Loading judgment…
Facts
The assessee claimed brokerage/commission of Rs. 35,00,655/- related to a long-term capital gain from the sale of property. The Assessing Officer disallowed this claim for lack of proper substantiation, citing issues with agreements, invoices, and lack of response from brokers.
Held
The Tribunal restored the issue to the Assessing Officer, directing him to grant a final opportunity to the assessee to produce all brokers for examination and then decide the matter afresh.
Key Issues
Whether the commission expenditure claimed by the assessee was duly substantiated, and whether the lower authorities correctly disallowed the claim based on available evidence and broker responses.
Sections Cited
133(6), 37(1), 48(1), 271AAD, 270A
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, PUNE BENCH “A”, PUNE
Before: SHRI R. K. PANDA & MS. ASTHA CHANDRA
This appeal filed by the assessee is directed against the order dated 18.07.2024 of the Ld. CIT(A) / NFAC, Delhi relating to assessment year 2021-22.
Facts of the case, in brief, are that the assessee is an individual and filed her return of income on 14.12.2021 declaring total income of Rs.11,51,62,460/-. The case of the assessee was selected for complete scrutiny assessment in accordance with the provisions of the E-assessment Scheme on account of large payment as commission to persons who have not filed their returns of income for the relevant assessment year. The assessee in response to the same filed various details such as copy of computation of income, details of brokerage paid details, copies of bank account statements, PPF account statement, gift taken or given, agricultural income/expenses, brokers invoice, ledger of brokers, long term capital gain working, LTCG cost of acquisition etc.
During the course of assessment proceedings the Assessing Officer noted that the assessee has declared long term capital gain on sale of land or building or both and has received consideration of Rs.12,06,52,000/- on which the assessee has claimed an amount of Rs.35,00,655/- towards brokerage / commission in connection with transfer of such asset. On the basis of the various details furnished by the assessee regarding the payment of brokerage / commission, the Assessing Officer issued a notice u/s 133(6) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) calling for information to whom the assessee has paid commission. In response to the same, reply was received from one party namely Shri Nikunj Agrawal who stated that no commission / brokerage was received for the year under consideration from the assessee. The other parties did not respond to the notices u/s 133(6) of the Act. The Assessing Officer thereafter issued show cause notice asking the assessee to explain as to why the commission of Rs.35,00,655/- should not be disallowed. The assessee in response to the same filed various details including ITR copies of brokers, agreement made with the brokers etc.
However, the Assessing Officer was not satisfied with the explanation given by the assessee and rejected the same by recording as under:
“4.2. Point wise rebuttal of reply of the assessee including analysis of any case law relied upon: The reply of the assessee has been perused and considered. The Plea of the assessee cannot be considered for the below mentioned reasons: a. The agreement made with the brokers for appointment as commission sales agent is neither made on the stamp paper nor it has not been notarized. Further, there is no date mentioned when the agreement was signed. b. The tax invoices raised by the agents which were initially submitted were unsigned and unstamped. Later on, during the assessment proceedings a few invoices of only two agents i.e. M/s Trident Realty and Shri Rohit Arbuj were submitted with signature and seal on it. Thus, the identity of commission agents could not be ascertained. c. In the agreement made with the brokers it is mentioned that the assessee shall pay brokerage @ 2.50% to the brokers. Whereas on perusal of the LTCG working submitted by the assessee during the assessment proceedings it is found that the rate of brokerage paid by the assessee in maximum cases are more than the rate made in the agreement which are made for inflation of expenses as claimed by the assessee for the year under consideration. This also raises doubt on the veracity of the agreement submitted. d. The assessee has only submitted the invoices raised in respect of two agents only whereas no documentary evidences were provided in respect of other agents. e. Documents submitted by the assessee to support his claim of commission paid to the agents say a different story that as per the agreement between the assessee and the agents. f. The claim of the assessee that the payments were made through banking channel does not establish the genuineness of transactions. g. Whereas on perusal of the ITRs of the agents it had been found that barring M/s Trident Reality, none of them had shown the commission income. Further, M/s Trident Reality had shown Rs.11,69,086/- as commission income whereas it had been paid Rs.15,40,490/- as commission. This also concretes the view of the Assessing Officer. h. One party Shri Nikunj Agrawal submitted replies that, no commission/brokerage received for the year under consideration from the assessee. i. other party Smt. Swarna Bansal had complied on 12.12.2022 that, she had not made any transaction with the assessee. Reply of Smt. Swarna Bansal is reproduced as under-
"This is reference to notice received through online in connection with the assessment proceedings in case of Sh. Farheez Eruch Aga for A.Y. 2021-22. In this regard I may mention that I have not carried out any transaction during the year with Shri Farheez Eruch Aga accordingly none of the query raised by you have any relevance with me. I hope this will clarify the position. Please let me know for any further query in this regard." Thus, by submitting false documents, assessee has committed default and made himself liable for initiation of penalty of u/s 271AAD. Therefore, penalty u/s 271AAD initiate separately for false documents. 4.3. Conclusion drawn: In the light of the above facts, the claim of the assessee to have paid commission or brokerage to the tune of Rs.35,00,655/- remains unverifiable for the facts that the assessee had not submitted proper documents in support of his claim. Hence, the said expenses of Commission claimed by the assessee i.e. Rs.35,00,655/- is not expended wholly and exclusively for the purpose of transfer of immovable property and therefore, disallowed and added back u/s 37(i) of the Income tax Act, 1961. Penalty proceedings initiated u/s 270A of the Income tax Act, 1961.”
