H.M. Prasanna Kumar, Bangalore V. ACIT, Bangalore

ITA 283/BANG/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 60718 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 1 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-04-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 16-04-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 17-03-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business expenditure; Earning of tax free income; Onus to prove
• Section: 143(3); 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH B BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI JASON P. BOAZ, ACCOUNTANT MEMBER I.T.A. NO.282/BANG/2011 (ASSESSMENT YEAR : 2007-08) DY. COMMISSIONER OF INCOME TAX, CIRCLE 2(1), BANGALORE. . APPELLANT. VS. SHRI H. M. PRASANNA KUMAR, NO.241/242, ARALEGUDI COMPLEX, COTTONPET, BANGALORE. .. RESP ONDENT. PAN AKLPP 4540P ITA NO.283/BANG/2011 (ASSESSMENT YEAR : 2007-08) (BY ASSESSEE) REVENUE BY : SMT. SUSAN THOMAS JOSE. ASSESSEE BY : SHRI C. RAMESH. DATE OF HEARING : 16.04.2012. DATE OF PRONOUNCEMENT : 20.04.2012. O R D E R PER SHRI JASON P. BOAZ, A.M . : BOTH THESE APPEALS, ONE EACH BY REVENUE AND THE AS SESSEE, ARE DIRECTED AGAINST THE ORDER OF THE LEARNED COMMISSIONER OF IN COME TAX (APPEALS)-I, BANGALORE DATED 23.12.2010 FOR THE ASST. YEAR 2007- 08. SINCE COMMON ISSUES ARE INVOLVED IN BOTH THE APPEALS, THEY ARE BEING HEARD T OGETHER AND DISPOSED OFF BY THIS COMMON ORDER. 2 ITA NOS.282 & 283/BANG/11 2.1 THE ASSESSEE, PROPRIETOR OF M/S. ARYAN BUILDERS, IS IN THE BUSINESS OF CONSTRUCTION AND SALE OF RESIDENTIAL FLATS. THE AS SESSEE FILED RETURN OF INCOME FOR THE A.Y. 2007-08 ON 31.12.2007 DECLARING INCOME OF RS.10,70,890 AND AGRICULTURAL INCOME OF RS.15,77,364. THE RETURN OF INCOME WAS P ROCESSED UNDER SECTION 143(1) OF THE INCOME TAX ACT, 1961 (HEREIN AFTER REFERRED AS THE ACT) AND THE CASE WAS TAKEN UP FOR SCRUTINY BY ISSUE OF NOTICE U/ 143(2) OF THE ACT ON 26.9.2008. THE ASSESSMENT WAS COMPLETED UNDER SECTION 143(3) OF TH E ACT DETERMINING THE ASSESSEES INCOME AT RS.41,35,068 AND AGRICULTURAL INCOME AT RS.6,30,946 ON 18.12.2009. IN DOING SO THE ASSESSING OFFICER MADE THE FOLLOWING ADDITIONS TO THE RETURNED INCOME - I) DISALLOWANCE OF EXPENDITURE ON COMMISSION RS.1 4,74,791. II) TREATING 60% OF AGRICULTURAL INCOME DECLARED AS NON-AGRICULTURAL INCOME AND ASSESSABLE UNDER THE HEAD OTHER SOURCES RS.9,46,418. 2.2 AGGRIEVED, THE ASSESSEE WENT IN APPEAL BEFORE T HE CIT(A). THE CIT(A) ALLOWED PARTIAL RELIEF WHICH IS AS UNDER : I) OUT OF RS.14,74,791, DISALLOWED BY THE ASSESSING OFFICER ON ACCOUNT OF EXPENDITURE ON COMMISSION, THE LEARNED CIT(A) HAS A LLOWED THE ASSESSEE RELIEF OF RS.8,52,580 THEREBY CONFIRMING THE BALANCE OF DISALL OWANCE OF RS.6,22,211 AND II) THE LEARNED CIT(A) HAS RESTRICTED THE TREATMENT OF AGRICULTURAL INCOME AS NON- AGRICULTURAL TO THE EXTENT OF RS.2,88,868 THEREBY GR ANTING THE ASSESSEE RELIEF TO THE EXTENT OF RS.6,57,550. 