Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, JAIPUR BENCHES, JAIPUR
Before: SHRI VIJAY PAL RAO, JM & SHRI VIKRAM SINGH YADAV, AM vk;dj vihy la-@ITA No. 21/JP/2018
आयकर अपीलीय अधिकरण] जयपुर न्यायपीठ] जयपुर IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES, JAIPUR Jh fot; ikWy jko] U;kf;d lnL; ,oa Jh foØe flag ;kno] ys[kk lnL; ds le{k BEFORE: SHRI VIJAY PAL RAO, JM & SHRI VIKRAM SINGH YADAV, AM vk;dj vihy la-@ITA No. 21/JP/2018 fu/kZkj.k o"kZ@Assessment Year : 2013-14 cuke Indexone Tradecone Pvt. Ltd., DCIT, Vs. Jaipur Central Circle-2, Jaipur LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AABC12248E vihykFkhZ@Appellant izR;FkhZ@Respondent fu/kZkfjrh dh vksj ls@ Assessee by : Shri G. M. Mehta (CA) jktLo dh vksj ls@ Revenue by : Shri J. C. Kulhari (JCIT) lquokbZ dh rkjh[k@ Date of Hearing : 08/08/2018 mn?kks"k.kk dh rkjh[k@Date of Pronouncement: 23/08/2018 vkns'k@ ORDER
PER: VIKRAM SINGH YADAV, A.M.
This is an appeal filed by the assessee against the order of ld. CIT(A)- 01, Jaipur dated 17.11.2017 wherein the assessee has taken the following grounds of the appeal:- “(1) That ld. CIT(A) has erred in law and on facts in sustaining addition of Rs. 12,11,576/- on account of brokerage paid through cheques (after deducting applicable TDS) to outsiders, Directors and their related persons for selling and completing all the formalities of sale of residential flats constructed by the assessee company.
(2) That Ld. CIT(A) was not justified in sustaining disallowance of : (i) Rs. 3,22,197/- on account of depreciation on newly purchased car purchased on 30th March 2013, ignoring the
ITA No. 21/JP/2018 Indexone Tradecone Pvt. Ltd., Jaipur Vs DCIT, Jaipur
fact that the newly purchased cars are always delivered by the Car-Dealers filled with about 10 Liters of Diesel/petrol which is sufficient for local use of car for business purposes for few days. (ii) Rs. 1,56,000/- for maintenance of furnished Guest-house maintained by the assessee company for the reason that it was already owning vacant flats as stock in trade ignoring the fact that the unsold flats cannot be used as Guest- house which are unfurnished are subject to sell at any time and if used, will result in heavy reduction in market saleable price of the flats.”
Firstly, regarding Ground no. 1, the relevant facts and finding of the Assessing Officer are as under:-
“3.2 On perusal of books of account and other document, it is seen that the assessee company had paid heavy brokerage of Rs. 12,11,575/- to following persons: S. No. Brokerage paid to Buyer Name Flat No. Brokerage Project Party Amount name (Rs) 1) Ashish Gattani Rakhi Jain 101 & 102 7,00,000 Sapphire Green 2) Praveen Singhi Shashi 702 87,000 Sapphire Green Bhargava 3) Subhas Singhi Kuldeep 601 91,500 Sapphire Green Bhargawa 4) Gaurav Singhi Shikhar 602 91,500 Sapphire Bhargawa Green 5) Gaurav Singhi Ravi 701 87,000 Sapphire
ITA No. 21/JP/2018 Indexone Tradecone Pvt. Ltd., Jaipur Vs DCIT, Jaipur
Bhargawa Green 6) Vimal Singhi Kapil Sukla/ 202 102,000 Sapphire Usha Sukla Green 7) Vimal Singhi Aman B-1 15,075 Sapphire Bhardwaj/ Earth Prem Prakash Bhardwaj 8) Vimal Singhi Anita Goel Unit-3 37,500 Sapphire Moon Total 12,11,575
The brokerage claimed by the assessee is not justifiable on account of the following reasons: The seller and persons to whom brokerage paid are close relatives. Further, it is pertinent to mention here that efforts done by the persons to whom brokerage were is not ascertainable and nothing to support its claim has been submitted by the assessee in this regard. Therefore, genuineness of brokerage paid is not proved. Hence, the matter of payment brokerage is only a sham created to reduce profit of the company. It is worthwhile to mention here that only Shri Vimal Singhi, who is in capacity of director of the company appeared before the document registering authorities as evident