M/s. Mainak Nirman Pvt. Ltd., , Siliguri V. DCIT, Circle - 2, Siliguri , Siliguri

ITA 1618/KOL/2018

• Counselvise Citation: [2019] 115 COUNSELVISE.COM (IT) 4221 (ITAT-KOLKATA)
• Duration Of Justice: 7 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-03-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Assessment Year: 2012-2013
• Appeal Filed On: 27-07-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Corroborative evidences; Commercial expediency; TDS

Judgement Text

1 ITA NO.1618/KOL/2018 MAINAK NIRMAN P VT. LTD., AY:2012-13 , A (SMC) , IN THE INCOME TAX APPELLATE TRIBUNAL A(SMC) BENCH : KOLKATA ( ) . . , ) [BEFORE SHRI A. T. VARKEY, JM] I.T.A. NO. 1618/KOL/2018 ASSESSMENT YEAR: 2012-13 M/S. MAINAK NIRMAN PVT. LTD. (PAN: AAECM2342J) VS. DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE-2, SILIGURI APPELLANT RESPONDENT DATE OF HEARING 29.01.2019 DATE OF PRONOUNCEMENT 13.03.2019 FOR THE APPELLANT SHRI RAVI TULSIYAN, FCA FOR THE RESPONDENT SHRI NICHOLAS MURMU, ADDL. CIT, SR. DR ORDER PER SHRI A.T.VARKEY, JM THIS APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF LD. CIT(A), SILIGURI DATED 05.07.2018 FOR AY 2012-13. 2. THE ONLY GRIEVANCE OF THE ASSESSEE IN THIS APP EAL IS AGAINST THE ACTION OF LD. CIT(A) IN CONFIRMING THE ACTION OF THE AO IN DISALLOWING T HE COMMISSION PAID BY THE ASSESSEE TO SEVEN PARTIES ON SALE OF REAL ESTATE PROPERTIES/FLA TS. 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A BUILDER AND HAS SOLD FLATS AND HAS CLAIMED TO HAVE GIVEN COMMISSION TO AGENTS TO THE T UNE OF RS. 6,56,328/-. THE AO DISALLOWED THE COMMISSION EXPENSES CLAIMED BY THE A SSESSEE ON THE GROUND THAT (I) NO APPOINTMENT LETTER OF THE SAID AGENTS WERE BROUGHT BEFORE HIM; (II) AGENTS WERE NOT EXPERIENCED IN THE FIELD MARKETING OF REAL ESTATE ( III) THE AREA/TERRITORY OF THEIR PLACE OF SALE HAS NOT BEEN SPECIFIED; (IV) NO EVIDENCE THAT ANY W ORK HAS BEEN DONE BY THESE PARTIES FOR INCREASING THE BUSINESS OF THE ASSESSEE. THEREFORE , HE DISALLOWED THE COMMISSION EXPENSES CLAIMED BY THE ASSESSEE. AGGRIEVED BY THE ACTION O F AO, THE ASSESSEE PREFERRED AN APPEAL 2 ITA NO.1618/KOL/2018 MAINAK NIRMAN P VT. LTD., AY:2012-13 BEFORE THE LD. CIT(A) WHO CONFIRMED THE ACTION OF A O. AGGRIEVED, THE ASSESSEE IS BEFORE US. 4. I HAVE HEARD RIVAL SUBMISSIONS AND GONE THROUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. I NOTE THAT THE ASSESSEE IS A BUILDER AND HA D SOLD FLATS FOR WHICH ASSESSEE CLAIMED TO HAVE INCURRED COMMISSION EXPENSES