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Income Tax Appellate Tribunal, PUNE BENCH “A”, PUNE
आदेश आदेश / ORDER आदेश आदेश
PER D. KARUNAKARA RAO, AM :
This is the appeal filed by the assessee against the order of CIT(A)-6, Pune, dated 15-06-2015 for the Assessment Year 2011-12.
Grounds raised by the assessee are extracted as under :
“On facts and in law, 1. The Ld.CIT(A) erred in confirming the disallowance of commission of Rs.28,19,137/- which was claimed as a deduction from the profits by the appellant who is a land aggregator. 2. The Ld.CIT(A) failed to appreciate that the appellant has to pay the commission to the local persons who act as intermediaries between the appellant and the farmers for the purposes of getting the land from the farmers and thus, this expenditure is an allowable deduction. 3. The Ld.CIT(A) failed to appreciate that the appellant had given the names of these persons, the details of the lands in relation to which the commission was paid, etc etc. and hence, the commission was an allowable deduction.
The appellant requests for admission of additional evidences if any, required in support of the above grounds of appeal. 5. The appellant craves leave to add, alter, amend or delete any of the above grounds of appeal.”
Briefly stated relevant facts are that the assessee is a land
aggregator and engaged in securing the land for prospective buyers and
selling the same in the open market. She earns commission as well as
pay the same to the brokers too. In the process, assessee earned
commission of Rs.2,25,41,211/- apart from earning other income.
Further, assessee incurred commission expenditure too amounting to
Rs.34,19,137/-. During the course of assessment proceedings
u/s.143(3) of the Act, the allowability of the said commission expenses
was the subject matter of scrutiny by the AO. Relevant discussion on
this issue is seen in Para No.6 of the assessment order along with its
sub-paras. Location and land-wise incurring of commission payment is
grouped and the sum of Rs.20,63,334/- was paid in respect of the land
at Sate. Rs.6,65,655/- was paid in respect of land at Adhe.
Rs.90,148/- was paid in respect of the land at Nane and Rs.6,00,000/-
was paid in respect of the land at Badhalwadi. Assessee submitted that
the commission was paid to various agents for identifying the
prospective sellers and stakeholders. The payment of commission was
made through banking channels after making TDS as per the rules.
Assessee furnished details and evidences in respect of the payments of
commission to various brokers. Despite the same, the AO proposed to
disallow the same. Assessee submitted that the commission
expenditure is genuine and the same is for the commercial purpose of
the business. Therefore, the entire amount has to be allowed. However,
after considering the assessee’s explanation and on considering the fact
that the assessee did not report earning of any income relating to,
certain lands relying on the principle of matching expenditure to the
income earned, the AO allowed only commission payment of Rs.6 lakhs
and disallowed the balance amount of Rs.28,19,137/-. Relevant lines
are extracted here as under :
“6.3 . . . . . . . . . . . .The matching principle of accounting postulate that only the expenses matching with the revenue are to be charged to the Profit and Loss account. The amount of advances/commission paid for the transactions which have not been materiliazed during the year cannot be matched with the revenue from release of rights in other lands. As such, advances could have been taken to the balance sheet and should have been claimed against the revenue from releasing of rights in land at Sate, Nane and Adhe. In view of the above discussion, the commission paid in respect of land at Sate, Nane and Adhe is disallowed u/s.37 of the I.T. Act, 1961…..”
During the First Appellate proceedings, assessee could not
improve his case despite the written submissions and the arguments
before the First Appellate Authority. Eventually, the CIT(A) dismissed
the appeal of the assessee confirming the addition made by the AO.
CIT(A) relied on the judgment of Jurisdictional High Court in the case of
Umakant B. Agarwal Vs. DCIT 369 ITR 220 (Bom.) for the proposition
that the commission cannot be held to be deductible if no evidence of
services rendered is furnished.
Aggrieved with the order of CIT(A) the assessee is in appeal before
us with the aforesaid grounds.
Bringing our attention to the details of commission placed at
pages 4 and 5 of the paper book, Ld. Counsel for the assessee
submitted that the assessee incurred sum of Rs.34,19,137/- in respect
of various land brokers. Details of the brokers are furnished in the said
pages. The Gut Numbers of the land which involved the services of the
said brokers are also given. In most of the cases payments are made
through banking channels after making TDS as per the rules. In that
case, the claim of the assessee should be allowed in full. He also
brought our attention to the individual ledger extracts of the individual
brokers and also filed copies of the vouchers signed by the agents
evidencing the proof of receipt of the commission giving particulars of
Gut Numbers in respect of which services were received by the
assessee. Ld. Counsel for the assessee prayed for allowing the entire
claim of commission payment without any disturbance.
On the other hand, Ld. DR for the Revenue brought our attention
to certain entries where TDS was not deducted. However, it is a fact
that AO did not look into the cases where TDS was not deducted before
denying the claim of deduction of commission payment. Otherwise, he
relied on the orders of the AO and the CIT(A).
We heard both the parties and perused the orders of the Revenue
and the paper book filed before us. The core issue to be decided is the
allowability of commission payment of Rs.28,19,137/-. Invoking the
‘matching principle’ is also relevant. We perused the contents on pages
4 and 5 of the paper book which contained the exhaustive list of
commission recipients from the assessee. We find the documentation is
maintained properly. These documents show the fact of making
commission payment through banking channels and the TDS is
deducted as per the rules in most of the cases. It is an undisputed fact
that assessee earned the commission of Rs.2.25 crores (rounded off)-
page 32 of the paper book and the gross receipts of the assessee is to
the tune of Rs.2.32 crores (rounded off). In our view, CIT(A)’s finding
that the assessee failed to file the particulars of services rendered by the
brokers is unsustainable in view of the fact that the assessee earned
income from land dealings to the tune of Rs.2.25 crores. It is a common
sense to infer that assessee could not have earned the said income
without incurring commission payment of Rs.34,19,137/-. The defects
identified by the Ld. DR for the Revenue are not scanned. In our view,
invoking the matching principle is not appropriate in this line of
business activities of the assessee. Therefore, we are of the opinion that
the grounds raised by the assessee are decided in favour of the assessee
and we hold that commission payment of Rs.34,19,137/- as reasonable
when it comes to the total earning of income of Rs.2.25 crores (rounded
off). Thus, the AO is directed to delete the addition of Rs.28,19,137/- in
the hands of the assessee.
In the result, appeal of the assessee is allowed.
Order pronounced in the open court on this 09th day of May, 2018.
Sd/- Sd/- (SUSHMA CHOWLA) (D.KARUNAKARA RAO) �ाियक सद� / JUDICIAL MEMBER लेखा सद� / ACCOUNTANT MEMBER पुणे / Pune; �दनांक Dated : 09th May, 2018. Satish
आदेश आदेश क� आदेश आदेश क� क� �ितिलिप क� �ितिलिप �ितिलिप अ�ेिषत �ितिलिप अ�ेिषत अ�ेिषत/Copy of the Order forwarded to : अ�ेिषत
अपीलाथ� / The Appellant 1. ��यथ� / The Respondent 2. 3. CIT(A)-6, Pune 4. CIT-6, Pune िवभागीय �ितिनिध, आयकर अपीलीय अिधकरण, “A Bench” Pune; 5. गाड� फाईल / Guard file. 6.
आदेशानुसार आदेशानुसार आदेशानुसार/ BY ORDER, आदेशानुसार स स�यािपत �ित //True Copy// //True Copy// Senior Private Secretary आयकर अपीलीय अिधकरण ,पुणे / ITAT, Pune