2019 (1) TMI 1614 - HC - Income Tax

Court dismisses appeal over tax issues, upholds disallowance under Section 14A & rules on brokerage expenses.

THE PR. COMMISSIONER OF INCOME TAX -3 Versus DLF HOME DEVELOPERS LTD.

The Court dismissed the appeal as it found no substantial question of law arising from the issues raised by the revenue. The disallowance under Section ... Disallowance under Section 14A - HELD THAT:- Court notices that the exempted income in this case is ₹ 3.17 lakhs. AO had disallowed ₹ 59 crores which was reduced to ₹ 8 crores by the CIT(A). Following the decision of this court in Commission of Income Tax vs. Joint Investment [2015 (3) TMI 155 - DELHI HIGH COURT] the ITAT restricted the disallowance to the income earned i.e. ₹ 3.17 lakhs. So, there is no infirmity in this approach. No question of law arises. Payment of brokerage expenses - allowable expenditure u/s 37- HELD THAT:- In DLF Universal Limited [2019 (1) TMI 1536 - DELHI HIGH COURT] this Court after framing questions with respect to allowance under brokerage and commission claimed by the assessee in the context of percentage completion method adopted by it held brokerage and commission is not a direct expenses for acquiring to a specific property but it is in fact financial cost/selling expenses and is fully allowable in the year in which the same is incurred. The property brokers who have rendered their services to obtain advances on booking of properties are entitled to the payment of commission in terms of agreement entered into with them. Therefore, the expenses incurred on brokerage and commission on booking of properties being a finance/selling expenses are allowable in full. Membership receipt towards club membership - HELD THAT:- Issue covered by another decision of this court in Commissioner of Income Tax vs. DLF Commercial Developers Ltd., [2012 (3) TMI 617 - DELHI HIGH COURT] It was held that the treatment in the concerned year of receipt is in accordance with the principles of accountancy. No question of law therefore arises. Issues:1. Disallowance under Section 14A2. Payment of brokerage expenses3. Taxation of payment received for club membershipAnalysis:Issue 1: Disallowance under Section 14AThe Court noted that the Assessing Officer initially disallowed a significant amount of Rs. 59 crores under Section 14A, which was later reduced to Rs. 8 crores by the CIT(A). However, following a previous decision in Commission of Income Tax vs. Joint Investment, where the ITAT restricted the disallowance to the actual exempted income of Rs. 3.17 lakhs, the Court found no error in this approach. Consequently, it was held that no question of law arose regarding the disallowance under Section 14A.Issue 2: Payment of Brokerage ExpensesRegarding the payment of brokerage expenses, the Court referred to a previous decision in ITA No.54/2019. In that case, the Court had allowed the expenditure claimed by the assessee towards brokerage and commission. The Court emphasized that such expenses are financial costs or selling expenses and are fully allowable in the year they are incurred. The Court upheld the assessee's explanation and ruled in favor of allowing the brokerage and commission expenses. Therefore, the question of law was answered in favor of the assessee and against the Revenue.Issue 3: Taxation of Club Membership ReceiptThe third issue pertained to the taxation of payment received towards club membership. The Court cited a previous decision in ITA 180/2012, where it was held that the treatment of club membership receipts in the year of receipt aligns with accounting principles. As a result, the Court concluded that no question of law arose in this regard.In conclusion, the Court found that no substantial question of law arose from the issues raised by the revenue. Therefore, the appeal was dismissed based on the detailed analysis provided for each issue.