TO THE FOLLOWING PARTIES : I) SUNITA PERIWAL RS. 76,194/- II) SARITA PERIWAL RS.1,42,152/- III) POONAM PERIWAL RS. 68,515/- IV) LOKESH PERIWAL RS. 55,491/- V) PRIYANKA BANSAL RS.1,41,291/- VI) ALKA PERIWAL RS.1,02,965/- VII) NITESH PERIWAL RS. 69,720/- TOTAL : RS.6,56,328/- 5. THE AO WHILE DISALLOWING THE COMMISSION EXPENSES HAS OBSERVED AS UNDER: THE ASSESSEE HAS PAID COMMISSION TO THE NEAR RELA TIVES OF MAIN SHAREHOLDERS WHO HAD NO EXPERIENCE IN MARKETING OF REAL ESTATE BUSINESS. TO TAL ONUS IS ON THE ASSESSEE TO SUBSTANTIATE THE COMMISSION PAID, DETAILS OF SERVICE RENDERED HO W THEY HAVE PROCURED CUSTOMERS OF THE COMPANY, NAME AND FULL ADDRESS OF THE CUSTOMERS OF THE COMPANY FOR WHICH THE ALLEGED AGENTS HAD PROCURED ORDERS AND PLACED BEFORE THE COMPANY. THE ASSESSEE IN COURSE OF HEARING, IN SPITE OF REPEATED REQUESTS FAILED TO FURNISH DETAIL S OF AGREEMENT BETWEEN THE ALLEGED COMMISSION AGENTS AND THE COMPANY. HERE THE ASSESSEE HAS NOT PAID A SINGLE PIECE OF CO MMISSION TO THE PERSONS AS SOLE SELLING AGENTS WHO HAS KNOWLEDGE IN MARKETING OF RE AL ESTATES. WHO PROCURE CUSTOMERS AS PER SPECIFICATION OF FLATS AND OTHERS. THERE ARE NUMBER OF SUCH SELLING AGENTS IN SILIGURI WHO ARE DEALING IN MARKETING OF REAL ESTATE BUSINESS. HERE THE ASSESSEE HAS PAID COMMISSION TO THE PERSON S WHO HAS NO PAST EXPERIENCE IN THIS AREA OF SELLING OF FLATS AND WHO ARE MERELY RE LATIVE OF MAIN CHUNK OF SHAREHOLDERS. IN COURSE OF HEARING IT WAS ASKED TO THE ASSESSEE TO J USTIFY THE PAYMENT OF SAID COMMISSION TO THE RELATIVES OF THE PRIME/SUBSTANTIAL SHAREHOLDERS OF THE COMPANY, THE ASSESSEE STATED THAT THEY ARE EXPERIENCED AS HAS BEEN DEALING IN SUCH TYPES O F SALES BUSINESS FOR LONG TIME SO SUBSTANTIAL SHAREHOLDERS RELATIVES HAVE ALSO EXPERI ENCE IN SELLING BUSINESS BUT WHERE IS THE EVIDENCE? WHETHER THE SO CALLED SELLING AGENTS HAD RECEIVED ANY COMMISSION FROM OTHERS IN THIS LINE? THE ASSESSEE FAILED TO FURNISH ANY SUCH EVIDENCE. IN RESPECT TO PAYMENT OF COMMISSION TO RELATIVES OF THE MAIN PORTION OF SHOE HOLDERS ARE FOUND TO BE DIVERSION OF PROFIT AMONG THE HAND OF THE RELATIVES TO REDUCE THE TAX B URDEN. THE ASSESSEE ALSO FAILED TO FURNISH ANY AGREEMENT REGARDING DETAILS OF SERVICE TO BE RE NDERED AND PAYMENT OF COMMISSION TO THE RELATIVES. THE ASSESSEE ALSO FAILED TO FURNISH DETA ILS OF THE SERVICE RENDERED IN CONNECTION WITH THE SALE OF FLATS WITH EVIDENCES. THE ASSESSEE FAIL ED TO EXPLAIN THE FOLLOWING POINTS. 