IN INCOME TAX APPELLATE TRIBUNAL RAJKOT BENCH, RAJKOT Conducted through E-Court at Ahmedabad ] BEFORE SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER And SHRI MAHAVIR PRASAD, JUDICIAL MEMBER 1.I.T.A.No. 209/RJT/2013 2. I.T.A. No. 220/RJT/2013 (Assessment Year : 2008-09) 1. Shri Narendrasinh 1. Addl.CIT R.Chauhan Vs. Gandhidham Range Prop. of Shiv Logistics Gandhidham Shop No.66, Shakti Shopping Centre Mundra-Kutch 2. Addl.CIT 2. Shri Narendrasinh Gandhidham Range R.Chauhan, Gandhidham Mundra-Kutch PAN/GIR No. AHAPC 6703 H (Appellant) .. (Respondent) Assessee by : Mr.Vimal Desai, AR Revenue by : Mr.C.S. Anjaria, Sr.DR Date of Hearing 15/03/2017 Date of Pronounce ment 21/03/2017 ORDER PER PRADIP KUMAR KEDIA, AM : captioned cross-appeals by Assessee and Revenue are directed against order of Commissioner of Income Tax (Appeals)- ITA Nos.209 & 220/Rajkot/2013 Sh.Narendrasinh R.Chahan vs. Addl.CIT Asst.Year 2008-09 (cross-appeals) -2- II, Rajkot [CIT(A) in short] dated 21/02/2013 for Assessment Year (AY) 2008-09. Both appeals are being disposed of by way of consolidated order. ITA No.209/Rjt/2013 for AY 2008-09 Assessee s appeal: 2. grounds raised by Assessee read as under:- Grounds of appeal mentioned herein below are without prejudice to one another. 1. order u/s.143(3) is bad in law. 2. Ld.Assessing Officer has erred in law as well as on facts in making addition of Rs.45,04,785/- on account of labour expenses considering entire as bogus. Ld.CIT(A) has erred in confirming Rs.22,52,392/- (i.e. 50% of Rs.45,04,785) by disbelieving appellant s explanations and making baseless estimation. 3. assessee is individual deriving income from contract work with Mundra Port & SEZ which involves mainly handling and internal shifting of bagged cargo at Mundra Port and work was carried out through various sub-contractors. total labour charges debited to P&L account was at Rs.16,32,56,824/- including payment of Rs.45,04,785/- made to casual labourers out of which more than 50% i.e. Rs.23,90,935/- was shown as outstanding. Assessing Officer (AO) alleged that aforesaid labour charges towards casual labourer is not backed by any independent proof of any work done by alleged casual ITA Nos.209 & 220/Rajkot/2013 Sh.Narendrasinh R.Chahan vs. Addl.CIT Asst.Year 2008-09 (cross-appeals) -3- labourers. Accordingly, expenses towards casual labourers were held to be bogus and accordingly disallowed by AO. AO while disallowing labour expenses amounting to Rs.45,04,785/- incurred towards casual labourers alleged that no details in terms of quantity of work done or date on which work done is maintained. vouchers prepared were found to unsigned. It was further alleged that vouchers for payment from July-2007 to March-2008 were almost in serial and prepared simultaneously. Attendance register for casual labourers was also not produced. 4. Aggrieved by order of AO, assessee preferred appeal before CIT(A). CIT(A) re-examined issue and restricted aforesaid disallowance to 50% of casual labourers at Rs.22,52,392/-. relevant findings of CIT(A) while dealing with issue are reproduced hereunder: 3.3. I have carefully perused assessment order and submission of appellant. most important point which emerges and has also been categorically confirmed by appellant himself is that payment to casual labourers is always unorganized state of affairs but their requirement and inevitability cannot be denied. In other words, appellant himself is agreeing that payment of these casual labourers has built in leakages and ample scope for maneuverability. On other hand, requirement and invevitability of casual labourers, especially for such labour intensive activities, viz. cargo handling work, cannot be overlooked. I agree with appellant that if entire casual labour expenses are disallowed assuming ITA Nos.209 & 220/Rajkot/2013 Sh.Narendrasinh R.Chahan vs. Addl.CIT Asst.Year 2008-09 (cross-appeals) -4- there were no casual labourers, work would come to stand- still. On other hand, I fully agree with observations of A.O. regarding defects in method and maintenance of accounts / evidences regarding casual labours. So while I agree with appellant that entire disallowance of casual labour expenses is not called for, I also agree with A.O. that casual labour expenses have not been properly recorded and hence cannot be fully authenticated. 