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of <h1>ITAT partially allows Revenue's appeal on labor charges, directs 10% disallowance of cash components. Dismisses service tax payment and Rule 46A violation.</h1> <h3>The DCIT, Cir. 8 Surat Versus M/s. Maruti Construction</h3> The DCIT, Cir. 8 Surat Versus M/s. Maruti Construction - TMI Issues:1. Disallowance of labor charges2. Disallowance of service tax payment3. Violation of Rule 46A of the IT RulesAnalysis:Issue 1: Disallowance of labor chargesThe Revenue appealed against the CIT(A)'s decision to delete the addition made on account of disallowance of labor charges. The Revenue argued that the labor register produced by the assessee was incomplete and had defects, justifying the disallowance. The assessee, a sub-contractor, claimed non-cooperation with the AO and presented loose sheets instead of a proper register for labor payments. The ITAT found that the assessee's turnover and GP rate had improved compared to the previous year, but the lack of proper documentation for cash payments of labor charges led to a partial allowance of the disallowance. The ITAT held that 10% of the cash components of labor charges should be disallowed, amounting to Rs.29.5 lakhs, instead of the CIT(A)'s restriction to Rs.6 lakhs.Issue 2: Disallowance of service tax paymentThe Revenue contested the deletion of the addition made on account of disallowance of service tax payment. The CIT(A) found that the service tax was duly recorded in the books of accounts, paid through the bank account, and supported by challans and returns submitted to the Revenue authorities. The ITAT upheld the CIT(A)'s decision, stating that there was no evidence to suggest the payment was made outside the books of accounts, confirming that the service tax payment was appropriately accounted for.Issue 3: Violation of Rule 46A of the IT RulesThe Revenue alleged that the CIT(A) violated Rule 46A of the IT Rules by accepting evidence without a remand report. The ITAT noted that the Revenue failed to identify the specific evidence accepted by the CIT(A) without confronting the AO. While the assessee provided some details to the AO, certain queries remained unanswered. In the absence of clear evidence of a Rule 46A violation, the ITAT dismissed this ground of the Revenue's appeal.In conclusion, the ITAT partly allowed the Revenue's appeal concerning the disallowance of labor charges while dismissing the appeals related to the disallowance of service tax payment and the alleged violation of Rule 46A of the IT Rules.
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