Dy. CIT, Pune V. M/s Cooper & Associates, Pune

ITA 2386/PUN/2012

• Counselvise Citation: 238624514 RSA 2012
• Duration Of Justice: 1 year(s) 6 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-06-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 03-03-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 30-11-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S P WALIMBE
• Keywords: Business expenditure; Commercial expediency
• Section: 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE BEFORE SHRI SHAILENDRA KUMAR YADAV, JUDICIAL MEMBER, AND SHRI R.K. PANDA, ACCOUNTANT MEMBER ITA NO.2386/PN/2012 (A.Y: 2009-10) ADDL.CIT, RANGE-2, PUNE APPELLANT VS. M/S. COOPER & ASSOCIATES 79/80, SAHANEY SUJAN PARK, WANOWRIE, PUNE 411040 PAN: AAAAC6072D RESPONDENT APPELLANT BY : SHRI S.P. WA LIMBE RESPONDENT BY : SHRI NIKH IL PATHAK DATE OF HEARING: 18.06.2014 DATE OF ORDER : 20.06.2014 ORDER PER SHAILENDRA KUMAR YADAV, J.M: THIS APPEAL HAS BEEN FILED BY THE REVENUE AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEAL)-II, [IN SHOR T CIT(A)] PUNE, DATED 31.07.2012 FOR A.Y. 2009-10 ON THE FOLLOWING GROUNDS. 1. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ER RED IN ALLOWING THE ALLEGED PAYMENT OF COMMISSION OF RS.60,17,431/- CLAIMED BY THE ASSESSEE. 2. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ER RED IN NOT APPRECIATING THAT THERE WAS NO EVIDENCE OF A NY SERVICES RENDERED BY THE RECEIVERS OF COMMISSION, A S FOUND ON INVESTIGATION BY THE ASSESSING OFFICER. 3. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ER RED IN NOT APPRECIATING THAT MERELY BECAUSE THE PAYMENT OF COMMISSION WAS MADE BY CHEQUE ON WHICH TDS WAS DEDUCTED, DOES NOT PROVE THAT THE SERVICES WERE, IN FACT, RENDERED WHEN THE ASSESSEE REFUSED TO CROSS EXAMINE THE RECEIVERS OF COMMISSION. 2 ITA NO.2386/PN/12 COOPER & ASSOCIATES 4. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ER RED IN RELYING ON CITATIONS WITH RESPECT TO REASONABLEN ESS OF EXPENDITURE WHEN IN THE PRESENT CASE THE EXPENDITUR E HAS BEEN TO BE NOT GENUINE. 5. THE APPELLANT CRAVES LEAVE TO ADD, ALTER OR AMEND A NY OR ALL THE GROUNDS OF APPEAL. 2. THE ASSESSEE IS A FIRM ENGAGED IN THE BUSINESS O F BUYING AND SELLING OF IMMOVABLE PROPERTY AND DEVELOPMENT O F THE SAME. DURING THE YEAR, THE ASSESSEE HAS FILED RETURN OF I NCOME DECLARING TOTAL INCOME AT 3,28,06,900/- AND THE SAME HAS BEEN ASSESSED U/S.143(3) DETERMINING TOTAL INCOME AT 3,88,44,421/-. THE ASSESSING OFFICER FOUND THAT THE ASSESSEE HAD CLAIM ED EXPENDITURE OF 75,80,852/- ON ACCOUNT OF SUB-AGENTS COMMISSION IN RESPECT OF A LAND DEAL AT DEVACHI URU LI WITH M/S NEPTUNE DEVELOPERS PVT. LTD. THE AFORESAID AMOUNT O F COMMISSION INCLUDED PAYMENTS MADE TO MR. DARIUS RAF FAT OF 52,52,284/- AND MS NITI MERCHANT OF 7,65,147/- AGGREGATING TO 60,17,431/-. THE ASSESSING OFFICER ALSO FOUND THAT BOTH THE PERSONS WERE HAVING A COMMON ADDRESS. TO ASCERTAIN THE GENUINENESS OF THE PAYMENT, THE ASSESSING OFFICER H AS CARRIED OUT VERIFICATION AND