Addition made on Lumpsum basis on account of payment of labour charges in cash

[Kishor Deshpande]

One of my client, a civil contractor, paying labour charges on cash basis ( payments do not violate the provision of Section 40A(3). But the assessing officer disallowed Rs. 4,50,000 out of labour charges on lumpsum basis and gave the reason in AO that due to payments made in cash I am disallowing the same. Is there any decision given by the Courts against such vies of AO ?

[CAGOPALJI AGRAWAL]

You will have to demonstrate that these expenditures were genuine and evidence with the necessary details. Whether you have been given any opportunity for such addition and what stand you have taken. So it would depend on the facts and circumstances then any case law would come to your rescue on the basis of facts.

AI Summary

Cash payments for labour risk disallowance unless the taxpayer proves genuineness with supporting evidence by the taxpayer. A contractor's lump sum cash payments for labour were partly disallowed by the assessing officer because of the mode of payment; the taxpayer must demonstrate the genuineness of expenditures with detailed supporting particulars. Deductibility hinges on facts and circumstances, whether an opportunity to explain was provided, and the sufficiency of contemporaneous evidence showing that cash payments do not breach the prohibition on certain cash deductions.