DCIT, Bangalore V. M/s Duo Associates (Builders) Pvt. Ltd., Bangalore

ITA 422/BANG/2012

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 68304 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 4 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-08-2013
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 07-08-2013
• Assessment Year: 2008-2009
• Appeal Filed On: 26-03-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: BIJOY KUMAR PANDA
• Assessee Lawyers: DEVARAJ
• Keywords: Corroborative evidences

Judgement Text

ITA NO.422 OF 2012 DUO ASSOCIATES (BUILDERS)PVT LTD BANGALORE. PAGE 1 OF 8 IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE A BENCH, BANGALORE BEFORE SHRI GEORGE GEORGE K. JUDICIAL MEMBER AND SHRI JASON P. BOAZ, ACCOUNTANT MEMBER ITA NO.422/BANG/2012 (ASSESSMENT YEAR: 2008-09) DY. COMMISSIONER OF INCOME TAX, CIRCLE-11(1) BANGALORE VS. DUO ASSOCIATES (BUILDERS) PVT.LTD, NO.28 ULSOOR ROAD, BANGALORE 560 042 PAN: AABCD 6929 K (APPELLANT) (RESPONDENT) DEPARTMENT BY: SHRI BIJOY KUMAR PANDA, ADDL. CIT-DR ASSESSEE BY: SHRI DEVARAJ, CA DATE OF HEARING: 07/08/2013 DATE OF PRONOUNCEMENT: 23/08/2013 O R D E R PER GEORGE GEORGE K. J.M. THIS APPEAL OF THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE CIT (A)-I, BANGALORE DATED 13.1.2012. THE RELE VANT ASSESSMENT YEAR IS 2008-09. 2. THE REVENUE HAS, IN ITS MEMORANDUM OF APPEAL, RAISED EIGHT GROUNDS, IN WHICH, GROUND NOS.1, 7 AND 8 ARE GENERAL IN NATURE AND SINCE NO SPECIFIC ISSUES INVOLVED, THEY ARE NOT ADJ UDICATED. THE REMAINING GROUNDS RELATE TO THE FOLLOWING TWO MAIN ISSUES, NAMELY: ITA NO.422 OF 2012 DUO ASSOCIATES (BUILDERS)PVT LTD BANGALORE. PAGE 2 OF 8 (1) THAT THE CIT (A) HAS ERRED IN ALLOWING RELIEF OF RS .29 LAKHS PERTAINING TO THE CLAIM OF COMPENSATION PAID TO FIV E PERSONS; & (2) THAT THE CIT (A) HAS ALSO ERRED IN DELETING THE ADD ITION OF RS.4,53,13,300/- MADE BY INVOKING THE PROVISIONS OF S. 40(A)(IA) OF THE ACT. 3. BRIEFLY STATED, THE FACTS OF THE IS SUES ARE AS FOLLOWS: 3.1. THE ASSESSEE COMPANY IS IN THE BUSINE SS OF REAL ESTATE DEVELOPMENT. DURING THE COURSE OF ASSESSMENT PROCE EDINGS, THE AO NOTICED THAT THE ASSESSEE HAD CLAIMED A SUM OF RS.5 5.18 CRORES TOWARDS COMPROMISE AMOUNT. ON-GOING THROUGH THE DETAILS FURNISHED, THE AO HAD NOTICED THAT THERE WAS NO CONFIRMATION WITH REG ARD TO THE AMOUNTS, AGGREGATING TO RS.29 LAKHS AND, ACCORDINGLY, DISALL OWED THE CLAIM TO THAT EXTENT. THE AO HAD, FURTHER, NOTICED FROM THE CONF IRMATION LETTERS FURNISHED BY SEVEN PERSONS FOR THE PAYMENTS, AGGREG ATING TO THE TUNE OF RS.4,53,13,300/- RECITING TOWARDS COMPROMISE AM OUNT TO ESTABLISH NEGOTIATION WITH LAND OWNERS FOR SETTLEMENT OF THE PROPERTY AT ROOPENAGARHARA VILLAGE. IT WAS THE STAND OF THE AO THAT THE AMOUNTS PAID BY THE ASSESSEE WAS NOT TOWARDS COMPROMISE BUT TO ESTABLISH NEGOTIATIONS. THIS, ACCORDING