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2015 (10) TMI 1274 - ITAT MUMBAI

2015 (10) TMI 1274 - ITAT MUMBAI - TMI - Ad-hoc disallowance @20% on Labour, Lodging & Site Expenses - Held that:- Although vouchers and details have been provided by the assessee but some of these details and evidences are not found to be fully authentic and there was no support of third party evidences in some of the cases. This fact has not been denied by Ld. Counsel that expenses were incurred in cash. Keeping in view, totality of the facts of the case, we feel that ends of justice will be m .....

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ents cannot said to be arising out infringement of law. These payments cannot said to be incurred by the assessee for any purpose which is offence or which is prohibited by law. Under these circumstances this expenditure can be said to be compensatory in nature. We can also take support from various judgments available on this issue. Honíble Supreme Court in the case of Mahalakshmi Sugar Mills Co. vs. CIT (1980 (4) TMI 1 - SUPREME Court) has held that interest for delayed payment of statutory du .....

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10,000/- and thatís why most of the salaried workers were having income below taxable limit. It was further found by Ld. CIT(A) that salary register contained signatures of all the labourers and it was very much before the AO when he had impounded one of the registers. It was finally concluded by the Ld. CIT(A) that nothing adverse could be pointed out by the AO and accordingly disallowance was deleted. We have further noticed that Ld. CIT(A) has passed very reasoned order after personally exami .....

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t balance of the partners as on 31.03.2008. The loans on which no interest had been charged is ₹ 30,50,000/- only and therefore, disallowance made by the AO was deleted. It is noted by us that factual findings have been given by the Ld. CIT(A) that ample amount of funds of the partners were lying with the assesee firm, on which no interest has been paid by the assessee firm to its partners. These factual findings have not been rebutted by the Ld. DR. The findings of the Ld. CIT(A) are just .....

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ar 2008-09. First we take up assessee s appeal. The assessee has raised following grounds: 1.The learned Commissioner of Income Tax (A) erred in confirming disallowance of ₹ 1,95,854/- on account of ad-hoc disallowance @20% on Labour, Lodging & Site Expenses. 2. The learned Commissioner of Income Tax (A) erred in confirming disallowance of ₹ 4,28,014/- on account of Interest paid on account of delayed Service Tax and M Vat paid which are of compensatory nature and not of penal na .....

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r hand, Ld. DR also made the submissions relying upon the order of Ld. CIT(A) and AO. After hearing both the sides and going through the material placed before us, the appeal is decided ground wise as under: 3. Ground No.1: In this ground, the assessee has challenged action of Ld. CIT(A) in confirming the disallowance of ₹ 1,95,854/- made by AO on account of ad-hoc disallowance @ 20% on the ground that non business purpose of the expenses could not be ruled out by the assessee. Before the .....

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expenses are in the nature of food expenses such as vegetable, grains, gas etc., stay expenses in the rooms taken on rent. These expenses are incurred for the workers who are staying at site. The appellant had produced books of accounts along with all the vouchers and showed to the Assessing Officer. The expenses are incurred for the purpose of business and the same is incurred on the labourers who are part of the labour force. The few vouchers of the Lodging Boarding and Site Expenses are attac .....

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ch the expenses is claimed, etc. have been furnished to substantiate these expenses. 5. Before us, Ld. Counsel argued that complete details have been filed and both of the authorities were wrong in making disallowance. As an alternative prayer, ld. Counsel requested for reduction in the amount of disallowance, in view of facts and circumstances of the case, in case full relief was not possible. On the other hand, Ld DR requested for confirming the disallowance made by AO. 6. We have gone through .....

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be met if the disallowance is reduced to 10%. We therefore, direct the AO to reduce the disallowance to 10% of ₹ 9,79,271/- .The assessee gets relief partly. Thus, Ground no.1 is partly allowed. 7. Ground No.2: In this ground, the assessee has challenged the action of Ld. CIT(A) in confirming the disallowance of ₹ 4,28,014/- on account of interest paid on account of delayed Service Tax and M-vat paid. The brief facts are that the Ld. AO has made the disallowance by making discussion .....

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tled law that the penalty paid if any, is not allowable under the income Tax but the interest being of compensatory nature is fully allowable. Therefore, disallowance of ₹ 4,28,0141- is totally incorrect. Under the Service Tax Rules, a simple interest of 13% p.a. is payable for delay in payment of Service Tax and penalty is payable on delay in filing of the return. The appellant had during the year paid a penalty of ₹ 5700/- and which has already been disallowed in the return of inco .....

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of the assessee and confirmed the disallowance on the ground that aforesaid amount of interest is not allowable. No reasoning has been given by Ld. CIT(A) for not allowing the expenses. 8. Before us, during the course of hearing, Ld. Counsel has relied upon the following judgments in support of proposition that amount of interest paid on delayed payment of Service Tax or any other government fee of similar nature would be compensatory in nature and not penal in nature and therefore, would not b .....

