Labor Expenses Capitalised in Land value, No Deduction claimed in P & L Account: ITAT deletes Addition of 1.74 crore [Read Order]

The Ahmedabad bench of the Income Tax Appellate Tribunal ( ITAT ) deleted the addition of 1.74 crore after finding that labor expenses capitalized in land value did not warrant deduction claimed in the Profit & Loss Account.

The facts in brief are that the assessee in the present case is an individual deriving his income from the business of construction and development of land. The AO in the instant case initiated the proceedings under Section 147 of the Income Tax Act based on the report received from the Principal DIT (Investigation). As per the report there were certain parties engaged in providing bogus labour bills.

Mr. Parin Shah representing the assessee contended that the expenses in dispute were incurred in the earlier year but the payment to that effect was made in the year under consideration.  Further observed that the expenses were incurred in the earlier year and capitalized in the value of the land and no deduction of whatsoever was claimed in the P & L account, the question of making the disallowance does not arise

Mr. Ashok Kumar Suthar submitted that the expenses incurred by the assessee were bogus in nature. Further observed that the labour contractor will not wait for the payment till the year under consideration. It was also pointed out that surprisingly; the labour expenses were incurred by the assessee in the name of 5 parties and the payment to all of them were made in the year under consideration which is highly improbable.

The bench noted that none of the labour expenses was incurred by the assessee in the year under consideration which can be verified from the copies of the ledger of the pages 55 to 59 of the paper book. Secondly, all these expenses were capitalized in the value of land, meaning thereby, no deduction was claimed by the assessee qua to the impugned expenditure

Further noted that the question of making disallowance arises when the assessee claimed the deduction. In the present case, undeniably the assessee has not claimed any deduction in the year in dispute and therefore on this count as well as such expenses cannot be disallowed in the year under consideration.

The bench of T.R.Senthil Kumar (Judicial member) and Waseem Ahemed (Accountant member) noted that the question of making disallowance arises when the assessee claimed the deduction. In the present case, undeniably the assessee has not claimed any deduction in the year in dispute and therefore on this count as well as such expenses cannot be disallowed in the year under consideration.

ITAT viewed that no addition was warranted on account of impugned bogus expense. Accordingly, tribunal set-aside the finding of CIT (A) and directed the AO to delete the addition made by him. Hence, the ground of appeal of the assessee was allowed.

To Read the full text of the Order CLICK HERE

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