2019 (12) TMI 1105 - AT - Income Tax

Tribunal rules in favor of assessee, rejects AO's questioning of wage rates. CIT(A)'s findings set aside.

M/s. Radiant Hitech Engg. Pvt. Ltd. Versus Asst. Commissioner of Income Tax Circle-4 Baroda

The Tribunal ruled in favor of the assessee, stating that once the genuineness of the expenses is established, the AO cannot question the wage rates ... Disallowance on account of labour expenses - HELD THAT:- Genuineness of the payment of the wages to the temporary staff cannot be suspected as it was subject to professional tax and Provident fund. Once the genuineness of the expenses is established, then in our considered view the AO cannot occupy the armchair of the assessee and direct it to make the payment of wages at particular rate. As such it was the wisdom of the assessee for making the payment of the wages at the particular rate which cannot be questioned by the AO. In the similar facts and circumstances the disallowance made by the AO in the case of the assessee in the earlier assessment year i.e. 2008-09 [2016 (12) TMI 1803 - ITAT AHMEDABAD] was deleted by this tribunal Therefore, in our considered view the principles laid down by this tribunal in the own case of the assessee are squarely applicable to the case on hand. Accordingly, respectfully following the same we set aside the finding of the learned CIT-A and direct the AO to delete the addition made by him - Decided in favour of assessee. Issues Involved:1. Disallowance of Rs. 47,07,974/- on account of labour expenses.Issue-Wise Detailed Analysis:1. Disallowance of Rs. 47,07,974/- on account of labour expenses:The assessee, a private limited company engaged in mechanical and engineering job work, appealed against the disallowance of Rs. 47,07,974/- made by the Assessing Officer (AO) and confirmed by the Commissioner of Income Tax (Appeals) [CIT(A)]. The AO questioned the higher wages paid to temporary labourers compared to permanent staff, considering the latter more qualified and experienced. The AO considered the wages paid to temporary labourers excessive and unreasonable, leading to the disallowance.Facts and Submissions:- The assessee hired both permanent and temporary labourers, paying the latter higher wages due to the nature of their work, which required high skill and involved hazardous conditions.- Payments were made in cash at remote sites, directly to labourers, and acknowledged by signatures in the wage register.- The assessee justified the expenses by highlighting the higher net profit for the year and lower labour expenses compared to the previous year.- The AO, however, considered the wages paid to temporary labourers excessive, especially since they exceeded the wages of permanent staff. The AO disallowed 20% of the wages paid to temporary labourers, amounting to Rs. 47,07,974/-.CIT(A) Observations:- The CIT(A) upheld the AO's disallowance, emphasizing the lack of detailed records for temporary labourers and the inconsistency in wage payments.- The CIT(A) noted that despite claims of PF and professional tax deductions, the assessee failed to provide adequate details of the labourers, making the higher payments questionable.Tribunal's Analysis:- The Tribunal highlighted that the genuineness of the wage payments was established through deductions of professional tax and PF.- It was noted that the AO's role is not to dictate the wage rates but to ensure the genuineness of the expenses.- The Tribunal referenced a similar case from the assessee's previous assessment year (2008-09), where a similar disallowance was deleted by the Tribunal.Conclusion:- The Tribunal ruled in favor of the assessee, stating that once the genuineness of the expenses is established, the AO cannot question the wage rates decided by the assessee.- The Tribunal set aside the CIT(A)'s findings and directed the AO to delete the disallowance of Rs. 47,07,974/-.Final Decision:- The appeal of the assessee was allowed, and the disallowance of Rs. 47,07,974/- was deleted.This order was pronounced in open court in December 2019.