TO THE AO, COMES UND ER THE TERM OF COMMISSION OR BROKERAGE ATTRACTING THE PROVISIONS OF S. 194H OF THE ACT. EXTENSIVELY QUOTING EXPLANATION (1) TO S. 194 H OF THE ACT, THE AO TOOK A STAND THAT IT IS CLEARLY APPLICABLE IN THE C ASE OF THE ASSESSEE SINCE THE ABOVE MENTIONED PERSONS HAVE OFFERED THEI R SERVICES IN RELATION TO THE TRANSACTIONS OF THE LAND PURCHASED BY THE ASSESSEE. AS THE ASSESSEE HAD FAILED TO DEDUCT THE TAX WHILE MAK ING SUCH PAYMENTS ITA NO.422 OF 2012 DUO ASSOCIATES (BUILDERS)PVT LTD BANGALORE. PAGE 3 OF 8 TO THEM, A SUM OF RS.4.53 CRORES CLAIMED BY THE ASS ESSEE AS DEDUCTION WAS DISALLOWED U/S 40(A)(IA) OF THE ACT. 3.2. AGGRIEVED, THE ASSESSEE TOOK UP THE IS SUES WITH THE CIT (A). AFTER TAKING INTO ACCOUNT THE CONTENTIONS PUT-FORTH , DURING THE COURSE OF APPELLATE PROCEEDINGS, BY THE ASSESSEE, THE CIT (A) ALLOWED THE APPEAL IN FAVOUR OF THE ASSESSEE FOR THE FOLLOWING REASONS: DISALLOWANCE OF RS.29 LALKHS: 7..DURING THE COURSE OF ASSESSMENT, THE APPE LLANT HAS FILED THE COMPLETE DETAILS OF THE COMPENSATION AMOUNT OF RS.55.18 CRORES IN TERMS OF THE NAME, ADDRESS AND O THER RELEVANT DETAILS OF EACH OF THE PAYEE. HOWEVER, THE APPELLA NT WAS ABLE TO FILE CONFIRMATION LETTERS FROM ALL BUT FIVE PERSONS TO WHOM THE AGGREGATE COMPROMISE AMOUNT PAID WAS RS.29 LAKHS. EXCEPT TO THE EXTENT OF RS.4.5 LAKHS PAYABLE TO MR. APPAJI RAO, T HE APPELLANT HAD PAID TO THE OTHER FOUR PERSONS TOTALING TO RS.24.50 LAKHS. THE AO HAS NOT BROUGHT ON RECORD ANY OTHER MATERIAL OR EVI DENCE AGAINST THE CONTENTIONS OF THE APPELLANT AND TO SUPPORT HIS CLAIM. IT IS A WELL SETTLED POSITION THAT WHEN OTHER DETAILS ARE A VAILABLE, MERE NON-FILING OF CONFIRMATION FROM THE PARTIES CANNOT BE THE SOLE BASIS TO DISALLOW THE EXPENDITURE. A PERUSAL OF THE AUDI TED PROFIT AND LOSS ACCOUNT OF THE APPELLANT, INDICATE THAT THE AP PELLANT HAS AN EXPENDITURE OUTLAY DURING THE YEAR TO THE EXTENT OF RS.125.81 CRORES. THE ACCOUNTS HAVE BEEN SUBJECTED TO STATUT ORY AUDIT UNDER THE COMPANY LAW AND ALSO AUDIT U/S 44AB. THESE REP ORTS DO NOT INDICATE ANY OBSERVATION IN TERMS OF ANY OF THE EXP ENDITURE DEBITED IN THE ACCOUNTS AS NOT BEING RELEVANT TO THE BUSINE SS ACTIVITY OF THE APPELLANT. 8. CONSIDERING ALL THESE FACTS, THE ACTION OF AO IN DISALLOWING AN AMOUNT OF RS.29 LAKHS IS NOT JUSTIFIED DISALLOWANCE U/S 40(A)(IA) OF THE ACT: 13. IT IS A NORMAL TRADE PRACTICE, IN THE REAL EST ATE SECTOR, WHERE MANY PERSONS BLOCK LANDS UNDER AGREEMENT OF SALE C OUPLED WITH POWER OF ATTORNEY BY PAYING ADVANCES TO ORIGINAL OW NERS, MOSTLY TO AGGREGATE ONE CONTAGIOUS BLOCK OF LAND AND SUBSEQUE NTLY TRANSFER THE BLOCK OF LAND BY WAY OF SALE TO DEVELOPERS LIKE THE APPELLANT. THIS NATURE OF TRANSACTION IS PRINCIPAL TO PRINCIPAL BAS IS AND THE AMOUNTS RETAINED BY THE AGREEMENT HOLDERS ARE THEIR PRICE D IFFERENCE. TRANSACTIONS OF THIS NATURE AND