2019 (3) TMI 645 - AT - Income Tax

Tribunal allows appeal on material purchases, upholds disallowance on labour expenses.

Shri Rakesh Kumar Pandey Versus The Dy. Commissioner of Income Tax -2 (1), Raipur, (C.G)

The Tribunal partially allowed the appeal, directing the deletion of the disallowance on material purchases while upholding the disallowance on labour ... Disallowance of expenses for purchase of materials and labour expenses - HELD THAT:- With respect to the purchase of materials, we find that the AO in the order has accepted that the material purchased was essential requirement for development of land and building and in view of the discrepancies noted he made an adhoc disallowance of 20% which was reduced to 10% by CIT(Appeals). AR has placed the summary of material purchased which reveals that it contains the details of suppliers, bill number, material amount and quantity. Payments have been made by cheques. Revenue has not pointed any evidence to show that the payments have not been made by cheque but have only proceeded on the basis of presumption. In the present case no disallowance of expenses on account of material is called for. We, therefore, direct to delete the disallowance on account of material purchased of ₹ 11,13,403/-. As far as the disallowance of labour charges is concerned before us the AR has not pointed out any fallacy in the findings of CIT (Appeals) and therefore to the extent of disallowance of labour expenses, we find no reason to interfere with the order of Commissioner of Income Tax. - Appeal of assessee is partly allowed. Issues:1. Disallowance of labour expenses on adhoc basis2. Disallowance of material purchase expenses on adhoc basis3. Disallowance of brokerage expensesIssue 1: Disallowance of Labour Expenses on Adhoc BasisThe appellant challenged the disallowance of Rs. 5,67,302 (20% of Rs. 28,36,514) by the Assessing Officer (AO) on labour expenses. The Commissioner of Income Tax (Appeals) (CIT(A)) partially upheld this disallowance. The appellant contended that all expenses were for business purposes and sought deletion of the adhoc disallowance. The appellant did not press ground No. 3 related to brokerage expenses. The Tribunal dismissed ground No. 3. The AO found discrepancies in labour payment rolls and disallowed 20% of the expenses. The CIT(A) upheld this disallowance. The appellant argued that no instances of bogus payments were pointed out and provided details of material purchases, emphasizing payments made by cheque. The Tribunal noted the absence of evidence to show non-cheque payments and concluded that no disallowance was warranted. The Tribunal directed deletion of the disallowance on labour expenses.Issue 2: Disallowance of Material Purchase Expenses on Adhoc BasisThe AO disallowed 20% of material purchase expenses due to missing details on bills. The CIT(A) reduced the disallowance to 10%. The appellant presented a summary of material purchases showing supplier details, bill numbers, amounts, and quantities, all paid by cheque. The Tribunal found no evidence to support non-cheque payments and overturned the disallowance of Rs. 11,13,403 on material purchases. The Tribunal emphasized that the material was essential for development, and the AO's presumption did not justify the disallowance. The Tribunal upheld the CIT(A)'s decision on labour expenses but allowed the appeal partially regarding material purchase expenses.Issue 3: Disallowance of Brokerage ExpensesThe appellant's challenge regarding the disallowance of brokerage expenses was not pressed and dismissed by the Tribunal as not argued. The Tribunal focused on the labour and material expenses, finding no grounds to interfere with the CIT(A)'s decision on labour expenses. The Tribunal's final judgment partially allowed the appeal, directing the deletion of the disallowance on material purchases while upholding the disallowance on labour expenses.This detailed analysis of the judgment from the Appellate Tribunal ITAT Raipur highlights the issues of disallowance of labour and material expenses on an adhoc basis, along with the dismissal of the challenge related to brokerage expenses. The Tribunal scrutinized the AO's decisions, the CIT(A)'s rulings, and the appellant's arguments to arrive at a conclusion favoring the appellant by deleting the disallowance on material purchases but upholding the disallowance on labour expenses.