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Income Tax Appellate Tribunal, G BENCH, MUMBAI
order
: 26.07.2022 O R D E R
Per Rahul Chaudhary, Judicial Member:
The present appeal is directed against the order of Ld. Commissioner of Income Tax (Appeals)-20, Mumbai [hereinafter referred to as „the CIT(A)‟], dated 29.12.2017, for the Assessment Year 2013-14, which in turn arose from the Assessment Order, dated 07.09.2016, passed under Section 143(3) of the Income Tax Act, 1961 [hereinafter referred to as „the Act‟].
The Revenue has raised the five grounds of appeal
read as under: Assessment Year: 2013-14 1. “Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) was justified in allowing prior period expenditure for commission towards the service taken in the earlier years.
2. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in giving relief to the assessee on account of brokerage expenditure incurred related to payments made to M/s Premier Capital & Securities Pvt. Ltd. of Rs. 3,56,18,120/- and M/s Accord Capital Market Pvt. Ltd. of Rs. 2,41,34,928/-, without appreciating the fact that allowing the said expenditure in the year would amount to by passing the security about its genuineness, without giving AO an opportunity to look into its genuineness and reasonability before allowing it.
3. Whether on the facts and in the circumstances of the case and in law, the Ld.CIT(A) has erred in giving relief to the assessee on account of brokerage expenditure incurred related to payment made to M/s Premier Capital & Securities Pvt. Ltd. of Rs. 3,56,18,120/- and M/s Accord Capital Market Pvt. Ltd. of Rs. 2,41,34,928/-, without appreciating the fact that during the course of assessment proceedings the assessee company miserably failed to establish the nexus of the said brokerage expenses with their current project at Siddhath Nagar, Goregaon.
4. The appellant prays that the order of the Ld. CIT(A) on the above grounds be set aside and that of the A.O. be restored.
3. The Assessee is a company engaged in the business of building and developing real estate and had undertaken a redevelopment project Siddhartha Nagar, Goregaon (W), Mumbai awarded by Maharashtra Housing and Area Development Authority (MHADA) based on a tripartite Joint Development Agreement, dated 10.04.2008, between MHADA, Siddhartha Nagar Sahkari Griha Nirman Sanstha Ltd. (being the Society) and the Assessee (being the Developer). The 2 Assessment Year: 2013-14 project was for the development on a 40 acres plot land which was subsequently increased by a Deed of Confirmation and Modification, dated 09.11.2011, to 48 acres plot.
The Assessee filed return of income for the Assessment Year 2013-14 on 28.09.2013 declaring total income of INR 1,49,741/- under normal provisions of the Act and declaring book profits of INR 1,89,031/- under Section 115JB of the Act. The case of the Assessee was selected for scrutiny and notice under Section 143(2) and 142(1) of the Act were served upon the Assessee. The Assessing Officer referred the case of the Assessee for special audit under Section 142A of the Act in order to have better understanding of financial statements of the Assessee. The special auditor gave his report under Section 142A of the Act to the Assessing Officer on 13.07.2016. The Assessee was granted opportunity to file response to the special audit report and was also confronted with the findings given the survey report pertaining to a survey action under Section 133A of the Act conducted on the premises of the Assessee on 24.12.2013 (relevant to the Assessment Year 2014-15). Thereafter, the Assessing Officer proceeded to frame the assessment on the Assessee in view of the report of the special auditor. The Assessing Officer noticed that the Assessee had incurred brokerage expenses of INR 22,37,67,856/- (debited to Work-in-Progress Account) and had earned brokerage income of INR 6,00,00,000/- (credited to Work-in-Progress Account), thereby debiting net brokerage expenses of INR 16,37,67,856/- to the Work-in-Progress Account. The details of the brokerage expenses incurred are as under:
3 Assessment Year: 2013-14 SI. No. Name of the party Amount (INR.) 1 Amravathi investra Pvt. Ltd. 6,31,46,320 2. Expression Distributors Pvt. Ltd. 5,03,39,294 3. Janardhan Agencies Pvt. Ltd. 5,03,39,294 4. Premier Capital & Securities (P) Ltd. 3,56,18,120 5. Accord Capital Markets Pvt. Ltd. 2,41,34,928/- 6. Others 1,89,900 Total Brokerage Expenses 22,37,67,856/-
In response to the explanation/clarification sought by the Assessing Officer in this regard, the Assessee made submissions which were reproduced by the Assessing Officer in paragraph 13.4 of the Assessment Order which reads as under:
13.4 In response to the above the AR of the assessee company vide their letter dated 29/08/2016 at Para 6 have stated that- 'the Assessee company had booked the revenue of sale of FSI of Rs.10,50,07,49,641/- during the F.Y. 2012-13 relevant to A.Y. 2011-12 relevant to A.Y. 2012-12. Against the said sale of such FSI, assessee company had incurred/paid brokerage expenses of Rs. 22,37,67,856/-, however since it was on account of brokerage amount dispute the bills of brokerage could not be booked/claimed in the books of the assessee company during the F.Y.2011-12 relevant to A.Y. 2012-13 & therefore the same were booked/accounted for during the year under consideration. Since the revenue of the FSI was already recognized in A.Y.2012-13 the assessee company has no option but to add the expenses of brokerage to WIP account as on 31/03/2013.