ALSO RECORDED THE STATEMENTS O F THE ASSESSEE ALONG WITH THE ABOVE MENTIONED PERSONS TO WHOM COMM ISSION WAS PAID. FINALLY, THE ASSESSING OFFICER REJECTED THE EXPLANATION OF THE ASSESSEE AND HELD THAT THERE WAS NO WRITTEN DOCUMENT BETWEEN THE ASSESSEE AND THE TWO PERSONS TO WHOM CO MMISSION WAS PAID AND ALSO THAT THE AFORESAID TWO PERSONS HA D ONLY INTRODUCED THE ASSESSEE TO THE BUYER AND THE ACTUAL SERVICES REGARDING THE SALE OF LAND WERE RENDERED BY ANOTHER BROKER MR. FARAD UNWALLA. THUS, THE ASSESSING OFFICER HELD TH AT THE COMMISSION PAYMENT OF 52,52,284/- AS A NON-GENUINE BUSINESS EXPENDITURE AND THE SAME WAS DISALLOWED AND ADDED B ACK TO THE TOTAL INCOME. 3 ITA NO.2386/PN/12 COOPER & ASSOCIATES 3. THE MATTER WAS CARRIED BEFORE FIRST APPELLATE AU THORITY, WHEREIN THE VARIOUS CONTENTIONS WERE RAISED ON BEHA LF OF ASSESSEE AND HAVING CONSIDERED THE SAME, THE CIT(A) HAS GRAN TED RELIEF TO THE ASSESSEE. THE SAME HAS BEEN OPPOSED BEFORE US ON BEHALF OF REVENUE, INTER ALAI, SUBMITTED THAT THE CIT(A) ERRE D IN ALLOWING THE ALLEGED PAYMENT OF COMMISSION OF 60,17,431/- CLAIMED BY THE ASSESSEE. THE CIT(A) ERRED IN NOT APPRECIATING THAT THERE WAS NO EVIDENCE OF ANY SERVICES RENDERED BY THE RECEIVE RS OF COMMISSION, AS FOUND ON INVESTIGATION BY THE ASSESS ING OFFICER. THE CIT(A) ALSO ERRED IN NOT APPRECIATING THAT MERE LY BECAUSE THE PAYMENT OF COMMISSION WAS MADE BY CHEQUE ON WHICH T DS WAS DEDUCTED, DOES NOT PROVE THAT THE SERVICES WERE, IN FACT, RENDERED WHEN THE ASSESSEE REFUSED TO CROSS EXAMINE THE RECE IVERS OF COMMISSION. ACCORDINGLY, THE ORDER OF CIT(A) BE SE T ASIDE AND THAT OF ASSESSING OFFICER BE RESTORED. ON THE OTHE R HAND, THE LEARNED AUTHORIZED REPRESENTATIVE HAS SUPPORTED THE ORDER OF CIT(A) AND SUBMITTED THAT THE ASSESSING OFFICER ERR ED IN DISALLOWING 60,17,431/- PAID TO ABOVE TWO PARTIES. THE COMMISSION PAID IS NOT NON-GENUINE BUSINESS EXPENDI TURE IN THE ABSENCE OF WRITTEN AGREEMENT AND MAY NOT BE BASIS F OR DISALLOWING THE COMMISSION. THE ASSESSING OFFICER HAS NOT DISPUTED THAT THE ROLE OF ABOVE TWO PERSONS IN THE DEAL OF SALE OF LAND BY THE ASSESSEE TO M/S. NEPTUNE DEVELOPERS PVT . LTD. HENCE, THE PAYMENT OF COMMISSION WAS BUSINESS EXPEN DITURE. THE VERY DEAL OF ASSESSEE WITH THE DEVELOPER WAS MA TERIALIZED DUE TO THE ROLE PLAYED BY THESE TWO PERSONS. IN THEIR STATEMENT, THEY HAVE ADMITTED THE VARIOUS SERVICES RENDERED TO THE ASSESSEE. THEREFORE, THE COMMISSION PAID WAS FULLY JUSTIFIED AND THERE WAS NO REASON TO DISALLOW THE COMMISSION PAID TO THEM W HEN THEY HAVE ADMITTED THE SERVICES RENDERED TO THE ASSESSEE AND THE DEAL IN QUESTION ALSO MATERIALIZED. ACCORDINGLY, HE HAS SUPPORTED THE ORDER OF CIT(A). 