3.0 AGGRIEVED WITH THE ORDER OF THE CIT(A), BOTH TH E ASSESSEE AND REVENUE ARE IN APPEAL BEFORE US. 3.1 THE GROUNDS OF APPEAL PREFERRED BY THE REVENUE A RE AS UNDER : 1. THE ORDER OF THE LEARNED CIT(A), IN SO FAR AS IT IS PREJUDICIAL TO THE INTEREST OF REVENUE, IS OPPOSED TO LAW AND THE FACT S AND CIRCUMSTANCES OF THE CASE. 2. THE LEARNED CIT(A) WAS NOT JUSTIFIED IN ALLOWIN G RELIEF OF RS.8,52,580.00 FROM THE ADDITION MADE ON ACCOUNT OF DISALLOWANCE OF 3 ITA NOS.282 & 283/BANG/11 CLAIM OF COMMISSION PAID, WITHOUT APPRECIATING THE FACTS AND CIRCUMSTANCES UNDER WHICH THE ADDITION WAS MADE BY T HE ASSESSING OFFICER. 3. THE LEARNED CIT(A) HAS ERRED IN ALLOWING RELIEF WITHOUT APPRECIATING THE FACT THAT THERE WAS NO CONSISTENCY ON THE PART O F THE ASSESSEE IN FURNISHING THE DETAILS OF COMMISSION PAID AND THAT THE ASSESSEE HAS NOT BEEN ABLE TO SUBSTANTIATE THE REASONS FOR THE VARIA TION OF PAYMENT OF COMMISSION AT 5% AS PER ORIGINAL LIST AND SUCH PAYME NT VARYING FROM 3% TO 17% AS PER REVISED LIST SUBMITTED LATER DURING T HE COURSE OF ASSESSMENT PROCEEDINGS. 4. THE LEARNED CIT(A) HAS ERRED IN ALLOWING RELIEF FOR THE REASON THAT THE PAYMENTS WERE MADE BY WAY OF CHEQUE AND TAX HAS BE EN DEDUCTED ON SUCH PAYMENT, WITHOUT TAKING INTO CONSIDERATION THAT THE ASSESSEE HAS NOT PROVED THE SAME AS ON ALLOWABLE EXPENDITURE UND ER SECTION 37 OF THE INCOME TAX ACT, 1961. 5. THE LEARNED CIT(A) WAS NOT JUSTIFIED IN ALLOWI NG RELIEF OF RS.6,57,550.00 FROM THE ADDITION MADE AS INCOME FRO M OTHER SOURCES ON ACCOUNT OF DISALLOWANCE OF CLAIM OF AGRICULTURAL IN COME, WITHOUT APPRECIATING THE FACTS AND CIRCUMSTANCES UNDER WHIC H THE ADDITION WAS MADE BY THE ASSESSING OFFICER. 6. THE LEARNED CIT(A) HAS ERRED IN ALLOWING THE RE LIEF WITHOUT CONSIDERING THAT THE ASSESSEE HAS PRODUCED ONLY SELF PREPARED BILLS AND HAS NOT PRODUCED ANY VOUCHERS FOR EXPENSES AND WITHO UT CONSIDERING THE OTHER DETAILS LIKE EXTENT OF LAND HOLDING, NET AGRI CULTURAL INCOME DECLARED IN THE PRECEDING YEAR ETC. 7. FOR THESE AND SUCH OTHER GROUNDS THAT MAY BE URG ED AT THE TIME OF HEARING, IT IS HUMBLY PRAYED THAT THE ORDER OF THE CI T(A) BE REVERSED IN SO FAR AS THE ABOVE MENTIONED ISSUES ARE CONCERNED AND THAT OF THE ASSESSING OFFICER BE RESTORED. 8. THE APPELLANT CRAVES LEAVE TO ADD, TO ALTER, TO AMEND OR TO DELETE ANY OF THE GROUNDS THAT MAY BE URGED AT THE TIME OF HEAR ING OF THE APPEAL. 3.2 THE GROUNDS OF APPEAL AT S.NOS.1 AND 8 ARE GENERAL IN NATURE AND NO ADJUDICATION IS CALLED FOR THEREON. THE TWO ISSUES FOR ADJUDICATION ARE I) GROUNDS OF APPEAL AT S.NOS.2 TO 4 CHALLENGING THE ACTION OF THE LEARNED CIT(A) IN GRANTING RELIEF TO THE ASSESSEE OUT OF COMMISSIO N EXPENDITURE DISALLOWED. 4 ITA NOS.282 & 283/BANG/11 II) GROUNDS OF APPEAL AT S.NOS.5 TO 7 CHALLENGING THE RELIEF GRANTED TO THE ASSESSEE OUT OF AGRICULTURAL INCOME TREATED AS NON-AGRICULTU RAL AND TAXED UNDER THE HEAD INCOME FROM OTHER SOURCES. 3.3 THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE ARE AS UNDER : 1. THE ORDER OF THE LEARNED CIT(A) IS OPPOSED TO THE FACTS OF THE CASE AND LAW APPLICABLE TO IT. 2. THE LEARNED CIT(A) ERRED IN CONFIRMING DISALLOW ANCE OF COMMISSION TO THE EXTENT OF RS.6,22,211.. 