from the conveyance deeds and none of the other agents to which brokerage have been paid were present. Had they been present at time of registry, at least one evidence of the agents could have been endorsed in the conveyance deed. Further, Shri Vimal Singhvi who is also receiving remuneration as director of the company for execution of work for the company, has also been paid brokerage, which defice logic. On perusal of conveyance deeds, it is observed that originally the plot which was developed by the Indexone Tradecon Pvt. Ltd., was owned by the Father of the buyers Sh. Shanit Prasad Bhargava upon whose death, his wife 3
ITA No. 21/JP/2018 Indexone Tradecone Pvt. Ltd., Jaipur Vs DCIT, Jaipur Smt. Ratan Devi Bhargava became the owner of the said plot and during the financial year 2009-10, the said property was transferred to the assessee company. And after development of flats, most of the flats sold during the year have been sold to the Bhargava family. This also shows that all are closely connected since long and payment of brokerage is only a sham for managing the entries to reduce profit of the company. From the various arguments above, it is held that the assessee company has diverted funds to the directors of the company and other closely related persons via brokerage to reduce the tax liability of the company. This kind of tax planning is nothing but a colourable device which cannot be accepted. Reliance is placed on decision of Apex Court in the case of McDowells which clears that a colourable device cannot be a part of tax planning. Hence, the brokerage paid of Rs. 12,11,575/- to the above parties is not satisfactorily justified and same is hereby disallowed and added back to the total income of the assessee.”
We now refer to the relevant findings of the ld. CIT(A) which is contained at para 3.2.2 which is reproduced as under:- “3.2.2 I have duly considered the submissions of the appellant, assessment order and the material placed on record. The AO has disallowed the brokerage expenditure by observing that the buyers of the units were known to the company and therefore, there was no requirement of any broker. It was further noted that the appellant and the brokers are related entities and no evidence has been placed on record about the efforts made by these persons in respect of brokerage paid to them. It was also noted that Shri Vimal Singhi to whom brokerage paid was also a director of the appellant company. During the appellate proceedings, it was stated by the appellant that the payment on account of brokerage was made through banking channels, TDS was deducted thereon. It was further submitted that the issue was, in a way, 4
ITA No. 21/JP/2018 Indexone Tradecone Pvt. Ltd., Jaipur Vs DCIT, Jaipur
was decided by the Ld. CIT(A) in appellate order for the AY 2010-11 wherein, the rejection of books of accounts was not upheld and the rejection of books of accounts was also on account of brokerage payments. It is to be noted that the appellant did not file any evidence either before the AO or before me which may justify the payment of brokerage to the persons who are either the director(s) of the appellant company or their close relatives. It is further noted that the units were sold to the erstwhile owner of the land on which the project was completed and therefore, the buyers and sellers were already known to each other. The contention of the appellant that the payments were made through banking channels did not make the payments on account of brokerage genuine as it has been held in a number of judicial pronouncements that payments through banking channels is not sacrosanct. Thus, in view of the totality of facts and circumstances, it is held that the AO was justified in disallowing expenditure claimed by the appellant on account of brokerage expenses, hence, the addition made by the AO is hereby sustained.”