4 ITA NO.2386/PN/12 COOPER & ASSOCIATES 4. AFTER GOING THROUGH THE RIVAL SUBMISSIONS AND MA TERIAL ON RECORD, WE FIND THAT THE ASSESSEE FIRM IS ENGAGED I N THE BUSINESS OF BUYING AND SELLING PROPERTIES WHICH INCLUDES LAN D. THE ASSESSING OFFICER DISALLOWED 60,17,431/- PAID TO MR. DARIUS RAFFAT AND MS. MERCHANT. DURING THE ASSESSMENT PRO CEEDINGS, IN ORDER TO ASCERTAIN THE COMMISSION PAID BY THE ASSES SEE TO MR. DARIUS RAFFAT OF 52,52,284/- AND 7,65,147/- TO MS. NITI MERCHANT, THE ASSESSING OFFICER HAS CARRIED OUT VER IFICATION AND RECORDED THE STATEMENT OF GITA B PAREKH, THE AUTHOR IZED REPRESENTATIVE OF THE AFORESAID PERSONS. THE ASSES SING OFFICER OBSERVED FROM THE FACTS WHICH EMERGED FROM THE STAT EMENT INDICATED THAT THE ASSESSEE AND THE TWO PERSONS MR. DARIUS RAFFAT AND NITI MERCHANT WERE CHILDHOOD FRIENDS AND THEY HAD ASSISTED THE ASSESSEE IN FINALIZING THE LAND DEAL A T DEVACHI URALI. HOWEVER, HE OBSERVED THAT THEY WERE NOT INSTRUMENTA L IN INTRODUCING THE BUYER M/S NEPTUNE DEVELOPERS PVT. L TD. BOTH THE PERSONS WHO WERE IN RECEIPT OF COMMISSION DID N OT HAVE ANY DOCUMENTS OR EVIDENCE TO ESTABLISH THAT SERVICES WE RE RENDERED BY THEM TO THE ASSESSEE FIRM. AS STATED ABOVE, THE ASSESSING OFFICER HAS REJECTED THE EXPLANATION OF ASSESSEE AN D HELD THAT THE CLAIM OF PAYMENT OF COMMISSION WAS NOT GENUINE. AC CORDINGLY, THE SAME WAS DISALLOWED. 4.1 THE STAND OF THE ASSESSEE HAS BEEN THAT THE DIS ALLOWANCE MADE BY THE ASSESSING OFFICER WAS NOT JUSTIFIED AS THE LAND OWNED AT DEVACHI URULI, PUNE WAS TO BE SOLD. AS TH E DEAL BEING HUGE, TRANSACTION WITH A RELIABLE PARTY WAS NEEDED. THE ASSESSEE WAS AWARE OF THE FACT THAT MR. RAFFAT AND MS. MERCH ANT WERE ENGAGED IN THE BUSINESS OF ARCHITECTURE AND INTERIO R DESIGNERS FOR SEVERAL YEARS. THEY HAD GOOD RAPPORT WITH THE PEOP LE FROM LAND DEVELOPMENT FRATERNITY AND IN A POSITION TO HELP FI ND A RELIABLE BUYER FOR THE SAID LAND. ACCORDINGLY, RAFFAT WAS C ONSULTED FOR FINDING PROSPECTIVE BUYER. IN THIS SEQUENCE, THE N EPTUNE 5 ITA NO.2386/PN/12 COOPER & ASSOCIATES DEVELOPERS WAS FOUND POTENTIAL PURCHASER OF LAND. THE NEGOTIATIONS WERE HELD AND MR. RAFFAT ATTENDED THE MEETINGS BETWEEN THE ASSESSEE AND NEPTUNE DEVELOPERS AND ALS O JOINED THE DISCUSSIONS AND ULTIMATELY THE SAME WAS SOLD TO NEPTUNE DEVELOPERS. THUS, IT WAS STATED THAT THE NEPTUNE D EVELOPERS WAS INTRODUCED TO THE ASSESSEE BY MR. DARIUS RAFFAT, TH E ASSESSEE PAID COMMISSION OF ABOUT 1.5%. THE OTHER PERSON MS . NITHI MERCHANT WAS INVOLVED IN THE DEAL AS AN ASSISTANT O F SHRI RAFFAT AND SHE WAS ALSO PAID THE COMMISSION. THE PAYMENT IN QUESTION WAS SOLELY FOR THE PURPOSE OF BUSINESS AND OUT OF C OMMERCIAL EXPEDIENCY. THE SAME WAS CONFIRMED IN THEIR STATEME NT RECORDED U/S.131 OF THE I.T. ACT. THE PAYMENT OF COMMISSION HAD BEEN MADE BY WAY OF BANK CHEQUES AND TDS THEREON HAD ALS O BEEN DEDUCTED. IN THE STATEMENT RECORDED OF BOTH THE PE RSONS, THEY HAVE ACCEPTED THEIR INVOLVEMENT IN THE TRANSACTION AND ALSO CONFIRMED THE FACT THAT COMMISSION WAS PAID TO THEM ON THE BASIS OF ORAL UNDERSTANDING. THE MERE ABSENCE OF A WRITTEN AGREEMENT WAS NOT TO BE THE REASON FOR DISALLOWING THE EXPENDITURE WHILE IN FACT SERVICES WERE RENDERED BY THE RECIPIENTS. MOREOVER, THE ROLE OF ABOVE SAID PERSO NS HAS NOT BEEN DISPUTED BY THE ASSESSING OFFICER IN ANY MANNER. 