Income Tax Appellate Tribunal - Mumbai
Bentel Associates Re Bentel Associates ... vs Ito 8(1)(2), on 6 April, 2018
IN THE INCOME TAX APPELLATE TRIBUNAL, BENCH "J", MUMBAI
BEFORE SHRI R.C. SHARMA, ACCOUNTANT MEMBER AND
SHRI PAWAN SINGH, JUDICIAL MEMBER
ITA No.4077/Mum/2015 (Assessment Year- 2011-12)
Bentel Associates Realty Design ITO-8(1) (2)
Consultants Pvt. Ltd., A-401, Mumbai.
Business Square, Solitaire
Vs.
Corporate Park, Chakala,
Andheri (E), Mumbai-400093
PAN:AACCB7588D
(Appellant) (Respondent)
Assessee by : Shri H.P. Mahajani (AR)
Revenue by : Shri Aarju Garodia (DR)
Date of hearing : 09.01.2018
Date of Pronouncement : 06.04.2018
Order Under Section 254(1) of Income Tax Act
PER PAWAN SINGH, JUDICIAL MEMBER:
1. This appeal by assessee under section 253 of Income Tax Act ('the Act') is directed against the order of Ld. Commissioner of Income-Tax (Appeals)-16, Mumbai, [for short the ld. CIT(A)] dated 13.03.2015 for Assessment Year 2011-2012 passed under section 143(3) of the Act. The assessee has raised the following grounds of appeal:
1. Disallowance of Success fees of Rs. 63,50,442
1. 1. On the facts and in the circumstances of the case and in law, the learned Commissioner of Income-tax (Appeals) - 16 [CIT(A)] erred in confirming the disallowance of expenses amounting to Rs. 63,50,442 being success fees paid by the Appellant to ICS Realty Private Ltd.
1.2. On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in treating the success fee payments as unexplained/bogus expenditure disregarding the evidences submitted by the Appellant and the fact that the aforesaid expenses has been offered to income-tax by ICS Realty Private Ltd.ITA No. 4077/Mum/2015 - Bentel Associates Realty Design Consultants Pvt. Ltd.
1.3. On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in concluding that the Appellants accounts are incorrect and incomplete and further erred in making assessment under section 144 of the Income-tax Act, 1961 ('the Act').
2. Disallowance of Consultancy fees of Rs. 32,61,624
2.1. On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in confirming disallowance of expenses of Rs. 32,61,624 being consultancy fees paid by the Appellant to ICS Realty Private Ltd as unexplained I bogus expenditure disregarding the documentary evidence submitted by the Appellant evidencing the genuineness of the expense.
3. Disallowance of expenses under section 14A of the Act of Rs. 9,998 3.1. On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in confirming the disallowance of Rs. 9,998 under section 14A of the Act read with Rule 8D of the Income-tax Rules, 1962 as expenses incurred for earning exempt income.
4. Disallowance of unpaid leave encashment of Rs. 1,29,490 4.1. On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in not deleting the disallowance of Rs. 1,29,490 under section 438 of the Act, ignoring the fact that said amount has been disallowed in the return of income filed by the Appellant.
5. Penalty proceedings under section 271(1)(c) of the Act 5.1. On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in not quashing the penalty proceedings under section 271(l)(c) of the Act initiated against the Appellant against the disallowance of expenses claimed by the Appellant.
2. Brief facts of the case are that the assessee-company is engaged in providing property development consulting, project concept, development planning, concept design, implementation, interior mall & development design and graphic design, filed its return of income for relevant Assessment Year on 29.09.2011 declaring total income at Rs. 3,61,314/-. The assessment was completed on 10.02.2014 under section 143(3). The Assessing Officer while passing the assessment order besides the other addition/disallowance 2 ITA No. 4077/Mum/2015 - Bentel Associates Realty Design Consultants Pvt. Ltd. disallowed success fees of Rs. 63,50,442/-, consultancy fees of Rs. 32,61,624/- Rs. 9,998/- under section 14A and disallowed in unpaid leave encasement of Rs. 1,29,490/-. On appeal before the Ld. CIT(A), all the additions/disallowances were confirmed. Thus, further aggrieved by the order of Ld. CIT(A), the assessee has filed the present appeal before us.