3. THE LEARNED CIT(A) FOR HAVING HELD IN PARA 6 OF HIS ORDER THAT THE PAYMENT OF COMMISSION IS GENUINE AND THE EXPENDITURE WAS INCURRED DURING THE COURSE OF BUSINESS UNDER LAW COULD NOT H AVE RESTRICTED THE SAME TO 5% OF THE TOTAL CONSIDERATION RECEIVED. 4. THE LEARNED CIT(A) FOR HAVING HELD IN PARA 6 OF HIS ORDER THAT THE PAYMENT OF COMMISSION IS GENUINE AND THE EXPENDITURE WAS INCURRED DURING THE COURSE OF BUSINESS, UNDER LAW COULD NOT HAVE RESTRICTED THE COMMISSION PAID TO RS.8,52,580 AGAINST PAYMENT OF R S.14,74,791. 5. THE LEARNED CIT(A) FAILED TO APPRECIATE THE FAC T THAT THE COMMISSION WAS NOT PAID TO SPECIFIED PERSONS AS CONTEMPLATED I N SECTION 40A(2)(B) OF THE ACT AND THEREFORE FOR HAVING HELD THAT THE P AYMENT IS GENUINE COULD NOT HAVE RESTRICTED THE ALLOWANCE. 6. THE LEARNED CIT(A) HAVING HELD THAT THE ASSESSI NG OFFICER HAS NOT DISCHARGED THE BURDEN THRUST UPON HIM, COULD NOT HA VE HELD THAT THE DISALLOWANCE OF A PORTION OF THE COMMISSION IS SUST AINABLE. 7. THE APPELLANT CRAVES PERMISSION TO ADD, DELETE OR ALTER ANY OF THE GROUNDS AT THE TIME OF HEARING. FROM A PERUSAL OF THE GROUNDS OF APPEAL RAISED, THE ONLY ISSUE FOR ADJUDICATION IS DISALLOWANCE OF EXPENDITURE ON COMMISSION CONFIRMED BY THE LEARNED CIT(A) TO THE EXTENT OF RS.6,22,211. 4. AGRICULTURAL INCOME 4.1 IN THE RELEVANT PERIOD, THE ASSESSEE DECLARED A N AMOUNT OF RS.15,77,364 AS AGRICULTURAL INCOME IN HIS RETURN OF INCOME. THE A SSESSING OFFICER WHILE EXAMINING THE ISSUE CALLED UPON THE ASSESSEE TO FURNISH DETAI LS OF PROOF OF LAND HOLDING; 5 ITA NOS.282 & 283/BANG/11 WHETHER THE LAND WAS IRRIGATED OR NOT; PROOF/EVIDEN CE OF AGRICULTURAL EXPENSES BEING INCURRED ON WATER CHARGES; ELECTRICITY BILLS, FERTILIZERS, PESTICIDES, SALE CONFIRMATION FROM PARTIES WHO HAVE PURCHASED AGRICU LTURAL PRODUCE VIZ. FLOWERS FROM HIM; YIELD PER ACRE/PER PLANT, IF SOLD IN THE M ARKET THE METHODOLOGY USED AND THE PROOF OF SOURCE, ETC. THE ASSESSING OFFICER EX AMINED THE REPLY FURNISHED ON 23.10.2009 AND RECORDS THAT THE ONLY PROOF FURNISHED BY THE ASSESSEE WAS THAT HE OWNED 1.27 ACRES OF LAND NEAR NELAMANGALA AS PER CO PY OF RTC AND THAT NO OTHER DETAILS WERE MAINTAINED. ON BEING ASKED BY THE ASSE SSING OFFICER TO FURTHER CLARIFY AS TO HOW THE AGRICULTURAL INCOME DECLARED H AD INCREASED EXPONENTIALLY TO RS.15,77,364 WHEN THE PRICES OF THE FLOWERS HE SOLD VIZ. GARBERA AND CARNATION , WERE THE SAME OVER FINANCIAL YEAR 2005-06 AND 2006- 07, THE ASSESSEES REPLY ON 7.12.2009 STATES THAT THE NET AGRICULTURAL INCOME H AD INCREASED DUE TO SAVINGS ON EXPENDITURE AS THERE WAS NO REPLACEMENT OF PLANTS T O BE DONE AND CONSEQUENT LABOUR CHARGES WERE ALSO NOT INCURRED. THE ASSESSI NG OFFICER NOTED THAT THE ASSESSEE WAS NOT ABLE TO FURNISH PROOF OF ANY EXPEND ITURE ON WATER CHARGES, ELECTRICITY BILLS, FERTILIZER MANURE PURCHASES, ETC NOR WAS HE ABLE TO GET SALE CONFIRMATION FROM PURCHASERS OF HIS AGRICULTURE PRO DUCE. THE ASSESSING