Magnum Dream Homes Private Limited, Bhubaneswar V. DCIT, Corporate Circle-1(1), Bhubaneswar

ITA 11/CTK/2018

• Counselvise Citation: [2021] 108 COUNSELVISE.COM (IT) 9292 (ITAT-CUTTACK)
• Duration Of Justice: 3 year(s) 2 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-03-2021
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Assessment Year: 2014-2015
• Appeal Filed On: 09-01-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S C MOHANTY
• Assessee Lawyers: J M PATTNAIK
• Keywords: Business expenditure; Commercial expediency; TDS
• Section: 201; 64; 37

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL CUTTACK BENCH CUTTACK BEFORE SHRI C.M. GARG, JM & SHRI L.P. SAHU, AM . / ITA NO. 11 /CTK/20 1 8 ( / A SSESSMENT Y EAR : 20 14 - 20 1 5 ) MAGNUM DREAM HOMES PVT. LTD . , PL OT NO.132 - A,SECTOR - A, ZONE - A MANCHESWAR, BHUBANESWAR V S. DCIT, CORPORATE CIRCLE - 2(1), BHUBANESWAR PAN NO. : A A DCM 2929 A ( / APPELLANT ) .. ( / RESPONDENT ) /ASSESSEE BY : SHRI J.M.PATTNAIK, AR /RE VENUE BY : SHRI S.C.MOHANTY , DR / DATE OF HEARING : 09 / 0 3 /20 2 1 / DATE OF PRONOUNCEMENT : 12 / 0 3 /20 2 1 / O R D E R PER BENCH : TH IS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER DATED 23 .1 1 .201 7 , PASSED BY TH E CIT (A) - 1 , BHUBANESWAR FOR THE ASSESSMENT YEAR 20 14 - 20 1 5 , ON THE FOLLOWING GROUNDS OF APPEAL : - 1) THAT THE ORDER DTD. 23 - 11 - 2017 AS PASSED IN THE APPEAL NO.0266/16 - 17 BY THE LEARNED COMMISSIONER OF INCOME TAX - APPEAL(CITA) IS UNJUSTIFIED, ARBITRARY, CON TRARY TO THE FACTS AND BAD IN LAW. 2) THAT THE LEARNED CITA IS SIMPLY INFLUENCED BY THE DECISION OF THE LEARNED AO WITHOUT GOING THROUGH THE MERITS, FACTS AND CIRCUMSTANCES OF THE CASE. 3) THAT THE ADDITION TO TOTAL INCOME OF RS. 28,26,180/ - BY DIS ALLOWING THE COMMISSION EXPENSES, BY THE LEARNED CITA AND AUTHORITIES BELOW IS WRONG AND ILLEGAL AS THE SAME IS A GENUINE BUSINESS EXPENSES SPENT WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS. 4) THAT THE ASSESSEE HAS INCURRED THE EXPENSES BY PAYING THEM THOUGH BANK, DEDUCTED TDS AS PER LAW AND DEPOSITED THE SAME WITH GOVT AND SPENT THEM TO GET THE BUSINESS FROM WHICH THE COMPANY HAS EARNED INCOME AND ON WHICH THE COMPANY HAS PAID TAXES. 5) THAT THE ABOVE ORDERS OF THE ASSESSING OFFICER AND COMMISSIONER OF INCOME TAX (APPEALS) CONFIRMING THE ACTION OF THE ASSESSING ITA NO. 11 /CTK/201 8 2 OFFICER, ARE ILLEGAL AND AGAINST THE INTENTION OF THE LAW AND LIABLE TO BE DELETED ON THE ABOVE GROUNDS AND SUCH OTHER GROUNDS TO BE ARGUED AT THE TIME OF HEARING OF THE FACTS AND CIRCUMSTANCES OF THE CASE. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE COMPANY DERIVES INCOME FROM REAL ESTATE BUSINESS AND FILED ITS RETURN OF INCOME ELECTRONICALLY ON 17.10.2014 FOR THE ASSESSMENT YEAR 20 14 - 201 5 DECLARING TOTAL INCOME AT RS. 49 , 64 , 870 / - . DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO OBSERVED THAT THE ASSESSEE HAS BOOKED COMMISSION EXPENSES OF RS.28,26,180/ - INTO THE PROFIT AND LOSS ACCOUNT FOR THE FINANCIAL YEAR 2013 - 2014 FOR SALE OF FLAT BY A GENERAL VOUCHER ON 31.03.2014, WHICH IS AS FOLLOWS : - SL.NO FLAT NO NAME OF THE AGENT AMOUNT PAID TO AGENT NAME OF THE FLAT OWNER 1 101A SASMITA MISHRA 4,00000 SUDHANSU SEKHAR PATRA 2 105E SAUDAMINI PADHEE 3,06,870 PRATYUSH KUMAR PATTANAIK 3 402B SUSMITA SAHU 4,30,629 P.C.KURIEN 4 102B NILIMA MALLIA 3,62,749 SAROJ KANTA PRUSTY 5 205E - PRANATI - SAHU 3,25,932 SANGRAMKESHARI BHANJADEO 6 401A RASHMITA LENKA 3,88,000 DHARANIDHARDAS MOHAPATRA 7 103C SUBHASHREE JENA 2,80,000 PARSHURAM RAISINGH 8 403C SUMITRA SWA IN 3,32,000 SAROJ KUMAR RAI TOTAL 28,26,180 THE AO ALSO OBSERVED THAT THE ASSESSEE HAS MADE TDS ON IT, WHICH WAS DEPOSITED BY DUE DATE OF FILING OF THE RETURN. THE ASSESSING OFFICER FURTHER OBSERVED THAT T HE PAYMENT OF COMMISSION FOR SALE OF FLAT IS A ITA NO. 11 /CTK/201 8 3 COMMON PRACTICE IN REAL ESTATE BUSINESS ALTHOUGH THE RATE OF COMMISSION PAID IS NOWHERE AS HIGH AS CLAIMED BY THE ASSESSEE COMPANY. FURTHER THE AO OBSERVED THAT NORMALLY A SINGLE COMMISSION AGENT IS GIVEN JOB TO ARRANGE THE CUSTOMERS AND THE COMPANY N EGOTIATES TO THE BUYER THROUGH COMMISSION AGENT OR DIRECTLY AS THE CASE MAY BE. AS IT NORMALLY HAPPESN IN REAL ESTATE PROCJECTS, THE PAYMENT SCHEDULED IS STAGGERED IN 7 - 8 INSTALLMENTS AND CUSTOMERS VISIT THE PROJECT SITE ON REGULAR BASIS TO KEEP TRACK OF THE PROJECT. IN ALL THE CASES, THE CUSTOMER IF BOOKING IS DONE THROUGH AN AGENT IS ACCOMPANIED BY THE AGENT. THE ASSESSEE WAS SUMMONED U/S.131 OF THE ACT ON 01.11.2016 AND HIS STATEMENT WAS RECORDED. THE AO FURTHER FOUND FROM THE STATEMENTS THAT SHRI MISHR A HIMSELF WAS RESPONSIBLE FOR SALES, MARKETING AND BOOKINGS OF FLATS AND USED TO NEGOTIATE THE PRICE AND TERMS AND CONDITIONS OF THE AGREEMENT. THE AO ALSO ASKED THE ASSESSEE TO PRODUCE THE AGENTS PERSONAL CONTACTS, THROUGH FREELANCE SALES AGENTS AND WEBSI TE ADVERTISEMENT. THEREAFTER SUMMONS U/S.131 WAS ALSO ISSUED TO THE FLAT OWNERS WHO HAD PURPORTEDLY PURCHASED FLAT FROM THE ASSESSEE COMPANY THROUGH THE AGENTS CLAIMED TO BE HIRED BY THE COMPANY. THE COMMON QUESTION WERE PUT TO THEM RELATING TO COMMISSION PAYMENT BUT THEY DENIED REGARDING PURCHASE OF FLATS THROUGH COMMON AGENTS. THE STATEMENT OF AGENTS RECEIVING COMMISSION WAS ALSO RECORDED AND PUT TO THEM COMMON QUESTION AND ITA NO. 11 /CTK/201 8 4 THEY WERE ASKED TO GIVE THEIR OFFICE ADDRESS, NAME, DESIGNATION AND PHONE NUMBER O F EMPLOYEES WORKING IN THEIR OFFICE AND DETAILS OF THEIR BUSINESS. A SAMPLE COPY OF THE STATEMENTS HAS BEEN REPRODUCED BY THE AO IN THE ASSESSMENT ORDER. SUBSEQUENTLY, THE BANK STATEMENT OF THE COMPANY WAS CALLED FOR FROM WHICH COMMISSION PAYMENT WAS MADE AND THE BANK STATEMENT OF THE