ITO, New Delhi V. Sh. Ritesh Tiwari, New Delhi

ITA 5884/DEL/2011

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 7104 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 1 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-02-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: F
• Next Hearing Date: 17-12-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 30-12-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: V R SONBHADRA
• Assessee Lawyers: A K CHADHA
• Keywords: Business expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: F NEW DELHI BEFORE SHRI N.K. SAINI, ACCOUNTANT MEMBER & SMT. BEENA PILLAI, JUDICIAL MEMBER I.T.A .NO. 5884/DEL/2011 (ASSESSMENT YEAR: 2008-09) INCOME TAX OFFICER, WARD-28(2), NEW DELHI VS SH. RITESH TIWARI, 4014, CHAWRI BAZAR, DELHI-110006 APPELLANT BY SH. V. R. SONBHADRA, SR. DR RESPONDENT BY SH. A. K. CHADHA, CA ORDER PER BEENA PILLAI, JUDICIAL MEMBER : 1. THE PRESENT APPEAL ARISES FROM THE ORDER OF THE LD. CIT(A)-XXV, NEW DELHI VIDE ORDER DATED 28.11.2011 FOR ASSESSMEN T YEAR 2008-09 ON THE FOLLOWING GROUNDS OF APPEAL: 1. ON THE FACTS AND IN THE CIRCUMSTANCES AND IN LA W THE LD. CIT(A) HAS ERRED IN DELETING THE DEMAND OF RS.36,39,571/- ON A/C OF DISALLOWANCE ON BROKERAGE AND COMMISSION EXPENSES. 2. THE APPELLANT CRAVES LEAVE FOR RESERVING THE RIG HT TO AMEND, MODIFY, ALTER, ADD OR FOREGO ANY GROUND(S) O F APPEAL AT ANY TIME BEFORE OR DURING THE HEARING OF THIS APPEAL. 2. BRIEF FACTS ARISING FROM THE ORDER OF THE LD.AO ARE AS UNDER: 2.1. THE ASSESSEE HAD FILED ITS RETURN OF INCOME ON 30.09.2008 DECLARING A TOTAL INCOME OF RS.16,50,890/- THE CASE WAS SELECTED DATE OF HEARING 17.12.2015 DATE OF PRONOUNCEMENT 08/02/2016 2 ITA NO.5884/DEL/2011 FOR SCRUTINY AND NOTICES WERE ISSUED U/S. 143(2) OF THE ACT. THE ASSESSEE IS CARRYING ON BUSINESS ACTIVITY OF REAL E STATE AND DEVELOPMENT OF PROPERTY. THE ASSESSEE IS THE PROPRI ETOR OF M/S GANPATI BUILDERS AND HAS DECLARED THE TURNOVER OF RS.11,04,22,164/-, THE GP OF RS.1,65,18,864/-, THE NP OF RS.17,49,646/- AND HAS FILED THE RETURN INCOME OF RS.16,50,890/-. THE ASSESSEE HAS CLAIMED THE SELLIN G EXPENSES OF RS.1,14,84,425/- WHICH INCLUDES THE COMMISSION AND BROKERAGE OF RS.83,73,119/- AND THE AO HAS DISALLOWED THE COM MISSION AND BROKERAGE OF RS.5,60,000/- ON THE SELLING OF PL OTS AND ANOTHER AMOUNT OF RS.30,79,571/- ON THE SALE OF FLA TS AND AS SUCH THE TOTAL DISALLOWANCE OF RS.36,39,571/- (RS.5 ,60,000/- (+) RS.30,79,571/-) HAS BEEN MADE OUT OF THE TOTAL CLAI M OF RS.83,73,119/-. THE DISALLOWANCE HAS BEEN MADE BY T HE AO ON THE GROUND THAT THE ASSESSEE HAS CLAIMED THE COMMIS SION AND BROKERAGE EXPENSES EVEN THOUGH THE REVENUE IS YET T O BE RECOGNIZED. 