2024 (3) TMI 304 - AT - Income Tax

AO's additions overturned: commission disallowance based on single statement insufficient, fit-out charges legitimate, business judgment respected

ITO, Ward 10 (4), New Delhi Versus Gyan Marketing Associates P. Ltd.

ITAT Delhi upheld CIT(A)'s deletion of three additions made by AO. First, regarding commission disallowance, AO's conclusion that broker payments were ... Disallowance of total commission paid on booking of space - CIT(A) deleted addition - HELD THAT:- AO made enquiries from various persons by issuing notices u/s. 133(6) and obtained confirmations and documents without giving any basis of doing so, however in response to section 133(6) some of the buyers have stated that the space was booked through broker but did not pay brokerage to broker. Hence, Ld. CIT(A) observed that AO’s conclusion that payment of commission to brokers bogus, is not correct appreciation of facts and drawing conclusion simply on the basis of solitary statement of Sh. Ravinder Yadav without conducting any further enquiry, is not sufficient to accept the finding of the AO. CIT(A) has rightly deleted the addition in dispute - Ground No. 1 raised by the Revenue deleted. Disallowance u/s. 40(a)(ia) - interest payable and fit out charges received from buyers - CIT(A) deleted addition - HELD THAT:- CIT(A) observed that fit out charges received is part of the agreement signed with the customers who opted for fit out by the assessee. Therefore, simply on the basis of inadvertent mistake by the auditor by grouping certain liability in a different head in the balance sheet, cannot be the basis for sustaining the addition, therefore, in our considered opinion, the Ld. CIT(A) has rightly deleted the addition in dispute, which needs no interference - We dismiss the Ground No. 2 raised by the Revenue. Disallowance of amount paid towards assured return - only grievance of the AO that the assessee has given more assured return than it advertised initially - CIT(A) deleted addition - HELD THAT:- CIT(A) has observed that AO is not correct in questioning the business necessity of the assessee for offering more assured return than the advertised through initial advertisement and relied upon the decision of the Hon’ble Delhi High Court in the case of SA builders vs. CIT [2006 (12) TMI 82 - SUPREME COURT] wherein it has been held that once it is established that there was nexus between the expenditure and the purpose of the business, the Revenue cannot justifiably claim to put itself in the arm-chair of the businessman or in the position of the board of directors and assume the role of decide how much is reasonable expenditure having regard to the circumstances of the case. In view of above, in our considered opinion, CIT(A) has rightly deleted the addition in dispute, which does not need any interference on our part, hence, we uphold the same and dismiss the Ground No. 3 raised by the Revenue. Issues:The judgment involves the following Issues:1. Disallowance of total commission paid on booking of space.2. Disallowance under section 40(a)(ia) of interest payable and fit out charges received from buyers.3. Disallowance of amount paid towards assured return.Issue 1: Disallowance of total commission paid on booking of space:The Revenue appealed against the order of Ld. CIT(A) regarding the disallowance of total commission paid on booking of space amounting to Rs. 1,23,87,897. The AO treated the commission as bogus, but the Ld. CIT(A) found that the commission was paid for introducing customers to the assessee, with TDS deducted and deposited. The Ld. CIT(A) concluded that the AO's finding was not based on sufficient evidence and deleted the addition, which was upheld by the Tribunal.Issue 2: Disallowance under section 40(a)(ia) of interest payable and fit out charges:The AO disallowed Rs. 4,69,31,575 as interest payable under section 40(a)(ia) due to non-deduction of TDS. However, the Ld. CIT(A) found that there was no wrongdoing by the assessee, as TDS was deducted and deposited. The Ld. CIT(A) also noted that fit out charges were not interest payable, and the AO's suspicions were unfounded. The Tribunal upheld the Ld. CIT(A)'s decision to delete the disallowance.Issue 3: Disallowance of amount paid towards assured return:The AO disallowed Rs. 29,31,312 paid towards assured return, questioning the business necessity for offering more assured return than advertised. The Ld. CIT(A) found that the expenses were justified, with parties confirming receipt of assured return and TDS deductions. The Tribunal agreed with the Ld. CIT(A) that the AO's questioning was unfounded and upheld the deletion of the disallowance.In conclusion, the Tribunal dismissed the Revenue's appeal, upholding the Ld. CIT(A)'s decisions on all three issues.