INCOME TAX ACT, 1961

Section 145(3)

Accounting method - Rejection - Reason, cash payments made towards labour expenses and purchase of material -

Assessee was engaged in real estate development. AO rejected assessee's books of account on the ground that total Labour expenses were of Rs. 86 lakhs and most of labour payments were in cash and hence not verifiable. In respect of material also some expenses have been paid in cash and supported by internal vouchers hence not verifiable. Held: Most of the labour expenses were paid in cash but it did not mean that expenses paid in cash were not verifiable. It is known practice not only in assessee industry but in all industries that wages are paid in cash on fixed dates or regular interval due to their own nature. Assessee also adopted same practice and wages were paid monthly. The company claimed Rs. 86 lacs only towards labour expenses which represented only 7% of total gross receipts of construction business. Further, company's accounts were also subject to statutory audit under Companies Act, 1956 and also tax audit under Income Tax Act. Assessee already produced books of account including supporting documents. In fact, assessee maintained complete records of labour expenses in the shape of wages sheets and payment thereof which was produced during assessment proceeding having details of Name of labour, Designation or nature of work where labour engaged, Father or husband name, Date of birth and Date of joining, etc. During the year under consideration, there were more than two thousands transactions of payment and each transaction was supported by wage sheet. Furthermore, company purchased material amounting Rs. 10 Crore from various vendors and all payments were paid through banking channel, except amount of Rs. 13 lakhs which was paid in cash in compare to total gross receipts of company of Rs. 12 Crore in assessment year 2013-14. This constituted only 1.15% of total revenue and 1.30% of total material purchased by assessee-company. These materials were used in projects only. The material purchased in cash or part payment made in cash was fully supported by invoices or vouchers. The same invoices were produced during assessment proceedings. Each payment duly supported by external invoices. In view of this, rejection of books of account on the basis of insignificant defects in all respect, was not justified and books of account deserved to be accepted.

REFERRED :

FAVOUR : in assessee's favour

A.Y. : 2013-14 & 2014-15

INCOME TAX ACT, 1961

Section 2(24)(x) read with Section 36(1)(va)

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