PAYMENT MADE TO THE VARIOUS ITA NO.422 OF 2012 DUO ASSOCIATES (BUILDERS)PVT LTD BANGALORE. PAGE 4 OF 8 AGREEMENT HOLDERS, THE APPELLANT HAS ACCOUNTED UNDE R THE HEAD COMPROMISE. THIS IS DIFFERENT FROM AN ACTIVITY OF A PERSON WHO NEGOTIATES FINALIZING REAL ESTATE TRANSACTION AND IS REMUNERATED BY WAY OF COMMISSION WHICH IS NORMALLY A PERCENTAGE OF THE TRANSACTION VALUE. THE COMMISSION NORMALLY VARIES B ETWEEN ONE TO TWO PER CENT WITH SOME EXCEPTIONS OF LITTLE HIGHER COMMISSION OF UP- TO FIVE PER CENT. THIS TYPE OF TRANSACTION AND PAY MENTS MADE TO VARIOUS MIDDLE MEN IS ACCOUNTED BY THE APPELLANT AS COMMISSION. 3.3. ANALYZING THE TEST OF NORMAL TRADE PRACTI CE, THE CIT (A) CAME TO THE CONCLUSION THAT - 15. FURTHER, THE APPELLANT IN ALL CASES OF COMMISS ION PAYMENT OF RS.5.25 CRORES, HAS COMPLIED WITH THE PROVISIONS OF SECTION 194H, BY DEDUCTING TAX AT SOURCE AND REMITTING THE SAME I N ACCORDANCE WITH THE LAW. WITH THE APPELLANT FIRMLY BELIEVING THAT RS.4.53 CRORES WAS A COMPROMISE AMOUNT AND NOT COMMISSION, DID NOT APPLY THE PROVISIONS OF SECTION 194H. THIS STRENGT HEN ITS BELIEVE EVEN WHEN THE TRANSACTION TOOK PLACE, THE NATURE OF THE PAYMENT WAS NOT COMMISSION BUT A COMPROMISE AMOUNT. 16. THE ACCOUNTS OF THE APPELLANT HAVE BEEN AUDITE D UNDER THE COMPANIES ACT AND ALSO UNDER SECTION 44AB OF THE AC T. FORM 3CD WHICH IS PART OF THE TAX AUDIT HAS ALSO BEEN FU RNISHED CERTIFIED BY THE AUDITORS. COLUMN 27B OF FORM 3CD REQUIRES D ETAILS TO BE FURNISHED IN RESPECT OF PAYMENTS MADE BY AN ASSESSE E ON WHICH REQUIRED TDS HAS NOT BEEN DEDUCTED. A PERUSAL OF T HE STATUTORY AUDIT REPORT AND FORM 3CD DOES NOT INDICATE ANY SUC H NEGATIVE OBSERVATION BY THE AUDITORS. THIS LEADS TO AN INFE RENCE THAT EVEN THE AUDITORS WERE ALSO SATISFIED AS TO THE NATURE O F THE EXPENDITURE. 4. AGGRIEVED, THE REVENUE HAS COME BEFOR E US WITH THE PRESENT APPEAL. DURING THE COURSE OF HEARING, IT WAS SUBMI TTED THAT THE CIT (A) HAD FAILED TO APPRECIATE THAT THE ASSESSEE FAILED T O DISCHARGE THE ONUS CAST UPON IT AS ASSESSEE COULD NOT EVEN FILE CONFIR MATIONS FROM THE SO CALLED PAYEES AND THAT THE ASSESSEE COULD NOT PROVE ON THE BASIS OF ANY SUPPORTING EVIDENCE, THE GENUINENESS OF THE CLAIM O F THE CONCERNED EXPENSES AND, THEREFORE, IT WAS AFFIRMED THAT THE A SSESSING OFFICER WAS RIGHT IN DISALLOWING THE CLAIM OF THE ASSESSEE ON SUCH EXPENSES. ITA NO.422 OF 2012 DUO ASSOCIATES (BUILDERS)PVT LTD BANGALORE. PAGE 5 OF 8 WITH REGARD TO THE INVOKING THE PROVISIONS OF S. 40 (A)(IA) OF THE ACT BY THE AO, IT WAS ARGUED THAT THE CIT (A) HAD ERRED I N ARRIVING AT A CONCLUSION THAT THOSE PAYMENTS WERE NOT IN THE NATU RE OF THE PAYMENT OF COMMISSION MERELY BASED ON THE AUDITED P & L ACC OUNT OF THE ASSESSEE AND THE AUDITORS REPORT WITHOUT EXAMINING INTO NATURE OF THE TRANSACTION, PAYMENTS ETC. IT WAS, FURTHER, SUBMITT ED THAT THE CIT (A) HAD ALSO