COMMISSION AGENTS WERE ALSO CALLED FOR AND HE NOTICED THAT THE AMOUNT WAS WITHDRAWN IN CASH IMMEDIATELY AFTER CREDIT IN THE ACCOUNT OF THE PERSONS, WHO HAD PURPORTEDLY RECEIVED THE COMMISSION PAYMENTS. THE DETAILS HAS BEEN IN CORPORATED IN THE ASSESSMENT ORDER AND THE ASSESSEE WAS AGAIN SUMMONED U/S.131 OF THE ACT TO CONFRONT THE FINDINGS AND THE STATEMENT RECORDED. THE STATEMENT OF FLAT OWNERS AND THE BROKERS WERE PROVIDED TO THE ASSESSEE AND ALSO GIVEN ONE OPPORTUNITY TO CROS S EXAMINE TO THESE PERSONS. THE DETAILS HAS BEEN INCORPORATED IN THE ASSESSMENT ORDER. ULTIMATELY THE AO NOTICED THAT THE COMMISSION PAYMENT IS NOT A GENUINE BUSINESS EXPENDITURE BUT IT HAS BEEN DELIBERATELY CLAIMED IN THE BOOKS TO REDUCE THE TAXABLE PROFI TS AND ADDED THE SAME INTO THE TOTAL INCOME OF THE ASSESSEE AMOUNTING TO RS.28,26,180/ - 3. FEELING AGGRIEVED FROM THE ORDER OF AO, THE ASSESSEE FILED APPEAL BEFORE THE CIT(A) AND THE CIT(A) DISMISSED THE APPEAL OF THE ASSESSEE. 4. AGGRIEVED FROM THE ORDER OF THE CIT(A), THE ASSESSEE FILED THIS PRESENT APPEAL BEFORE THE INCOME TAX APPELLATE TRIBUNAL. ITA NO. 11 /CTK/201 8 5 5. LD. AR BEFORE U S FILED HIS WRITTEN SUBMISSIONS, WHICH IS PLACED ON RECORD AND ALSO RELIED ON THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT V S. SALES MAGNESITE (PRIVATE LIMITED) (1995) 214 ITR 1 (BOM) AND REFERRED TO PARA 9 OF THE JUDGMENT, WHICH READ AS UNDER : - 9. VARIOUS TESTS HAVE BEEN EVOLVED BY THE COURTS FROM TIME TO TIME TO DECIDE WHETHER AN EXPENDITURE IS INCURRED FOR THE PURPOSES OF B USINESS. ONE OF THE TESTS OFTEN APPLIED IS WHETHER IT IS INCURRED BY THE ASSESSEE IN HIS CHARACTER AS A TRADER. TO HOLD IT TO BE AN EXPENDITURE ALLOWABLE AS A DEDUCTION UNDER SECTION 37 , IT IS NOT ESSENT IAL THAT IT SHOULD BE NECESSARY, LEGALLY OR OTHERWISE, TO INCUR THE SAME OR THAT IT SHOULD DIRECTLY AND IMMEDIATELY BENEFIT THE BUSINESS OF THE ASSESSEE. EVEN EXPENDITURE INCURRED VOLUNTARILY ON THE GROUND OF COMMERCIAL EXPEDIENCY AND IN ORDER INDIRECTLY T O FACILITATE THE CARRYING ON OF THE BUSINESS WOULD BE DEDUCTIBLE UNDER THIS SECTION. THE QUESTION WHETHER IT WAS NECESSARY FOR COMMERCIAL EXPEDIENCY OR NOT IS A QUESTION THAT HAS TO BE DECIDED FROM THE POINT OF VIEW OF THE BUSINESSMAN AND NOT BY THE SUBJEC TIVE STANDARD OF REASONABLENESS OF THE REVENUE. AS OBSERVED BY THE, SUPREME COURT IN BOMBAY STEAM NAVIGATION CO. (1953) PVT. LTD. V. CIT [1965] 56 ITR 52, THE QUESTION MUST BE VIEWED IN THE LARGER CONTEX T OF BUSINESS NECESSITY OR COMMERCIAL EXPEDIENCY. NO ABSTRACT OR PEDANTIC VIEW CAN BE TAKEN IN THE MATTER. IN ADDITION TO THE ABOVE, LD. AR ALSO SUBMITTED THAT THE AO HAS HIMSELF ACCEPTED THAT IN THE REAL ESTATE BUSINESS COMMISSION ARE ALSO PAID TO THE AG ENTS WHO ARRANGES PROSPECTIVE BUYERS, THEREFORE, THE PAYMENT OF COMMISSION TO THE AGENTS CANNOT BE DENIED BY THE AO AND THEY HAVE FILED INCOME TAX RETURNS FOR THE RESPECTIVE YEARS WHICH ARE PLACED ON RECORD AND PAID DUE TAXES. THEREFORE, THE AO AS WELL AS THE CIT(A) IS NOT JUSTIFIED TO MAKE ADDITION TO THE ENTIRE AMOUNT OF COMMISSION PAYMENT OF RS. 28,26,180/ - . 