OFFICER WAS OF THE OPINION THAT THE ASSESSEE SHOULD HAVE FU RNISHED ADEQUATE MATERIAL EVIDENCE TO ARRIVE AT A PROPER CONCLUSION OF HIS AG RICULTURAL INCOME WHICH BURDEN HE FAILED TO DISCHARGE. IN THIS VIEW OF THE MATTER, T HE ASSESSING OFFICER PROCEEDED TO TREAT 60% OF AGRICULTURAL INCOME DECLARED AS IN COME FROM OTHER SOURCES AND TAXED IT AS SUCH AND ONLY 40% OF THE AGRICULTURAL IN COME DECLARED VIZ. RS.6,30,946 WAS TREATED AS AGRICULTURAL INCOME FOR THE FOLLOWIN G REASONS GIVEN IN PAGE 7 OF HIS ORDER : 1. LACK OF SALE CONFIRMATIONS OR ANY OTHER MATERIA L TO PROVE THAT SALES HAVE TAKEN PLACE. 2. SALE BILLS RAISED BY ASSESSEE HIMSELF. 3. ASSESSEE HAS NOT PROVIDED EVIDENCES ABOUT INPUT TO AGRICULTURE LIKE MANURE, PESTICIDE, ELECTRICITY AND OTHER AGRICULTURA L EQUIPMENT BILLS. 4. EVEN AFTER VARIOUS OPPORTUNITIES GIVEN, ASSESSEE HAS NOT SUBSTANTIATED HOW IN BACKGROUND OF SAME AGRICULTURAL RECEIPTS, HE COULD HAVE HIGHER INCOME IN ASSESSMENT YEAR 2007-08 COMPARED TO ASSES SMENT YEAR 2006-07. 6 ITA NOS.282 & 283/BANG/11 5. ASSESSEE HAS NOT PROVIDED RELATIVE COMPARISON AN D ANALYSIS OF EXPENDITURE AS REQUISITIONED. 6. IN CASE OF EXEMPT INCOME BURDEN OF PROOF IS ON T HE ASSESSEE. 4.2 THE ASSESSEE CARRIED THIS ISSUE IN APPEAL BEFOR E THE CIT(A). THE LEARNED CIT(A) EXAMINED THE SUBMISSIONS OF THE ASSESSEE AND THE FINDINGS OF THE ASSESSING OFFICER ON THE ISSUE OF AGRICULTURAL INCO ME. HE NOTED THAT THERE WAS NO DISPUTE BY THE INCOME TAX DEPARTMENT OF THE FACT THA T THE ASSESSEE OWNS AGRICULTURAL LAND, BY CULTIVATION GROWS FLOWERS THER EON AND EARNS AGRICULTURAL INCOME FROM THE SALE OF SUCH FLOWERS. THE ONLY DISP UTE IS WITH REGARD TO THE QUANTIFICATION THEREOF. THE LEARNED CIT(A) NOTED T HAT FOR THE IMMEDIATELY PRECEDING A.Y. I.E. 2006-07, THE NET AGRICULTURAL INCOME AS DECLARED BY THE ASSESSEE WAS RS.11,87,582 WHICH WAS 52.27% OF GROSS AGRICULTURAL RECEIPTS OF RS.22,72,113 AND WAS ACCEPTED AT RS.10,72,467 IN TH E ORDER OF ASSESSMENT UNDER SECTION 143(3) OF THE ACT. HE WAS OF THE OPINION T HAT THE ASSESSING OFFICER WAS UNREASONABLE IN REDUCING THE SAME TO RS.9,42,418 IN THE ASSESSMENT YEAR UNDER CONSIDERATION, WHEN THE PRICES OF ALL ITEMS INCLUDI NG FLOWERS WAS RISING. IN THESE CIRCUMSTANCES, THE LEARNED CIT(A) WENT ON TO HOLD T HAT THE ASSESSEES NET AGRICULTURAL INCOME BE TAKEN AT RS.12,88,496 @ 52.2 7% OF THE GROSS AGRICULTURAL RECEIPTS OF RS.24,65,186 AT THE SAME PERCENTAGE THA T HAD BEEN DECLARED IN THE PRECEDING ASSESSMENT YEAR AND IN THESE CIRCUMSTANCE S CONFIRMED THE ASSESSING OFFICERS DISALLOWANCE TO THE EXTENT OF RS.2,88,868 GRANTING THE ASSESSEE, RELIEF OF RS.6,57,550. 4.3 THE ISSUE OF AGRICULTURAL INCOME IS, NOW BEFORE US AND IS CONTESTED BY REVENUE IN THE GROUNDS OF APPEAL AT S.NOS.5 TO 7. THE LEARNED DEPARTMENTAL REPRESENTATIVE ARGUED VEHEMENTLY THAT THE LEARNED CI T(A) WAS NOT JUSTIFIED IN ALLOWING THE ASSESSEES RELIEF OF RS.6,57,550 FROM OUT OF THE DISALLOWANCE OF AGRICULTURAL INCOME WITHOUT CONSIDERING THAT THE AS SESSEE HAS PRODUCED ONLY SELF- PREPARED BILLS; HAD NOT PRODUCED ANY VOUCHERS FOR EX PENSES AND WITHOUT CONSIDERING OTHER DETAILS LIKE THE EXTENT OF LAND H OLDING, NET AGRICULTURAL INCOME DECLARED IN THE PRECEDING YEAR ETC. IT WAS PRAYED B Y THE LEARNED DEPARTMENTAL REPRESENTATIVE THAT THE LEARNED CIT(A)S ORDER ON T HIS POINT BE REVERSED AND THE FINDING OF THE ASSESSING OFFICER BE RESTORED. 