INCOME TAX APPELLATE TRIBUNAL, KOLKATA ‘SMC’ BENCH, KOLKATA

I.T.A. No. 1219/KOL/ 2015 Assessment Year: 2011-2012
M/s. Sarkar Engineering Co. (Appellant) vs. Income Tax Officer (Respondent)
Date of Judgment: 06-01-2015

ORDER

This appeal filed by the assessee is directed against the order of the ld. Commissioner of Income Tax (Appeals), Siliguri dated 17.07.2015 for the assessment year 2011-12.

2. Grounds No. 1, 5& 6 raised by the assessee in this appeal are general in nature, which do not call for any specific adjudication.

3. The issue raised in Ground No. 2 relates to the addition of Rs.1,90,430/- as sustained by the ld. CIT(Appeals) on account of disallowance made by the Assessing Officer out of labour charges.

4. The assessee in the present case is a partnership firm, which is engaged in the business of carrying on electrical contract works. The return of income for the year under consideration was filed by it on 31.03.2012 declaring total income of Rs.8,97,690/-. In the Profit & Loss Account filed along with the said return, a sum of Rs.19,04,127/- was debited by the assessee on account of labour charges. Although self-made debit vouchers were produced by the assessee during the course of assessment proceedings before the Assessing Officer in support of its claim for labour charges, the Assessing Officer held that the same were not sufficient to fully establish the authenticity and genuineness of the labour charges claimed by the assessee. He, therefore, made a disallowance of Rs.2,85,619/- being 15% of the total labour charges claimed by the assessee.

5. The disallowance made by the Assessing Officer out of labour charges was challenged by the assessee in the appeal f i led before the ld. CIT(Appeals). During the course of appellate proceedings before the ld. CIT(Appeals), it was submitted by the assessee that the labour charges were paid to temporary labourers through wage-sheets and such wage sheets duly signed by the labourers were also produced by the assessee for verification. The assessee, however, expressed its inability to produce some of the labourers for random examination by the Assessing Officer as sought by the ld. CIT(Appeals) on the ground that it was difficult to trace out temporary labourers/workers engaged at various sites. Keeping in view this inability expressed by the assessee, the ld. CIT(Appeals) upheld the action of the Assessing Officer in making disallowance out of labour charges but restricted the same to 10% as against 15% disallowed by the Assessing Officer.

6. I have heard the arguments of both the sides on this issue and also perused the relevant material available on record. It is observed that no defect whatsoever was pointed out by the Assessing Officer in the vouchers produced by the assessee in support of its claim for labour charges and 15% of such labour charges were disallowed by him merely on the ground that the vouchers produced by the assessee were only self made vouchers. Before the ld. CIT(Appeals), even the wage-sheets duly signed by the labourers were produced by the assessee for verification but the ld. CIT(Appeals) sustained the disallowance made by the Assessing Officer on account of labour charges to the extent of 10% of the total labour charges for the inability of the assessee to produce some of the labourers for random examination by the Assessing Officer. As explained on behalf of the assessee before the ld. CIT(Appeals) as well as before me, the labour charges in question were paid to the temporary labourers engaged at various sites and it was, therefore, very difficult to produce the same for verification by the Assessing Officer as sought by the ld. CIT(Appeals). Keeping in view the nature of the business of the assessee as well as the nature of payments made to the temporary labourers, I am of the view that the claim of the assessee on account of labour charges, which were duly supported by self-made vouchers as well as wage-sheets duly signed by the concerned labourers, ought to have been accepted entirely and there was no justification on the part of the authorities below to make a disallowance out of labour charges without pointing out any material or specific defect in the self-made vouchers and wage-sheets produced by the assessee in support of its claim. In that view of the matter, I delete the disallowance made by the Assessing Officer and sustained by the ld. CIT(Appeals) out of labour charges and al low Ground No. 2 of the assessee’s appeal.

7. As regards the issue raised in Ground No. 3 relating to the disallowance made by the Assessing Officer on account of various expenses and sustained by the ld. CIT(Appeals) to the extent of Rs.24,983/-, it is observed that the disallowance on account of the expenses claimed by the assessee on ‘freight and carriage’, ‘travelling and conveyance’ and ‘miscellaneous expenses’ is made by the Assessing Officer and sustained by the ld. CIT(Appeals) for the same reasons as given while making disallowance of labour charges without pointing out any material or specific defect in the self -made vouchers produced by the assessee in support of its claim for the said expenses. Following my view taken on the issue of disallowance on account of labour charges, I delete the disallowance made by the Assessing Officer and sustained by the ld. CIT(Appeals) out of various expenses and al low Ground No. 3 of the assessee’s appeal.

8. As regards the issue raised in Ground No. 4 relating to the disallowance out of car expenses and car depreciation, it is observed that 50% of the expenses claimed by the assessee on maintenance of motor car and its depreciation was disallowed by the Assessing Officer on account of element of personal use. Although such personal use of motor car by the partners of the assessee-firm cannot be ruled out in the absence of any record maintained by the assessee to show that the motor car was wholly and exclusively used for the purpose of its business and the ld. CIT(Appeals) has restricted the disallowance of 50% made by the Assessing Of f icer to 25%, I am of the view the same is still on the higher side keeping in view the nature of the business of the assessee as well as the fact that the total motor car expenses claimed by the assessee during the year under consideration were only Rs.24,250/-. In my opinion, it would be fair and reasonable to make a disallowance of 15% out of motor car expenses and depreciation on account of element of personal use. The impugned order of the ld. CIT(Appeals) on this issue is accordingly modified and the Assessing Officer is directed to restrict this disallowance out of motor car expenses and depreciation to 15%. Ground No. 4 is thus partly allowed.

9. In the result, the appeal of the assessee is partly allowed.

Order pronounced in the open Court on January 06, 2016.

(P.M. Jagtap)
Accountant Member