During the course of hearing, the ld. AR has submitted as under:- “(1) Brokerage of Rs. 12,11,575/- was paid to the following persons during the year:
S. No. Name of person PAN Sale of premises Amount 1. ADJPG2300D 101 & 102 Sapphire Green Ashish Kr. Gatani 7,00,000 2. Vimal Singi AHNPS6542F 61- Sapphire Earth 1,54,575 Unit-3, Sapphire Moon 202, Sapphire Green 3. Subhash Singhi AHUPS6101P 601, Sapphire Green 91,500 4. Praveen Singhi AHUPS6100N 702, Sapphire Green 87,000 5. Gaurav Singhi BCJPS7334B 602, Sapphire Green 1,78,500 701, Sapphire Green
12,11,575
ITA No. 21/JP/2018 Indexone Tradecone Pvt. Ltd., Jaipur Vs DCIT, Jaipur It was submitted that the payment of brokerage of the above reasonable sum could be justified from the following facts:-
• For introduction and persuading the buyers to purchase the constructed property at the rates acceptable to both the Seller and Buyers. • The Brokers are responsible for compliance of formality of sale like completion of constructed property as per the satisfaction of buyer, its timely payment & possession. • Broker is responsible to check the legality of title of the units to be sold. • In case loan requirement to the buyer for payment of purchase consideration either from banks or other financial institution the same is arranged by Broker on completion of formalities of loan. • Timely registration of property in name of name of buyer(s)
It was submitted that like in earlier years, the Brokerage was paid with reference to sale of specific flat, conveying full address of recipients & their PAN to AO. TDS @ 1% was deducted. In case of any doubt, these persons could have been summoned. Even in last scrutiny assessment for the A.Y. 2010-11, the disallowance of brokerage to Directors and relatives made by the ld. AO by way of enhancement in G.P. rate was totally deleted by Id. CIT(A).”
The ld DR is heard who has vehemently argued the matter and relied on the order of the lower authorities.
We have heard the rival contentions, perused the material available on record. The AO has rightly stated that for claim of the brokerage expenses, efforts done by the persons to whom brokerage needs to be ascertained, however in the instant case, the same were not ascertainable and nothing to 6
ITA No. 21/JP/2018 Indexone Tradecone Pvt. Ltd., Jaipur Vs DCIT, Jaipur support its claim has been submitted by the assessee. The AO has also returned a finding that “on perusal of conveyance deeds, it is observed that originally the plot which was developed by the Indexone Tradecon Pvt. Ltd., was owned by the Father of the buyers Sh. Shanit Prasad Bhargava upon whose death, his wife Smt. Ratan Devi Bhargava became the owner of the said plot and during the financial year 2009-10, the said property was transferred to the assessee company. And after development of flats, most of the flats sold during the year have been sold to the Bhargava family. This also shows that all are closely connected since long and payment of brokerage is only a sham for managing the entries to reduce profit of the company.” Similarly, the ld CIT(A) has returned a finding that “the appellant did not file any evidence either before the AO or before me which may justify the payment of brokerage to the persons who are either the director(s) of the appellant company or their close relatives. It is further noted that the units were sold to the erstwhile owner of the land on which the project was completed and therefore, the buyers and sellers were already known to each other. The contention of the appellant that the payments were made through banking channels did not make the payments on account of brokerage genuine as it has been held in a number of judicial pronouncements that payments through banking channels is not sacrosanct.” The above findings remain uncontroverted before us.
The whole purpose of appointing a broker is to introduce both the parties to each other and assist in the finalisation of the specified transaction and in return, specified brokerage is paid. In the instant case, we find that some of the buyers of the flats belong to the Bhargava family were already known to the assessee and its promoters/directors, as the land on which the project was completed was purchased initially by the assessee from them only. Further, there 7
ITA No. 21/JP/2018 Indexone Tradecone Pvt. Ltd., Jaipur Vs DCIT, Jaipur is nothing on record which demonstrates that any services were rendered or obtained by the assessee for which it has incurred the brokerage expenses in respect of above sale of units to the Bhargava family. Though the assessee is the best judge to determine the business expediency but at the same time, where the same is challenged by the Revenue, the onus is on the assessee to demonstrate that there exists business expediency in incurrence of such an expenditure. However, in the instant case, we find that the assessee has failed to demonstrate the business expediency of incurrence of the brokerage expenditure paid to the promoters/directors. Therefore, the brokerage expenses to the extent paid to promoters/directors in respect of sale of units to the members of the Bhargava family cannot be held to have been incurred for the purposes of business and the disallowance thereof is hereby sustained. At the same time, there appears to be some buyers such as Rakhi Jain and Anita Goel which doesn’t seems to belong to Bhargava family. Further, we find that brokerage has been paid to Mr Ashish Gattani which again doesn’t seem to be a director or promoter of the assessee company. These transactions have not been challenged by the Revenue and to that extent, the addition is hereby directed to be deleted. The matter is accordingly set aside the matter to the file of the AO for the limited purposes of ascertaining the buyers which belong to Bhargava family which are already known to the assessee and its promoters/directors and the claim of the brokerage paid to them shall be disallowed and the remaining brokerage shall be allowed. In the result, the ground of the assessee is partly allowed.
