Income Tax Appellate Tribunal - Delhi
Dcit, New Delhi vs M/S Surendra Mohan Mukhija, New Delhi on 27 April, 2018
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH ' G' NEW DLEHI
BEFORE SHRI N.K. SAINI, ACCOUNTANT MEMBER
AND
SHRI K. NARSIMHA CHARY, JUDICIAL MEMBER
I.T.A. No.5820/Del/2010
Assessment Year: 2007-08
Mr. Surendra Mohan Mukhija, vs Dy. Commissioner of Income-tax ,
D-60, Sham Nagar, Back side, Circle 9(1), New Delhi.
New Delhi.
(PAN: AAJPM6225G)
I.T.A. No.693/Del/2011
Assessment Year: 2007-08
Dy. Commissioner of Income-tax , vs Mr. Surendra Mohan Mukhija,
Circle 9(1), New Delhi. D-60, Sham Nagar, Back side,
New Delhi.
(PAN: AAJPM6225G)
(Appellant) (Respondent)
Assessee by: Shri M.P. Rastogi
Department by: Shri Kauyshlendra Tiwari, Sr. DR
ORDER
Date of Hearing: 05.04.2018
Date of Pronouncement: 27.04.2018
PER K. NARASIMHA CHARY, JM
These two appeals emanate from the order dated 5.10.2008 in ITA No.153/2010-11 passed by the learned Commissioner of Income-tax (Appeals)-XII, New Delhi (for short "CIT(A)") in Appeal No.153/09-10.
22. Relevant facts in brief are that the assessee derives his income as real estate agent. For the Asstt. Year 2007-08, he filed his return of income on 31.10.2007 declaring a total income of Rs.1,06,17,066/-. However, learned AO passed the order dated 31.12.2009 u/s 143(3) of the Act making the following additions:
S.No. Name of disallowance Amount (Rs)
1 Marketing expenses disallowed u/s 40(a)(ia) 2,22,67,636/-
2 Disallowance of commission paid 12,10,460/-
3 Disallowance of 25% of advertisement expenses 5,09,869/-
4 Disallowance in terms of Section 2(22)(e) 53,98,617/-
5 Disallowance of interest expense 2,56,006/-
6 Disallowance of business promotion expenses 1,00,000/-
7 Disallowance of telephone and car expenses 1,77,868/-
8 Disallowance on account of low withdrawal for 1,20,000/-
household expenses
3. In the appeal preferred, learned CIT(A) by way of impugned order, deleted the disallowances at S.Nos.1,2,4 and restricted the disallowance in respect of Item No.3 above to 10% as against 25% disallowed by the AO. Learned CIT(A) confirmed the other additions.
4. Aggrieved by the order of the learned CIT(A) sustaining the disallowance of advertisement expenses to 10% and the other additions made by the AO vide S.Nos.5 & 8, assessee preferred ITA No.5820/Del/2010 whereas challenging the deletion of the disallowance u/s 40(a)(1a), 40A(2)(b) and 2(22)(e) of the Act and also restriction of the disallowance on account of the advertisement expenses to 10% as against 25% levied by the AO, the Revenue is in appeal in ITA No.693/11.
5. In so far as disallowance u/s 40(a)(ia) of the Act is concerned, case of the assessee is that assessee is a real estate dealer on commission basis and dealing 3 in fresh booking of the pre launched projects of big builders and being the authorized agent of the dealer as and when a builder project is announced, the assessee underwrites the project and then in turn, booking of the properties through various dealers, agents and also directly. In that process, the persons who had booked the properties through the assessee are also allowed some incentives/discounts against their booking and the assessee has been debiting such expense under the head "Marketing Expenses".
6. Learned AO is of the impression that the discount, if any, that has to be given to the purchaser of the flat could be given by the builder only and not by the assessee, which is only a broker, as such, whatever the assessee was allowing on the name of discount is in fact in the nature of sub commission, as such, the provisions of Section 194H are attracted for non deduction of TDS in accordance with law on such amounts. Learned AO disallowed the same u/s 40a(ia) of the Act.
7. Learned CIT(A), on examination of record and also the earlier year assessments and orders of the first appellate authority as well as the Tribunal, found that in order to subject any amount to TDS treating it as commission, it is necessary that the recipient of the money should render some service to the payer; the payments must relate to such service, and there shall be the relationship of principal and agent, which ingredients are conspicuously absent in the matter. Learned CIT(A) found that the recipient does not render any service to the assessee and on the contrary, it is the assessee, who renders service by way of help to book a flat. In these circumstances, for non satisfaction of the conditions required to attract the provisions u/s 194H, learned CIT(A) held that 4 the discount offered by the assessee cannot be treated as payment of commission and the addition made on this count is to be deleted.
