2015 (12) TMI 1235 - AT - Income Tax

Tribunal Partially Allows Assessee's Appeal on Disallowance of Expenses

Balbir Singh Versus Assistant Commissioner of Income Tax, Circle-2, Alwar

The Tribunal allowed the assessee's appeal on the disallowance of salary payment and commission expenses, partly allowed the appeal on various expenses, ... Disallowance of salary payment - Held that:- The assessee was asked to furnish details of employees on 07/12/2010, which was submitted with name, address and salary paid, to the Assessing Officer. He also explained the work done and duties assigned to them. It is undisputed fact that the payment of salary was made in cash. The business of the assessee as such that local people are required to make available the details of land available for sale, owners of the land, market rate of that area, other factual/title information to make agreement with support of the advocate etc. The assessee had disclosed more than Rs. one crore returned income on which he had claimed salary expenditure of Rs. More than 19 lacs, which is very nominal. The Assessing Officer up to 27/12/2010 had recoded the statement of six persons and no adverse inference had been drawn by him. The other four persons were not made available by the assessee as claimed by him that they left the job and are not traceable. The time given by the Assessing Officer is very short. The ld CIT(A) had not asked the assessee to produce the remaining employees for verification at the time of appellate proceedings. Therefore, we do not find any reason to confirm the addition to this head - Decided in favour of assessee. Disallowance of commission expenses on estimate basis - Held that:- The assessee furnished the details of brokerage vide letter dated 17/12/2010 before the Assessing Officer. However, he asked the assessee to produce the four brokers on 27/12/2010 for verification. It is a fact that time given by the ld Assessing Officer was not sufficient. However, the assessee produced two brokers for verification. The details of brokerage have been submitted alongwith letter dated 07/12/2010. The details furnished before the Assessing Officer showed that they are villagers of nearby area who provided the services to make available the land in that area. It is undisputed fact that payments were made in cash on self made vouchers, the ld Assessing Officer had not brought on record any adverse evidence that brokerage payment is not genuine. He simply disallowed the expenses on estimate basis. Therefore, we do not find any reason to confirm the disallowance out of brokerage expenses.- Decided in favour of assessee. Disallowance of various expenses on estimate basis - Held that:- The assessee’s business is as such that no pakka vouchers can be collected from the recipients of payments. The ld Assessing Officer also had not verified the details given by the assessee and also he sought the information on 27/12/2010 and completed the assessment on 31/12/2010 hurriedly. It is difficult to provide the full particulars of expenses. It is also a fact that non business purposes, the expenditure can be ruled out in absence of third party evidence. The addition confirmed by the ld CIT(A) appears to be higher side. Therefore, in the interest of justice, we consider reasonable disallowance out of travelling expenses, staff welfare expenses, telephone expenses, festival expenses, general expenses and guest house expenses @ 10% out of total expenses claimed. We do not require to be disallowed any expenses out of legal fees for registry, advertisement expenses, printing and stationary expenses, land maping and preparing expenses. Thus we confirm the addition of ₹ 14,000/- out of total disallowances made by the ld CIT(A) at ₹ 5,62,900/- - Decided partly in favour of assessee. Addition on sale of agricultural land as income from business as against agricultural income claimed by the assessee - Held that:- The intention of the assessee was to get capital appreciation on purchase and sale of agricultural land. The assessee had shown separately brokerage income earned on trading of land as business income. All the purchases and sales of the agricultural land beyond 8 km from the municipal area had been shown in the fixed assets as investment not in stock in trade. The assessee’s case has scrutinized continuously and in past also these additions were made by the Assessing Officer but the Coordinate Bench has set aside the issue to the Assessing Officer. It appears that the Coordinate Bench also not accepted the revenue’s plea. Further in A.Y. 2007-08, the assessee had shown exempted capital given of ₹ 83,11,740/-, which has been accepted by the Assessing Officer himself as the assessee has drawn attention on page No. 31 to 33 of paper book wherein copy of assessment order for A.Y. 2007-08 enclosed which shows that there is no addition made by the Assessing Officer under this head but during the year under consideration, the ld Assessing Officer held the same exempted income as business income. The rule of res judicata is not applicable in the case of income tax proceedings but the Hon'ble Supreme Court in the case of Radhaswami Satsang Vs. CIT [1991 (11) TMI 2 - SUPREME Court] has held that rule of consistency is to be followed to settle the repeated issue. The facts and circumstances of the case are identical to A.Y. 2007-08, therefore, we do not find any reason to hold exempted