Thus, the contention of the Assessee was that the brokerage expenses were incurred in connection with the revenue earned 4 Assessment Year: 2013-14 from sale during the Financial Year 2011-12 relevant to the Assessment Year 2012-13. However, since there were dispute as regards the brokerage amount the brokerage expenses could not be booked in the books of accounts for Financial Year 2011-12 (whereas the revenue related to the aforesaid brokerage expenses was booked) and therefore, the brokerage expenses were debited to the Work-in-Progress Account during the relevant previous year 2012-13. Not being satisfied with the response furnished by the Assessee vide letter dated 29.08.2016, the Assessing Officer concluded that the Assessee had failed to submit the supporting bills/vouchers and had also failed to establish nexus between the brokerage expenses and the Siddhartha another project. Thus, the Assessing Officer reduce the Work-in-Progress Account by the amount of brokerage expenses incurred by the Assessee during the previous year amounting to INR to 2,37,67,856/-. The relevant extract of the assessment order reads as under:
“13.5 The above submissions of the assessee company are considered but not found to be acceptable for the reasons that (a) As mentioned in the Show causes Notice and by the own admission of the AR, the said brokerage expenses of Rs.22,37,67,856/- are in relation to FY.2011-12 relevant to A.Y 2012-13 and hence for the current year they could not be allowed as the same are prior period expenses.
(b) the Auditors during the Special Audit and also the A.O. vide the show causes Notice dated 19/08/2016 had asked the assessee to furnish the bills/ vouchers/ documentary evidences/ supporting in relation to the brokerage expenses of Rs.22,37,67,856/-, which have not been furnished. Even now the assessee has not furnished any bills/ vouchers/ documentary evidences/ supporting their claim of expenses.
5 Assessment Year: 2013-14
(c) The AR has only states that the services of the brokers were availed by the assessee company but has not submitted any documentary evidence, in support of their claim. Even the primary requirement of the addresses, PAN etc. of all the brokers have also not been provided by the assessee company to further investigate the matter.
(d) The AR has not shown any direct or indirect nexus of the broker parties with parties to whom FSI was sold.
(e) Lastly the claim of the AR that the amount of Rs.1050,07,49,641/- has been offered to tax during the FY.2011-12 relevant to AY.2012-13 is not entirely correct. The Assessee Company had revised their return for the A.Y.2012- 13 and withdrawn the sale proceeds of Rs.1050,07,49,641/- from the P&L Account and taken it as advances from parties in the balance sheet, on the pretext that there was dispute with the buyer parties. Without Prejudice to the fact that the A.O. had rejected the revised return in the assessment order for the A.Y.2012-13. In the circumstances given the fact that the entire sale proceeds of the sale of FSI not having received till 31.03.2013, the payment of brokerage in F.Y.2012-13 cannot be justified.
13.6 In view of the above the brokerage expenses of the amount of Rs.22,37,67,856/ is disallowed as a) the assessee company has failed to submit the supporting bills and vouchers and b) further assessee company has failed to establish the nexus of the said brokerage expenses with their current project at Siddhartha Nagar, Goregaon, accordingly, the WIP is suitably reduced by an amount of Rs.22,37,67,856/.”
Being aggrieved, the Assessee carried the issue in appeal before CIT(A) and contended that:
(a) entire brokerage was paid by cheque.
6 Assessment Year: 2013-14 (b) brokerage was paid for sale FSI amounting to INR 1050 crores and was only approx. 2% of sale consideration received which was reasonable.
(c) requisite details pertaining to brokerage expenses were furnished to the special auditor and during the assessment proceeding and therefore, the addition made by Assessing Officer was based on surmises, conjectures and presumptions.
(d) As regards contention of the Assessing Officer regarding prior period expenses, the expenses accrued during the relevant previous year the disputes regarding brokerage got resolved. Even otherwise, brokerage expenses have been debited to Work-in-Progress Account and would not affect the profits whether the same are debited during the relevant previous year or the immediately preceding year. Hence, reduction of Work-in-Progress was not warranted. Reliance placed on The Bombay High Court in CIT v Nagri Mills Co Ltd (1958) 33 ITR 681(Bom)(HC).