3. AGGRIEVED BY THE ORDER OF THE LD.AO, THE ASSESSE E PREFERRED AN APPEAL BEFORE LD.CIT(A), WHO HELD AS UNDER: 4.4.1 I HAVE CONSIDERED THE DISALLOWANCE/ORDER OF THE AO AND THE SUBMISSIONS OF THE ASSESSEE AND I FIND CONSIDERABLE MERIT IN THE SUBMISSION OF THE ASSESSE E. IT IS APPARENT FROM THE PERUSAL OF THE ORDER OF THE AO TH AT THE AO HAS NOT BEEN ABOVE TO MAKE OUT A CLEAR AS TO WHY THE COMMISSION AND BROKERAGE EXPENSES WHICH ARE EVEN OTHERWISE ALLOWABLE AS BUSINESS EXPENSES AND SUCH THE AO IS NOT JUSTIFIED TO MAKE SUCH DISALLOWANCES. IT IS ALSO APPARENT THAT THE AO HAS NOT BEEN ABLE TO MAKE OUT A CASE OF ANY INFLATED OR BOGUS EXPENSES WHICH COULD BE DISALLOWED. AFTER CONSIDERING ALL THE FACTS AND CIRCUMSTANCES OF THE CASE, I AM OF THE VIEW THAT TH ERE IS NO 3 ITA NO.5884/DEL/2011 JUSTIFICATION FOR SUCH DISALLOWANCES AND ACCORDINGL Y, BOTH THE ADDITIONS/DISALLOWANCES MADE BY THE AO ARE DELE TED. 4. AGGRIEVED BY THE ORDER OF THE LD.CIT(A), THE REV ENUE IS IN APPEAL BEFORE US. 5. WE HAVE PERUSED THE ORDERS OF THE AUTHORITIES BE LOW, PAPER BOOK FILED BY THE ASSESSEE AND THE ARGUMENTS ADVANC ED BY BOTH THE PARTIES. 5.1. THE LD. DR SUBMITTED THAT THE BROKERAGE AND TH E COMMISSION PAID BY THE ASSESSEE IN RESPECT OF SALE OF PLOTS HAS BEEN RIGHTLY DISALLOWED BY THE ASSESSING OFFICER, S INCE THE REVENUE IN RESPECT OF THE SALE OF PLOTS ON WHICH BROKERAGE HAS BEEN PAID, HAVE NOT BEEN RECOGNISED BY THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION. THE LD. DR FURTHER SUBMITTED THAT TH E COST SHOULD BE MATCHED WITH THE REVENUE. HE EMPHASISED THAT SIN CE THE REVENUE FROM ALL THE PROJECTS ARE NOT FULLY RECOGNI SED, THE BROKERAGE AND COMMISSION PAYABLE ALSO MUST BE RECOG NISED TO THAT EXTENT ONLY. 5.2. LD. DR THEREFORE SUBMITTED THAT THE ASSESSING OFFICER WAS RIGHT IN ALLOWING THE BROKERAGE PROPORTIONATELY TOW ARDS THE PROJECTS. 6. ON THE CONTRARY, THE LD.AR SUBMITTED THAT THE CO MMISSION AND BROKERAGE WAS WHOLLY AND EXCLUSIVELY FOR THE PU RPOSES OF ASSESSEES BUSINESS. THESE PAYMENTS ARE PART AND PA RCEL OF THE ASSESSEES BUSINESS AND ARE MADE REGULARLY TO THE B ROKERS, WITHOUT WHICH ASESSEES BUSINESS COULD NOT BE RUN. THE LD.AR SUBMITTED THAT AGAINST THE PAYMENT OF COMMISSION AN D BROKERAGE MADE BY THE ASSESSEE, TDS HAVE BEEN DEDUC TED. THE 4 ITA NO.5884/DEL/2011 LD AR SUBMITTED THAT IN THE ASSESSING OFFICE HAS AL LOWED SIMILAR PAYMENTS IN THE IMMEDIATELY PRECEDING YEAR AT THE T IME OF ASSESSMENT PROCEEDINGS U/S.143(3) OF THE ACT. 7. IT HAS BEEN OBSERVED FROM THE PAPER BOOK FILED B Y THE ASSESSEE THAT THE ASSESSEE HAS BEEN CONSISTENTLY FO LLOWING MERCANTILE SYSTEM OF ACCOUNTING.. THE ASSESSEE HAS BEEN RECOGNISING THE INCOME IN RESPECT OF INCOMPLETE FLA TS ON PERCENTAGE COMPLETION METHOD AND THE REVENUE IN RES PECT OF SUCH FLATS WERE RECOGNISED IN PROPORTION OF ACTUAL SALE PRICE AGREED WITH THE PURCHASER TO THE EXTENT OF THE WORK ACCOMPLISHED DURING THE YEAR. THE ASSESSEE HAS PLACED RELIANCE O N THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF CIT VS. WOO DWARD GOVERNOR INDIA PVT. LTD., REPORTED IN 312 ITR 254, WHEREIN THE HONBLE COURT HAS HELD AS UNDER: UNDER THE MERCANTILE SYSTEM OF ACCOUNTING, WHAT IS DUE IS BROUGHT INTO CREDIT BEFORE IT IS ACTUALLY RECEIVED: IT BRINGS INTO DEBIT AN EXPENDITURE FOR WHICH A LEGAL LIABILI TY HAS BEEN INCURRED BEFORE IT IS ACTUALLY DISBURSED. THE ACCOUNTING METHOD FOLLOWED BY AN ASSESSEE CONTINUOUSLY FOR A GIVEN PERIOD OF TIME HAS TO BE P RESUMED TO BE CORRECT TILL THE ASSESSING OFFICER COMES TO T HE CONCLUSION FOR REASONS TO BE GIVEN THAT THE SYSTEM DOES NOT REFLECT TRUE AND CORRECT PROFITS. 7.1. THE HONBLE SUPREME COURT HAS FOLLOWED ITS DEC ISION IN THE CASE OF UNITED COMMERCIAL BANK VS. CIT, REPORTED I N [1999] 240 ITR 355 (SC). 7.2. WE HAVE PERUSED ACCOUNTING STANDARD 2(AS 2) IS SUED BY ICAI, WHICH HAS BEEN PRODUCED BEFORE US. IT IS OBSE RVED THAT, AS PER AS 2, THE ACTUAL COST ON WHICH REVENUE WAS RECO GNISED, WAS 5 ITA NO.5884/DEL/2011 THE PROPORTIONATE LAND AND DEVELOPMENT COST INCURRE D ON THE FLATS, AND REVENUE TO THAT EXTENT, HAS TO BE RECOGN ISED TO THE EXTENT OF WORK PERFORMED, AND WORK ACCOMPLISHED ON THE FLATS AT THE END OF THE FINANCIAL YEAR. THUS BROKERAGE AND C OMMISSION WHICH DID NOT CONTRIBUTE TO PERFORMING OF ANY WORK ON THE FLAT AND HAS TO BE EXCLUDED FROM THE ACTUAL COST INCURRE D ON THE FLAT. INSTEAD THE BROKERAGE AND COMMISSION WERE SALES INC ENTIVE, WHICH WAS GIVEN TO BROKERS AND THE SAME COULD NOT B E CONSIDERED TO BE A PART OF THE COST OF WORK ACCOMPLISHED ON TH E FLATS. THE SAME HAS TO BE RECOGNISED AS EXPENSES FOR THE PERIO D IN WHICH THE SAID EXPENSES WERE INCURRED. 7.3. IT WAS SUBMITTED BY THE LD.AR THAT THE BROKERA GE AND THE COMMISSION PAID BY THE ASSESSEE, WAS NOT CHARGEABLE TO ANY PURCHASER, NOR THE SAID BROKERAGE AND COMMISSION WA S TO BE REIMBURSED BY ANY OF THE PURCHASER. IT WAS EXCLUSIV ELY TO BE BORNE BY THE ASSESSEE. THIS IS EVIDENT FORM THE AGR EEMENT PLACED IN THE PAPER BOOK AT PAGE 37 TO 39. IT WAS ALSO SUB MITTED BY THE ASSESSEE THAT THE EXPENSES OF BROKERAGE AND COMMISS ION WERE NITHER INCURRED ON INITIAL BOOKING MADE BY THE PURC HASER, NOR AT LAUNCH OF ANY SITE, BUT IT WAS INCURRED ONLY AFTER SITE WAS DEVELOPED. 7.4. ON THE BASIS OF THE ABOVE DISCUSSIONS, FINDIN GS AND THE RATIO LAID DOWN BY THE HONBLE SUPREME COURT IN CASE OF W OODWARD GOVERNER PVT.LTD. (SUPRA), WE DO NOT FIND ANY INFIR MITY WITH THE ORDER OF THE LD. CIT(A). 7.5. THE GROUND RAISED BY THE REVENUE IS THEREFORE DISMISSED. 6 ITA NO.5884/DEL/2011 8. IN THE RESULT, THE REVENUES APPEAL IS DISMISSE D. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 08/02/2016 SD/- SD/- (N.K. SAINI) (BEENA PILLAI) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 08/02/2016 COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI 7 ITA NO.5884/DEL/2011