M/S.HP ASSOCIATES, MUMBAI V. INCOME TAX OFFICER-25(3)(2), MUMBAI

ITA 5929/MUM/2018

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 0720 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 7 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-06-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2011-2012
• Appeal Filed On: 15-10-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Section: 37(1); 201; 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH SMC, MUMBAI , BEFORE SHRI VIKAS AWASTHY, JUDICIAL MEMBER & . ,#$#% SHRI G.MANJUNATHA, ACCOUNTANT MEMBER . 5929 / /2018(. . 2011-12 ) ITA NO.5929/MUM/2018 (A.Y.2011-12) M/S. H.P.ASSOCIATES, 120, LAXMIKUNJ, MAHANT ROAD, VILE PARLE (EAST), MUMBAI 400 056. PAN:AAFFH3495K ...... - / APPELLANT VS. THE ITO 25(3)(2), BANDRA KURLA COMPLEX, BANDRA(E) MUMBAI 400 051 ..... .// RESPONDENT -0/ APPELLANT BY : SHRI HARIDAS BHATT ./0/ RESPONDENT BY : MS. R. KAVITHA 1/ / DATE OF HEARING : 20/02/2020 234 1/ / DATE OF PRONOUNCEMENT : 12/06/2020 #/ ORDER PER VIKAS AWASTHY, JM: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDER OF COMMISSIONER OF INCOME TAX (APPEALS)-45, MUMBAI (IN SHORT THE CIT (A)) DATED 06/06/2018 FOR THE ASSESSMENT YEAR 2011-12. 2 ITA NO.5929/MUM/2018(A.Y.2011-12) 2. THE ASSESSEE IN APPEAL HAS RAISED FOUR GROUNDS: - IN GROUNDS NO.1 TO 3 THE ASSESSEE HAS ASSAILED DI SALLOWANCE OF BROKERAGE PAID TO: (I) M/S. VIJAYA ASSOCIATES - RS. 9,00,000/- (II) MS. SHAILI SAVLA - RS.4,50,000/- (III) BIPIN SAVLA HUF - RS.3,43,980/- - IN GROUND OF APPEAL NO.4, THE ASSESSEE HAS ASSAILED DISALLOWANCE OF SHARE OF PROFIT TRANSFERRED TO M/S. LAKSHMI CONSTRU CTION RS.61,800/-. 3. SHRI HARIDAS BHATT, APPEARING ON BEHALF OF THE A SSESSEE SUBMITTED THAT THE ASSESSEE IS A PARTNERSHIP FIRM ENGAGED IN THE B USINESS OF REDEVELOPMENT OF REAL ESTATE. THE ASSESSEE DEVELOPED SOLITARY HOUSI NG PROJECT, VIJAYA BHAVAN JOINTLY WITH M/S. LAKSHMI CONSTRUCTION. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER DISALLOWED PAYMEN T OF BROKERAGE TO M/S. VIJAYA ASSOCIATES AND MS. SHAILI SAVLA UNDER SECTIO N 37(1) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT). THE ASSESSING OFFIC ER FURTHER DISALLOWED BROKERAGE PAID TO BIPIN SAVLA HUF INVOKING PROVISIO NS OF SECTION 40A(2)(B) OF THE ACT STATING PAYMENTS MADE TO BE EXCESSIVE. THE LD. AUTHORIZED REPRESENTATIVE OF THE ASSESSEE SUBMITTED THAT THE B ROKERAGE PAYMENTS WERE MADE AS PER PREVALENT MARKET NORMS. THE LD. AUTHOR IZED REPRESENTATIVE OF THE ASSESSEE CONTENDED THAT THE ASSESSING OFFICER I N THE ASSESSMENT ORDER HAS MENTIONED THAT STANDARD RATE OF BROKERAGE IS 2% IN THE GIVEN