Income Tax Appellate Tribunal - Delhi
Surendra Buildtech Pvt. Ltd., New Delhi vs Department Of Income Tax on 17 August, 2010
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH: 'G' NEW DELHI
BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND
SHRI K.G. BANSAL, ACCOUNTANT MEMBER
I.T.A No. 4854/Del/10
Asstt. Year - 2007-08
DCIT Vs. Surendra Buildtech Pvt. LTd.,
Circle-9(1), Room No. 163, J-3/19, DLF Qutab Enclave,
C.R. Building, Phase-II, Gurgaon
New Delhi. AAICS0538E
(Appellant) (Respondent)
AND
I.T.A No. 4554/Del/10
Asstt. Year - 2007-08
Surendra Buildtech Pvt. Ltd., Vs. ACIT
J-3/19, DLF Qutab Enclave, Circle-9 (1)
Phase-II, Gurgaon New Delhi.
AAICS0538E
(Appellant) (Respondent)
Appellant by: Srujani Mohanty, Sr. Dr.
Respondent by: M.P. Rastogi, K.G. Sharma, CA
ORDER
PER RAJPAL YADAV, JM:
2 ITA Nos 4854, 4554/Del/10
Asstt. year 2007-08
The assessee and revenue are in cross appeals against the order of Ld. CIT(A) dated 17th August 2010 passed for asstt. Year 2007-08. In the revenue's appeal, first grievance is that Ld. CIT(A) has erred in deleting the addition of `1,19,16,142/- which was added by the AO u/s 40(a)(ia) of the Income Tax Act, on the ground that assessee failed to deduct TDS u/s 194H on commission payment.
2. The brief facts of the case are that assessee company at the relevant time was engaged in the business of real estate. It has filed its return of income on 31.10.2007 declaring total income of ` 79,13,300/-. A notice u/s 143 (2) of the Act was issued and served upon the assessee. In response to the notice Shri K.G. Sharma and Shri Ravinder Kumar, Chartered Accountants appeared before the AO and submitted the requisite details. On scrutiny of the accounts, it revealed to the AO that assessee has debited a sum of ` 1,19,16,142/- under the head "marketing expenses including incentive and discount". The AO had issued a show cause notice inviting assessee's explanation as to why deduction of this amount be not disallowed, because it failed to deduct tax at source, while making these payments in the shape of incentives and discount. In response to the query of AO, it was contended by the 3 ITA Nos 4854, 4554/Del/10 Asstt. year 2007-08 assessee that it has received a commission from the builders for booking the flat / houses in their projects. The amount received by the assessee from the builders are commission. Hence, tax has been deducted at source on such payments to the assessee by the builders. The assessee had given a discount to the ultimate buyer of flat. Hence, assessee is just passing a part of such commission from the builder to the buyer. It is not paying any commission to any sub agents. The alleged commissions given by the assessee to the purchaser of the flat is the discount to the customers. The relationship of the assessee with them is of seller and buyer. Ld. AO did not accept this contention of the assessee. He observed that assessee has received the commission. The nature of receipt is commission. It has parted with that receipt. Hence, it ought to have deducted the tax. Accordingly, AO has disallowed the claim of assessee made under the head "marketing expenses including incentives and discounts."
3. Dissatisfied with the AO, assessee carried the matter in appeal before Ld. CIT(A). It pointed out that the payments made by the assessee are not in the shape of commission rather it is the discount to the ultimate purchaser of the flat / house. The assessee has apprised 4 ITA Nos 4854, 4554/Del/10 Asstt. year 2007-08 the definition of commission / brokerage provided in the explanation appended to section 194H of the Act. Ld. First Appellate Authority has reproduced the written submission of the assessee and thereafter deleted the disallowance. The brief finding recorded by the Ld. CIT(A) read as under :-
"I have gone through the submission of the assessee and I find that discount had been given by the appellant to persons who had booked the flat/building through the appellant and the commission which the assessee received from the builder, it passed on a part of such commission to the original persons who booked the flat. The AO has also stated that such commissions were passed on to persons other than the original persons who made the booking but in the assessment order he has not cited a single instance where the discount has been given to persons other than those who had made the original booking. In order that any amount is subject to TDS on account if commission, it is necessary that:
i) services are rendered by the recipient
ii) That the payments should have been given in lieu of such
services
iii) There should be a principle/agent relationship.