8. We do not find any perversity in the findings of the learned CIT(A). The assessee produced the copy of the order dated 1.6.2012 in ITA No.4552/Del/2011 in assessee's own case for the Asstt. Year 2008-09 wherein this very issue was dealt with by the Tribunal and was answered in favour of the assessee holding that for this particular discount amount, the provisions u/s 194H are not attracted. So also similar issue in the case of Surendera Buildtech P. Ltd., a sister concern was dealt with by the Tribunal in ITA Nos.4854/Del/2010 and 4555/Del/2010 for Asstt. Year 2007-08 and answered similarly. In ITA No.4142/Del/2012 in the case of Surendra Buildtech P. Ltd., the Hon'ble jurisdictional High Court also held the issue in favour of the assessee. In ITA No.4996 and 4930/Del/2012 for asstt. Years 2006-07 and 2008-09, a coordinate bench of this Tribunal by order dated 30.6.2013 held the issue in favour of the assessee.
9. In view of this consistent view taken by the first appellate authority as well as the Tribunal and the Hon'ble High Court, we do not find any reason to interfere with the finding of the learned CIT(A) on this issue. As such, ground No.1 of revenue's appeal is dismissed.
10. Now coming to the issue relating to the disallowance u/s 40A(2)(b) of the Act, this relates to the disallowance of commission paid to sub brokers, namely, Mr. Vinay Mukhija and one Ms Shruti Agarwal. Ld. AO is of the clear opinion that the payment of the commission to the sub brokers is common in the line of business of the assessee. However, he disputed these two particular payments.
5Firstly, on the ground that the payment to Mr. Vinay Mukhija appears to have been covered u/s 40A(2)(b) of the Act whereas the payment to Ms Shruti Agarwal disbelieved on the ground that she is only 19 years old and perhaps cannot render any services. In case of Shruti Aggarwal, learned AO further observed that the commission would not have been paid to Ms Shruti Agarwal because the flat was booked in Sonepat and Mohali whereas she is a resident of Delhi. Though the commission paid to these two persons is Rs.1,58,915/- and Rs.1,88,200/-, learned AO disallowed a sum of Rs.12,10,460/- , which is equivalent to 50% of the total brokerage paid.
11. Learned CIT(A) on examination of the material before him found as a matter of fact that the learned AO did not take any steps to examine either Mr. Vinay Mukhija or Ms Shruti Agarwal to know whether any services were actually rendered by them or not. Without any material whatsoever at his end, learned AO solely placed reliance on surmises and conjectures in respect of this disallowance. Learned CIT(A) observed that it was incumbent upon the AO to verify whether these two people have rendered any services and whether the remuneration paid to these two peoples is on par with the market value of the services rendered by them. Admittedly, learned AO did not undertake this verification.
12. Further in respect of Ms Shruti Agarwal's age or her relationship with the purchaser of the flat or the location of the flat are irrelevant consideration inasmuch as there is no such thing as that a 19 year old girl cannot undertake any occupation or profession or that her father cannot opt to purchase a flat from the daughter, who in that business. There is nothing abnormal that a sub broker at 6 Delhi cannot book such flats for the purchase. The reason adopted by the learned CIT(A) are impeccable and does not warrant any interference. While concurring with the learned CIT(A) on this aspect, se dismiss ground no.2 of the revenue's appeal.
13. Learned CIT(A) found that the AO has not quantified the exact amount of advertisement which did not pertain to the assessee to make the disallowance to the extent of 25%. In such circumstances, learned CIT(A) restricted the sum to 10%.
14. It is the argument of the learned AR that the assessee filed the copy of account of the advertisement expenses as mentioned in the books of accounts and had produced the invoice relating thereto further stating that the TDS had also been deducted on such payments. Since the clipping of the newspapers is very voluminous, the assessee produced various cuttings of newspapers in which the advertisement was published and at no point of time, the learned AO pointed out any item which was not vouched. In the absence of any defect being pointed out, it is not open for the authorities below to make any disallowance of the expenses.
15. We have gone through the record. There is no dispute as to whether or not the assessee incurred this expenditure. Further, there is no denial of the fact that the assessee produced the copy of the account of the advertisement expenditure as maintained in the books of accounts, invoices besides stating that the TDS had also been deducted on such payments. Explanation offered by the assessee for inclusion the name of M/s Surendra Buildtech P. Ltd. was only for this business of the assessee inasmuch as the inclusion of such name will boost the psychological 7 confidence of the prospective buyer and induced them to invest their hard earned money in the pre launched booking because of the persons of group concern.