agricultural capital gain as adventure in nature of trade i.e. business income. The book entries are to be examined for deciding the nature of transaction. The assessee had shown these lands under the head fixed assets, therefore, the case law referred by the assessee are squarely applicable in the case of assessee. Accordingly, we reverse the order of the ld CIT(A) on this ground. - Decided in favour of assessee. Assessing the agricultural income as income from other sources - Held that:- The assessee regularly had declared the agricultural income not only in the preceding year but subsequent year, which has been accepted by the Assessing Officer. The assessee has filed the reply during the course of assessment proceedings vide letter dated 30/12/2010 and copy khasra girdawari vide letter dated 23/12/2010 to prove that the assessee had carried out agricultural activity on that land. The ld Assessing Officer in assessment year 2006-07, 2007-08 and 2009-10 has been accepted the assessee’s agricultural income. The ld Assessing Officer also had not brought out any evidence to substantiate the finding made by him that the assessee had not carried out any agricultural activity on it. Therefore, we allow the assessee’s ground of appeal and the Assessing Officer is directed to treat the agricultural income as such.- Decided in favour of assessee. Issues Involved:1. Disallowance of Rs. 4,20,000/- out of salary payment.2. Disallowance of Rs. 2,70,000/- out of commission expenses.3. Disallowance of Rs. 5,62,900/- out of various expenses.4. Assessment of Rs. 20,09,361/- gain on sale of agricultural land as business income.5. Assessment of Rs. 60,400/- agricultural income as income from other sources.Issue-wise Detailed Analysis:1. Disallowance of Rs. 4,20,000/- out of salary payment:The assessee, a real estate agent, claimed salary expenses of Rs. 19,20,000/- paid in cash to various employees. The Assessing Officer (A.O.) disallowed Rs. 4,20,000/- due to the assessee's failure to provide complete details of the employees and their duties. The CIT(A) confirmed this disallowance, noting that 40% of the sample employees could not be verified. However, the Tribunal found that the assessee had provided sufficient details and explanations about the employees and their duties. The Tribunal noted that the short time given by the A.O. for verification was insufficient and decided to allow the salary expenses, reversing the disallowance.2. Disallowance of Rs. 2,70,000/- out of commission expenses:The assessee claimed commission expenses of Rs. 10,20,000/- paid in cash to various brokers. The A.O. disallowed Rs. 2,70,000/- due to insufficient verification of brokerage payments. The CIT(A) upheld this disallowance, citing the lack of specific transaction details and the use of self-made vouchers. The Tribunal, however, noted that the assessee had provided details and produced some brokers for verification. Given the short time frame for producing all brokers, the Tribunal found no adverse evidence against the brokerage payments and allowed the commission expenses, reversing the disallowance.3. Disallowance of Rs. 5,62,900/- out of various expenses:The assessee claimed various expenses totaling Rs. 18,76,340/-, supported by self-made vouchers. The A.O. allowed Rs. 12,00,000/- and disallowed Rs. 6,76,340/- as unverified. The CIT(A) reduced the disallowance to Rs. 5,62,900/-. The Tribunal acknowledged the difficulty in obtaining proper vouchers for certain expenses but found the disallowance by the CIT(A) to be excessive. The Tribunal decided to disallow 10% of certain expenses, resulting in a disallowance of Rs. 14,000/-, and allowed the remaining expenses, thus partly allowing the assessee's appeal.4. Assessment of Rs. 20,09,361/- gain on sale of agricultural land as business income:The A.O. assessed the gain from the sale of agricultural land as business income, arguing that the assessee's transactions were frequent and for profit, indicating a business activity. The CIT(A) upheld this view, noting the short holding period and the nature of the transactions. The Tribunal, however, found that the assessee had consistently shown the land as a fixed asset and not as stock-in-trade. The Tribunal also noted that similar gains in the previous year were accepted as capital gains. Citing the principle of consistency, the Tribunal reversed the CIT(A)'s decision and treated the gain as exempt agricultural income.5. Assessment of Rs. 60,400/- agricultural income as income from other sources:The A.O. assessed the declared agricultural income as income from other sources due to a lack of documentary evidence. The CIT(A) confirmed this assessment. The Tribunal, however, noted that the assessee had consistently declared agricultural income in previous and subsequent years, which was accepted by the A.O. The Tribunal found that the assessee had provided sufficient evidence, such as Khasra Girdawari, to substantiate the agricultural activities. Therefore, the Tribunal directed the A.O. to treat the income as agricultural income, reversing the CIT(A)'s decision.Conclusion:The Tribunal allowed the assessee's appeal on the disallowance of salary payment and commission expenses, partly allowed the appeal on various expenses, reversed the decision on the gain from the sale of agricultural land, and directed the A.O. to treat the agricultural income as such. The appeal was partly allowed.