4.4 THE LEARNED AUTHORISED REPRESENTATIVE HAS SUBMI TTED WRITTEN SUBMISSION DT.9.4.2012 AND SUPPORTED THE FINDINGS OF THE LEAR NED CIT(A) ON THE ISSUE OF 7 ITA NOS.282 & 283/BANG/11 AGRICULTURAL INCOME AS LAID DOWN IN PARAS 8 AND 9 O F HIS ORDER DT.23.12.2010 AND THE FINDING BE CONFIRMED AS SUCH. THIS WAS REITERATED BY HIM IN HIS ORAL SUBMISSIONS ALSO. 4.5 WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIO NS OF BOTH PARTIES AND PERUSED THE MATERIAL ON RECORD. ADMITTEDLY THE ASSE SSEE OWNED 1.27 ACRES OF AGRICULTURAL LAND ON WHICH BY CULTIVATION PRODUCED D ECORATIVE FLOWERS LIKE GARBERA AND CARNATION AND RECEIVED AGRICULTURAL INCOME FROM THE SALE OF THESE FLOWERS. THIS FACT IS NOT DISPUTED. IT IS ALSO A MATTER OF RECORD THAT IN THE IMMEDIATELY PRECEDING YEAR I.E. ASSESSMENT YEAR 2006-07, THE AS SESSEE DECLARED NET AGRICULTURAL INCOME OF RS.11,87,582 OUT OF GROSS AG RICULTURAL RECEIPTS OF RS.22,72,113 WHICH IS ABOUT 52.27% THEREOF. THE LE ARNED CIT(A) IN HIS ORDER NOTED THAT THIS AGRICULTURAL INCOME WAS EXAMINED IN SCRUTINY PROCEEDINGS AND WAS ACCEPTED AT RS.10,72,467 IN THE ORDER OF ASSESSMENT PASSED UNDER SECTION 143(3) DT.31.12.2008. IN THE RELEVANT PERIOD I.E. ASSESSM ENT YEAR 2007-08 THE NET AGRICULTURAL INCOME WAS DECLARED AT RS.15,77,364 OU T OF GROSS AGRICULTURAL RECEIPTS OF RS.24,65,186 WHICH IS AT A MARGINALLY HIGHER RATE OF RS.63.98%. THIS WAS SOUGHT TO BE EXPLAINED BY THE ASSESSEE AS BEING ON ACCOUN T OF SAVINGS ON EXPENDITURE DUE TO NON-REQUIREMENT OF REPLACEMENT OF PLANTS / TREES FOR TWO TO THREE YEARS AND CONSEQUENT LABOUR CHARGES THEREON AND WAS NOT ACCEP TED BOTH BY THE ASSESSING OFFICER AND THE LEARNED CIT(A). THE LD. ASSESSING OFFICER PROCEEDED TO DETERMINE THE AGRICULTURAL INCOME AT RS.6,30,946 WH ICH WORKS OUT TO 25.59% OF GROSS AGRICULTURAL RECEIPTS OF RS.24,65,186 WHICH, IN OUR CONSIDERED VIEW, IS RATHER HARSH AND UNWARRANTED CONSIDERING THE FACT THAT THE LEARNED CIT(A) RESTRICTED THE AGRICULTURAL INCOME FROM RS.15,77,364 TO RS.12 ,88,496 WHICH IS 52.27% OF THE GROSS AGRICULTURAL RECEIPTS OF RS.24,65,186. IT IS ALSO A MATTER OF RECORD THAT THE ASSESSING OFFICER IN THE EARLIER YEAR (ASSESSMENT YE AR 2006-07) AFTER SCRUTINY DETERMINED THE AGRICULTURAL INCOME AT RS.10,72,467 OUT OF GROSS AGRICULTURAL RECEIPTS OF RS.22,72,113. AFTER CAREFUL CONSIDERAT ION OF THE FACTS AND CIRCUMSTANCES OF THE CASE AND THE PAST RECORD OF AG RICULTURAL INCOME DECLARED BY THE ASSESSEE AND ACCEPTED/DETERMINED BY THE DEPARTME NT, WE ARE OF THE CONSIDERED VIEW THAT THE LEARNED CIT(A)S DETERMINA TION OF ASSESSEES AGRICULTURAL INCOME AT RS.12,88,496 IS MORE THAN FAIR AND WOULD SERVE THE INTEREST OF JUSTICE AND THEREFORE HOLD THAT NO INTERFERENCE IS WARRANTE D THEREIN. THESE GROUNDS OF THE REVENUE ARE DISMISSED. 