LINE OF BUSINESS. THE BROKERAGE PAID BY THE ASSESSEE TO M/S. VIJAYA A SSOCIATES IS 2.16% OF THE AGREEMENT VALUE AND THE PERCENTAGE OF BROKERAGE PAI D OF MS. SHAILI SAVLA IS 3.43% OF THE AGREEMENT VALUE. SIMILARLY, THE BROKER AGE WAS PAID TO BIPIN SAVLA 3 ITA NO.5929/MUM/2018(A.Y.2011-12) AS PER MARKET RATE. THE RATE OF COMMISSION IS MARKE T DRIVEN AND VARY DEPENDING ON VARIOUS CONDITION. THERE IS NO THUMB R ULE TO FIX THE RATE OF COMMISSION. THE LD. AUTHORIZED REPRESENTATIVE OF T HE ASSESSEE SUBMITTED THAT THE BROKERAGE WAS PAID TO THE AFORESAID PARTIE S FOR FACILITATING SALE OF FLATS IN THE HOUSING PROJECT VIJAYA BHAVAN. AS REGARDS SHARING OF PROFITS WITH M/S. LAKSHMI CO NSTRUCTION, THE LD. AUTHORIZED REPRESENTATIVE OF THE ASSESSEE SUBMITTED THAT THE ASSESSEE HAD JOINTLY DEVELOPED PROJECT WITH M/S. LAKSHMI CONSTRU CTION FOR WHICH THERE WAS JOINT DEVELOPMENT AGREEMENT. THOUGH THERE IS NO FOR MAL WRITTEN AGREEMENT BETWEEN CO-DEVELOPERS FOR SHARING PROFITS IN EQUAL RATIO, HOWEVER, THERE WAS ORAL UNDERSTANDING BETWEEN THE PARTIES THAT THE PRO FITS WILL BE SHARED IN EQUAL RATIO. THE LD. AUTHORIZED REPRESENTATIVE OF THE AS SESSEE FURTHER CONTENDED THAT THE SHARE OF PROFIT TRANSFERRED BY ASSESSEE TO M/S. LAKSHMI CONSTRUCTION HAS NOT RESULTED IN ANY LOSS OF THE REVENUE, AS THE RECIPIENT HAS OFFERED THE SAME TO TAX AND HAS PAID TAXES ON SUCH PROFITS. MER ELY, FOR THE REASON THAT THERE WAS NO FORMAL WRITTEN AGREEMENT TO SHARE PROF IT IN EQUAL RATIO, THE DISALLOWANCE WAS MADE. 6. ON THE OTHER HAND, MS. R. KAVITHA, REPRESENTING THE DEVEPARTMENT VEHEMENTLY DEFENDED THE IMPUGNED ORDER AND PRAYED F OR DISMISSING THE APPEAL OF ASSESSEE. THE LD. DEPARTMENTAL REPRESENT ATIVE SUBMITTED THAT THE ASSESSEE HAS NOT BEEN ABLE TO SHOW ACTUAL SERVICES THAT WERE RENDERED BY THE PARTIES FOR WHICH BROKERAGE WAS PAID TO THEM. 7. WE HAVE HEARD THE SUBMISSIONS MADE BY RIVAL SIDE S AND HAVE PERUSED THE ORDERS OF THE AUTHORITIES BELOW. WE HAVE ALSO EXAMINED THE DOCUMENTS 4 ITA NO.5929/MUM/2018(A.Y.2011-12) FILED BY THE ASSESSEE IN THE FORM OF PAPER BOOK. I N GROUND NO.1 AND 2 OF APPEAL, THE ASSESSEE HAS ASSAILED DISALLOWANCE OF B ROKERAGE COMMISSION U/S 37 OF THE ACT, PAID TO M/S. VIJAYA ASSOCIATES RS.9,00, 000/- AND MS. SHAILI SAVLA RS.4,50,000/-, RESPECTIVELY. THE BROKERAGE COMMISS ION HAS BEEN PAID FOR FACILITATING SALE OF FLATS IN THE HOUSING PROJECT. THE ASSESSEE HAD FILED CONFIRMATION FROM THE PARTIES, THE SAME ARE AVAILAB LE ON RECORD AT PAGES 2 AND 26 OF THE PAPER BOOK. BOTH THE AFORESAID PARTIES H AVE ADMITTED THAT THE BROKERAGE HAS BEEN RECEIVED AND THE SAME HAS BEEN O FFERED TO