ERRED IN DELETING THE ADDITION WITHOUT APP RECIATING THE FACT THAT THOSE PAYMENTS MADE WERE IN THE NATURE OF COMM ISSIONS AND ON ANY SUCH PAYMENTS EXCEEDING THE PRESCRIBED LIMIT, TAX W AS REQUIRED TO BE DEDUCTED U/S 194H OF THE ACT. IT WAS EXPLAINED THAT SINCE NO TAX WAS DEDUCTED AT SOURCE, SUCH PAYMENTS WERE NOT ALLOWABL E AS DEDUCTION U/S 40(A)(IA) OF THE ACT. AT THE TIME OF HEARING, THE LEARNED D R HAD FURNISHED SET OF COPIES OF CONFIRMATION LETTERS FUR NISHED BY THE ASSESSEE FROM THE RECIPIENTS OF SUCH PAYMENTS. 4.1. ON THE OTHER HAND, THE LEARNED AR SUBMITTED MORE OR LESS WHAT WAS PRESENTED BEFORE THE FIRST APPELLATE AUTHO RITY. IN FURTHERANCE, IT WAS SUBMITTED WITH REGARD TO NON-FU RNISHING OF CONFIRMATION OF FIVE PERSONS THAT THEY HAVE LEFT FR OM THE ORIGINAL ADDRESSES AND WERE UNTRACEABLE AT THE TIME OF ASSES SMENT PROCEEDINGS. IT WAS ALSO CONTENDED THAT THOSE PERSONS WERE NOT R ELATED PARTIES WITHIN THE SCOPE OF THE PROVISIONS OF S. 40A (2)(B) OF THE ACT AND THAT THE TRANSACTION WAS AT ARMS LENGTH. EVEN THOUGH T HE ADDRESSES OF THOSE FIVE PERSONS AS AVAILABLE WITH THE ASSESSEE W AS FURNISHED TO THE AO, IT WAS ARGUED, THE AO, HOWEVER, TOOK A STAND T O DISALLOW THE SAID EXPENDITURE MERELY ON THE GROUND THAT NO CONFIRMATI ON WAS MADE AVAILABLE FOR VERIFICATION. IN RESPECT OF INVOKING THE PROVISIONS OF S. ITA NO.422 OF 2012 DUO ASSOCIATES (BUILDERS)PVT LTD BANGALORE. PAGE 6 OF 8 40(A)(IA) OF THE ACT, IT WAS SUBMITTED THAT THE AO HAD ERRED IN NOT APPRECIATING THE FACTS CONCLUSIVELY EXPLAINED TO HI M. INSTEAD, HE CONCLUDED THAT THE TOTAL COMPROMISE AMOUNT OF RS.45 3.13 LAKHS HAD TO BE TREATED AS COMMISSION AND BROUGHT TO TAX. 4.2. WE HAVE CAREFULLY CONSIDERED THE S UBMISSIONS OF EITHER OF THE PARTY, PERUSED THE RELEVANT CASE RECORDS AND AL SO THE DOCUMENTARY EVIDENCES FURNISHED BY BOTH THE PARTIES IN THE FORM OF PAPER BOOKS. 4.3. ON A PERUSAL OF THE ASSESSMENT ORDE R, WE FIND THAT THE AO HAD RESORTED TO DISALLOW A SUM OF RS.29 LAKHS ON TH E PREMISE THAT THE ASSESSEE HAD NOT FURNISHED CONFIRMATION LETTERS FRO M THOSE PERSONS TO WHOM THE ASSESSEE ALLEGED TO HAVE PAID COMPENSATION OR COMPROMISE AMOUNT. HOWEVER, THE CIT (A) HAD DELETED THE ADDIT ION ON THE GROUND THAT THE AO HAD NOT BROUGHT ON RECORD ANY OTHER MAT ERIAL OR EVIDENCE AGAINST THE CONTENTION OF THE ASSESSEE TO SUPPORT T O HIS STAND. THE AO HAD MERELY DISALLOWED THE CLAIM OF RS.29 LAKHS SINC E THE ASSESSEE HAD NOT FURNISHED THE REQUIRED CONFIRMATION LETTERS. H OWEVER, THE LEARNED AR TOOK A STAND BEFORE US THAT THE ASSESSEE HAD, IN FACT, FURNISHED THE ADDRESSES OF THOSE FIVE PERSONS AVAILABLE WITH IT T O THE AO. BUT, THE AOS ORDER IS SILENT ON THIS ASPECT. THE AOS CONC LUSION ON THIS ISSUE IS ALSO CRYPTIC. 