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the dues if interest is paid. Thus, the interest is paid by the taxpayers within framework of provisions of law. These payments cannot said to be arising out infringement of law. These payments cannot said to be incurred by the assessee for any purpose which is offence or which is prohibited by law. Under these circumstances this expenditure can be said to be compensatory in nature. We can also take support from various judgments available on this issue. Hon ble Supreme Court in the case of Mah .....

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deduction u/s37(1) of the Act. Hon ble Delhi High Court in the case of Commissioner of Income-tax vs Delhi Automobiles,272 ITR 381 (Del) has held that interest payments on delayed sales tax is an allowable deduction u/s.37(1) of the Act. Similar view has been taken by Mumbai Bench of ITAT in the case of Chander K. Raichandani (Supra) and by Delhi Bench in the case of M/s. Remfry & Sagar Consultants Pvt. Ltd. (order dated 20.07.12in ITA No.5887/Del/2011). Further, Delhi Bench of ITAT in the .....

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isallowance made by the AO, on the ground that the impugned expenditure is compensatory in nature. Thus Ground no.2 of appeal of assessee is allowed. 10. Ground No. 3 of the assessee is not pressed and is dismissed 11. In the result, assessee s appeal is partly allowed. We shall now take up the appeal of the Revenue: 12. The revenue has raised following grounds of appeal: 1. On the facts and in the circumstances of the case and in law, the Learned CIT(A) has erred in deleting the disallowance of .....

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t on unsecured loans despite the fact that the assessee was having fund and given advances without charging interest. 3. The appellant prays that the order of the CIT(A) on the above ground be set aside and that of the AO be restored. 4. The appellant craves leave to amend or alter any ground or add a new ground which may be necessary. 13. In Ground No.1, the Revenue has challenged action of Ld. CIT(A) in deleting the disallowance of ₹ 49,47,023/- made on account of labour charges. Brief f .....

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bserved by AO that persons to whom the payments are made were not identifiable. In view of these reasons, the AO made ad hoc disallowance of 10% of the expenses claimed in respect of labour salary. This ad hoc disallowance was deleted by the CIT(A). 14. We have considered the orders of AO as well as Ld. CIT(A) and the submissions made by both the sides. Before us, Ld. DR relied upon the order of the AO and submitted that expenses were incurred in cash and therefore it was rightly disallowed by t .....

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and these are reproduced below for ready reference: The Assessing Officer has disallowed the part of the (10%) Labour charges on the basis that the expenses were incurred in cash for which no supporting documentary evidences were available. No PAN or any other proof in respect of the payments to whom the payment is made could be produced in spite of opportunity given. The appellant has big work force to carry out the work at different places. It is natural that the payments to the workers have .....

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erence. The said register was subsequently released after due verification. The appellant had deducted and paid the Employees State Insurance Contributions and Provident Fund wherever applicable on the Labour Charges (Salaries). The copies of the ESIC and PF Challans were filed. The appellant had also filed the addresses of the some of the employees in whose case the PF were deducted. During the year the appellant has paid ESIC of ₹ 2,22,312/-. The wages of the labourers were below the min .....

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ary income below the taxable limit, there was no question of having PAN Numbers of the labourers. The Assessing Officer has also verified the books of accounts which were produced during the assessment proceedings. In fact most of the books of accounts are still/lying with the Income Tax Department in the records of the assessment. The Assessing Officer has not conforted the appellant in respect of labour charges except asking the appellant to produce the labour registers. Therefore, without any .....

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or the whole year. It was further noted by Ld. CIT(A) that one of these registers was impounded by the AO and it was released after due verification. Ld. CIT(A), himself examined this register in the appellate proceedings and found that Provident Fund, ESI, Professional Tax etc. were deducted from the salaries of the workers and this register gave complete information. It was further found by Ld. CIT(A) that the salary paid to each worker was not more than ₹ 10,000/- and that s why most of .....

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urnished before the AO by assessee. The reasons and findings given by the Ld. CIT(A) are based upon the evidences and decision taken by the Ld. CIT(A) is in accordance with facts and circumstances of the case. We do not find any reason or justification to interfere in the findings of the Ld. CIT(A) and accordingly these are confirmed. Consequently Ground no.1 of Revenue s appeal is dismissed. 17. In Ground No.2, the revenue has challenged action of Ld. CIT(A) in deleting disallowance of ₹ .....

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re CIT(A). After considering the submissions and evidences of the assessee, Ld CIT(A) deleted the disallowance made by the AO. Being aggrieved, the Revenue is before us. 19. Before us, the Ld. DR has relied upon the order of the AO. On the other hand Ld Counsel of the assessee has heavily relied upon the order of the Ld. CIT(A). 20. We have heard both the parties and have examined the evidences shown to us in this regard. Ld CIT(A) has deleted the disallowance by considering the submissions of t .....

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he partner) (c) Shubham Developers Loan given on 15.01.08 ₹ 7,OO,OOO/- (belonged to Mr. Sakib Shaikh one of the partner) The partners are having credit balances as on 31.03.08 of ₹ 1,19,27,831/-. In fact, these amounts were to be debited to the Partners Capital Accounts, however by mistake they were taker; to the Loans and Advances Account. Considering the funds of the partners lying with the firm, there was no question of funds being used for giving interest free loans. The fact is .....

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