2017 (6) TMI 1228 - AT - Income Tax

Tribunal upholds Commissioner's decisions in favor of assessee on commission, cash payments, and rent expenses.

The Tribunal upheld the Commissioner (Appeals)'s decisions in favor of the assessee on all three issues. The Revenue's appeal was dismissed, confirming ... Disallowance of commission - assessee has not furnished any material evidence to substantiate his claim of commission before the A.O. - Held that:- The payment was made by account payee cheques to all the parties and the parties declared such receipt in their respective return of income filed before the Department which was also accepted by the Department. The books of account have not been rejected. We find no reason to restrict the commission @ 15%. Commissioner (Appeals) has rightly allowed the commission after going through the record produced by the assessee and by going through the details of each and every person to whom the commission was paid. Disallowance under section 14A(3) on account of cash payment - Held that:- On appraisal of the order passed by the learned Commissioner (Appeals) in question, we noticed that the appellant is a developer and purchased the land to get it converted into the non–agricultural land. The same was to be sold after plotting. It is not in dispute that the amount of ₹ 24 lakh was paid in cash to the vendor. The said amount was not claimed as expenditure to the Profit & Loss account the cost of land was debited to the work–in–progress. Commissioner (Appeals) has deleted the addition on the basis of the finding of the Co–ordinate Bench of the Tribunal, Delhi Bench, in the case of M/s. AT Properties Pvt. Ltd. [2013 (11) TMI 1723 - ITAT DELHI] Disallowance on account of rent expenditure - Held that:- As going through the facts of the case and by going through the record of the assessee and even on going through the record of the landlord namely Shri Ganpatrao Ahirkar, Shri Anil Ahirkar and Smt. Surekha Ahirkar, learned Commissioner (Appeals) has arrived at the conclusion that there is no ambiguity of any kind in the transaction. These facts are not distinguishable at this stage also. The learned Commissioner (Appeals) passed the order judiciously and correctly which is not liable to be interfered with at this appellate stage. - Revenue’s appeal is dismissed. Issues Involved:1. Deletion of addition on account of disallowance of commission.2. Deletion of addition on account of disallowance under section 40A(3) for cash payments.3. Deletion of disallowance of rent expenses.Issue-wise Detailed Analysis:Issue No. 1: Deletion of Addition on Account of Disallowance of CommissionThe Revenue challenged the deletion of Rs. 42,49,485 on account of commission. The Commissioner (Appeals) found that the assessee booked commission on the sale of plots on an accrual basis, with sales recorded upon the execution of the sale deed and transfer of possession. The assessee provided names, addresses, and confirmation letters from recipients of the commission, all paid via account payee cheques and reported in their respective tax returns. The Assessing Officer (AO) restricted the commission allowance to 15% of sales without logical reasoning or challenging the genuineness of the payments. The Commissioner (Appeals) noted that the AO accepted the profits from sales without questioning the taxability or the method of accounting. The AO did not invoke Section 145 of the Income Tax Act, indicating acceptance of the mercantile method of accounting. The Commissioner (Appeals) found no justification for restricting the commission and directed the deletion of the addition. The Tribunal confirmed this decision, noting that the AO failed to consider the evidence provided by the assessee and did not reject the books of account.Issue No. 2: Deletion of Addition on Account of Disallowance under Section 40A(3) for Cash PaymentsThe Revenue contested the deletion of Rs. 24 lakh added by the AO under Section 40A(3) for cash payments related to land purchases. The assessee, a developer, paid Rs. 24 lakh in cash to agricultural land vendors, which was not claimed as an expense in the Profit & Loss account but debited to work-in-progress. The Commissioner (Appeals) referenced a Delhi ITAT decision, noting that disallowance under Section 40A(3) is not warranted when the expenditure is not claimed in the Profit & Loss account. The Tribunal upheld this view, acknowledging that the payment was reflected in the sale deed and the land cost was part of work-in-progress, not an expense claimed in the Profit & Loss account. The Tribunal affirmed the Commissioner (Appeals)'s decision, finding no distinguishable material to challenge it.Issue No. 3: Deletion of Disallowance of Rent ExpensesThe Revenue disputed the deletion of Rs. 9.60 lakh disallowed by the AO for rent expenses. The assessee paid rent through account payee cheques, with TDS deducted, and the rent was reflected in the landlords' tax returns. The AO disallowed the rent based on a physical inspection and lack of hoardings, inferring non-use of the premises. The Commissioner (Appeals) found that the rent payments were legitimate business expenses, duly reflected in the landlords' tax returns, and the AO's inference had no substantial basis. The Tribunal agreed, noting that the rent payments were properly documented, used for business purposes, and taxed in the landlords' returns. The Tribunal affirmed the Commissioner (Appeals)'s decision, finding no grounds for interference.Conclusion:The Tribunal dismissed the Revenue's appeal, confirming the Commissioner (Appeals)'s decisions on all three issues. The Tribunal found that the Commissioner (Appeals) acted judiciously and correctly, with no need for appellate interference. The order was pronounced in open court on 30.06.2017.