TAX IN THEIR RESPECTIVE RETURN OF INCOME. THE ASSESSING OFFICER HAS DISALLOWED PAYMENT OF COMMISSION PRIMARILY ON THE GROUND THAT THERE WAS N O WRITTEN AGREEMENT BETWEEN THE ASSESSEE AND THE PARTIES FOR RENDERING OF SERVICES AND PAYMENT OF COMMISSION. M/S. LAKSHMI CONSTRUCTION, JOINT DEVELO PER OF THE PROJECT HAS CONFIRMED THAT M/S VIJAYA ASSOCIATES WAS APPOINTED FOR LIAISONING AND TO PROVIDE SUPPORT SERVICES IN CONNECTION WITH THE HOU SING PROJECT VIJAYA BHAVAN. AFTER EXAMINING THE DOCUMENTS AVAILABLE ON RECORD WE ARE SATISFIED THAT COMMISSION HAS BEEN PAID BY THE ASSESSEE TO TH E PARTIES IN CONNECTION WITH THE HOUSING PROJECT VIJAY BHAVAN JOINTLY DEV ELOPED BY THE ASSESSEE AND M/S. LAKSHMI CONSTRUCTION. THE FINDINGS OF THE CIT (A) ON THIS ISSUE ARE REVERSED AND THE DISALLOWANCE OF BROKERAGE PAID TO M/S. VIJAYA ASSOCIATES AND MS. SHAILI SAVLA IS DELETED. CONSEQUENTLY, GROUNDS NO.1 AND 2 OF THE APPEAL ARE ALLOWED. 8. IN GROUND NO.3 OF APPEAL, THE ASSESSEE HAS ASSAI LED DISALLOWANCE OF COMMISSION RS.3,43,980/- PAID TO BIPIN SAVLA HUF U NDER SECTION 40A(2)(B) OF THE ACT. WE OBSERVE THAT THE ASSESSING OFFICER WHI LE INVOKING THE PROVISIONS OF SECTION 40A(2)(B) OF THE ACT HAS MENTIONED THAT BRO KERAGE PAID IS ON THE 5 ITA NO.5929/MUM/2018(A.Y.2011-12) HIGHER SIDE. THE MAXIMUM RATE OF BROKERAGE PREVALE NT IN THE MARKET AS PER THE ASSESSING OFFICER IS 2% OF THE AGREEMENT VALUE. THE ASSESSEE PAID BROKERAGE TO BIPIN SAVLA HUF RS.4,50,000/- AS AGAIN ST ALLEGED MARKET RATE OF RS.1,06,020/-. THE ASSESSING OFFICER DISALLOWED AL LEGED EXCESSIVE COMMISSION I.E. RS.3,43,980/-. THE CONTENTION OF THE ASSESSEE IS THAT THERE IS NO THUMB RULE FOR PAYMENT OF COMMISSION AT 2%. THE RATE OF COMMISSION IS MARKET DRIVER AND FLUCTUATES DEPENDING ON THE MARKET CONDI TIONS. THE RECIPIENT HAS OFFERED COMMISSION RECEIVED TO TAX. AFTER CONSIDERI NG THE SUBMISSIONS OF THE ASSESSEE WE FIND MERIT IN THE SAME. IN THE FACTS O F THE CASE WE FIND THAT THE DISALLOWANCE OF PAYMENT OF COMMISSION TO BIPIN SAVL A HUF BY INVOKING PROVISIONS OF SECTION 40A(2)(B) IS UNCALLED FOR. T HE DISALLOWANCE MADE IS DELETED AND GROUND NO.3 OF THE APPEAL IS ALLOWED. 9. IN GROUND NO.4 OF THE APPEAL, THE ASSESSEE HAS A SSAILED DISALLOWANCE OF SHARE OF PROFITS PAID TO M/S. LAKSHMI CONSTRUCTION RS.61,800/-. THE CONTENTION OF THE ASSESSEE IS THAT THE ASSESSEE AND CO-DEVELOP ER M/S. LAKSHMI CONSTRUCTION HAS DEVELOPED A HOUSING PROJECT VIJAY BHAVAN. THERE WAS ORAL UNDERSTANDING BETWEEN THE PARTIES WITH RESPECT TO S HARING OF PROFIT IN EQUAL RATIO. THE LD.AUTHORIZED REPRESENTATIVE OF THE ASSE SSEE HAS POINTED THAT THE SHARE OF