While analysing the nature of discount or payments made by the appellant to the persons who had originally booked the flats, I find that the recipients in this case have not rendered any service to the appellant. In fact, on the contrary, it is the appellant who helped the persons to book a flat. As the persons who made the original booking has not rendered any service to the assessee hence the discount offered by him cannot be treated as payment of commission. Further there is no principle agent relationship between the assessee and the persons who had done the original booking. As such the provision of Section 194H are not attracted in this case. Thus, the disallowance of Rs. 1,19,16,142/- made by the AO u/s 40(a)(ia) is hereby deleted."
5 ITA Nos 4854, 4554/Del/10 Asstt. year 2007-08
4. Ld. DR while impugning the order of Ld. AO, contended that assessee has paid the commission to the ultimate purchaser . Therefore, it should have deduct the TDS. He pointed out that AO has observed in paragraph No. 3.3 that assessee has received a commission from the builder and part of it, when shared by the assessee with the third party is still commission. Therefore, TDS ought to have been deducted. On the other hand, Ld. Counsel for the assessee drew our attention towards section 194H and explanation 1 appended to this section. He pointed out that there is no relationship of principal and agent between the assessee and the ultimate purchaser of the flat. No services have been rendered by those customers to whom it can be said that commission / brokerage was paid by the assessee. The assessee has only provided discount from the commission which It has received from the builder. In the hands of the customer who booked the flat, it is not a commission, rather it is reduction in their cost price for the purchase of flat .
5. We have duly considered the rival contention and gone through the record carefully. Section 194H has a direct bearing on the 6 ITA Nos 4854, 4554/Del/10 Asstt. year 2007-08 controversy. Therefore, it is salutary upon us to take note of the section which read as under :-
"194H. Commission or brokerage.
Any person, not being an individual or a Hindu undivided family, who is responsible for paying, on or after the 1st day of June, 2001, to a resident, any income by way of commission (not being insurance commission referred to in section 194D) or brokerage, shall, at the time of credit of such income to the account of the payee or at the time of payment of such income in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rate of ten per cent:
Provided that no deduction shall be made under this section in a case where the amount of such income or, as the case may be, the aggregate of the amounts of such income credited or paid or likely to be credited or paid during the financial year to the account of, or to, the payee, does not exceed two thousand five hundred rupees:
Provided further that an individual or a Hindu undivided family, whose total sales, gross receipts or turnover from the business or profession carried on by him exceed the monetary limits specified under clause (a) or clause (b) of section 44AB during the financial year immediately preceding the financial year in which such commission or brokerage is credited or paid, shall be liable to deduct income-tax under this section:
Provided also that no deduction shall be made under this section or any commission or brokerage payment by Bharat Sanchar Nigam Limited or Mahanagar Telephone Nigam Limited to their public call office franchisees.
Explanation. - For the purposes of this section :-
(i) "commission or brokerage" includes any payment received or receivable, directly or indirectly, by a person acting on behalf of another person for services rendered (not being professional services) or for any services in the course of buying or selling of goods or in relation to any transaction relating to any asset, valuable article or thing, not being securities;
xxxx"
7 ITA Nos 4854, 4554/Del/10 Asstt. year 2007-08
6. The expression "commission or brokerage" has been explained in the explanation appended to this section. According to the meaning provided in the explanation, the commission would be considered, if any person received it directly or indirectly on behalf of another person for the services rendered, and such services should not be professional services. In the present case, admittedly the person to whom discount was granted by the assessee were not acting as an agent for the assessee, rather they are the purchaser of the property. They have not provided any type of services to the assessee. They have just booked the flat through the assessee. In fact, assessee is an agent between the builder and the ultimate purchaser of the flats. The assessee has parted with some part of the commission received from the builder from alluring the purchaser so that it can earn more commission. It is just providing a discount to the purchaser and not paying any commission for any services taken from such customers. It appears that Ld. AO was influenced by the nomenclature of the receipt in the hands of the assessee. He failed to distinguish what character such receipt would attain when it will be offered to the customer. The relationship between the assessee and the purchaser of the flat is of buyer and seller. The Ld. First Appellate Authority has appreciated the controversy in right perspective and we do not see any reason to interfere in his order.