Regarding Ground No. 2, briefly stated, the facts of the case are that during the year under consideration, the AO noticed that the assessee had purchased a CAR on 30.03.2013 for Rs. 42,95,962/- which was insured through Bajaj Allianz on 11.04.2013 i.e. in the next financial year. Thus claim 8
ITA No. 21/JP/2018 Indexone Tradecone Pvt. Ltd., Jaipur Vs DCIT, Jaipur of depreciation on the Car was held not allowable as any vehicle could not be put to use until it was insured. Hence, the depreciation of Rs. 3,22,197/- claimed on the CAR was disallowed and added to returned income of the assessee.
The relevant findings of the ld. CIT(A) is contained at para 3.3.2 which is reproduced as under:- “3.3.2 I have duly considered the submissions of the appellant, assessment order and the material placed on record. It is noted that the appellant has purchased a car on 30/03/2013 on which it has claimed depreciation to the tune of Rs. 3,22,197/- which was disallowed by the AO by observing that the car was insured on 11/04/2013 and in the absence of insurance, the car cannot be put to use. During the appellate proceedings, it was the contention of the appellant that there is no requirement in any law for getting the vehicle insured prior to vehicle put to use and thus, the AO was not justified in disallowing depreciation on the car. During the appellate proceedings, the appellant was required to file any evidence regarding purchase of petrol or diesel for the new car, however, no such evidence was filed by the appellant. Therefore, since the appellant has failed to furnish any evidence which may establish that the car was put to use during the year under consideration, in my considered opinion, the AO was justified in not allowing the depreciation on the car purchased by the appellant on 30/03/2013 and thus the same is hereby sustained.”
During the course of hearing, the ld. AR has submitted that a new car was purchased by the assessee Company on 30th March 2013. Simply for the reason that it was not insured in that year but on 11th April 2013, the depreciation was not allowed by the ld. AO. Since not getting the car insured could be a violation under Motor Vehicle Act but not
ITA No. 21/JP/2018 Indexone Tradecone Pvt. Ltd., Jaipur Vs DCIT, Jaipur under the Income tax Act, statutory deduction of depreciation cannot be denied. However on being convinced on the issue of insurance, Id. CIT(A) has required invoice of petrol/diesel for newly purchased car and in requiring so, he had not considered the fact that the newly purchased cars are provided with about 10 liters of petrol/diesel by the dealers themselves at the time of delivery of car. In this case when delivery of car was taken on 30th March 2013 evening, there was no need of re-filling of petrol/diesel in the car. Therefore, ld. A0 as well as Id. CIT(A) were not justified in disallowing depreciation of Rs.3,22,197/- which was used for business purposes, otherwise also, depreciation cannot be denied on block of asset ready for use. Reliance is placed on following judicial pronouncements:
(1) CIT vs. Panacea Biotech Ltd. (2010) 324 ITR 311(AII): When the asset is ready for use, entitled to depreciation.
(2) CIT Vs. Sonal Gum Industries (2010)233 CTR (Guj) 516: User of asset. Once it is found that assets are used for business, it is not necessary that all the items filling within block of assets have to be simultaneously used for being entitled to depreciation.