4.4. IN OUR CONSIDERED VIEW, NEITHER THE AO NOR THE CIT (A) HAD DEALT WITH THE ISSUE PROPERLY. IN VIEW OF THE ABOV E, THIS ISSUE IS RESTORED ON THE FILE OF THE AO WITH A SPECIFIC DIRE CTION TO LOOK INTO THE MATTER AFRESH AND TO TAKE APPROPRIATE ACTION IN ACC ORDANCE WITH THE ITA NO.422 OF 2012 DUO ASSOCIATES (BUILDERS)PVT LTD BANGALORE. PAGE 7 OF 8 PROVISIONS OF THE ACT AFTER TAKING INTO ACCOUNT THE DETAILS WHICH WILL BE FURNISHED BY THE ASSESSEE IN RESPECT OF THOSE FIVE PERSONS TO WHOM THE ASSESSEE ALLEGED TO HAVE PAID THE AMOUNTS, AGGREGAT ING TO RS.29 LAKHS. IT IS ORDERED ACCORDINGLY. 4.5. WITH REGARD TO THE INVOKING OF TH E PROVISIONS OF S. 40(A)(IA) OF THE ACT, WE FIND THAT THE AO HAD NOT RECORDED TH E REASONS AS TO HOW HE ARRIVED AT SUCH A CONCLUSION THAT IT WAS N OT COMPROMISE AMOUNT BUT COMMISSION/BROKERAGE. THERE WAS ALSO NO TRACE OF ANY FINDING TO THE EFFECT THAT HE CAME TO SUCH A CONCLUSION AFTER DUE VERIFICATION OF ANY AGREEMENTS ENTERED INTO BY THE ASSESSEE WITH TH OSE AGREEMENT HOLDERS, IF ANY, FOR PAYMENT OF SUCH HUGE ALLEGED C OMPROMISE AMOUNTS. IF SO, THE ULTIMATE CONCLUSION ARRIVED AT BY THE AO SHOULD HAVE FOUND A PLACE IN THE ASSESSMENT ORDER. THERE WERE NO FINDI NGS BY THE AO WITH REGARD TO THE SERVICES ALLEGED TO HAVE BEEN RENDERE D BY THOSE PERSONS IN RELATION TO TRANSACTION OF PURCHASE OF LAND BY T HE ASSESSEE SO AS TO RECEIVE THE SO CALLED COMPROMISE AMOUNTS AS ATTRIBU TED BY THE ASSESSEE, BUT, TERMED BY THE AO AS COMMISSION/BROKE RAGE. THE CIT (A), ON HIS PART, TOOK A STAND THAT THE PAYMENT OF RS.4.53 CRORES WAS A COMPROMISE AMOUNT BUT NOT A COMMISSION. THE TEST O F THE NORMAL TRADE PRACTICE APPLIED BY THE CIT (A) TO ARRIVE AT THE AB OVE CONCLUSION DOESNT HAVE ANY BASIS. THEREFORE, WE ARE ALSO NOT IN AGREEMENT WITH THE CIT (A) PRESCRIPTION ON THIS ISSUE. 4.6. IN A NUT-SHELL, THIS ISSUE REQUIRES COMPREHENSIVE VERIFICATION AND EXAMINATION WITH REFERENCE TO THE AGREEMENTS EN TERED INTO BY THE ASSESSEE WITH THE SO CALLED PERSONS WHO HAVE ESTABL ISHED NEGOTIATIONS ITA NO.422 OF 2012 DUO ASSOCIATES (BUILDERS)PVT LTD BANGALORE. PAGE 8 OF 8 WITH THE LAND OWNERS FOR SETTLEMENT OF THE PURCHASE OF SUBJECT PROPERTY. THE AO IS DIRECTED TO LOOK INTO THE ISSUE AFRESH AND TO TAKE APPROPRIATE ACTION IN ACCORDANCE WITH THE PROVISION S OF THE ACT AFTER AFFORDING A REASONABLE OPPORTUNITY TO THE ASSESSEE OF BEING HEARD. TO FACILITATE THE AO TO CARRY OUT THE ABOVE DIRECTION, THIS ISSUE IS ALSO RESTORED ON THE FILE OF THE AO. IT IS ORDERED ACCO RDINGLY. 5. IN THE RESULT, THE REVENUES APPEA L IS ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED AT THE END OF THE HEARING ON 23 RD AUGUST, 2013. SD/- SD/- (JASON P. BOAZ) (GEORGE GEORGE K) ACCOUNTANT MEMBER JUDICIAL MEMBER BANGALORE, DATED AUGUST, 2013. VNODAN/SPS COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CONCERNED CIT(A) 4. THE CONCERNED CIT 5. THE DR, ITAT, BANGALORE BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL, BANGALORE BENCHES, BANGALORE