8 ITA NOS.282 & 283/BANG/11 5.0 DISALLOWANCE OF EXPENDITURE ON COMMISSION 5.1 IN THE COURSE OF SCRUTINY, THE ASSESSING OFFICER AS PER DETAILS FILED BY THE ASSESSEE NOTICED THAT THE ASSESSEE HAD DEBITED AN A MOUNT OF RS.14,74,791 AS EXPENDITURE INCURRED ON PAYMENTS OF COMMISSION FOR S ALE OF FLATS @ 5% OF TOTAL SALE CONSIDERATION OF RS.2,43,58,000 TO 3-4 PERSONS THOUGH THE RECEIPT FROM SALE OF FLATS DURING THE RELEVANT PERIOD WAS RS.1,95,80, 501. ON FURTHER EXAMINATION, THE ASSESSING OFFICER NOTICED THAT COMMISSION PAID IN THE RELEVANT PERIOD ALSO PERTAINED TO FLATS SOLD IN THE PREVIOUS FINANCIAL YE AR 2005-06 AND THE ASSESSEES EXPLANATION WAS SOUGHT THEREON. THE ASSESSEE REWOR KED THE COMMISSION EXPENDITURE STATEMENT GIVING A FRESH LIST (REPRODU CED AT PAGE 10 OF THE ASSESSMENT ORDER) WHEREIN THROUGH THE TOTAL FIGURE OF COMMISSION PAID REMAINED AT RS.14,74,791, THE AMOUNTS WERE STATED TO BE PAID TO 9 PARTIES LISTED THEREIN AT RATES VARYING FROM 3% TO 17% OF SALE CONSIDERATION OF RS.1,70,51,552. BOTH THESE STATEMENTS, SIGNED BY THE ASSESSEE, ARE PLACED AT AN NEXURE A AND ANNEXURE B OF THE ASSESSMENT ORDER. THE ASSESSING OFFICER WAS O F THE VIEW THAT THE CLAIM TAKEN BY THE ASSESSEE WAS NOT CORRECT, THERE WAS NO CONSISTENCY IN FURNISHING OF DETAILS AND PERCENTAGE OF COMMISSION PAID, THE CLAI M WAS ONLY AN ADJUSTMENT AND AFTERTHOUGHT AND PROCEEDED TO HOLD THAT THE ASSESSE ES ENTIRE CLAIM WAS NOT ALLOWABLE AS A BUSINESS EXPENDITURE UNDER SECTION 37 OF THE ACT. 5.2 AGGRIEVED THE ASSESSEE CARRIED THE MATTER IN AP PEAL BEFORE THE LEARNED CIT(A). THE LEARNED CIT(A) AFTER EXAMINING THE ASS ESSEES SUBMISSIONS AND THE FINDING OF THE ASSESSING OFFICER WAS OF THE VIEW TH AT WHILE THE ASSESSING OFFICER HAD RIGHTLY POINTED OUT THAT THE HIGH VARIATION IN T HE RATES OF COMMISSION PAID WERE NOT SUBSTANTIATED, DISALLOWANCE OF THE ENTIRE COMMI SSION PAID AS NOT GENUINE, WAS NOT WARRANTED. HE NOTED THAT THOUGH THE ASSESSEE A DMITTEDLY FURNISHED WRONG INFORMATION OF COMMISSION PAID ON THE FIRST OCCASIO N, SUBSEQUENTLY THE ASSESSEE FURNISHED THE SECOND LIST OF SUCH PAYMENTS AS BEING CORRECT; NAMES OF PERSONS TO WHOM COMMISSION WAS PAID; CLAIMED THAT THESE PERSON S WERE IDENTIFIABLE; THAT THE PAYMENTS WERE MADE BY CHEQUE AND THAT TAX HAD BEEN DE DUCTED THEREON. ALL THESE BEING VERIFIABLE, THE LEARNED CIT(A) WAS OF THE VIE W THAT IT CANNOT BE CONCLUDED THAT THE ENTIRE PAYMENT OF COMMISSION WAS NOT GENUIN E. HE ALSO NOTED THAT THE PAYMENT OF COMMISSION IN CERTAIN CASES WAS EXCESSIVE AND THE REASONS FOR WIDE VARIATIONS IN THE RATES OF COMMISSION PAID HAVE NOT BEEN PROPERLY EXPLAINED. IN THIS VIEW OF THE MATTER, THE LEARNED CIT(A) RESTRIC TED THE CLAIM OF COMMISSION 9 ITA NOS.282 & 283/BANG/11 EXPENDITURE TO 5% OF THE TOTAL CONSIDERATION RECEIV ED (I.E. 1,70,51,920) WHICH AMOUNTED TO RS.8,52,580 AND SUSTAINED THE DISALLOWA NCE MADE BY THE ASSESSING OFFICER TO THE EXTENT OF RS.6,22,211. 