3.4. It also requires to be seen as to whether appellant has discharged his onus properly or not. In case of CIT vs. Modi Stone Ltd. (Delhi) 203 Taxman 123, Hon ble Delhi High Court has opined as under:- Commissioner of Income Tax (Appeals) rightly noted that it was for assessee who had claimed these payments to produce relevant material before Assessing Officer to satisfy him with respect to these payments. But strangely, CIT(A) despite noting that assessee had not discharged onus placed on him and had not furnished necessary details, allowed these payments on basis of past record and nature of claim alone. We fail to appreciate how commission of payment/discount in previous year could by itself and without anything more have been made basis for allowing such payments for subsequent years. It is very much possible that commission/discount paid during previous assessment years was not paid during assessment years in question or payment was not to extent claimed by assessee. It was obligatory for assessee to produce relevant evidence before Assessing Officer to prove alleged payments, particular when it was specifically called upon to do so and opportunity was subsequently given to it for this purpose. Once it was found that onus of proving ITA Nos.209 & 220/Rajkot/2013 Sh.Narendrasinh R.Chahan vs. Addl.CIT Asst.Year 2008-09 (cross-appeals) -5- alleged payment on assessee and he had not produced any evidence to prove those payments, neither CIT(A) nor ITAT could have allowed these payments, without having any material before them to substantiate such payments. CIT(A) as well as ITAT, in our view, committed serious error of law in upholding these payments despite finding that no material had been produced by assessee to substantiate these payments. ITAT was not justified in rejecting appeal of Revenue on sole ground that Department had not produced any material to prove that findings of CIT(A) were not based on past records. It was for assessee to prove alleged payments during assessment years 1995-96, 1996-97 and 1997-98 and for Department to prove otherwise. For reasons given in preceding paragraphs, we hold that ITAT committed error of law in allowing aforesaid payment despite onus of proving being on assessee and no evidence having been produced by assessee to prove those payments, and thereby misplacing burden of proof on Revenue. Similarly, in case of CIT vs. S.G. Exports (P&H) 336 ITR 2, Hon ble P&H High Court has opined as under:- perusal of findings of Commissioner of Income- tax(Appeals) and Tribunal shows that both authorities have placed onus on Revenue to establish ingenuineness and non-existence of parties which is wrong. Since assessee had claimed that it had incurred expenses on account of labour charges, onus was on assessee to prove said fact by producing cogent and convincing evidence including identity of parties along with evidence of payment to those persons. ITA Nos.209 & 220/Rajkot/2013 Sh.Narendrasinh R.Chahan vs. Addl.CIT Asst.Year 2008-09 (cross-appeals) -6- Accordingly, orders passed by Commissioner of Income-tax (Appeals) and Tribunal cannot be legally sustained. It is thus clear that in respect of labour charges, onus is on assessee to identify parties along with evidence of payment. It cannot be said that onus has been fully discharged by appellant in present case. There are too many striking similarities in bills pointing to obvious manipulation. A.O. has successfully pointed out all these anomalies. However, he has not been able to make any quantification about quantum of manipulation. A.O. has disallowed 100% of casual labour expenses. In my considered opinion and in light of above discussion, to meet ends of justice, it would be fair if disallowance is restricted to 50% of casual labour expenses. A.O. has disallowed Rs.45,04,785/- @ 100%. disallowance is restricted to Rs.22,52,392/- @ 5%. This ground of appeal is partly allowed. 5. Both assessee as well as Revenue are aggrieved by orders of CIT(A) and filed respective appeals. assessee has assailed sustenance of disallowance casual labour expenses partially, whereas Revenue, on other hand, has challenged partial relief granted to assessee. 