IN INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B , PUNE BEFORE MS. SUSHMA CHOWLA, JM AND SHRI ANIL CHATURVEDI, AM ITA No.1311/PUN/2017 Assessment year : 2011-12 K.R. Traders, G3/4 Camellias, Green Acers, Appellant. Pune 411048. PAN : AABFK3457G. v/s Income Tax Officer, Ward 2(2), Pune. Respondent Assessee by : Shri Sharad A. Vaze. Revenue by : Shri Pankaj Garg. // Date of Hearing : 19.07.2019 Date of Pronouncement: 19.08.2019 ORDER PER ANIL CHATURVEDI, AM : 1. This appeal filed by assessee is emanating out of order of Commissioner of Income Tax (A) 7, Pune dated 10.02.2017 for assessment year 2011-12. 2. relevant facts as culled out from material on record are as under :- Assessee is partnership firm stated to be engaged as Civil Contractor, engaged in construction of residential and technical accommodation for Central Government. Assessee electronically filed its return of income for A.Y. 2011-12 on 30.09.2011 declaring total taxable 2 income of Rs.12,39,480/-. case was selected for scrutiny and thereafter assessment was framed u/s 143(3) of Act vide order dated 25.03.2014 and total income was determined at Rs.1,83,79,140/-. Aggrieved by order of AO, assessee carried matter before Ld.CIT(A), who vide order dt.10.02.2017 (in appeal No.PN/CIT(A)-7/Wd- 2(2)/306/2014-15) dismissed appeal of assessee. Aggrieved by order of Ld.CIT(A), assessee is now in appeal before us and has raised following effective ground. learned CIT(A)-VII, Pune has erred in law as well as in facts, in confirming addition of Rs.41,86,961/- being 10% of labour charges, on ad hoc basis. 3. During course of assessment proceedings, AO noticed that assessee had claimed labour charges at Rs.4,18,69,611/-. On perusal, labour bills claimed as expenses, AO noticed that entire expenditure was incurred in cash. Considering facts that payments were in cash and vouchers were self made and not fully verifiable, AO was of view that entire expenditure is not allowable. He accordingly disallowed 10% of labour expenses and thus made addition of Rs.41,86,961/-. Aggrieved by order of AO, assessee carried matter before Ld.CIT(A), who upheld order of AO. Aggrieved by order of Ld.CIT(A), assessee is now before us. 4. Before us, Ld.A.R. reiterated submissions made before AO and Ld.CIT(A) and further submitted that assessee is Government Contractor registered with M.E.S. Chief Engineer, Southern Command and it receives contracts from MES for construction of buildings for 3 Central Government. He submitted that payment to labourers have to be made in cash and that though AO has given finding that payments are not covered u/s 40A(3) of Act but AO has not doubted payments and held vouchers being self made are not to be fully verifiable and disallowed 10% of labour charges. He submitted that in A.Y. 2009-10 on gross receipts of Rs.8.87 crores and labour charges of Rs.2.46 crores, disallowance was made to extent of Rs.2,50,000/- and now disallowance is on higher side. He further submitted that if reasonable disallowance is upheld by Tribunal, it would be acceptable to assessee. Ld. D.R. on other hand, supported order of AO. 5. We have heard rival submissions and perused material on record. issue in present ground is with respect to disallowance of 10% of labour charges. It is undisputed fact that assessee is Government Contractor registered with M.E.S. and undertakes work of construction of residential and technical accommodation of Central Government and for which it has to employ labour. We find that payment of labour charges has not been doubted by AO and further AO has also given finding that payments are not covered u/s 40A(3) of Act. AO only for reason that vouchers are not fully verifiable disallowed 10% of expenses. Considering totality of facts and fact that in earlier year i.e., in A.Y. 2009-10 on turnover of Rs.8.87 crores and labour charges of Rs.2.46 crores, disallowance was made to extent of Rs.2,50,000/- and after considering submissions of Ld.A.R., we are of view that in present case, ends of justice shall be met if disallowance is restricted to 5% of labour charges. We therefore direct that 4 disallowance be upheld to extent of 5% of labour charges as against 10% made by AO. We thus direct accordingly. Thus, ground of assessee is partly allowed. 6. In result, appeal of assessee is partly allowed. Order pronounced on 19th day of August, 2019. Sd/- Sd/- (SUSHMA CHOWLA) (ANIL CHATURVEDI) JUDICIAL MEMBER ACCOUNTANT MEMBER Pune; Dated : 19th August, 2019. Yamini Copy of Order forwarded to : 1. Appellant 2. Respondent 3. CIT(A)-7, Pune. 4. Pr. CIT-6, Pune. 5 DR, ITAT, B Pune; 6. Guard file. BY ORDER // True Copy // Sr. Private Secretary ITAT, Pune. K.R. Traders v. Income-tax Officer, Ward- 2(2), Pune