3. We have heard the ld. Authorized Representative (AR) of the assessee and ld. Departmental Representative (DR) for the Revenue and perused the material available on record. At the outset of hearing, the Ld. AR of the assessee submits that he is not pressing the Ground No.3. For Ground No.4, the Ld. AR of the assessee submits that the Assessing Officer made double disallowance by disallowing unpaid leave encashment and the assessee has already made an application under section 154 of the Act before assessing officer for rectification of the order. Considering the contention of Ld. AR of the assessee, Ground No. 3 is dismissed as not pressed. However, so far as Ground No.4 is concerned, we direct the Assessing Officer to verify the fact with regard to the application of the assessee, and pass the order under section 154 in accordance with law.
4. Ground No.1 relates to disallowance of success fees at Rs. 63,50,442/-. The Ld. AR of the assessee submits that the Assessing Officer disallowed the success fees of Rs. 63,50,442/- claimed by the assessee. The Assessing Officer disallowed the success fees treating as bogus and unexplained business expenditure. The Ld. AR of the assessee submits that assessee 3 ITA No. 4077/Mum/2015 - Bentel Associates Realty Design Consultants Pvt. Ltd. entered in a business of reality design consultancy with ICS Realty Pvt. Ltd. for provision of marketing and business development services and for securing contract for the assessee and to provide various services at various stage of business to the assessee, ICS Realty Pvt. Ltd. is in the business of consultancy and had wide range of contracts in the said business. The assessee paid success fees to ICS Realty Pvt. Ltd. ICS Realty Pvt. Ltd for providing services related with preliminary concept, concept designing, schematic designing, design development and working drawing. Details of all payments made against the success fees were filed before the Assessing Officer. The assessee paid success fees @ 10% of gross revenue of six parties. In order to verify the genuineness of services, the Assessing Officer issued notice under section 133(6) to the said parties. Out of six parties M/s Blue Horizons Hotels Pvt. Ltd. confirmed the transaction through ICS reality and other remaining five parties have stated that they were engaged directly and no mediator or introducer was involved. Therefore the Assessing Officer disallowed the amount of success fees of all remaining parties. The Ld. AR of the assessee further submits that similar claim of success fees was allowed by Revenue in assessment for Assessment Year 2006-07, 2007-08 and in 2010-11 in the assessment order passed under section 143(1) of the Act. Moreover, for Assessment Year 2008-09 the expanses were allowed in the assessment order passed under section 143(3). Again in the Assessment Year 2013-14 & 2014-15 the Assessing Officer allowed similar expenses related 4 ITA No. 4077/Mum/2015 - Bentel Associates Realty Design Consultants Pvt. Ltd. with success fees. It was submitted that the assessing officer disallowed the similar relief in assessment year 2012-13, however it was allowed by ld Commissioner (Appeals) On the other hand, the Ld. DR for the Revenue supported the order of authorities below. The Ld. DR for the Revenue submits that principle of resjudicata is not applicable in the Income Tax Proceedings. The Ld. DR for the Revenue submits that the parties were different in this year. Moreover, ICS Realty Pvt. Ltd. (supra) is filing Nil return of income. The onus to prove the genuineness of success fees is not proved by the assessee.