PROFIT PAID BY THE ASSESSEE TO M/S. LAKSHM I CONSTRUCTION HAS BEEN OFFERED TO TAX BY THE RECIPIENT AND THERE IS NO REV ENUE LOSS. TO SUBSTANTIATE THIS CONTENTION, THE ASSESSE HAS PLACED ON RECORD I NCOME TAX RETURN OF M/S LAKSHMI CONSTRUCTION. BOTH THE FIRMS ARE ASSESSED TO SAME MARGINAL RATE OF TAX. THEREFORE, THE TRANSACTION IS TAX NEUTRAL, NO LOSS IS CAUSED TO THE GOVERNMENT EXCHEQUER. THE ADDITION OF RS.61,800/- IS DELETED AND GROUND 6 ITA NO.5929/MUM/2018(A.Y.2011-12) NO.4 OF THE APPEAL IS ALLOWED. THE ASSESSEE SUCCEED S ON GROUND NO.4 OF THE APPEAL. 10. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWE D. 11. THIS APPEAL WAS HEARD ON 20/02/2020. AS PER RU LE 34(5) OF THE INCOME TAX (APPELLATE TRIBUNAL) RULES, 1963, (ITAT RULES, 1963), THE ORDER WAS REQUIRED TO BE ORDINARILY PRONOUNCED WITHIN A PER IOD OF 90 DAYS FROM THE DATE OF CONCLUSION OF THE HEARING OF APPEAL. THE IN STANT APPEAL WAS HEARD PRIOR TO THE LOCKDOWN DECLARED BY THE HONBLE PRIME MINIS TER ON 24-03-2020 IN VIEW OF COVID-19 PANDEMIC. THE LOCKDOWN WAS FORCED DUE T O EXTRA ORDINARY CIRCUMSTANCES CAUSED BY WORLD WIDE SPREAD OF COVID- 19. THEREAFTER, THE LOCKDOWN WAS EXTENDED FROM TIME TO TIME. THEREFORE , THE PRONOUNCEMENT OF ORDER BEYOND THE PERIOD OF 90 DAYS FROM THE DATE OF HEARING IS NOT UNDER ORDINARY CIRCUMSTANCES. THE CO-ORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF DCIT VS. JSW LTD., ITA NO.6264/MUM/2018 FOR A.Y 201 3-14 DECIDED ON 14/05/2020, UNDER IDENTICAL CIRCUMSTANCES, AFTER CO NSIDERING THE PROVISIONS OF RULE 34(5) OF THE ITAT RULES, 1963, JUDGEMENTS REND ERED BY HONBLE APEX COURT AND THE HONBLE BOMBAY HIGH COURT ON THE ISSU E TIME LIMIT FOR PRONOUNCEMENT OF ORDERS BY THE TRIBUNAL AND THE CIR CUMSTANCES LEADING TO LOCKDOWN HELD:- 10. IN THE LIGHT OF THE ABOVE DISCUSSIONS, WE ARE O F THE CONSIDERED VIEW THAT RATHER THAN TAKING A PEDANTIC VIEW OF THE RULE REQUIRING P RONOUNCEMENT OF ORDERS WITHIN 90 DAYS, DISREGARDING THE IMPORTANT FACT THAT THE ENTI RE COUNTRY WAS IN LOCKDOWN, WE SHOULD COMPUTE THE PERIOD OF 90 DAYS BY EXCLUDING A T LEAST THE PERIOD DURING WHICH THE LOCKDOWN WAS IN FORCE. WE MUST FACTOR GROUND RE ALITIES IN MIND WHILE INTERPRETING THE TIME LIMIT FOR THE PRONOUNCEMENT OF THE ORDER. LAW IS NOT BROODING OMNIPOTENCE IN THE SKY. IT IS A PRAGMATIC TOOL OF THE SOCIAL OR DER. THE TENETS OF LAW BEING ENACTED ON THE BASIS OF PRAGMATISM, AND THAT IS HOW THE LAW IS REQUIRED TO INTERPRETED. THE INTERPRETATION SO ASSIGNED BY US IS NOT ONLY INCONS ONANCE WITH THE LETTER AND SPIRIT OF RULE 34(5) BUT IS ALSO A PRAGMATIC APPROACH AT A TI ME WHEN A DISASTER, NOTIFIED