3 ITA NO.1618/KOL/2018 MAINAK NIRMAN P VT. LTD., AY:2012-13 (A) WHERE IS THE APPOINTMENT LETTER IN RESPECT OF S UCH PAYMENT OF COMMISSION TO THE ALLEGED AGENTS. (B) WHETHER THE PERSON HAS EXPERIENCE IN THE FIELD MARKETING OF REAL ESTATES IF SO ANY EVIDENCES THERE TO ? (C) WHETHER THERE IS ANY AGREEMENT BETWEEN THE AGEN TS AND THE COMPANY FOR CANVAS FOR SECURE ORDERS AND PUSH THE SALE OF GOODS TO THE BEST OF TH EIR ABILITY AND EXPERIENCE WITHIN THE GIVEN AREA? (D) THE ASSESSEE FAILED TO FURNISH ANY EVIDENCES RE GARDING THE AGREEMENT AND NATURE OF AGREEMENT AND DETAILS OF THE TERMS AND CONDITIONS O F THE AGREEMENT. ( E) THE ASSESSEE FAILED TO SUBSTANTIATE THE PERCEN TAGE OF COMMISSION OF PAID AND DETAILS OF SERVICES RENDERED NOW FROM THE ABOVE FACT IT IS CLEAR THAT THERE WAS NO AGREEMENT ONLY TO BE A RELATIVE OF LARGE CHUNK OF SHARE HOLDER WAS NECESSARY TO ALL OW COMMISSION. NOTHING OTHERS (A) THE ASSESSEE COULD NOT ABLE TO FURNISH ANY EVID ENCE THAT THE AGENTS HAD UNDERTAKEN ANY WORK OF CANVASSING FOR THE ASSESSEE'S CONCERNS (B) ASSESSEE COULD NOT ABLE TO FURNISH A SINGLE PAP ER THAT THE AGENTS HAD PROCURED ORDERS FOR THE ASSESSEE (C) THE ASSESSEE FOILED TO FURNISH DETAILS OF AREA ASSIGNED TO THE AGENTS FOR SUCH SALES (D) THE AGENTS MAY ENTITLED TO COMMISSION ONLY AFTE R SECURE ORDERS DIRECTLY OR INDIRECTLY TO THE EXTENT OF BUSINESS OF THE COMPANY MEANS SALES EFFEC TED THROUGH THE SO CALLED AGENTS. BUT ASSESSEE FAILED TO FURNISH ANY SUCH EVIDENCE. TOTAL ONUS ON THE ASSESSEE TO ESTABLISH THE FACT THAT THROUGH AGENTS COMPANY PROCURED PROSPECTIVE BU YERS AND SALES EFFECTED THROUGH THE SO CALLED AGENTS AND THERE AFTER CREDITED THE AGENTS W ITH COMMISSIONS. THE ASSESSEE FAILED DISCHARGE IT'S ONUS. SALES OF FLATS WERE MADE TO THE BUYERS, THE ASSESSE E FAILED TO PRODUCE A SINGLE BUYER WHO ADMITTED THAT THERE WERE AGENTS THROUGH THE AGE NTS THEY HAVE PURCHASED FLATS . THE ASSESSEE FAILED TO FURNISH A SINGLE EVIDENCES THAT SALES WERE INDIRECTLY EFFECTED FOR THE PROSPECTIVE BUYERS PROCURED BY THE AGENTS. SO PAYME NTS OF ALLEGED COMMISSION TO THE ALLEGED AGENTS WHO ARE VERY CLOSE RELATIVE WAS NOT FOR ANY COMMERCIAL CONSIDERATION OR BUSINESS EXPEDIENCY BUT FOR EASE OUT TAX LIABILITY OF THE AS SESSEE BY DISBURSING PROFIT AMONG THE HAND OF VERY CLOSE RELATIVES. (G) NOT ONLY THAT THE ASSESSEES RELATIVES TO WHOM COMMISSIONS WERE PAID ARE HOUSE WIFE AND EVEN ONE PERSON RESIDING IN DELHI SO THE A SSESSEE HAS TO FIRST ESTABLISH THAT THOSE PERSONS WERE ACTIVELY ENGAGED IN SELLING BUSINESS A ND THEIR ROLE