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of <h1>Tribunal Upholds CIT(A) Decisions on Commission Expenses & Section 54F Deduction</h1> <h3>ACIT, Circle-32, Kolkata Versus Jitendra Seth</h3> ACIT, Circle-32, Kolkata Versus Jitendra Seth - TMI Issues Involved:1. Disallowance of commission expenses of Rs. 51,56,694.2. Disallowance of section 54F deduction claimed of Rs. 56,52,242, restricted to Rs. 42,39,181.Issue 1: Disallowance of Commission ExpensesThe Revenue challenged the Commissioner of Income Tax (Appeals) [CIT(A)]'s decision to reverse the Assessing Officer (AO)'s disallowance of commission expenses amounting to Rs. 51,56,694. The assessee, engaged in manpower recruitment, claimed these expenses as deductions. The AO disallowed the expenses on the grounds that the parties to whom the commission was paid denied using the services of the commission agents.The CIT(A) found that the assessee provided detailed evidence including the names, addresses, PAN details of the agents, bills issued, details of services rendered, and proof of TDS deductions. The CIT(A) criticized the AO for not examining the commission agents and failing to understand the business process, which involves discreet information crucial for placing senior-level executives. The CIT(A) concluded that the AO's inquiry with the candidates was irrelevant as the candidates might not remember the agents involved in their placement. The CIT(A) referenced several case laws supporting the allowance of commission payments as business expenses.The Tribunal upheld the CIT(A)'s findings, noting that the AO did not verify whether the parties claimed the corresponding TDS credit in their tax records and did not investigate the assessee's ultimate clients. The Tribunal found that similar commission payments were accepted in subsequent assessment years, thus affirming the CIT(A)'s decision to delete the disallowance.Issue 2: Disallowance of Section 54F DeductionThe Revenue also contested the CIT(A)'s decision to reverse the AO's disallowance of the section 54F deduction claimed by the assessee for Rs. 56,52,242, which was restricted to Rs. 42,39,181. The assessee sold a property and invested in constructing a new building, which was sanctioned as both residential and commercial. The AO disallowed the entire deduction, arguing that the building's commercial nature disqualified it from section 54F benefits. The AO, based on an ITO's inspection, estimated the residential portion's cost at 15% of the total construction cost.The CIT(A) found that the building was primarily residential, with no commercial activities observed during inspection. The CIT(A) held that section 54F, being a beneficial provision, should be liberally interpreted. The CIT(A) determined that 75% of the building was residential and allowed the deduction accordingly, restricting it to Rs. 42,39,181 (75% of Rs. 56,52,242).The Tribunal supported the CIT(A)'s approach, agreeing that section 54F should be liberally construed. The Tribunal noted the assessee's fair declaration of the ground floor as commercial and the remaining floors as residential. The Tribunal affirmed the CIT(A)'s apportionment of the deduction, treating the residential portion as 'a residential house' under section 54F.Conclusion:The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decisions on both issues. The commission expenses disallowance was deleted, and the section 54F deduction was restricted to the residential portion of the new building.
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