16. We do not find any abnormality in this submission on behalf of the assessee because to boost the morale of the prospective purchasers and to induce them to invest in the pre launched projects, would definitely serve the purpose of the assessee. When the learned CIT(A) found that the AO made the disallowance at 25% without quantifying the exact amount of advertisement expenditure which did not pertain to the assessee, it equally applies to sustaining such disallowance to 10% of the expenditure. In the absence of any basis for disallowance or the yardstick for its quantification, we do not see any reason to sustain 10% disallowance also. This was more particularly in view of the fact that the insertion of the name of the sister concern, namely, Surendra Buildtech P. Ltd., was for the purpose of inviting more investment in the pre launched projects, which is certainly in furtherance of the business interest of the assessee. We, therefore, delete the disallowance on this count. Ground No.3 of revenue's appeal is accordingly dismissed whereas Ground No.1 of assessee's appeal is allowed.
17. Now coming to the addition by applying Section 2(22)(e) of the Act is concerned, the facts are that M.s Surendra Mohan (HUF) received a sum of Rs.20 lacs and the assessee received a sum of Rs.33,98,617/- from M/s Surendra Buildtech P. Ltd. where he is holding less than 10% of the voting power. Learned AO, therefore, invoked Section 2(22)(e) of the Act and brought the amount of Rs.33,98,617/- to tax in the hands of the assessee.
18. Learned CIT(A) on verification of record and the submissions of the assessee before him found that M/s Surendra Buildtech is a company carrying on 8 real estate broker business as the assessee. He also found that prior to 30.11.2006 M/s Surendra Buildtech was having credit balance eon account of various deposits made by the assessee with the said company. Subsequently, there are some withdrawals by the assessee from the said company resulting into debit balances amounting to Rs.33,98,617/- .
19. On a consideration of the material produced before him, learned CIT(A) found that the transactions between the assessee and M/s Surendra Buildtech are carried out in the course of business and sometimes the assessee is having debit balance and sometimes it has credit balance. Therefore, while placing reliance on the decisions reported in the cases of (i) CIT vs. Creative Dyeing and Printing P. Ltd. (2009) 318 ITR 476 (Del; (ii) ACIT vs Sunil Chopra (2010) 2 ITR (Trib) 469 (ITAT Delhi); (iii) CIT vs Ambassador Travels P. Ltd. (2009) 318 ITR 375 (Del), Learned CIT(A) reached a conclusion that this kind of transactions do not fall within the ambit of Section 2(22)(e) and on that premise he deleted the addition of Rs.33,98,617/-.
20. In so far as Rs.20 lacs advanced to Shri S.M. Mukhija (HUF), ld. CIT(A) found that any amount given as loan or advance to another person cannot be taxed in the hands of the assessee and inasmuch as Shri S.M. Mukhija is a separate person from the assessee for income-tax purposes, any loan or advance given to him cannot be taxed in the hands of the assessee and at best that can be considered in the hands of Shri S.M. Mukhija (HUF). He, therefore, deleted the addition of Rs.20 lacs.
21. Revenue failed to demonstrate before us that the findings of the learned CIT(A) are factually incorrect. Record reveals that at one point of time, the 9 assessee is having credit balance and at times he is having debit balance. It justifies the submissions on behalf of the assessee that in view of peculiarities involved in this line of business depending upon the need, there is exchange of money between different sister concerns for the purpose of business and not for any personal benefits. Since the finding of the learned CIT(A) is that this particular type of transactions are carried out in the regular course of business and do not fall within the ambit of Section 2(22)(e) of the Act, we find no material whatsoever to disturb the findings of the learned CIT(A) in this respect. So also in respect of the amounts advanced to Shri S.M. Mukhija(HUF), we also found that they cannot bring to tax in the hands of the assessee, who is a different taxable entity. For these reasons while agreeing with the learned CIT (A) on this aspect, we dismiss the fourth ground of appeal of the revenue.
22. Now coming to the disallowance of Rs.2,56,006/- , the case of the assessee is that on 1.2.2005 against the security of house property, he has borrowed a sum of Rs.35 lacs from the ICICI bank for business purpose, so also mentioned in the application submitted to the bank. It is his further case for the Asstt. Year 2005- 06 and 2006-07, the interest paid on this loan amount is allowed but the AO disallowed the same in this year stating that the loan actually represents the home loan as it is in the name of the assessee and his wife, as such, any interest paid on the same cannot be allowed as business expenditure.
23. Learned CIT(A), on verification of record, found that the loan was taken from ICICI Home Finance and 8.25% as on 29.1.2005 at floating rate of interest. He observed that the assessee filed a format for the end use of the loan amount which states that the said loan is for the purpose of business. However, the said 10 format was undated and does not specify whether the same was approved by the ICICI Home Finance or not, as such, according to the learned CIT(A) that letter was not reliable to justify that the loan was taken and used for the business purposes. Further, reasoning given by the CIT(A) to sustain this addition is that ICICI is governed by the RBI regulations and they will not advance business loans on the pretext of home finance inasmuch as the rate of interest is different and the policies are different. Further, according to the learned CIT(A), the conditions stipulated by the bank that the property should be self occupied strengthens his suspicion that the loan was for personal purpose and not for business purpose.