AS CANVASSING FOR SALE, PROCURE ORDERS FOR SALE AND PUSH FOR SALE WITH IN G IVEN AREA WERE VERY BURDENSOME WORK. NO SENSIBLE PERSON IMPOSE HIS WIFE, BROTHERS WIFE WITH SUCH BURDENSOME WORK. IT WAS NECESSARY ON THE PART OF THE ASSESSEE TO ESTABLISH THE FACT W ITH CORROBORATIVE EVIDENCES THAT ALL THOSE CONDITIONS WERE FULFILLED BY THE COMMISSION AGENTS SO THAT THEY ARE ENTITLED TO COMMISSION. (H) IN SPITE OF GIVING FARE CHANCES THE ASSESSEE FA ILED TO ESTABLISH THOSE BASIS REQUIREMENTS TO ALLOW ABILITY OF COMMISSIONS PAYMEN TS. HERE THE ASSESSEE STATED THAT COMPANY 4 ITA NO.1618/KOL/2018 MAINAK NIRMAN P VT. LTD., AY:2012-13 HAS DEDUCTED TAX AT SOURCE FROM COMMISSION PAYMENTS . MERE GIVING A STATEMENT BY THE COMPANY AND DEDUCTION OF TDS CANNOT MAKE A CLAIM SA CROSANCT. (I) HERE ALLEGED PAYMENTS OF COMMISSIONS IS NOT FOR ANY SERVICE RENDERED AS PER AGREEMENT BUT FOR DISTRIBUTE INCOME AMONG THE CLOSE RELATIVES TO EASE OUT TAX BURDEN OF THE OWNER. SO THE PAYMENT OF COMMISSION AS CLAIMED BY T HE ASSESSEE ARE NOT ALLOWABLE AT ALL. FOLLOWING CASE LAWS AM IN FAVOUR OF THE DEPARTMENT FOR DISALLOWANCES OF COMMISSION PAYMENT IN SIMILAR CIRCUMSTANCES. 'WHERE COMMISSION IS PAID NOT IN CONNECTION WITH AN Y WORK DONE BY THE RECIPIENT FOR THE ASSESSEE, THE SAME CANNOT BE ALLOWED TO BE DEDU CTED 'VIJAY KUMAR MILLS LTD VS. CIT (1963) 50 ITR 332 (MAD), VISHNU AGENCIES (P) LTD VS CIT (1979) 117 ITR 754(CAL), MADURA KNITTING CO VS CIT (1956) 30 ITR 764( MAD) THE HONBLE HIGH COURT OF GAUHATI OBSERVED THAT WHE RE THE DISCOUNT/COMMISSION PAID BY THE ASSESSEE WAS WITHOUT ANY COMMERCIAL CONSIDER ATION OR BUSINESS EXPEDIENCY AND WITHOUT ANY SERVICES RENDERED BY THE AGENT, THEREFORE, THE SAME NOT DEDUCTIBLE 'ASSAM PESTICIDE AND AGRO CHEMICALS VS CIT (1997) 227 ITR 846( GAU), HER ALD ADVERTISING AGENCY VS ITO (1991) 39TTJ (DEL TRIB) 34, ITO VS AUTOMETRES LTD . (1991) 39TTJ (DEL TRIB) 260. WHERE THE ASSESSEE HAD NOT ABLE TO ESTABLISH THAT T HE PAYMENT OF COMMISSION WAS FOR COMMERCIAL EXPEDIENCY, IT HAD ALSO NOT BEEN ABLE TO PROVE THAT COMMISSION WAS PAID TO ALLEGED FOR SERVICE RENDERED BY THEM HENCE COMMISSI ON PAID TO THEM WAS RIGHTLY DISALLOWED - DY CIT ( ASSESSMENT) SPL RANGE-1 VS PANORAMA PLASTI CS (2006) 10(II) ITCL 480 (AHD TRIB.) THE HON'BLE DELHI HIGH COURT IN SCHNEIDER ELECTRIC INDIA LTD. V. CIT [2008] 171 TAXMAN 177 DECLINED TO ALLOW DEDUCTION OF COMMISSIO N PAYMENT FOR WANT OF ANY DIRECT EVIDENCE TO SHOW THAT THE RECIPIENT HAD PROCURED AN Y SALE ORDERS FOR