UNDER 7 ITA NO.5929/MUM/2018(A.Y.2011-12) THE DISASTER MANAGEMENT ACT 2005, IS CAUSING UNPREC EDENTED DISRUPTION IN THE FUNCTIONING OF OUR JUSTICE DELIVERY SYSTEM. UNDOUBT EDLY, IN THE CASE OF OTTERS CLUB VS DIT [(2017) 392 ITR 244 (BOM)], HONBLE BOMBAY HIGH COURT DID NOT APPROVE AN ORDER BEING PASSED BY THE TRIBUNAL BEYOND A PERIOD OF 90 DAYS, BUT THEN IN THE PRESENT SITUATION HONBLE BOMBAY HIGH COURT ITSELF HAS, VID E JUDGMENT DATED 15TH APRIL 2020, HELD THAT DIRECTED WHILE CALCULATING THE TIME FOR DISPOSAL OF MATTERS MADE TIME- BOUND BY THIS COURT, THE PERIOD FOR WHICH THE ORDER DATED 26TH MARCH 2020 CONTINUES TO OPERATE SHALL BE ADDED AND TIME SHALL STAND EXTENDED ACCORDINGLY . THE EXTRAORDINARY STEPS TAKEN SUO MOTU BY HONBLE J URISDICTIONAL HIGH COURT AND HONBLE SUPREME COURT ALSO INDICATE THAT THIS PERIO D OF LOCKDOWN CANNOT BE TREATED AS AN ORDINARY PERIOD DURING WHICH THE NORMAL TIME LIMITS ARE TO REMAIN IN FORCE. IN OUR CONSIDERED VIEW, EVEN WITHOUT THE WORDS ORDINA RILY, IN THE LIGHT OF THE ABOVE ANALYSIS OF THE LEGAL POSITION, THE PERIOD DURING W HICH ITA NO. 6103 AND LOCKOUT WAS IN FORCE IS TO EXCLUDED FOR THE PURPOSE OF TIME LIM ITS SET OUT IN RULE 34(5) OF THE APPELLATE TRIBUNAL RULES, 1963. VIEWED THUS, THE EX CEPTION, TO 90-DAY TIME-LIMIT FOR PRONOUNCEMENT OF ORDERS, INHERENT IN RULE 34(5)(C), WITH RESPECT TO THE PRONOUNCEMENT OF ORDERS WITHIN NINETY DAYS, CLEARLY COMES INTO PLAY IN THE PRESENT CASE. OF COURSE, THERE IS NO, AND THERE CANNOT BE A NY, BAR ON THE DISCRETION OF THE BENCHES TO REFIX THE MATTERS FOR CLARIFICATIONS BEC AUSE OF CONSIDERABLE TIME LAG BETWEEN THE POINT OF TIME WHEN THE HEARING IS CONCL UDED AND THE POINT OF TIME WHEN THE ORDER THEREON IS BEING FINALIZED, BUT THEN, IN OUR CONSIDERED VIEW, NO SUCH EXERCISE WAS REQUIRED TO BE CARRIED OUT ON THE FACTS OF THIS CASE. THUS, IN LIGHT OF ABOVE FACTS AND THE DECISION OF C OORDINATE BENCH, THE PRESENT ORDER IS PRONOUNCED BEYOND THE PERIOD OF 90 DAYS. 12. THE APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PR ONOUNCED UNDER RULE 34(4) OF THE INCOME TAX (APPELLATE TRIBUNAL) RULES, 1962, BY PLACING THE DETAILS ON THE NOTICE BOARD. ORDER PRONOUNCED ON FRIDAY THE 12TH DAY OF JUNE, 2020. SD/- SD/- (G.MANJUNATHA) (VIKAS AW ASTHY) #$ / ACCOUNTANT MEMBER / JUDICIAL MEMBER / MUMBAI, 6'/ DATED 12/06/2020 VM , SR. PS(O/S) 8 ITA NO.5929/MUM/2018(A.Y.2011-12) COPY OF THE ORDER FORWARDED TO : 1. - / THE APPELLANT , 2. ./ / THE RESPONDENT. 3. 7/ ( )/ THE CIT(A)- 4. 7/ CIT 5. 89 ./' , . . . , / DR, ITAT, MUMBAI 6. 9:; <= / GUARD FILE. BY ORDER, //TRUE COPY// (DY./ASSTT. REGISTRAR) ITAT, MUMBAI