TaxTMI 
TaxTMI 
2018 (3) TMI 1345
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....roup, namely Mr. K. J. Paul who was the partner in the assessee-firm. The said amount was not shown as income in the profit and loss account of the proprietary concern, Mr. K.J. Paul. As such, it was disallowed in the hands of the assessee. On appeal, the CIT(A) confirmed the disallowance. 3. Against this, the assessee is in appeal before us. The Ld. AR submitted that the assessee has taken road work at Edapally, High Court and incurred expenditure of Rs. 16,14,359/- as labour charges other than sub-contract given to Shri K.J. Paul. He drew our attention to break up of cost centre which is placed at pgs. 67-68 of the paper book. The Ld. AR submitted that without completing the work, the assessee would not have received the payment from the awarder as the running bill is passed after physical measurement by the awarder. Income from the contract was offered to tax and correspondingly, the expenditure is to be allowed. It was submitted that the assessee has even deducted TDS on the payment made to Mr. K.J. Paul and received the relevant tax deduction certificate. 4. The Ld. AR submitted that there is a valid agreement between Mr. K.J. Paul and the sub-contractor. According to the as....
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.... for the purpose of business. However, the assessee has not placed the relevant details of work carried out by Mr. K.J. Paul with reference to this payment. It is the primary duty of the assessee to give details of the work carried out by Mr. K.J. Paul and corresponding bills raised by him. It is noticed by the lower authorities that it was not shown as an income in the hands of Mr. K.J. Paul by crediting in the Profit & Loss account. Had it been Mr. K.J. Paul carried out the work of road entrusted to him, he should have shown the same as income in his hands and correspondingly issue a bill towards that work to the assessee. All the payments made by the assessee cannot be treated as an expenditure in the hands of the assessee as incurred wholly and exclusively for the purpose of business unless it was incurred for the purpose of business and supported by bills and vouchers. The mere existence of an agreement between the assessee and the sub-contractor or making a payment by a cheque, does not bind the Assessing Officer to hold that the payment was made exclusively and wholly for the purpose of assessee's business. Although there might be such an agreement in existence and the payme....
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....esses. When the Ld. AR was confronted with this, the Ld. AR could not produce any documents or evidence of whatsoever to prove the expenses claimed. 7.2 It is to be noted that the awarders were deducting money from the total contract as input tax, workers welfare fund and material purchase etc. mentioning the same in the bills rose, which have been claimed by the assesses in its P & L A/c as well. However, it was observed that the charges on mobilization advance as claimed by assessee was not mentioned anywhere in the bills raised by the awarders nor the assessee could adduce any evidence of whatsoever to prove that it had incurred this expenditure. When the Ld. AR was confronted with all these evidences, he explained off the record, that it was basically the bribe given lo different authorities for releasing the bill amount. Though off the record statements will not have any legal sanctity, it is to be under-stood that the statement carry value as the assesses could not substantiate its claim with any documentary proof Hence, in view of this, the Assessing Officer held that the above expenditure of Rs. 6,92,830/- was not a genuine expenditure nor it was incurred for the purpose o....
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....not given any reasonable cause for not pressing these grounds before the lower authorities and agitate this issue before us. Accordingly, we find no reason to interfere with the order of the lower authorities on these issues. In view of the above, these grounds are dismissed as not emanating from the order of the CIT(A). Thus, the appeal of the assessee in ITA No. 444/Coch/2016 is partly allowed for statistical purposes. ITA No. 446/Coch/2016 : Revenue's appeal 9. The Revenue has raised the ground with regard to allowability of the claim of 20% labour charges without any additional evidence produced by the assessee at the first appellate stage. 9.1 The facts of the issue are that total contract receipts was Rs. 82,77,36,995/- Out of this, an amount of Rs. 28,41,55,835/- was subcontracted. The Assessing Officer observed that the sub contract worked out to be 35% of the total contract amount. According to the Assessing Officer, such a sum of work is subcontract, the total sub contract works out to be 35% of total contract amount. When such a sum of work is subcontracted, the corresponding expenses should also be reduced. It was noted that in the case of assessee, it was not done. ....
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....A) observed that the assessee, however, in the working had shown that the labour charges allowable as per Service Tax Department was upto 40%, including the profit margin and other services. The CIT(A) observed that DSR for the current year as per the CPWD was between 32% to 35%, and as per Rule 10(2)(b) of the KVAT Rule the Commercial Tax Department has fixed the range of labour charges at 30% in the case of structural contract. According to the CIT(A), the assessee further argued that in the State of Kerala the labour charges are very high and they have been maintaining the wage statement of each work site and the statements have got signed by the labourers as and when the payments were made. This matter was never discussed at any stage of assessment proceedings and the AO had, based on estimates, disallowed 20% of such labour charges. It was pleaded before the CIT(A) that no work contract can be executed without incurring cost on labour. After considering the facts and submissions by the assessee, the CIT(A) held that disallowance made by the AO was far off from the facts and based on merely estimates and logical derivations, and devoid of any facts gathered or findings brought ....
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....sessee was not given an opportunity to substantiate the case. It was submitted that considering the volume of turnover involved less than 20% labour charges was very much genuine and disallowance of 20% of the labour charge was not correct. 9.9 The Ld. AR submitted that the judgment relied upon in the case of Commissioner of Income Tax Vs. E.S. Jose (ITA No 1451 of 2009 dated 22.10.2013) was entirely different and has no relevance to this case. It was submitted that the point discussed in the above case was whether unexplained cash credit can be added merely because the confirmation letter was not given, which is totally different from the present case. The Ld. AR submitted that in this case it is a direct expense attributable to the turnover and without labour no works contract can be executed properly. Therefore it was submitted that U/s 37 of the Income Tax Act it is an allowable expense. According to the Ld. AR any expenditure not being expenditure of the nature described in sections 30 to 36 and not being in the nature of capital expenditure or personal expenses of the assessee, laid out or expended wholly and exclusively for the purposes of the business or profession shall b....