Failure to produce Evidence in support of Claim of Credit Liabilities towards Labour Groups: ITAT upholds Disallowance u/s 40(a)(ia) of Income Tax Act [Read Order]

The Income Tax Appellate Tribunal (ITAT), Visakhapatnam bench held that the assessee failed to produce evidence in support of the claim of credit liabilities towards labor groups. Therefore, the bench upheld the disallowance made by the CIT(A) under Section 40(a)(ia) of the Income Tax Act, 1961.

The assessee, R.S. Pabbla Constructions Pvt Ltd., is engaged in the business of executing contract work related to the construction of chimneys, overhead reservoirs, cooling towers, buildings, and high-rise structures of various plants across the country.

After filing the return of income, the assessor's case was selected for scrutiny. During the pendency of scrutiny proceedings, a survey under section 133A was conducted at the assessee's premises.

During the course of the survey, the Managing Director of the company, Sri R.S. Pabbla, admitted that certain credits outstanding in the books are bogus and fictitious and offered additional income of Rs. 1.51 crores for the A.Y. 2013-14 and Rs. 3.60 crores for A.Y. 2014-15 in the sworn deposition given by him on 21/09/2015.

During the scrutiny proceedings, the AO called upon the assessee to substantiate the claim of sundry creditors to the tune of Rs. 6.46 crores shown as outstanding as of 31/03/2013 in its balance sheet.

After verifying, the AO made an addition by way of disallowance under Section 40(a)(ia) of the Income Tax Act. Similarly, for the A.Y. 2014-15, certain additions amounting to Rs. 6,98,71,035/- were made towards unexplained labor credits.

Aggrieved by the order, the assessee filed an appeal before the CIT(A), who confirmed the disallowance. Thus, the assessee filed a second appeal before the tribunal.

During the proceedings, G.V.N. Hari, Counsel for the assessee, argued that the assessee has produced confirmation letters from various creditors before the CIT(A), whereas no opportunity was provided to the assessee before the AO.

Further, counsel argued that due to voluminous records, minute details regarding the labor contractors could not be produced before the Revenue Authorities.

Dr. Satya Sai Rath, Counsel for Revenue, supporting the order of the authorities below, submitted that the assessee has failed to produce Muster Rolls/Attendance of the 17 labor groups which were sought by the AO. Therefore, the assessee failed to prove that the labor payments were genuine by providing the copies of the Attendance Register, Muster Rolls, etc.

After reviewing the facts and records, the two-member bench of S Balakrishnan (Accountant Member) and Duvvuru Rl Reddy (Judicial Member) observed that the assessee has failed to discharge the onus cast on it by providing material evidence with respect to labor payments and material payments.

To Read the full text of the Order CLICK HERE

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