(3) CIT Vs. Mentha & Allied Products (2010) 236 CTR (All) 329: Even if the asset has been used for trial run, depreciation cannot be denied.
(4) CITVs. Oswal Agro Mills Ltd. (2012) 341 ITR 467 (Del): Assets forming part of block of assets — depreciation to be allowed even if not used in relevant year.
(5) CIT Vs. Radio Today Broadcasting Ltd. (2016) 382 ITR 42 (Del) : Plant and Machinery kept ready for use- use of asset in relevant accounting year-Meaning of word "use" Assets kept ready for use would amount to use.
ITA No. 21/JP/2018 Indexone Tradecone Pvt. Ltd., Jaipur Vs DCIT, Jaipur (6) Pr. CIT Vs. Larsen And Toubro Ltd. (2018) 403 ITR 248 (Boni): Condition precedent for allowance- user of plant and machinery. Machinery utilized for trial run. Depreciation allowable.
It was submitted that when the vehicle was brought to assessee's place of business, the same is used or ready for use for business purposes. The disallowance of mandatory allowance of Depreciation was therefore nor warranted.
We have heard the rival contentions and perused the material available on record. A new car was purchased by the assessee Company on 30th March 2013. It is the claim of the assessee that the delivery of the car was taken on 30th March 2013 and the vehicle was driven from the car dealer’s showroom to assessee’s business premises on the same day using the fuel provided by the Car dealer. The case of the Revenue is that where the vehicle was insured on 11.04.2013 i.e. in the next financial year, the claim of depreciation on the car was not allowable as any vehicle could not be put to use until it was insured. Undisputedly, the ownership and possession by way of taking the delivery of the car during the financial year is not in dispute. What is therefore relevant to determine is whether the vehicle is ready to be put to use for the purposes it has been purchased. The purpose is to use the vehicle to ply on the road for carriage of the assessee’s employees from one place to another. A vehicle can only ply on the road only when it has been insured and in absence of a valid insurance, it cannot ply on the road. Therefore, the insurance of the vehicle is required to make the vehicle ready to be put to use. In the instant case, the insurance has been taken in the next financial year and therefore, we agree with the findings of the AO that the depreciation is not allowable to the assessee for the impunged assessment year. However, the assessee shall be eligible to claim depreciation from the next financial year. In the result, the ground of appeal is dismissed. 11
ITA No. 21/JP/2018 Indexone Tradecone Pvt. Ltd., Jaipur Vs DCIT, Jaipur
Regarding Ground no. 3, the relevant facts and finding of the Assessing Officer are as under:-
“The assessee debited Rs. 1,56,000/- on account of payment of rent of guest house. The AR of the assessee was asked to furnish the rent agreements and ledger and other details of the said rent. The assessee fails to submit documentary evidences in support of his claim. It is surprising that the assessee had properties which are idle, and it is paying rent for guest house. In absence of supporting evidence of payment of rent on guest house and the implausible situation that assessee kept its own properties idle and was paying rent of guest house, the expenses claimed on rent of Rs. 156,000/- on account of guest house is hereby disallowed and added back to the total income of the assessee.”
The relevant findings of the ld. CIT(A) is contained at para 3.4.2 which is reproduced as under:- “3.4.2 During the year under consideration, the appellant has claimed an expenditure of Rs. 1,56,000/- on maintenance of two guest houses, one at T3, Sapphire Heritage, C-Scheme, Jaipur and another at Shivam Apartment, Bani Park, Jaipur by observing that the appellant was having its own unsold units which could be used for the purpose of its guesthouse. During the appellate proceedings, the appellant has stated that the AO cannot challenge the wisdom of the appellant and it should not put himself in the shoes of the appellant. During the appellate proceedings, the appellant was required to furnish evidence that these two guesthouses were used for the purpose of the business of the appellant and to file the details of other expenditure thereon. However, the appellant could file only electricity bill in respect of the so-called guesthouse at C- Scheme, Jaipur and no evidence in respect of 12
ITA No. 21/JP/2018 Indexone Tradecone Pvt. Ltd., Jaipur Vs DCIT, Jaipur guesthouse at Bani Park could be filed. On perusal of the said electricity bill, it was observed that the same was in the name of Shri Vimal Singhi, the director of the appellant company. It is further noted from the assessment order that the appellant could not furnish any rent agreement, ledger and other details of the rent claimed to be paid for guesthouses. Therefore, in view of the totality of facts and circumstances case, I do not find any reason to interfere with the findings of the AO as recorded in the assessment order and hence, the disallowance of Rs. 1,56,000/- made by the AO on account of rent payment for the alleged guesthouse is hereby sustained.”