8 ITA Nos 4854, 4554/Del/10 Asstt. year 2007-08 Ground No. 2
7. In this ground of appeal, grievance of the revenue is that Ld. CIT(A) has erred in deleting the disallowance of ` 25 lacs out of commission expenses of ` 43,99,257/-.
8. With the assistance of Ld. Representative, we have gone through the record carefully. It reveals from the record that assessee has paid a commission of ` 43,99,257/- to various concerns and individuals. The AO has noticed the details of 8 individuals / concerns in the tabular form at page 5 who are coved u/s 40A (2)(b) of the Income Tax Act being related persons and to whom commission has been paid. In the opinion of AO, the commission was paid excessively to these persons and they have not rendered the services for the assessee. On appeal, assessee has submitted detailed written submissions in respect of each individual to whom commission has been paid. Ld. First Appellate Authority has reproduced the submissions of the assessee. Ld. CIT(A) after appreciating the facts and circumstances deleted the disallowance.
9 ITA Nos 4854, 4554/Del/10 Asstt. year 2007-08
9. Ld. DR while impugning the order of Ld. CIT (A), contended that assessee was unable to explain the services rendered by Punita Chopra, Noorjahan Saund etc. Their ability to provide such services were not established by the assessee. From the record, it appears that commission has been paid because they were related to the Directors. She specifically drew our attention towards the observation of AO available on page 8, wherein AO has pointed out certain unusual features in the commission paid by the assessee. Ld. DR pointed out that AO has noticed the payment of commission in a round figure which normally does not happen. The assessee failed to give method of computation of commission paid to 6 individuals who are covered by section 40A(2)(b). Ld. Counsel for the assessee, on the other hand pointed out that AO has miserably failed to appreciate the facts and circumstances in right perspective. He submitted that assessee is engaged in pre launch booking the project. The booking has to be carried out at various stations. It is not practically possible for the assessee to open offices on various locations, for the said purpose the assessee has to engage some other persons for the booking. He drew our attention towards page 17 of the paper book, where details of commission paid by the assessee is available. With the help of this chart, he pointed out that booking of projects was made at different 10 ITA Nos 4854, 4554/Del/10 Asstt. year 2007-08 places namely , Mohali, Kundaly etc. These persons have helped the assessee to book the properties for its customer. Payments have been made through account payee cheque. All the persons are income tax assessee. Their permanent account number has been given to the AO. They have given confirmation. They have also disclosed the details of the booking made for the assessee. Surender Mukhija HUF and Sorabh Chopra had given advertisement in the newspaper for booking of the flats at DLF TDI etc. Assessee has placed on record copies of the newspaper cutting exhibiting the advertisement given by these persons. Thus according to the assessee, these persons are in the real estate business. They are carrying out these activities and they extended the help to the assessee. All these details have been placed in the paper book by the assessee.
10. On due consideration of the facts and circumstances, we are of the opinion that in order to claim any expenditure not being expenses described in sections 30 to 36 and not being in the nature of capital expense or personal expense laid out and has been wholly and exclusively for the purpose of business, one's claim has to be examined under the residuary provision of section 37. The expression wholly 11 ITA Nos 4854, 4554/Del/10 Asstt. year 2007-08 employed in section 37 referred to the quantum of expenditure while the word exclusively referred to the motive, objective and purpose of expenditure. In the present case, the motive and objective of the expenditure is to take help of these persons for booking of the flats / plots at pre launching of project commenced by the builder. The objection of the AO is of two folds :-
i) It is excessive hence deserves to be disallowed u/s 40A(2b) and
ii) it is not genuine.