5.3 BOTH REVENUE AND THE ASSESSEE ARE AGGRIEVED WI TH THE FINDING OF THE LEARNED CIT(A) AND ARE IN APPEAL BEFORE THE TRIBUNA L. THE GROUNDS RAISED BY REVENUE ARE AT S.NOS.2 TO 4 AND BY THE ASSESSEE AT S .NOS.2 TO 6. 5.4 THE LEARNED DEPARTMENTAL REPRESENTATIVE VEHEME NTLY ARGUED THAT THE LEARNED CIT(A) WAS NOT JUSTIFIED IN ALLOWING THE AS SESSEE RELIEF OUT OF THE DISALLOWANCE MADE BY THE ASSESSING OFFICER ON ACCOU NT OF COMMISSION EXPENDITURE WITHOUT TAKING INTO ACCOUNT THE FACTS OF THE CASE A ND THE CIRCUMSTANCES IN WHICH THE ASSESSING OFFICER MADE THE DISALLOWANCE. THE L EARNED DEPARTMENTAL REPRESENTATIVE FURTHER SUBMITTED THAT APART FROM TH ERE BEING NO CONSISTENCY ON THE PART OF THE ASSESSEE IN FURNISHING THE DETAILS OF COMMISSION PAID, THE ASSESSEE WAS UNABLE TO SUBSTANTIATE THE WIDE VARIATIONS IN P AYMENTS FROM 5% IN THE FIRST LIST AND 3% TO 17% IN THE REVISED LIST OF PAYEES FUR NISHED AND THAT THE SAME EXPENDITURE WAS ALLOWABLE UNDER SECTION 37 OF THE A CT. IT WAS PRAYED THAT THE FINDING OF THE LEARNED CIT(A) BE OVERTURNED AND THA T OF THE ASSESSING OFFICER RESTORED. 5.5 THE LEARNED AUTHORISED REPRESENTATIVE FILED WRI TTEN SUBMISSIONS DT.9.4.2012 AND WAS ALSO HEARD. IT WAS SUBMITTED B Y THE LEARNED AUTHORISED REPRESENTATIVE THAT INITIALLY IN THE COURSE OF ASSES SMENT, BY OVERSIGHT, DETAILS OF COMMISSION PAYMENTS OF THE EARLIER ASSESSMENT YEAR WE RE FURNISHED BUT ON NOTICING THE ERROR THE CORRECT DETAILS WERE GIVEN. HOWEVER, THE ASSESSING OFFICER DID NOT ACCEPT THE CLAIM AS GENUINE AND DISALLOWED THE ENTIRE EXPENDITURE CLAIMED ON COMMISSION PAYMENTS AMOUNTING TO RS.14,74,791. THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED THAT THE LEARNED CIT(A) W AS OF THE VIEW THAT THOUGH THE COMMISSION PAYMENTS WERE GENUINE, THEY WERE EXCE SSIVE IN CERTAIN CASES DUE TO WIDE VARIATION IN THE AMOUNTS PAID TO DIFFERENT PERSONS AND THEREFORE RESTRICTED THE COMMISSION PAYMENTS TO 5% OF THE TOTA L SALE CONSIDERATION AND SUSTAINED THE DISALLOWANCE TO RS.6,22,211. IT WAS FURTHER SUBMITTED BY THE LEARNED AUTHORISED REPRESENTATIVE THAT WHEN THE LEA RNED CIT(A) IN PARA 6 AND 6.1 OF HIS ORDER HAS NOTED THAT THE PERSON TO WHOM COMM ISSION PAYMENTS WERE MADE WERE IDENTIFIABLE; THE PAYMENTS WERE MADE BY CHEQUE; TAX HAS BEEN DEDUCTED AT SOURCE THEREON; THE PAYMENTS WERE GENUINE AND THE CL AIM OF EXPENDITURE CAN BE 10 ITA NOS.282 & 283/BANG/11 VERIFIED FROM THE BOOKS OF ACCOUNTS, HE OUGHT NOT T O HAVE RESTRICTED THE COMMISSION PAYMENTS TO 5% OF SALE CONSIDERATION, BU T SHOULD HAVE ALLOWED THE ENTIRE COMMISSION PAID AS AN ALLOWABLE BUSINESS EXP ENDITURE UNDER SECTION 37 OF THE ACT. THE LEARNED AUTHORISED REPRESENTATIVE FIN ALLY PRAYED THAT IN THE LIGHT OF THE ABOVE ARGUMENTS/SUBMISSIONS, THE DISALLOWANCE S USTAINED TO THE EXTENT OF RS.6,22,211 BE DELETED AND THE ASSESSEES CLAIM BE ALLOWED IN FULL. 5.6 WE HAVE HEARD THE RIVAL SUBMISSIONS AND CAREFUL LY PERUSED THE MATERIAL ON RECORD ON THIS ISSUE. IT IS NOT DISPUTED THAT THE DETAILS OF THE CLAIM OF COMMISSION PAID