CHICKANNA GOVINDAPPA ,BENGALURU vs. INCOME TAX OFFICER, WARD-5(2)(1), BENGALURU

The assessee preferred the appeal before the ld. CIT(A) wherein the assessee reiterated the same details and explanation. But the ld. CIT(A) confirmed the action of the ld. AO.

Aggrieved, the assessee is in appeal. The ld. AR, Shri V. Srinivasan, Advocate was heard from the side of the assessee and Shri Ganesh R. Ghale, Advocate, Standing Counsel for the Revenue was also heard, who supported the orders of the ld. lower authorities.

I have carefully considered the rival contentions and perused the orders of the ld. lower authorities. The facts clearly show that assessee has sold a property at Rs.3.24 crores. The assessee has claimed the cost of improvement of Rs.65,62,000. The ld. AO has accepted the major portion of cost of improvement, however, has not accepted that assessee could have spent Rs.2,45,141 of 21 bills as in the bill the name of the appellant was not mentioned. I find that the assessee has given complete list of total expenditure of Rs.65,62,000 comprising of almost 75 bills, out of which the ld. AO has disbelieved the sum of Rs.2,45,141 for the reason that name in the invoices of the assessee does not appear. I find that all these invoices are small bills ranging from Rs.500 to Rs.40,000. These bills are of small items such has glasses, plywood, etc. When the assessee’s cost of construction of Rs.65,62,000 is believed, disbelieving a sum of Rs.2,45,141 is not proper. The explanation of the assessee is also not devoid of any merit when assessee has given details of the party, copy of the bill, details of payment made, etc. Merely not mentioning the name of the assessee though assessee produces the original bill and also payment to those parties, not accepting the same, is not proper. In case of small purchases it may happen that name of the assessee might not have entered in it. All these bills are also being incurred earlier and the assessment order is passed in 2018. The AO might not have an occasion to enquire from the parties. However that may not be a case if totality of the circumstances are seen. It is also not the case of the ld AO that these materials have not been purchased by assessee for the house. In view of the above facts when the assessee has shown the total cost of improvement of Rs.65,62,000, but merely 4% of the total bills are disbelieved when the complete bills and invoices are given along with copies of invoices and the date of payment, merely that the name in the invoices of the assessee does not appear, I do not find it to uphold the order of the ld. AO in not allowing the cost of improvement of Rs.2,45,141.

The second issue is with respect to commission & brokerage paid of Rs.7,44,000. The facts show that assessee has claimed to have paid brokerage as selling expenses to four different parties of Rs.1,81,000 each. The assessee supported the same by filing their confirmation, who confirmed that they have rendered services for sale of this property and also received the brokerage. The ld. AO issued notice u/s. 133(6) of the Act, disallowed the same holding that he parties have furnished their return of income after the issue of show cause notice and further they do not have any experience of doing business earlier of such kind of commission. The ld. CIT(A) also confirmed the same. I find that the assessee has paid a commission of Rs.1,81,000 each to four different persons who have confirmed receipt of commission income and have shown the same in their return of income. Those persons might have filed ROI after the issue of show cause notice. But that does not matter at all. Non-filing of return of income by the recipient of the income which are claimed as deduction by the assessee does not improve or help the case of the Department, unless there are other contrary information available. Merely because the parties are near relatives who are not mentioned by the AO also could not have resulted into disallowance, because even if the same is paid to a relative with proper evidence and which is not excessive, unreasonable or bogus, same could not have been disallowed. Further those parties have not shown any commission income from similar kind of business in earlier year is also not relevant for the reason that many of the assessees do the business for the first time. The real substance to be seen is whether those parties have rendered the services to the assessee or not. In the information submitted u/s. 133(6) of the Act, all the parties have confirmed the same that they have rendered services of selling the above property and have received the commission. Their return of income, confirmation, etc. show that there is a commission paid by the assessee for the services rendered. There is no evidence that those parties have not rendered the service of brokerage to the assessee. Thus, it is clear that the AO has made the addition merely on the basis of assumption. The case would have been different, had the AO examined the parties and they would have denied that they have rendered any services to the assessee for sale of the properties. In such circumstances, the disallowance of the same would have been justified. However, when all the parties confirmed the transaction by showing this transaction in their respective return of income and also confirmed the same many times, in the absence of any contrary

In view of the above facts, I reverse the orders of the ld. lower authorities and direct the ld. AO to delete the disallowance of Rs.2,45,141 and Rs.7,44,000. Thus, ground Nos.2 & 3 of the appeal are allowed.

In the result, the appeal filed by the assessee is allowed.