the assessee be that of said three entities and found discrepancies in the account of the assessee. The AO rightly held the assessee inflated its labour expenditure and disallowed 4% of total labour expenditure. The CIT(A) without examining the assessment record in detail simply deleted major portion of the disallowance by holding that the assessment for the year under consideration is on the basis of preceding assessment years which is incorrect. The ld. DR vehemently supported the order of AO.
The ld. AR requested us to adopt the same arguments advanced in CO No. 27/PUN/2018 and submitted that the CIT(A) rightly held that without bringing on record the AO made assessment on enquiries made concerning A.Ys. 2009-10 and 2010-11 and supported the order of CIT(A) to that extent. We note that in aforementioned paragraphs we discussed the same issue on identical facts in the case of M/s. Krishna Electricals and Engineers and M/s. Rohan Elecricals and considering the material evidence on record together with the submissions of ld. AR and ld. DR we held the assessment made on ad hoc basis is not maintainable and allowed cross objection filed by the assessee. In view of the same we adopt the same view in this appeal. Thus, the ground raised by the Revenue is dismissed.
FULL TEXT OF THE ORDER OF ITAT PUNE
Above said two appeals in ITA Nos. 1222 & 1223/PUN/2017 by the Revenue and cross objection in CO No. 21/PUN/2019 by the assessee against the common order dated 12-01-2017 passed by the Commissioner of Income Tax (Appeals)-4, Pune [„CIT(A)‟] for assessment years 20 12-13 and 20 13-14. The assessee has filed another cross objection in CO No. 27/PUN/2018 against the order dated 28-03-2016 passed by the Commissioner of Income Tax (Appeals)-2, Pune for assessment year 2011-12.
2. Upon hearing, we note that the issues raised in all the two appeals cross objections are similar basing on the same identical facts. With the consent of both the parties, we proceed to hear all the two appeals and cross objections together and to pass a consolidated order for the sake of convenience.
3. First, we shall take up Cross Objection in CO No. 27/PUN/2018 (Arising out of ITA No. 1497/PUN/2016) for A.Y. 2011-12. The ITA 1497/PUN/2016 has been dismissed as withdrawn on account of low tax effect.
4. The brief facts of the case are that the assessee is a company and is engaged in the business of civil and electrical contracts. The projects of assessee are located across various cities in India. The contracts undertaken by the assessee are highly labour intensive. To fulfill these contracts the assessee company either employs its own labour force or outsources the work to other subcontractors.
5. The only issue raised by the assessee to be decided is as to whether the CIT(A) is justified in restricting the disallowance at 2% of total labour expenditure in the facts and circumstances of the case.
6. Heard both the parties and perused the material available on record. We note that the AO on an examination of profit and loss account found labour charges and contract receipts for A.Ys. 2010-11 and 2011-12 found as under :