INITIALLY FURNISHED TO THE ASSESSING OFFICER W ERE ADMITTEDLY INCORRECT. IN RESPECT OF THE REVISED LIST FURNISHED TO THE ASSESS ING OFFICER, IT IS SEEN THAT HE WAS OF THE VIEW THAT THE CLAIM MADE BY THE ASSESSEE WAS INCORRECT, UNSUBSTANTIATED, WAS ONLY AN AFTERTHOUGHT/ADJUSTMENT AND THEREFORE NOT BEING GENUINE WAS NOT ALLOWABLE AS A BUSINESS EXPENDITURE UNDER SECTION 37 OF THE ACT. WE FIND THAT THE ASSESSING OFFICER HAS REACHED THIS CONCLUSION IN HASTE, WITHOUT CARRYING OUT ANY INVESTIGATION / EXAMINATION WHATSOEV ER OF THE PARTIES TO WHOM THE PAYMENTS WERE MADE; WHY THE RATES OF COMMISSION VARI ED; THE GENUINENESS OF THE PAYMENTS IN THE BANKING CHANNELS THROUGH WHICH THEY WERE PURPORTEDLY MADE ETC. THE ASSESSEE, WE FIND, HAS ALSO FAILED TO DISCHARGE ITS ONUS OF ESTABLISHING THE GENUINENESS OF THE EXPENDITURE CLAIMED AND ITS ALL OWABILITY UNDER SECTION 37 BEFORE THE ASSESSING OFFICER. THE LEARNED CIT(A), WHILE AGREEING WITH THE ASSESSING OFFICERS VIEW THAT THE VARIATION IN THE RATES AT WHICH THE CLAIM OF COMMISSION PAYMENTS WERE MADE WAS UNSUBSTANTIATED; E XCESSIVE AND NOT EXPLAINED IN SOME CASES, WAS OF THE VIEW THAT THE DISALLOWAN CE OF THE ENTIRE AMOUNT OF COMMISSION CLAIMED AS NOT GENUINE WAS NOT WARRANTE D. IN THE CIRCUMSTANCES OF THE CASE AS BORNE OUT FROM THE ORDER OF ASSESSMENT AND THE ORDER OF THE LEARNED CIT(A), WE ARE UNABLE TO COMPREHEND HOW THE LEARNED CIT(A)S CAME TO THE VIEW THAT THE COMMISSION PAYMENTS WERE GENUINE AS THEY WER E THROUGH BANKING CHANNELS; THAT THE PARTIES TO WHOM THE COMMISSION W AS PAID WAS IDENTIFIABLE ETC. AS NO PROPER REASONING IS GIVEN. FURTHER, NO REPORT W AS CALLED FOR ON THIS ISSUE FROM THE ASSESSING OFFICER AS SHOULD HAVE BEEN DONE NOR HAS THE CIT(A) RECORDED WHAT VERIFICATION ON THE ISSUE HAS BEEN CONDUCTED BY HIM TO REACH THE CONCLUSION HE DID. WE ALSO FAIL TO UNDERSTAND HOW THE LEARNED CIT(A) A PPLIED THE YARDSTICK OF 5% OF SALE CONSIDERATION TO QUANTIFY THE GENUINE COMMISSIO N PAYMENTS AND DISALLOW THE REST SINCE NO PROPER REASONING OR FINDING HAS BEEN FORTHCOMING IN HIS ORDER. IN VIEW OF THE FACTS AND CIRCUMSTANCES OF THE CASE, WE ARE OF THE CONSIDERED VIEW 11 ITA NOS.282 & 283/BANG/11 THAT THE INTEREST OF JUSTICE WOULD BE BEST SERVED I F THIS ISSUE OF THE EXAMINATION / VERIFICATION OF THE GENUINENESS OF THE COMMISSION P AYMENTS MADE TO VARIOUS PARTIES FOR SALE OF FLATS AMOUNTING TO RS.14,74,791 BE REMITTED BACK TO THE FILE OF THE ASSESSING OFFICER FOR DE NOVO CONSIDERATION AS TO WHETHER IT IS AN ALLOWABLE EXPENDITURE UNDER SECTION 37 OF THE ACT AND IT IS, THEREFORE, ACCORDINGLY ORDERED. 6. IN THE RESULT THE ASSESSEES APPEAL IS ALLOWED FOR STATISTICAL PURPOSES AND THE APPEAL OF REVENUE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 20 TH APRIL, 2012. SD/- SD/ - (P. MADHAVI DEVI) (JASON P BOAZ) JUDICIAL MEMBER ACCOUNTANT MEMBER BANGALORE, DATED: 20.04.2012. *REDDY GP COPY TO : 1. APPELLANT 2. RESPONDENT 3. C.I.T. 4. CIT(A) 5. DR, - B BENCH. 6. GUARD FILE. (TRUE COPY) BY ORDER ASSTT. REGISTRAR, ITAT, BANGALORE