ITAT reduces disallowance of Labour charges, citing lack of verifiable vouchers

The ITAT set aside the CIT(A)'s decision to sustain the disallowance of Labour charges at Rs. 18,06,027, reducing it to Rs. 1.00 lakh based on the lack of verifiable vouchers and the erroneous reference to vouchers belonging to a different entity. The ITAT's decision was made after considering the entirety of the facts and circumstances of the case, ultimately partially allowing the appeal filed by the assessee.

---

---

Issues:
Disallowance of Labour charges under the head 'Labour charges' - Assessment year 2014-15.

Analysis:
The appeal was filed against the CIT(A)'s order confirming the disallowance of Rs. 18,06,027 under the head 'Labour charges'. The assessee, an Engineering Contractor, had debited Rs. 2.40 crore as Labour charges in its Profit and loss account, resulting in a lower profit percentage. The AO disallowed 15% of the total Labour payment after observing that the vouchers were self-made and not maintained serially. The assessee contended that the vouchers referred to by the AO belonged to a different party, M/s. Shilpi Engineering Pvt. Ltd. The CIT(A) acknowledged this but held that some expenses under the head were not verifiable, reducing the disallowance to 7.5%, sustaining the addition at Rs. 18,06,027.

Upon review, the ITAT found that the vouchers referred to by the AO belonged to a different assessee, M/s. Shilpi Engineering Pvt. Ltd., with no connection to the appellant. As the basis for the disallowance was unfounded, the ITAT could not uphold the disallowance made by the AO. However, noting that some expenses lacked verifiable vouchers, the ITAT reduced the disallowance of Labour charges to Rs. 1.00 lakh, down from the sustained amount of Rs. 18,06,027 by the CIT(A). The appeal was partly allowed by the ITAT.

In conclusion, the ITAT set aside the CIT(A)'s decision to sustain the disallowance of Labour charges at Rs. 18,06,027, reducing it to Rs. 1.00 lakh based on the lack of verifiable vouchers and the erroneous reference to vouchers belonging to a different entity. The ITAT's decision was made after considering the entirety of the facts and circumstances of the case, ultimately partially allowing the appeal filed by the assessee.

---