6. ON THE OTHER HAND, LD. DR RELIED ON THE ORDERS OF THE AUTHORITIES BELOW AND SUBMITTED THAT THE CIT(A) HAS RIGHTLY UPHELD THE ADDITION . ITA NO. 11 /CTK/201 8 6 HE FURTHER SUBMITTED THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE STATEMENTS OF THE ASSESSEE COMPANY RESPECTIVE BUYERS AND AGENTS HAVE BEEN RECORDED BY THE AO AND FROM THE STATEMENTS RECORDED IT IS CLEAR THAT THERE WAS NO GENUINE PAYMENTS OF THE COMMISSION. F ROM THE ORDER OF AO IT IS CLEAR THAT THESE COMMISSION AGENTS ARE WIFE OF THE EMPLOYEES OF THE ASSESSEE COMPANY. HE FURTHER SUBMITTED THAT THE ENTIRE AMOUNT OF THE COMMISSION RECEIVED FROM THE ASSESSEE COMPANY HAS BEEN WITHDRAWN AFTER CREDITING IN THEIR BAN K ACCOUNT THROUGH CASH WHICH ALSO PROVES THAT THESE PAYMENTS ARE NOT GENUINE PAYMENT, THEREFORE, HE REQUESTED THE BENCH THAT THE ORDERS OF THE AUTHORITIES BELOW SHOULD BE UPHELD. 7. AFTER CONSIDERING THE SUBMISSIONS OF BOTH THE SIDES AND PERUSING THE ENTI RE MATERIAL AVAILABLE ON RECORD, WE OBSERVE FROM THE ASSESSMENT ORDER THAT THE AO HIMSELF QUOTED IN HIS ORDER THAT THE PAYMENT OF COMMISSION OF SALE OF FLATS IS A COMMON PRACTICE IN THE REAL ESTATE BUSINESS AND HE HAS ALSO OBSERVED THAT THE PAYMENT OF COMM ISSION IS NOT HIGH AS PER THE PREVAILING IN THE MARKET. AFTER TAKING INTO CONSIDERATION OF ALL THE SUBMISSIONS FROM BOTH THE SIDES AND THE FINDINGS RECORDED BY THE LOWER AUTHORITIES, WE ARE OF THE CONSIDERED OPINION THAT THE PAYMENT OF COMMISSION CANNOT BE DENIED. ON CAREFUL READING OF THE STATEMENTS RECORDED WHICH IS INCORPORATED IN THE ASSESSMENT ORDER, IT IS IMMATERIAL AGAINST WHOM THE COMMISSION HAS ITA NO. 11 /CTK/201 8 7 BEEN PAID. THEREFORE, WE THINK IT APPROPRIATE TO RESTRICT THE COMMISSION TO 50% AS ALLOWABLE EXPENDITURE IN THE HANDS OF THE ASSESSEE. THE CASE LAW RELIED ON BY THE LD. AR OF THE ASSESSEE IS ALSO NOT APPLICABLE IN THE PRESENT FACTS OF THE CASE. THUS, THE ASSESSEE GETS RELIEF OF RS.14,13,090/ - . ACCORDINGLY, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. 8 . IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED . ORDER PRONOUNCED IN THE OPEN COURT ON 12 / 0 3 / 20 2 1 . SD/ - ( C.M.GARG ) SD/ - (L.P.SAHU) / JUDICIAL MEMBER / ACCOUNTANT MEMBER CUTTACK ; DATED 12 / 0 3 /20 2 1 PRAKASH KUMAR MISHRA, SR.P.S. / COPY OF THE ORDER FORWARDED TO : / BY ORDER, ( SENIOR PRIVATE SECRETARY ) , /ITAT, CU TTACK 1. / THE APPELLANT - MAGNUM DREAM HO MES PVT. LTD PLOT NO.132 - A,SECTOR - A, ZONE - A MANCHESWAR, BHUBANESWAR 2. / THE RESPONDENT - DCIT, CORPORATE CIRCLE - 2(1), BHUBANESWAR 3. ( ) / THE CIT(A), 4. / CIT 5. , , / DR , ITAT, CUTTACK 6. / GUARD FILE. //TRUE COPY//