During the course of hearing, the ld. AR has submitted that under section 37(1) of IT Act, expenditure incurred on maintenance of guest house is allowable as deduction. However, both the lower authorities had denied the deduction for the reason that the assessee company could have used the unsold residential units as guest house without appreciating the following facts: (a)Unsold flats are unfurnished and non-usable for the reason that electric connection is taken in name of the prospective owner;
(b) Unsold flats are stock and trade in the business and can be sold at any time, depending on choice and liking of buyers;
(c)The furnishing of unsold flat will cost much higher than maintenance charges and annual rent (total Rs.1,56,000/- in a year) for the guest house.
(d)It is for the businessman to decide whether a separate guest house or unsold unfurnished residential flat will be suitable and convenient for the purpose of stay of outsider prospective buyers.
The total payments for guest house was made by a/c. payee cheques, duly entered in regular books of accounts, examined by Id. AO however there was no other specific requirement by ld. AO to submit copy of 13
ITA No. 21/JP/2018 Indexone Tradecone Pvt. Ltd., Jaipur Vs DCIT, Jaipur ledger or other details. The disallowance of Rs. 1,56,000/- is without any reason and justification.
We have heard the rival contentions and perused the material available on record. The ld AR has contended that the total payment for guest house was made by a/c. payee cheques, duly entered in regular books of accounts and examined by AO however there was no other specific requirement by ld. AO to submit copy of ledger or other details. The case of the Revenue is that both during the assessment and appellate proceedings, the assessee was asked to furnish the rent agreements and ledger and other details of the said rent and the assessee fails to submit documentary evidences in support of his claim. In our view, what is relevant is whether the guest house was used for the purposes of the assessee’s business or not during the previous year. Where the guest house was used for the purposes of assessee’s business, the expenses thereon shall be allowed in the hands of the assessee. However, we find that nothing has been brought on record which demonstrates that the guest house was used for the purposes of assessee’s business. In view of the same, we hereby confirm the findings of the lower authorities and the ground so taken by the assessee is dismissed.
In the result, the appeal of the assessee is partly allowed.
Order pronounced in the open Court on 23/08/2018.
Sd/- Sd/- ¼fot; ikWy jko½ ¼foØe flag ;kno½ (Vijay Pal Rao) (Vikram Singh Yadav) U;kf;d lnL;@Judicial Member ys[kk lnL;@Accountant Member
Jaipur Dated:- 23/08/2018 14
ITA No. 21/JP/2018 Indexone Tradecone Pvt. Ltd., Jaipur Vs DCIT, Jaipur *Ganesh Kr आदेश की प्रतिलिपि अग्रेषित@ब्वचल वf जीम वतकमत वितूंतकमक जवरू vihykFkhZ@The Appellant- Inexone Tradecone Pvt. Ltd., Jaipur 1. izR;FkhZ@The Respondent- DCIT, Central Circle-2, Jaipur 2. vk;dj vk;qDr@CIT 3. vk;dj vk;qDr¼vihy½@The CIT(A) 4. विभागीय प्रतिनिधि] आयकर अपीलीय अधिकरण] जयपुर@क्त्ए प्ज्Aज्ए Jंपचनत 5. xkMZ QkbZy@Guard File (ITA No. 21/JP/2018) 6.
vkns'kkuqlkj@ By order, सहायक पंजीकार@ Aेेपेजंदज. त्महपेजतंत.