5. We have considered the rival submission of the parties and have gone through the orders of authorities below. The Assessing Officer during the assessment noted that the assessee has debited Rs. 75,39,842/- on account of success fees under the head Operating Cost. The assessee was asked to furnish the complete the details and nature of such expenses. The assessee vide its reply dated 09.10.2013 contended that the assessee was a new player and had no marketing expertise, the assessee appointed ICS Realty Pvt. Ltd. to secure contracts for its business. During the year, the ICS Realty Pvt. Ltd. secured the contract of Rs. 1204 Lakhs for the assessee-company. The assessee-company secured the contract from Blue Horizon Hotels Pvt. Ltd. for Rs. 190,00,000/-, DIL Ltd. Rs. 2,40,00,000/-, BVR Malls Pvt. Ltd. Rs. 107,23,200/-, Hagwood Commercial Developers Pvt. Ltd. Rs. 3,00,00,000/-, Suraj Dwellers Pvt. Ltd. Rs. 67,00,000/-, Land Master Pvt. Ltd. Rs. 5 ITA No. 4077/Mum/2015 - Bentel Associates Realty Design Consultants Pvt. Ltd. 3,00,00,000/-. ICS Realty Pvt. Ltd. also played a key role in ensuring co- ordination with the said parties at each stage of running contracts related with preliminary concept, concept designing, systematic designing, design development, and working drawings. Further, in case of any dispute with the said parties ICS Realty Pvt. Ltd. represented itself on behalf of assessee for smooth relationship with the parties. In order to verify the claim and contention of the assessee and to verify the genuineness of services allegedly provided by ICS Reality Pvt. Ltd., the Assessing Officer issued notice under section 133(6) to all the contracting parties on 10.10.2013. All the parties were asked to confirm whether any mediator was is involved in arranging the transaction/contract with the assessee. The assessee was also asked to furnish the copy of agreement related with success fees with the ICS Reality Pvt. Ltd. The assessee furnished copy of agreement dated 01.04.2010 with regard to success fees agreement with ICS Reality Pvt. Ltd. However, in response to the notice under section 133(6) except Blue Horizon Hotels Pvt. Ltd. all remaining parties denied having any involvement of third person (ICS Reality Pvt. Ltd.) in the transaction entered with assessee. The assessee was again issued show-cause notice dated 22.01.2014 to explain the discrepancy. The assessee filed its reply dated 29.01.2014. In the reply the assessee contended that ICS Reality Pvt. Ltd. has contractual arrangement with assessee and not with their clients (parties). ICS Reality Pvt. Ltd. was not acting as intermediary for the parties, so that they were not in a position to 6 ITA No. 4077/Mum/2015 - Bentel Associates Realty Design Consultants Pvt. Ltd. reply in affirmative. ICS Reality Pvt. Ltd. has been assisting to the assessee and has generated good business. The contention of the assessee was not accepted by Assessing Officer holding that the perusal of agreement furnished by assessee shows that payment made to ICS Reality Pvt. Ltd. as a service provider for promoting the service offered by assessee, identified and introduced various client and ensuring good relation on ongoing basis and to ensure proper co-ordination etc. The assessee in its submission with regard to the queries submitted that transaction with the companies were direct, the ICS Reality Pvt. Ltd. has a contractual agreement with assessee and not with their client as they are not in a position to reply in affirmative. The assessee has allegedly paid 10% of the gross revenue to ICS Reality Pvt. Ltd. as per the said agreement. Therefore, the Assessing Officer rejected the contention of assessee. The Assessment Officer also observed that except the Blue Horizons Pvt. Ltd. no evidence has been furnished to substantiate the involvement of ICS Reality Pvt. Ltd. or to prove about rendering the services, thus, the success fees paid by assessee to ICS Reality Pvt. Ltd. was held as non-genuine business expenditure. The Assessing Officer further concluded