ASSESSEE AND MADE IT VERY CLEAR THAT MERE PRODUCTION OF BILLS OR PAYMENTS HAV ING BEEN MADE BY ACCOUNT PAYEE CHEQUES WOULD BE NO REMEDY IN THIS REGARD NOW CONSIDERING THE FACT AS MENTIONED ABOVE AND ABI DING BY THE PROPOSITIONS OF CASE LAWS IN FAVOUR OF SUCH DISALLOWANCES OF COMMISSION PAYMENTS AS STATED ABOVE THE ENTIRE COMMISSION PAYMENT OF RS.6,56,328/- HAS BEEN DISALL OWED AND ADDED BACK TO ASSESSEES INCOME. PENAL PROCEEDINGS U/S.271(1) (C) HAS BEEN I NITIATED TOR FURNISHING INACCURATE PARTICULARS OF INCOME. 6. ON APPEAL, THE LD. CIT(A) CONFIRMED THE ACTION O F THE AO. HOWEVER, IT IS NOTED THAT THE GENUINITY OF THE PAYMENTS HAVE NOT BEEN QUESTIO NED. THE AFORESAID AMOUNTS WERE TRANSFERRED BY CHEQUE AND HAVE BEEN REFLECTED IN TH EIR RESPECTIVE RETURN OF INCOME OF AGENTS. THE BANK STATEMENTS OF THE AGENTS HAVE BEEN FILED B EFORE THE AUTHORITIES BELOW. SO, THERE IS NO DOUBT WITH REGARD TO THE GENUINITY OF THE TRANSA CTION. IT IS ALSO NOTED THAT THE AO HAS STATED THAT THESE PARTIES ARE RELATED PARTIES. IT IS NOTED THAT THE AO HAS NOT MADE ANY DISALLOWANCE BASED BY APPLYING SECTION 40A(2)(A) OF THE ACT. IT IS NOT THE CASE OF THE AO THAT THE COMMISSION PAID IS NOT AT ARMS LENGTH AND QUITE EXCESSIVE. IT IS COMMON KNOWLEDGE THAT IN REAL ESTATE BUSINESS THE PERSONS WHO ARE CLOSE TO THE BUILDER/REAL ESTATE 5 ITA NO.1618/KOL/2018 MAINAK NIRMAN P VT. LTD., AY:2012-13 OWNER, TRIES TO GET BUSINESS FOR THEM. UNLIKE OTHE R BUSINESS, A CUSTOMER WHO WANTS TO BUY A FLAT TAKES INTO CONSIDERATION SEVERAL FACTORS AND O UT OF IT THE MOST IMPORTANT IS THE CREDIBILITY AND TRUSTWORTHINESS OF THE BUILDER, THAT HE COULD C OMPLETE THE HOUSING PROJECT IN TIME AND NOT DELAY THE EXECUTION. PLACE OF FLAT IS IMPORTAN T LIKE IT IS NEAR REPUTED SCHOOLS ETC. AND SECURITY IS ONE OF THE IMPORTANT FEATURE OF BUYING FLATS TO STAY IN IT. SO THE RELATIVES OF THE BUILDER LIKE LADIES IN THE HOUSE OF SHARE HOLDERS W HO ARE INVOLVED WITH CLUBS LIKE ROTARY CLUB AND OTHER SOCIAL LADIES GROUP FORMED FOR KITTY PARTIES/PHILANTHROPIC ACTIVITIES ALSO WHEN THEY GET TOGETHER, WOULD BY WORD OF MONTH SPREAD TH E SPECIAL FEATURE OF THE NEW PROJECT/BUILDING UNDER CONSTRUCTION AND IN CASE TH E LADIES WHO ARE INTERESTED IN PURCHASING THE FLAT WOULD CONVEY THEIR INTEREST, THEN THESE LA DIES WILL IN TURN WOULD CONVEY IT TO THE SHAREHOLDER/S DIRECTORS OF THE ASSESSEE COMPANY; AN D FROM THEREON THE MARKETING TEAM OF ASSESSEE COMPANY WOULD TAKE OVER THE CUSTOMERS DET AILS AND THEN IF THE DEAL IS