The Assessing Officer accordingly determined the total income of the assessee at Rs.11,86,63,115/-.
In appeal the Ld. CIT(A) / NFAC sustained the addition made by the Assessing Officer.
Aggrieved with such order of the Ld. CIT(A) / NFAC, the assessee is in appeal before the Tribunal by raising the following grounds:
1. The learned CIT(A), NFAC erred in law and on facts in sustaining the addition of Rs.35,00,655/- on account of appellant's claim of commission and brokerage against long term capital gain by applying provisions of u/s 37 of ITA, 1961 without appreciating fact that, appellant has claimed the said expenditure u/s 48(1) of ITA, 1961.
2. The learned CIT(A) erred in law and on facts in sustaining the addition of Rs.35,00,655/- on account of disallowance of appellant's claim of commission and brokerage expenditure claimed u/s 48(i) by observing that the same are not substantiated with documentary evidence, further none of the parties provided confirmation & thereby claim of expenditure is non- genuine without appreciating & considering a) that, the detailed submission along with documentary evidence submitted before lower authorities and lower authorities failed to consider the same. b) that, said expenditure is incurred wholly or exclusively in connection with sale of flats and the same has been substantiated with documentary evidence before lower authorities. c) that, the identity of commission agents is substantiated by submitting acknowledgement copies of return of income of all commission agents before lower authorities. d) that, as per understanding, the commission & brokerage is required to be paid to commission agents only after receipt of final payment from the buyers.
3. The learned CIT(A), NFAC erred in law and on facts in sustaining the addition of Rs.35,00,655/- by relying only on replies of commission agent u/s 133(6) of ITA, 1961 without considering appellant's clarification provided during assessment proceedings in video conferencing with respect to the same & also without providing cross examination with these parties.
4. Appellant craves leave to add/alter/modify/amend/delete all or any of the grounds of appeal.
The Ld. Counsel for the assessee at the outset submitted that all the payments were made to the brokers through banking channel and due taxes have been deducted from such commission / brokerage. He submitted that the Assessing Officer has never confronted the assessee regarding the various submissions made by the brokers. He submitted that in one case the broker has declared income out of brokerage / commission but due to the variation between the commission paid by the assessee and the commission received by the broker, the Ld. CIT(A) / NFAC confirmed the addition even without allowing the amount which has already been declared by the said person. He submitted that given an opportunity the assessee is in a position to substantiate his case by producing all the brokers before the Assessing Officer for his examination and taking a view accordingly.
The Ld. DR on the other hand heavily relied on the orders of the Assessing Officer and the Ld. CIT(A) / NFAC. He submitted that most of the brokers did not respond to the notices issued u/s 133(6) of the Act. One of the brokers namely Shri Nikunj Agrawal stated that no commission / brokerage was received for the year under consideration from the assessee and another broker had shown lesser commission than what the assessee shown to have paid. He submitted that the order of the Ld. CIT(A) / NFAC being a reasoned one should be upheld and the grounds raised by the assessee be dismissed.
We have heard the rival arguments made by both the sides, perused the orders of the Assessing Officer and the Ld. CIT(A) / NFAC and the paper book filed on behalf of the assessee. We find due to non-compliance to the statutory notices issued u/s 133(6) of the Act by most of the brokers and denial of one of the brokers regarding the receipt of any commission, the Assessing Officer completed the assessment wherein he made addition of Rs.35,00,655/- which was claimed by the assessee towards brokerage / commission out of long term capital gain of Rs.12,06,52,000/-. We find the Ld. CIT(A) / NFAC upheld the action of the Assessing Officer on the ground that the assessee could not substantiate with any satisfactory explanation regarding the payment of such commission. A perusal of the outcome of notices issued u/s 133(6) of the Act shows the following result which has been reproduced by the Ld. CIT(A) / NFAC in the appellate order:
S No Name of the party Amount given as Whether Remarks (outcome to whom brokerage brokerage/commission Confirmation of in response to the was given. PAN as claimed by the the same notice u/s. 133(6) assessee in Rs. received of the IT Act) 1 Trident Reality Rs.15,40,490/ No No reply ACPPB8235M 2 Nikunj Agrawal Rs.3,85,800/- Yes Shri. Nikunj AINPA6739R Agrawal submitted that no Commission brokerage received for the year under consideration 3 Amruta Salunkhe Rs.4,20,300/- No Wrong PAN GCUPS5081M NO 420300/- 4 Rohit AHCPA Rs.11,54,065/- No No Reply 1294M TOTAL Rs.35,00,655/-
It is the submission of the Ld. Counsel for the assessee that given an opportunity the assessee is in a position to substantiate his case before the Assessing Officer by producing all the parties for his examination since substantial payment of brokerage / commission have been paid through banking channel and due TDS has been deducted. Considering the totality of the facts of the case and in the interest of justice, we deem it proper to restore the issue to the file of the Assessing Officer with a direction to grant one final opportunity to the assessee to substantiate his case by producing all the brokers for his examination and thereafter take a proper decision as per fact and law. We hold and direct accordingly. The grounds raised by the assessee are accordingly allowed for statistical purposes.
In the result, the appeal filed by the assessee is allowed for statistical purposes.
Order pronounced in the open Court on 2nd September, 2025.