4.2 IT IS CLEAR THAT THE ASSESSEE HAD SOLD A LAND L OCATED AT DEVACHI URALI TO NEPTUNE DEVELOPERS P. LTD. DURING THE F.YS. 2007-08 AND 2008-09 FOR A TOTAL SUM OF 49,26,88,249/-, FOR WHICH COMMISSION IN QUESTION @ 1.5% WAS PAID TO MR. DARIUS RAFFAT AND MS. NITHI MERCHANT. THE ASSESSING OFFIC ER HAS DISPUTED THE GENUINENESS OF EXPENDITURE IN SPITE OF THE STATEMENT OF RECIPIENTS RECORDED U/S.131 OF THE ACT TO THAT E FFECT. THE PAYMENT OF COMMISSION HAS BEEN MADE BY WAY OF CHEQU E AND TDS ON THE SAME HAS BEEN DEDUCTED. THE ABSENCE OF WRITTEN AGREEMENT CANNOT BE BASIS FOR DISALLOWANCE OF THE C OMMISSION IN QUESTION WHILE THE ASSESSING OFFICER HAS NOT BROUGH T ANYTHING ON 6 ITA NO.2386/PN/12 COOPER & ASSOCIATES THE RECORD TO SUGGEST THAT THERE IS DEVICE TO AVOID THE TAX OR OTHERWISE. THE PROSPECTIVE PURCHASER WAS INTRODUCE D THROUGH THE ABOVE TWO PERSONS, THEY HAVE ALSO ATTENDED MEET INGS OF NEGOTIATIONS AS DISCUSSED ABOVE FOR FINALIZING THE DEAL IN QUESTION. ACCORDINGLY, THE COMMISSION HAS BEEN PAI D TO THEM. THEY ARE NOT RELATED PARTIES TO THE ASSESSEE. THER E IS NOTHING ON RECORD TO SUGGEST THAT THE PAYMENT OF COMMISSION HA S BEEN MADE TO AVOID TAX IN ANY MANNER. IT IS NOT THE CASE OF ASSESSING OFFICER THAT THE SAID COMMISSION AMOUNT HAS COME BACK TO TH E ASSESSEE IN ANY MANNER. THERE IS NO ALLEGATION OF REVENUE T HAT THE PAYMENT IN QUESTION HAS BEEN MADE AGAINST THE PUBLI C POLICY SO AS TO ATTRACT PROVISIONS OF EXPLANATION TO SECTION 37(1) OF THE ACT. MR. RAFFAT AND MS. MERCHANT WERE PARTNERS OF A FIRM DESIGN MULTIPLES WHICH WAS ENGAGED IN THE BUSINESS OF ARCH ITECTURE AND INTERIOR DESIGNING FOR SEVERAL YEARS AND BEING IN S UCH BUSINESS. IT WAS NATURAL FOR THEM TO HAVE GOOD RAPPORT WITH T HE PERSONS OF LAND DEVELOPMENT FRATERNITY. THEY HAVE PLAYED A DE FINITE ROLE FOR LAND DEAL IN QUESTION WHICH IS EVIDENT FROM THE PAR TICIPATION IN DIFFERENT MEETINGS AS DISCUSSED ABOVE FOR THE ABOVE LAND DEALING AND DEED WAS FINALIZED. IN VIEW OF ABOVE, THE CIT( A) WAS JUSTIFIED IN DELETING THE DISALLOWANCE IN QUESTION BECAUSE TH E DEAL OF THE LAND HAS TAKEN PLACE. THE ABOVE TWO PERSONS HAVE B EEN PAID COMMISSION FOR THEIR DEFINITE ROLE IN FINALIZING TH E DEAL. THERE IS NO DEVISE TO AVOID TAX BY MAKING THIS PAYMENT. THE RECIPIENTS OF COMMISSION HAVE ALSO ACCOUNTED FOR THE SAID COMMISS ION AMOUNT IN THEIR RETURNS WHICH IS EVIDENT FROM THE TDS. SI NCE THE DEAL HAS MATERIALIZED, IT COULD NOT BE SAID THAT IT WAS NOT FOR COMMERCIAL EXPEDIENCY / BUSINESS OF THE ASSESSEE. ACCORDINGLY, WE UPHOLD THE ORDER OF CIT(A). 5. IN THE RESULT, APPEAL FILED BY THE REVENUE IS DI SMISSED. 7 ITA NO.2386/PN/12 COOPER & ASSOCIATES PRONOUNCED IN THE OPEN COURT ON THIS THE DAY 20 TH OF JUNE, 2014. SD/- SD/- (R.K. PANDA) (SHAILENDRA KUMAR YADAV ) ACCOUNTANT MEMBER JUDICIAL MEMBER PUNE, DATED: 20 TH JUNE, 2014 GCVSR COPY TO:- 1) DEPARTMENT 2) ASSESSEE 3) THE CIT(A)-II, PUNE 4) THE CIT-II, PUNE 5) THE DR, B BENCH, I.T.A.T., PUNE. 6) GUARD FILE BY ORDER //TRUE COPY// SENIOR PRIVATE SECRETARY, I.T.A.T., PUNE