AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2026 (4) TMI 187
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....s assigned by him are wrong and insufficient to justify disallowance of Rs. 1670940/- being 10% out of labour charges paid to five parties by the appellant. 02 On the facts and circumstances of the case and in law the learned Commissioner of Income Tax-Appeals erred in confirming ad-hoc disallowances of Rs. 1670940/-being 10% out of labour charges paid to five parties on suspicion, whims, assumption and conjectures and without bringing any cogent material, evidences on record is liable to be deleted. 03 The learned Commissioner of Income Tax Appeals erred in confirming order made under section 143(3) of the Act which is without jurisdiction, illegal, bad-in-law, ultra virus and without allowing reasonable opportunity of the hearing, and without appreciating facts, submission and evidences in their proper perspective, without providing draft assessment order is liable to be annulled. 04 The learned Commissioner of Income Tax - Appeals erred in confirming notice issued under section 143(2) of the Act as valid one, though the same is not in conformity with instruction issued by Central Board of Direct Taxes F.No.225/157/2017/ITA- II dated 23.06.2017, which i....
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....ised by the assessee in respect of the 10% of the expenditure sustained by the Ld. CIT(A) out of disallowance made by the Ld. AO. The assessee also raised the grounds challenging the validity of the notice issued u/s 143(2) of the Act. 5. The ground No. 1 & 2 of the appeal relate to disallowance of the labour charges sustained by the Ld. CIT(A) in respect of the five labour contract parties. The facts for the issue in dispute are that the Ld. AO issued 133(6) of the Act the Bank of all labour contractor and collected their bank statements for the year under consideration. After analyzing the bank statements of the all the labour contractors, the ld AO identified five parties where they had withdrawn the money by way of cash from their bank accounts within one or two days of receipt of the cheque from the assessee. The Ld.AO was of the suspicion that said cash withdrawal must have been returned back to the assessee within one or two days. The Ld.AO therefore issued a show cause notice to the assessee for justifying the said labour charges. 5.1 The assessee replied that those labour contractors were neither the family members nor relative of the assessee and therefore the asses....
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....he legitimacy of the business operations claimed by the labour parties. From the evidence gathered, it can be ascertained that the entities involved, to whom the labour charges were paid, do not exist. This further casts doubt on the authenticity of the associated expenditure, which to have been fabricated in an attempt to reduce the taxable profit of the assessee. The existence of these non- genuine entities, coupled with the lack of business activity at the provided address, strongly suggests that the transactions in question are bogus. 6.1.12 The reply submitted by the assessee has been carefully considered; however, it was found to be unsatisfactory. The assessee has failed to discharge the onus of proving the genuineness of the transactions. Further it can be ascertained from the above discussion that the labour parties to whom the payments were made withdrew the amounts on the same day and subsequently returned the money back to the assessee. The fact that there were same-day deposits and withdrawals raises serious suspicions about the legitimacy of these transactions. This pattern of immediate returns and withdrawals indicates that the transactions were likely struc....
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....m rented premises which also keeps on changing. AO has made addition on the surmises that all the cash withdrawn by these five labour contractors was received back by assessee, but there is no documentary evidence to prove this round tripping of funds. All these five contractors were filing their Return of income, and even submitted their profit and loss account, balance sheet and copy of ITR along with bills of labour charges, which were even GST compliant in case of few parties and they follow all legal procedures. Further, there was no any adverse information in possession of the AO, on the basis of which, it can be concluded that these five parties were engaged in any type of bogus billing. 7. In assessment order, AO has raised doubt that labour parties had sufficient balances in their bank account, then why they were immediately withdrawing cash. But, it is businessman's own way of doing business. He cannot do business as per the whims of Assessing Officer. Further, the fact that they have sufficient balance in their bank accounts, show their creditworthiness and genuinity. 8. During the assessment proceedings, assessee has submitted all the relevant deta....
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....uchers, Karigar receipt vouchers, labour charges bills, labour charges confirmations etc. Assessing officer has never raised any doubt about the authenticity and genuineness of these documents and has not cast any iota of doubt over the books of the assessee and stock statement of the assessee. No rejection of books has been done by AO. Further, in response to notices u/s. 133(6) all five labour contractors replied along with documentary evidences. 9. Hence, considering the above factual matrix, 100% disallowance of labour charges, incurred on these five parties amounting to Rs. 1,67,19,404/- can not be said to be non-genuine, as assessee was engaged in regular business of Gold jewellery, in which labour charges are integral part of business. But at the same time all the enquiries conducted by VU, can't be brush aside completely. Hence, in order to meet the ends of justice, 10% of total disallowance, amounting to Rs. 16,71,940/-, is being disallowed and rest of the addition is being deleted. Accordingly, AO is directed to confirm the addition to the extent of Rs. 16,71,940/-, being 10% of Rs. 1,67,19,404/- and give relief for remaining amount. Hence, these grounds of a....
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.... 6.4 Having considered the submissions of the assessee and finding of the Ld. CIT(A) on issue in dispute, we are of the opinion that Firstly, the Assessee has produced an exhaustive trail of documentation, including "Karigar" issue/receipt vouchers, labor bills, and bank confirmations. The AO did not reject the books of account under Section 145(3) of the Act, nor did he find any discrepancy in the stock statements. It is a settled principle that labor charges are an integral and inextricable component of a jewellery manufacturing business; without such expenditure, the reported turnover-which the Revenue has accepted-could not have been achieved. 6.5 Secondly, Aall five labor contractors responded to notices under Section 133(6), confirming the transactions. They are independent tax-paying entities who file returns under Section 44AD. The Ld. CIT(A) correctly noted that the immediate withdrawal of cash is a commercial necessity in this sector to pay small-scale artisans who do not operate within the formal banking system. The Revenue's suspicion, however strong, cannot take the place of proof. There is no evidence on record to establish that the cash withdrawn by the contracto....