11. As far as genuineness is concerned, assessee has placed on record evidence exhibiting the services rendered by these persons. It has also placed on record, details of each individual for demonstrating the facts that these persons were engaged in the business of consultancy in real estate. For the purpose of section 42A (2b), the AO has not highlighted what is the fair market value of the services rendered by these persons and how AO has availed their services at a higher rate than the one available in the open market. The Ld. First Appellate Authority has considered these aspect. Ld. CIT(A) further observed that there is no substantial decline in the net margin of the assessee. Its turn over has been increased from ` 1,65,28,203/- to ` 3,36,78,330/-. Thus 12 ITA Nos 4854, 4554/Del/10 Asstt. year 2007-08 the turn over has become almost double. Thus considering the detailed finding of the Ld. CIT(A) as well as the evidence placed on record by the assessee, we do not see any reason to interfere in the order of the Ld. CIT(A).
12. In the result appeal of the revenue is dismissed. ITA No. 4554/Del/2010
13. In this appeal grievance of the assessee is that Ld. CIT(A) has erred in confirming the disallowance of ` 6,37,838/-. The brief facts of the case are that assessee has debited an amount of ` 61,24,952/- under the head "advertisement". The AO on perusal of the advertisement, appeared in the newspaper found that name of M/s Surendra Poperties, a proprietary concern of one of the directors and Surendra Mechanical Engineer is also appearing in the advertisement. Thus according to the AO, the expense was not exclusively incurred for the business of the assessee. He disallowed 20% of the expenses and made an addition of ` 12,75,635/- On appeal, Ld. CIT (A) restricted this disallowance to 10%.
13 ITA Nos 4854, 4554/Del/10 Asstt. year 2007-08
14. Ld. Counsel for the assessee submitted that Shri Surendra Mukhija has also incurred similar expenditure in his proprietary concern. He had incurred a sum of ` 20,39,479/-. The name of the assessee appeared in all those advertisement and AO has made disallowance of 25% from his claim on the ground that expense was not exclusively incurred by Shri Surendra Mukhija for his business. He submitted that if expenses incurred by the assessee and there is incidental benefit to some other concern, then expense cannot be disallowed. He also pointed out by giving assessees's name in the advertisement given by Shri Surender Mukhija assessee has been compensated. For butteracing his contention, he relied upon the decision of Hon'ble Delhi High Court in the case of CIT Vs. Micromatic Machine tools (P) Ltd. reported in 192 Taxman 161. On the other hand, Ld. DR relied upon the order of AO.
15. We have considered the rival contention and gone through the record carefully. According to the assessee, M/s Surnder Properties is in the existence of the real estate business even before the assessee came into existence. The name of Surnder Mukhija in a way enhanced the business of assessee. However, there is no evidence available on record to this effect. The assessee has placed on record copy of the asstt. Order passed in the case of Shri Surender Mukhija. From perusal 14 ITA Nos 4854, 4554/Del/10 Asstt. year 2007-08 of the asstt. Order, we find that Shri Surender Mukhija had incurred a sum of ` 20,39,479/- towards advertisement and the name of assessee has been appearing in his advertisement. Thus in a way, assessee has been fairly compensated, the expenses incurred by both the concerns mutually give benefit to each other mutually. Hence, it cannot be termed that assessee has extended undue benefit to third concern by giving its name in the advertisement of the assessee. Otherwise expenses have not been doubted by the AO. Considering all these aspects, we are of the view the expenses were incurred exclusively for the business purpose and no disallowance deserves to be made . Accordingly, the ground of assessee's appeal is allowed and the disallowance made by the AO is deleted.
16. In the result, appeal of the assessee is allowed and that of revenue is dismissed.
Order pronounced in the open court on 27.5.2011.
Sd/- sd/-
[K.G. BANSAL] [RAJPAL YADAV]
ACCOUNTANT MEMBER JUDICIAL MEMBER
Dated:27.5.2011
Veena
15 ITA Nos 4854, 4554/Del/10
Asstt. year 2007-08
Copy forwarded to: -
1. Appellant
2. Respondent
3. CIT
4. CIT (A)
5. DR, ITAT TRUE COPY By Order,
Deputy Registrar,
ITAT