that the onus to prove the genuineness of expenditure was on the assessee and assessee failed to discharge his onus. Even otherwise all payments were made through entries at the fag end of the Financial Year. As Blue Horizons Pvt. Ltd. accepted the involvement of ICS Reality Pvt. Ltd. payment of Rs. 11,89,400/- being 6.26% of Rs. 1,90,00,000/- was allowed as 7 ITA No. 4077/Mum/2015 - Bentel Associates Realty Design Consultants Pvt. Ltd. business expenditure and remaining amount of Rs. 63,50,442/- (Rs. 75,39,842 - Rs. 11,89,400/-) was disallowed. The ld. CIT(A) confirmed the disallowance holding that the assessee failed to prove genuinity of payment made to ICS Reality Pvt. Ltd despite giving the sufficient opportunity. Before us the ld AR for the assessee submitted that similar claim of success fees was allowed by Revenue in assessment for Assessment Year 2006-07, 2007-08 and 2010-11 in the assessment order passed under section 143(1) and in assessment year 2008-09 allowed in the assessment order passed under section 143(3) of the Act. Again in the Assessment Year 2013-14 & 2014-15 the Assessing Officer allowed similar expenses related with success fees. We have also gone through the assessment order for Assessment Year 2008-09. There is no reference of claim of success fees in assessment order dated 29.11.2010 passed under section 143(3) for Assessment Year 2008-09. Though, the assessee has filed a detail of bill-wise summary of success fees on record before us related with Assessment Year under consideration. Thus, considering the fact that similar success fee was allowed to the assessee in Assessment Year 2006-07 to 2010-11 and again on Assessment Year 2013- 14 and in Assessment Year 2014-15. The similar disallowance was made for Assessment Year 2012-13, however, on appeal before the ld. CIT(A), the assessee was granted the relief. The copy of the assessment order for Assessment Year 2006-07 to 2010-11 and again for Assessment Year 2012- 12 to 2014-15, except the assessment order for Assessment Year 2008-09, is 8 ITA No. 4077/Mum/2015 - Bentel Associates Realty Design Consultants Pvt. Ltd. not placed on record. Hence, we deem it appropriate to restore this ground of appeal to the file of Assessing Officer to verify the correctness of claim made and the relief granted in various Assessment Years and to pass the order by following the principle of consistency and in accordance with law. In the result, ground no.1 of the appeal raised by assessee is allowed for statistical purpose.
6. Ground No.2 relates to disallowance of consultancy fees of Rs. 32,61,624/-. The ld. AR of the assessee argued that the Assessing Officer disallowed the consultancy fees paid to ICS Reality Pvt. Ltd. on the ground that consultancy fees has not been qualified by the Auditor in Form 3CD (Auditor's Report). The ld. AR of the assessee submits that the assessee furnished the details of consultancy fees, details of which is furnished at page no. 9 of the Paper Book. The ld. AR of the assessee further submits that as per agreement with ICS Reality Pvt. Ltd., ICS Reality Pvt. Ltd. agreed to depute Senior Management Personnel to work for three-four days to work in a week. Mr. Nakul Patel who was deputed was Senior Management Personnel and working 60% to 80% of his time to manage the affairs of the assessee. The salary of Mr. Nakul Patel was Rs. 47.50 Lakhs and the assessee paid Rs. 32,61,624/- which is around 68% of the salary. The cost of remuneration/consultation given by him was reasonable. Due to the involvement of Mr. Nakul Patel the business of assessee was substantially improved, the turnover of assessee was increased and assessee earned 9 ITA No. 4077/Mum/2015 - Bentel Associates Realty Design Consultants Pvt. Ltd. substantial operating profit. On the other hand, the ld. DR supported the order of authorities below. The ld. DR submits that no documentary evidence was filed by assessee to prove the nexus of expenses made and the services rendered by Mr. Nakul Patel. The payment was made at the end of Financial Year.