The contentions raised by the Assessee found favour with the CIT(A) who granted relief to the Assessee holding as under:
“ 8.5.1 I have considered the rival contentions. The AO has disallowed the entire brokerage expenditure on ground that supporting documents were not filed [paragraph 13.5(b) of the assessment order]. I find from this report of the Special Auditor supporting documents not filed only respect the following brokerage expenses:
7 Assessment Year: 2013-14 SI No. Name of the party Amount (Rs) 1 Amravathi investra Pvt. Ltd. 6,31,46,320 2 Expression Distributors Pvt. Ltd. 5,03,39,294 3 Janardhan Agencies Pvt. Ltd. 5,03,39,294 Total Brokerage Expenses 16,38,24,908 8.5.2 I hold that the brokerage expenditure allowable in view of the appellant's failure to file supporting documents. Therefore, confirm the disallowance of Rs. 16,38,24,908/-.
8.5.3 As regards the expenditure of Rs. 3,56,18,120/- & Rs. 2,41,34,928/- the appellant submitted before Special Auditors those brokerage expenses, in relation the negotiations and execution the agreement sale cum development FSI Goregaon for the income is already accounted in P.Y 2011-12 2012-13) offered to tax in the original return income filed. In the course of appellate proceedings, the AR of the appellant submitted that the brokerage expenditure Rs. 3,56,18,120/- & Rs. 2,41,34,928/ crystallized only during 2012-13 and therefore, expenses debited appellant's books accounts the Y. 2012-13. I find appellant's explanation acceptable. I also note that the has disallowed the expenses the premises (that the appellant did not furnish supporting documents). I, therefore, allow the brokerage expenditure of 5,97,53,048/-. Reliance is placed decision Hon'ble Bombay High Court CIT Mills Co. Ltd. (1958) ITR 681(Bom)(HC).
8.5.4 As regards the remaining brokerage expenditure of Rs. 1,89,900/- I find that neither the Special Auditors the made any adverse finding. I, therefore, allow the expenditure Rs. 1,89,900/- 8.5.5 Addition of Rs.6 Crores: I agree with the AO that brokerage income has no nexus with the construction and development activity of the appellant relating to the Siddharth Nagar Project. I, therefore, confirm the addition. Consequently, I also direct the AO to increase the WIP by Rs.6 Crores.
8.6 In the result, this ground of appeal is partly allowed.”
8 Assessment Year: 2013-14 9. Being aggrieved, the Revenue is now an appeal before us against the order of CIT (A) granting relief to the Assessee.
We have considered the submissions advanced by learned Departmental Representative who took us through the assessment order and contended that CIT(A) erred in granting relief to the Assessee on account of brokerage expenditure pertaining to M/s Premier Capital & Securities Private Limited (INR 3,56,18,120/-) and M/s Accord Capital Market Private Limited (INR 2,41,34,928/-) without giving opportunity to the Assessing Officer to examine the genuineness and reasonableness of such expenditure. We have perused the order passed by the Assessing Officer and CIT(A) and considered the submissions advanced on behalf of the Assessee before the authorities below. We are of the view that the CIT(A) was correct in holding that Assessing Officer had proceeded on the incorrect premise that the Assessee had failed to provide supporting documents pertaining M/s Premier Capital & Securities Private Limited (INR 3,56,18,120/-) and M/s Accord Capital Market Private Limited (INR 2,41,34,928/-) which was contrary to the report of the special auditor. In appellate proceedings before us it is not disputed by the Revenue that the income relating to the aforesaid brokerage expenses has already been recognized by the Assessee in the Assessment Year 2012-13 and/or that the aforesaid brokerage expenses crystallized during the relevant previous year on account of settlement of the brokerage amount. The contention of the Revenue is that the CIT(A) allowed the claim of the Assessee without giving the Assessing Officer an opportunity to examine the reasonableness and/or genuineness of the brokerage expenses claimed to have been 9 Assessment Year: 2013-14 incurred by the Assessee. We find merit in the aforesaid contention of the Revenue. We note that the CIT(A) has not called for a remand report from the Assessing Officer before allowing the claim of the Appellant. The order passed by the CIT(A) does not make any reference to the documents furnished by the Assessee in support of his claim to the special auditor and/or the veracity thereof. The CIT(A) has proceeded to accept the brokerage expenses as genuine and reasonable by accepting the contention of the Assessee that the same are approximately 2% of the sales Revenue without examining the documents or the basis of the aforesaid computation. In view of the aforesaid, we set aside the issue to the file of Assessing Officer to examine the reasonableness and genuineness of the brokerage charges of INR 3,56,18,120/- paid to Premier Capital & Securities(P) Ltd. and INR 2,41,34,928/- paid to Accord Capital Markets Pvt. Ltd. after giving the Assessee a reasonable opportunity of being heard.
In view of the above, Ground No. 1 & 3 raised by the Revenue are dismissed and Ground No. 2 & 4 are allowed in terms of direction of paragraph 10 above.
In result, the present appeal filed by the Revenue is partly allowed.