Revenue’s appeal dismissed: PUNE ITAT

Short Overview of the case:

Assessee company, engaged in the business of civil and electrical contracts, had filed return for relevant AY. The projects of assessee were located across various cities in India.

The contracts undertaken by the assessee are highly labour intensive.

To fulfill these contracts the assessee company either employs its own labour force or outsources the work to other subcontractors.

 During assessment the AO noted that as compared to A.Y. 2010-11 the labour expenses for A.Y. 2011-12 were increased by 30.80% and the contract receipts increased only 1.48%. To verify the genuineness of labour expenses, summons were issued.

After examination, the AO, noted that the labour engaged by M/s. Rohan Electrical remained unpaid, concluded that the expenses booked by the assessee against M/s. Rohan Electrical was not genuine, held that the amounts mentioned in the bills submitted by M/s. Rohan Electricals were considered as actual expenditure and treated the balance amount of Rs. 44,80,895/- as inflation of labour expenses and added to the income of the assessee.

On appeal, the CIT(A) held the disallowance made by the AO at 4% of total labour expenses was not justified in view of the disallowance made on the basis of preceding assessment years but however, the CIT(A) restricted the disallowance to 2% of total labour expenses.

On appeal, the issue before Tribunal was whether assessment made on ad hoc basis by disallowing labour expenses without evidences is not maintainable?

ITAT observed as under:

++ contention of the DR is that the AO conducted enquiries concerning the A.Ys. 2009-10 and 2010-11 and on the basis of which the AO also examined the accounts of the assessee be that of said three entities and found discrepancies in the account of the assessee.

The AO rightly held the assessee inflated its labour expenditure and disallowed 4% of total labour expenditure. The CIT(A) without examining the assessment record in detail simply deleted major portion of the disallowance by holding that the assessment for the year under consideration is on the basis of preceding assessment years which is incorrect.

The DR vehemently supported the order of AO. The AR requested to adopt the same arguments advanced in CO No. 27/PUN/2018 and submitted that the CIT(A) rightly held that without bringing on record the AO made assessment on enquiries made concerning A.Ys. 2009-10 and 2010-11 and supported the order of CIT(A) to that extent.

 It was noted that the same issue on identical facts in the case of M/s. Krishna Electricals and Engineers and M/s. Rohan Elecricals and considering the material evidence on record together with the submissions of AR and DR it was held that the assessment made on ad hoc basis is not maintainable and allowed cross objection filed by the assessee.

 Thus, the ground raised by the Revenue is dismissed.