VINOD BHATI,BALLABGARH vs. ITO WARD - 2(5), FARIDABAD

The brief facts of the case as gathered from the orders of lower authorities are that the assessee is individual filed his Income Tax Return (‘ITR’) for A.Y. 2016- 17 on 20.10.2016 declaring income of Rs. 7,51,830/-. The case was selected for scrutiny. During the assessment year, the Assessing Officer (‘AO’) noted that in the profit and loss account, the assessee has debited commission expenses of Rs. 1.65 crore. The AO issued a show cause notice to the assessee to furnish ledger account along with relevant evidence to justify such commission expenses. The AO recorded that the assessee furnished only ledger account of commission expenses with some vouchers. On perusal of such details and vouchers, the AO formed his view that assessee booked daily commission expenses and not provided the name of such persons to whom commission was paid. The assessee is engaged in plotting of land in Palwal. The commission payment is kept below Rs. 5,000/-. Only three vouchers showing aggregate payment of Rs. 49,500/- were furnished, which cannot identify the person to whom such commission was paid. The AO recorded sale of plots in the year under consideration is of more than Rs. 7.00 crores which is comparatively on higher as it was Rs. 86.44 lacs in earlier year. In earlier year, the assessee had not debited such commission payment. The AO treated such commission payment as bogus and added to the income of assessee. The AO further noted that in the profit and loss account, the assessee has also claimed the rental expenses of Rs. 19.56 lacs. Out of such total rental expenses only Rs. 2,52,500/- were made through cheque. With regard to the remaining amount, no agreement or identity of the premises or the person to whom rent was paid provided by the assessee. The AO on page No. 4 of assessment order, recorded the name of four persons to whom aggregate payment of Rs. 4,84,300/-only, was provided. Thus, the AO allowed Rs. 2,52,500/- and Rs. 4,84,000/- and remaining amount of Rs. 12,19,500/- was added as unverifiable rental expenses.

Aggrieved by the additions in the assessment order, the assessee filed appeal before the Ld. CIT(A). Before the Ld. CIT(A), the assessee, in his written submission, submitted that he is engaged in the business of plotting of land. The assessee purchased land from various persons and sold it to different persons after plottings. The assessee is doing his business in the name of M/s. Kuber Developers. The commission were paid for the purpose of business and commercial expediency. During the assessment, ledger account of commission expenses was furnished and ledger account of commission’s recipient was furnished. To support commission expenses, the assessee relied on certain cases laws. With regard to rental expenses, the assessee claimed that all rent agreements were furnished along with electricity bill.

The Ld. CIT(A), on considering the submission of the assessee, upheld both the addition. While upholding the addition of commission expenses, the ld. CIT(A) recorded that the assessee had made commission payments on 4,317 instances, but no verifiable evidence was furnished. There is no basis for commission paid. In the earlier year, no such commission was paid. The assessee has not deducted TDS on such commission. Even during the appellate proceeding, no documentary evidences was furnished. On rental expenses, the ld. CIT(A) held that the assessee claimed total rental expenses of Rs. 25,32,250/- in profit and loss account. The AO disallowed Rs. 12,19,500/- only in respect of such expenses wherein documentary evidences was furnished. During the appellate proceeding, the assessee stated that all rent agreement and electricity bills was furnished in support of his claim. The Ld. CIT(A) recorded that on perusal of assessment order, he find that the AO allowed such expenses which was substantiated with the rent agreement or electricity bill, with regard to the disallowances in dispute, no evidence was furnished and upheld the action of AO. Further, aggrieved the assessee, filed the present appeal before the Tribunal.

We have heard the submission of Ld. Authorized Representative (‘AR’) of the assessee and the ld. Senior Departmental Representative (‘Sr. DR’) for the Revenue. With the assistance of Ld. AR and Ld. Sr. DR, we have perused the order of lower authorities carefully. The Ld. AR of the assessee submits that the assessee in the business of land developing on rural side. The assessee is working in the name of Kuber Developer. The assessee purchases certain lands from agriculturist and after preparation of layout plans, selling such land to needy persons. For inviting and publicity of his business, the assessee availed the service of various persons to whom the assessee had made commission payment. None of the payment of commission required TDS as payments were made below the threshold limit for making TDS. The payments were made to small persons who were soliciting the business to assessee. Making such commission payment is the common fact in real estate business. The ld. AR for the assessee further submits that during the assessment proceedings the assessee furnished certain detains with vouchers, however, at the stage of Ld. CIT(A) level the assessee furnish the name of majority of person to whom commission was paid. The assessee has now filed all the details. The name of purchaser of plots with the names to whom commission was paid is also placed on record and same may be considered. And in case bench is of the view that it is additional evidence same may be admitted grounds of appeal may be restored to AO. Similar submissions were made in respect of rental expenses. In alternative submission, the Ld. AR of the assessee submits that both the expenses were incurred for the purpose of business and to avoid the long drawn litigation with the department, and in order to possibility of revenue leakages, some percentage on reasonable basis may be disallowed on both additions.

Now, before us ld. AR of the assessee has made two-fold submissions. Firstly, the matter may be restored back to the file of the AO with the liberty to assessee to substantiate the expenses on the basis of evidences placed on record; and secondly, in alternative the disallowance may be made on ad-hock basis to avoid long drawn process of litigation and to avoid possibility of revenue leakage. On considering the nature of business of assessee the total receipt shown by the assessee, we instead of sending the matter back to the AO, thinks it appropriate to finally adjudicate the issue. We find that initially the AO issued show cause notice to disallow 30% of commission expenses and rental expenses. However, finally the AO disallowed entire commission expenses and those rental expenses which were not substantiated with evidence. We find that commission payment ranges from Rs. 2000/- and Rs.4800/- which does not require any TDS. Thus, to avoid the possibility of revenue leakage 20% of commission expenses is disallowed. So far as the rental expenses is concerned, the assessee has furnished the ledger account and rent agreement, although the same were not furnished before lower authorities instead of sending back the matter to the AO. We restrict disallowance of rental expenses to 50% of Rs. 12,19,500/-. In the result, both the grounds of appeal