STRUCK/FINALIZED, THEN THE BUILDER/REAL ESTATE OWNE R MAY GIVE SOME COMMISSION TO THE PERSON WHO REFERS BUYERS AND THUS BRINGS BUSINESS TO THE A SSESSEE. THE AO MISUNDERSTOOD THIS ASPECT OF BUSINESS OF REAL ESTATE PARTICULARLY OF F LATS AND HAS ERRONEOUSLY EQUATED THIS COMMISSION PAYMENT AS THAT OF OTHER BUSINESS MODELS LIKE THAT OF MEDICAL REPRESENTATIVES, GADGET SALES ETC. AND, THEREFORE, BASED ON SURMISES AND CONJECTURES AND JUST BECAUSE THEY ARE RELATIVES OF THE DIRECTORS OF THE ASSESSEE COMPANY HAS MADE THE DISALLOWANCE. ONCE THE GENUINITY OF THE TRANSACTION IS NOT DOUBTED AND THE PAYEES HAVE REFLECTED IT IN THEIR RETURN OF INCOME AND THE AMOUNT GIVEN TO THE AGENTS/RELATIVE S ARE REASONABLE AND CONFIRMATION OF THE AGENTS AS WELL AS WHEN SERVICE RENDERED BY THESE AG ENTS HAVE BEEN CLEARLY SPELLED OUT FROM THE CONFIRMATION LETTERS KEPT AT PAGES 56 TO 75 OF THE PAPER BOOK E.G. A PERUSAL OF PAGE 56 OF PAPER BOOK REVEALS THAT SMT. SUNITA PERIWAL HAD CLA IMED RS.38,097/- ON 02.01.2012 FOR COMMISSION FOR FLAT SALE TO SAVITA AGGARWAL DECEASE D 12319 DATED 25.04.2011, AREA 1411 SFT, PLATINUM BLOCK REGISTRATION COMMISSION @ 3% ON CONSIDERATION VALUE OF RS.12,69,900/-. LIKE THAT WE NOTE SMT. SARITA PERI WAL RAISED BILLS OF RS.38,097/-, RS.25,451/-, RS.33.990/-, RS.31,941/- AND RS.25,461 /- (PAGE 57 TO 61 OF PAPER BOOK). SO THUS, WE NOTE THAT OTHER AGENTS ALSO HAVE FILED DET AILS OF FLATS AND CONSIDERATION FOR THOSE FLATS AND CLAIMED 3% COMMISSION. THESE CONFIRMATI ONS WERE FILED BEFORE THE AO/LD CIT(A). THE AO HAS NOT ENQUIRED ABOUT THE VERACITY OF THE SERVICES RENDERED AS CLAIMED BY 6 ITA NO.1618/KOL/2018 MAINAK NIRMAN P VT. LTD., AY:2012-13 THESE AGENTS, WITHOUT WHICH, ACCORDING TO ME, WHEN THE EXPENDITURE HAS GOT NEXUS WITH THE BUSINESS OF THE ASSESSEE NEEDS TO BE ALLOWED AND, T HEREFORE, WE DELETE THE ADDITION MADE BY THE AO AND CONFIRMED BY THE LD. CIT(A). 7. THE LAST GROUND IS GENERAL IN NATURE AND THEREFO RE, NO ADJUDICATION IS REQUIRED AND, HENCE, THE SAME IS DISMISSED. 8. IN THE RESULT, THE APPEAL OF ASSESSEE IS PARTLY ALLOWED. ORDER IS PRONOUNCED IN THE OPEN COURT ON 13TH MARCH , 2019. SD/- (ABY. T. VARKEY) JUDICIAL MEMBER DATED : 13TH MARCH, 2019 JD.(SR.P.S.) COPY OF THE ORDER FORWARDED TO: 1. APPELLANT M/S. MAINAK NIRMAN PVT. LTD., 173/22 1, BIDHAN ROAD, SILIGURI-734001. 2 RESPONDENT DCIT, CIRCLE-2, SILIGURI. 3. 4. CIT(A), SILIGURI (SENT THROUGH E-MAIL) CIT, . 5. DR, ITAT, KOLKATA. (SENT THROUGH E-MAIL) / TRUE COPY, BY ORDER, ASSISTANT REGISTRAR