6. We have carefully considered rival submission and perused orders of authorities below as well as material placed on record. Ld.AR in course of hearing before us pointed out that amount towards casual labour payment is very paltry having regard to total ITA Nos.209 & 220/Rajkot/2013 Sh.Narendrasinh R.Chahan vs. Addl.CIT Asst.Year 2008-09 (cross-appeals) -7- expenses. We also note contention of Ld.AR for assessee that casual labourers are indispensable having regard to labour intensive work. We also note reference made on behalf of assessee to assessment order passed under s.143(3) of Income Tax Act, 1961 (hereinafter referred to as "the Act") relevant to AY 2010-11, wherein estimated summary disallowance of Rs.1,50,000/- has been made to plug any Revenue leakage on account of similar expenses. Similarly, case was also scrutinized in AY 2007-08 where disallowance on similar expense determined at lump sum amount of Rs.2 lacs on account of defective bills/vouchers. In this background, it was contended on behalf of assessee that entire amount of Rs.45,04,785/- disallowed by AO and restricted to Rs.22,52,392/- by CIT(A) is highly excessive and is in departure with stand taken by Revenue in other years. However, in same vain, we note that certain peculiar facts, as observed by AO. We note that more than 50% of casual labour expenses is outstanding end of year which is quite unusual. We also note that assessee could not support claim of casual labourers by any corroborative evidence. AO has pointed out specific defects in nature of vouchers unsigned, vouchers prepared in serial number, attendance register, details of work done not to available and proof in form of smart cards/gate-pass issued by port authorities for execution of work in port area towards impugned casual labourers is not available. In light of aforesaid facts and ITA Nos.209 & 220/Rajkot/2013 Sh.Narendrasinh R.Chahan vs. Addl.CIT Asst.Year 2008-09 (cross-appeals) -8- circumstances of case and having regard to similarity of expenses claimed and allowed by Revenue in other years subject to some disallowances, we consider it just and proper to restrict disallowance to 25% of casual labour expenses claimed by assessee instead of 50% disallowance confirmed by CIT(A). This in our view, will meet ends of justice. Consequently, order of CIT(A) stands modified and disallowance of labour expense is restricted to Rs.11,26,196/-. assessee simultaneously gets relief of same amount of Rs.11,26,196/- being 25% of casual labour expenses. In terms of aforesaid findings, appeal of assessee is partly allowed. 7. Revenue has also preferred appeal against order of CIT(A)-II, Rajkot, dated 21/02/2013 by way of ITA No.220/Rjt/2013 for AY 2008-09. 7.1. grounds raised by Revenue read as under:- 1) Whether Ld.CIT(A) was justified in restricting disallowance to 50%, without appreciating fact that for every labour employed even for day, assessee has to have Gate pass from port authority; while in case of assessee he has shown all persons working atleast for all days of particular month, which is not possible without valid gate pass issued by Port Authorities, in absence of such vital documents, it cannot be considered that even single person has worked as casual labour. 2) Whether Ld.CIT(A) was right in allowing 50% of casual labour expenses despite fact that assessee is not able to support its claim through attendance register, which has to be prepared by assessee and submitted to HR authorities to Port Department. ITA Nos.209 & 220/Rajkot/2013 Sh.Narendrasinh R.Chahan vs. Addl.CIT Asst.Year 2008-09 (cross-appeals) -9- 8. Since issue raised by Revenue involved is only other side of same coin, i.e. partial relief granted by CIT(A) towards casual labour expenses, appeal of Revenue does not require separate adjudication. Accordingly, appeal of Revenue also stands disposed of as dismissed. 9. In combined result, Assessee s appeal is partly allowed, whereas Revenue s appeal is dismissed. Order pronounced in Court on 21/03/2017 at Ahmedabad. Sd/- Sd/- ( MAHAVIR PRASAD) ( PRADIP KUMAR KEDIA ) JUDICIAL MEMBER ACCOUNTANT MEMBER Ahmedabad ; Dated 21/03/2017 T.C. NAIR, Sr. PS Copy of Order forwarded to : 1. Appellant 2. Respondent. 3. Concerned CIT 4. CIT(A)-II, Rajkot 5. DR,ITAT, Rajkot 6. Guard file. BY ORDER, True Copy (Dy./Asstt.Registrar) ITAT, Rajkot Narendrasinh R.Chauhan v. Addl. CIT Gandhidham Range Gandhidham