AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2018 (6) TMI 354
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....tion made by the AO on account of disallowance of commission: and brokerage expenses amounting to Rs. 15,96,756/- 4 The appellant craves to amend, modify, alter, add or forgo any ground(s) of appeal at any time or during the hearing of this appeal." 2. Briefly stated facts of the case are that the assessee filed return of income on 21/09/2010 declaring nil income. The case was selected for scrutiny and notice under section 143(2) of the Income-tax Act, 1961 ( in short the 'Act') was issued and complied with. In the scrutiny proceeding completed u/s 143(3) of the Act on 18/03/2013, the Ld. Assessing Officer made certain additions/disallowances and assessed total loss at Rs. 21,60,391/- as against loss of income of Rs. 69,01,541/- reported in computation of income. Aggrieved, the assessee filed appeal before the Ld. CIT(A), who partly allowed the appeal of the assessee. Aggrieved with the relief allowed to the assessee, the Revenue is in appeal before the Tribunal raising the grounds as reproduced above. 3. In ground No. 1, the Revenue has challenged finding of the Ld. CIT(A) deleting the disallowance of Rs. 5,66,266/- made by the Ld. AO under section 14A read with Rule 8D(2)(i....
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....ly, recomputed the average value of investment to Rs. 1,50,01,500/- and worked out the disallowance under Rule 8D(2)(iii) of the Rules to Rs. 37,500/-. The relevant finding of the Ld. CIT(A) is reproduced as under: "7.6. The arguments of the appellant and the facts of the case have been carefully examined. The appellant has tried to give an impression that the expenditure claimed in P & L account under various heads do not directly relate to earning of dividend income. However, such claim of the appellant is not supported with the evidences on record. The expenses claimed under the head "traveling and conveyance' are such common expenses which are incurred for earning both taxable as well as exempt dividend income. Besides that, it is observed that the appellant has not claimed any salary/wages as well as the Director's remunerations in the P & L account which have been claimed exclusively for projects and hence capitalized. Such action of the appellant is also against the factual position in the case as it is the considered decision of the Directors as well as higher management of the company to decide the time and quantum of investments which ultimately yield dividend incom....
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....d dividend income of Rs. 6,72,408/- which has been claimed as exempt. In the return of income filed, the assessee made no disallowance out of the expenses claimed in the profit and loss account, towards earning the exempt dividend income. The Assessing Officer made total disallowance of Rs. 6,05,680/-, which consisted disallowance of Rs. 5,66,266/- under Rule 8D(2)(ii) for disallowance of indirect interest expenditure in proportion of the average investment in assets yielding exempted income to the average total assets and disallowance of Rs. 39,414/- under Rule 8D(2)(iii) for administrative expenses at the rate of 0.5% of the average value of the assets yielding exempted income. 3.7 The Ld. CIT(A) deleted disallowance of Rs. 5,66,266/- under Rule 8D(2)(ii) of the Rules in view of no interest debited in the profit and loss account. In our opinion, the disallowance under section 14A of the Act has been prescribed for segregating the expenses related to exempt income, which have been debited in computation of taxable income. The purpose of the section is to eliminate allowing of expenses pertaining to exempt income, claimed against the taxable income. In the instant case, when the a....
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....nd, therefore, the claim of advertisement and brokerage expenses cannot be allowed. He rejected the contention of the assessee and in respect of advertisement expenses, he allowed 1/5th of the advertisement expenses and balance expenses of Rs. 25,38,714/- was disallowed. As far as brokerage expenses, was concerned, he disallowed the entire amount of Rs. 15,96,756/- on the ground that assessee has not made any sale of any flat or apartment in the year under consideration. 4.2 Before the Ld. CIT(A), the assessee submitted that it was involved in construction of residential project at Chennai and advertisement expenses were incurred for the purpose of awareness of its project amongst the prospective buyers and to give details of the same. He submitted that the assessee undertook several advertisement activities viz. preparation of advertisement materials, designing of brochures, advertisement in news papers etc. According to the assessee, the advertisement expenses are directly linked with the sales and therefore cannot form part of the cost of the project. The assessee also submitted that although sales could not take place, but the assessee has received significant advance against ....
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....nt Expenditure' is not justified and the same is directed to be deleted. Ground No. 2 of the appeal is allowed." 4.3 Regarding the disallowance of commission and brokerage expenses of Rs. 15,96,756/-, the Assessee submitted before the Ld. CIT(A) that during the year the assessee received booking amounts from prospective customers and hence, the commission was payable to brokers. The assessee submitted that merely because the income corresponding to the advances received from the prospective buyers was not reflected in the books of accounts, the expenditure under the head commission and brokerage cannot disallowed. The Ld. CIT(A) deleted the disallowance observing as under: "9.1. Ground No. 3 of the appeal is against the disallowance of ? 15,96,756/- made by the AO under the head 'commission and brokerage expenses'. The AO made disallowance merely on the basis that no sales have been made by the appellant during the year. The appellant, on the other hand, has argued that the commission and brokerage is paid to the agents when the booking is made by the buyers. It was argued that in case of real estate industry, the booking of the flat is the basis for the payment of commission. ....
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..... 3385/Del/2014) has been decided by the Tribunal Delhi Benches in favour of the assessee. 4.6 We have heard the rival submissions and perused the relevant material on record. In the instant case, the assessee is engaged in the development of real estate project. Before the Ld. CIT(A), the assessee claimed that expenses of advertisement have been incurred in relation to one of the real estate project at Chennai. Regarding the commission brokerage expenses, also the assessee claimed that expenses have been incurred in relation to the booking of the flats/apartments. The assessee has submitted that it is following percentage completion of method for recognizing the revenue from the project. This method of recognizing revenue has been prescribed by the Institute of Chartered Accountant of India (ICAI) and certain guidelines in this respect have been issued. Under the percentage completion of method of revenue recognition, though an assessee might have booked sales of the flats/apartment through agreements, but revenue from such sales is booked when substantial cost on project has been incurred. The justification behind is that on entering into an sale agreement with the buyer, the su....
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....o him outside India shall not be so included unless it is derived from a business controlled in or a profession set up in India." 4.8.1 Further, in section 145 of the Act method of accounting has been prescribed, which reads as under: "Method of accounting. 145. (1) Income chargeable under the head "Profits and gains of business or profession" or "Income from other sources" shall, subject to the provisions of sub-section (2), be computed in accordance with either cash or mercantile system of accounting regularly employed by the assessee. (2) The Central Government may notify in the Official Gazette from time to time income computation and disclosure standards to be followed by any class of assessees or in respect of any class of income. (3) Where the Assessing Officer is not satisfied about the correctness or comp-leteness of the accounts of the assessee, or where the method of accounting provided in sub-section (1) has not been regularly followed by the assessee, or income has not been computed in accordance with the standards notified under sub-section (2), the Assessing Officer may make an assessment in the manner provided in section 144." 4.9 Thus, the assessee ha....