24. It is the argument of the learned AR that if the AO or CIT(A) are not sure as to the purpose so mentioned in the application to the bank, it is within their powers to verify the same by exercising the powers under the Act from the bank. Instead of doing what is to be done under the law, the authorities below based their conclusions on suspicion; whereas Ld. DR justified the findings of the Ld. CIT(A) on the grounds recorded by him.
25. On a consideration of the submissions on either side, we are of the considered opinion that if at all the authorities below wanted to know the reliability of the document submitted by the assessee to ICICI bank for the end use of the loan amount, nothing prevented them from verifying the same from ICICI bank as to whether they had approved the same or not. Further, in CIT vs Goyal Gases, 173 Taxman 34, the Hon'ble jurisdictional High Court held that even though initially the amount has been borrowed for certain other purposes but utilization has been made for the purpose of business, the interest paid on such loan is allowable as business expenditure. In this case, there is no fact finding of 11 the authorities below to the effect that the loan was not utilized for business. In the absence of any such allegation, we find it difficult to concur with learned CIT(A) that merely because the letter does not appear to be reliable one coupled with the fact that the interest rate for home loan and business loan are different as well as ICICI is being governed by the RBI Regulations, cannot advance a business loan under the pretext of home loan. We cannot ignore the fact that in the Asstt. Year 2005-06 and 2006-07, interest paid on the loan was allowed. In fact, assessment for the Asstt. Year 2006-07 is a scrutiny assessment u/s 143(3). We, therefore, hold that the interest on business loan is allowable as business expenditure. On this premise, we allow Ground no.2 of the assessee's appeal.
26. Now coming to the disallowance of Rs.1 lac out of business promotion expenses and Rs.1,77,868/- out of car and telephone, ,learned CIT(A) gave relief to the extent of Rs.50,000/- to the assessee and restricted the disallowance to Rs.50,000/-. It does not appear to be an unreasoned one. Further, for the earlier assessment years also, there was disallowance of 10% of the car and telephone expenses. It is not brought to our notice that this disallowance was deleted subsequently. Fact remains that the assessee has not been maintaining any log book and is unable to justify the entire expenditure. In these circumstances, we find it difficult not to sustain 10% disallowance of the expenses on account of car and telephone maintained. We, therefore, dismiss Ground Nos. 3 & 4 of the assessee's appeal.
27. Now coming to the 5th and last ground of assessee's appeal, assessee had shown the withdrawals on account of household expenses only to the tune of Rs.60,000/-. Learned AO having regard to the stature of the assessee in the 12 society and his income, held that an addition of Rs.1,20,000/- is to be made. Ld. CIT(A) found it to be reasonable and did not interfere with the same.
28. It is submitted before us on behalf of the assessee that the income criteria is not a standard measurement to estimate the household expenses which depend upon the type of food consumed and other household activities. It is submitted that the assessee has not incurred any expense on account of rent and the electricity expenses have been disclosed separately. It is submitted that the family of the assessee consists of self, wife and two children and one of them is already in business.
29. Per contra, Ld. DR submitted that to say that in place like Delhi for the assessee to survive with Rs.5,000/- month would be absurdly low and the Ld. AO and the Ld. CIT(A) very conservatively estimated the same at Rs.15,000/- for three persons. There is no evidence produced by the assessee to say that his son is also contributing anything to the household expenditure. He, therefore, relied upon the orders of the authorities below.
30. Having regard to the cost of living in the society and other relevant factors, we are not in agreement with the assessee that a sum of Rs.60,000/- would be sufficient on account of household expenses. Taking into consideration the submission of the assessee that no rent payment is required and electricity charges are shown separately and also that one of the children is already in the business, we take a pragmatic view that a sum of Rs.10,000/- per month would be the minimum requirement way back in the Financial Year 2006-07 and estimate the annual household expenses at Rs.1,20,000/-, as such, after reducing 13 the same by Rs.60,000/- declared by the assessee, we restrict the addition to a sum of Rs.60,000/-. Ground No.5 is, therefore, allowed in part.
31. In the result, whereas appeal of the revenue is dismissed, appeal of the assessee is allowed in part.
Order pronounced in the Open Court on 27th April, 2018.
Sd/- Sd/-
(N.K. SAINI) (K. NARSIMHA CHARY)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Dated April, 2018
'VJ'
Copy forwarded to:
1. Appellant
2. Respondent
3. CIT
4. CIT(A)
5. DR, ITAT By order
Asstt. Registrar