7. We have considered the rival submission of the parties and have gone through the orders of authorities below. The Assessing Officer disallowed the consultancy payment made to ICS Reality Pvt. Ltd. holding that ICS Reality Pvt. Ltd. holds 100% of the share holding of the assessee. Form-16 issued by ICS Reality Pvt. Ltd. shows that Mr. Nakul Patel received gross salary of Rs. 47,58,076/-. As per the agreement of assessee-company with ICS Reality Pvt. Ltd., Mr. Nakul Patel has to render services to the assessee- company for three to four days in a week. ICS Reality Pvt. Ltd. is charging Rs. 2.71 Lakh per month to use the services of Mr. Nakul Patel, from assessee. The Assessing Officer further concluded that ICS Reality Pvt. Ltd. has already been paid success fess and accounts writing charges etc. The payments made to ICS Reality Pvt. Ltd. are through Journal entries of at the end of Financial Year. No evidentiary documentary evidence is filed to establish the services rendered to the assessee. The payment made on account of consultancy charges has not been certified by Auditor in Form- 3CD. The ld. CIT(A) confirmed the action of Assessing Officer holding that the consultancy fees has not been qualified by the Auditor in its Audit 10 ITA No. 4077/Mum/2015 - Bentel Associates Realty Design Consultants Pvt. Ltd. Report. The ld. CIT(A) also concluded that payment is made to person specified under section 40A(2)(b) of the Act and that the assessee failed to rebut the fining of Assessing Officer. We have noted that the Assessing Officer has not disputed the services rendered by Mr. Nakul Patel. The Assessing Officer has disallowed the payment holding it as unreasonable. The ld. CIT(A) has not given any different finding, excerpt approving the finding of Assessing Officer. The Co-ordinate bench of Mumbai Tribunal in Edwise Consultants (P.) Ltd. vs. DCIT [2017] 83 taxmann.com 27 (Mum.Trib.) while considering the similar issue held that the Assessing Officer is required to find out if the payments made to person referred in section 40A(2)(b) is excessive or unreasonable having regard to the Fair Market Value of the goods, services or facilities which payment is made or the legitimate need of the business or the profession of the assessee or the benefit derived by accruing the assessee therefrom.
8. We have further noted that the assessee has claimed that due to the services rendered by Mr. Nakul Patel, the business of assessee was substantially increased creating positive operating profit. The Assessing Officer has not disputed this contention of the assessee. The Assessing Officer has not brought any other material on record to justify that payment made to ICS Reality Pvt. Ltd. on account of share of salary of Mr. Nakul Patel is unreasonable. We may note that Mr. Nakul Patel is not the Director either in assessee-company or in ICS Reality Pvt. Ltd. rather employed as Vice- 11 ITA No. 4077/Mum/2015 - Bentel Associates Realty Design Consultants Pvt. Ltd. President in ICS Reality Pvt. Ltd. We have also noted that the Assessing Officer has not examined the aspect of Fair Market Value of services rendered by Mr. Nakul Patel before disallowing the payment made towards the services rendered by him. The Hon'ble Bombay High Court in case of CIT vs. Indo-Saudi Services (Travel) (P.) Ltd. 310 ITR 306 (Bom) while referring the CBDT Circular No. 6-P dated 6th July 1968 held that no disallowance be made under section 40A(2) in respect of payment to relative and sister concern where there is no attempt to evade the tax. Considering the foregoing discussion, we do not find any justification on the part of ld. CIT(A) in confirming the disallowance on account of consultancy fees in absence of any finding that there is any attempt to evade to tax or in examining the services rendered by the person against whom such payment was made. In the result, Ground No.2 of the appeal is allowed.
9. Ground No.5 relates to initiation of penalty. This ground is premature and needs no adjudication.
10. In the result, appeal filed by assessee is allowed.
Order pronounced in the open court on 6th day of April 2018.
Sd/- Sd/-
(R.C. SHARMA) (PAWAN SINGH)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Mumbai; Dated 06/04/2018
S.K.PS
Copy of the Order forwarded to :
1. The Appellant
2. The Respondent.
3. The CIT(A), Mumbai.
4. CIT
5. DR, ITAT, Mumbai
6. Guard file. ािपत ितC
BY ORDER
(Asstt.Registrar)
ITAT, Mumbai
12