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Income Tax Appellate Tribunal, “D” BENCH : KOLKATA
Before: Hon’ble Shri Aby. T. Varkey, JM & Shri M.Balaganesh, AM ]
This appeal is directed against the order of the learned Commissioner of Income Tax (Appeals) -2, Kolkata [ in short the ld CITA] in Appeal No. 1152/CIT(A)-2/14-15 dated 19.7.2016 against the order of assessment framed by the learned DCIT, Circle – 6, Kolkata [ in short the ld AO] under section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as the ‘Act’) for the Asst Year 2010-11 on 25.2.2013.
The only issue to be decided in this appeal is as to whether the ld CITA was justified in upholding the disallowance of Rs 47,61,100/- towards commission and brokerage paid in the facts and circumstances of the case.
Shrachi Burdwan Developers (P) Ltd. A.Yr.2010-11 3. The brief facts of this issue are that the assessee is engaged in the business of property development and had filed its return of income for the Asst Year 2010-11 on 13.10.2010 declaring Nil income. The assessee had taken up construction project for which contruction was started and flats / spaces were being booked through brokers to whom commission was to be paid by the assessee in a phased manner. Accordingly, the assessee paid a sum of Rs 49,61,100/- towards commission and brokerage to brokers who had sourced the customers for purchase of property in the assessee’s project. The assessee claimed the same as a revenue expenditure in the return of income. The ld AO observed that the assessee has not shown any income from its projects since the same is under construction. The assessee has shown ‘other income’ comprising of i) interest on loan ; ii) interest from others ; iii) income from investments – profit on sale of units and dividend; iv) realization from cancellation of booking and v) miscellaneous receipts. As against the above income, the assessee had claimed expenses under the head personal cost, administrative, selling and other expenses and financial cost after capitalizing a part of above expenses to construction work in progress. The ld AO noted that the assessee had not offered any income from its projects as it is following completed contract method of recognizing revenue from sale of flats. Hence he held that the commission and brokerage expenses claimed as deduction by the assessee in the sum of Rs 49,61,100/- shall not be allowed as deduction and the same would have to be capitalized to construction work in progress. Accordingly this sum of Rs 49,61,100/- was disallowed by the ld AO in the assessment. This action was upheld by the ld CITA . Aggrieved, the assessee is in appeal before us.
We have heard the rival submissions. The short point that arises for our dispute is that whether the commission and brokerage expenses of Rs 49,61,100/- is to be allowed as a revenue expenditure in the absence of any revenue recognized by the assessee from the construction projects. It is not in dispute that the assessee had indeed paid 2
Shrachi Burdwan Developers (P) Ltd. A.Yr.2010-11 commission and brokerage to four parties who had actually sourced the customers for purchase of flats in the project under construction of the assessee. It is not in dispute that the said payments are duly subjected to deduction of tax at source by the assessee and the payees had duly rendered the services to the assessee in lieu of which payments were made to them. We find that the genuinity of these expenses are not doubted by the revenue. It is not in dispute that the assessee is following completed contract method for recognizing its income from projects. Hence it is just and fair that the commission and brokerage expenses are also to be recognized as revenue expenditure in the year in which the revenue is recognized under completed contract in view of the fact that the commission expenditure is directly linked with the sale of flats yielding revenue to the assessee company. Hence we hold that the ld AO had rightly stated that the said expenditure is to be capitalized to construction work in progress and the same along with other expenditures would be allowed as deduction in the year in which revenue is recognized under completed contract method . Accordingly, the grounds raised by the assessee are dismissed.
In the result, the appeal of the assessee is dismissed.
Order pronounced in the Court on 25.05.2018