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Income Tax Appellate Tribunal, MUMBAI BENCHES “E”, MUMBAI
Before: SHRI B.R.BASKARAN (AM) & SHRI RAM LAL NEGI (JM)
The present appeal has been filed by the assessee against order dated 15/05/2012 passed by the Ld. CIT(Appeals)-23 Mumbai for the Asst. Year 2008-09, whereby the Ld. CIT(A) partly allowed the appeal filed by the assessee, against order dated 27/12/2010 passed by the Assessing Officer u/s 143(3) of the Income Tax Act, 1961 (in short ‘the Act’).
Brief facts of the case are that the assessee, a partnership firm, engaged in the business of financing investments and hiring premises filed its return of income for the relevant Asst. year, declaring the total income as NIL. The return was processed u/s 143(1) of the Act. The case was selected for scrutiny and accordingly assessment order u/s 143(3) of the Act was passed, determining the total income at Rs. 17,18,412/- after making inter alia disallowance of Rs. 14,25,020/-, brokerage paid by the assessee and disallowance of Rs. 3,14,322/- claimed as repairs and maintenance expenses. The assessment order was challenged before the Ld. CIT(A). In appeal the Ld. CIT(A) after hearing the assessee enhanced the disallowance claimed as brokerage from Rs. 14,25,020/-determined by the AO to Rs. 21,91,020/- and also confirmed the disallowance claimed as repairs and maintenance expenses.
Aggrieved, the assessee is in appeal before the Tribunal. The assessee has raised the following effective grounds of appeal:-
1) The learned Commissioner of Income-tax (Appeals) erred in disallowing brokerage paid to the tune of Rs. 21,19,020/-. 2) The learned Commissioner of Income-tax (Appeals) erred in assuming jurisdiction to make an enhancement, without satisfying the jurisdictional conditions prescribed by section 251(2).
3) The appellant submits that the enhancement in the disallowance of brokerage be, in any event, cancelled.
4) The learned Commissioner of Income-tax(Appeals) erred in ignoring the proceedings which has taken place before the Assessing Officer, including the summons issued to the payee.
5) The learned Commissioner of Income-tax (Appeals) erred in not deleting the disallowance of Rs. 3,14,322/- on account of repairs and maintenance.
6) The learned Commissioner of Income-tax (Appeals) erred in giving findings which were irrelevant for deciding the issue of allowability of repairs expenditure.
7) The appellant submits the additions suggested by Commissioner of Income Tax (Appeals) on account of repairs be deleted.
8) The learned Commissioner of Income-tax (Appeals) erred in assuming jurisdiction to make an enhancement on the issue of repairs.
In the present case basically the appellant/assessee has raised two issues i.e., issue relating to disallowance of brokerage amount paid by the assessee and issue pertaining to disallowance of repairs and maintenance expenses of Rs 3,14,322/. As regards the first issue, the Ld. Counsel for the assessee submitted that the assessee during the relevant years entered into a leave and license agreement to hand over a flat in building called ‘Sunita’ to IndusInd Bank Ltd. on a monthly license fees @ Rs. 7,66,000/-. The assessee also received security deposit of Rs. 7 crores. The appellant/assessee paid brokerage of Rs. 21,91,020/- in respect of the said leave and license agreement to Viwa Chem Pvt. Ltd. i.e. 2% security deposits of Rs. 7 crores plus 2% of license fees for the period of 36 months and service tax @ 12.36%. The Ld. Counsel further submitted that Viwa Chem Pvt. Ltd. has confirmed the payment. The AO has wrongly applied the provisions of section 40A(2)(b) of the Act and disallowed Rs. 14,25,020/- out of the total amount claimed wrongly holding that one of the directors of the company is the son of a partner of the assessee firm. Shri. F.A.Vakil, one of the directors of Viwa Chem Pvt. Ltd. is the husband of one of the partners of the assessee firm, Smt. S.F. Vakil and he is not son of the partners. Moreover, section 40A(2)(b) has no applicability as the Viwa Chem Pvt. Ltd. is not a person referred u/s 401A(2)(b) of the Act. Since, the disallowance made by the AO is based on wrong assumption, the Ld. CIT(A) ought to have deleted the same. But instead of delegating of disallowance the Ld. CIT(A) has wrongly enhanced the disallowance to the total amount claimed exceeding the powers conferred on him u/s 251of the Act.
On the other hand the Ld. departmental representative (DR) relying upon the order passed by the Ld. CIT(A) submitted that same has been passed in accordance with the provisions of law and as per the evidence on record. Therefore, there is no merit in the appeal filed by the assessee.
We have heard the rival submissions and also gone through the material placed before us including the case laws relied upon by the parties. We notice that out of the total amount of Rs. 21,91,020/- brokerage fees claimed by the assessee, AO has allowed only Rs. 7,66,000/- holding that in Mumbai normally brokerage fees is charged @ 1% of the transaction and the amount of brokerage claimed in this case is abnormally higher than the normal rate. On the other hand the Ld. CIT(A) relying on the ratio laid down by the Hon’ble Supreme Court in CIT vs. Macdowell & Co vs. CIT (1985) 154 ITR 148(SC), Hon’ble High Court of Calcutta, in CIT vs Shekkawat Rajputana Trading Corporation(1999) 236 ITR 1950 Cal and Hon’ble Bombay High Court in Twinstar Holding Ltd.vs DCIT (2003) 260 ITR 8 (Bom.), disallowed the entire amount claimed by the assessee holding that the company to whom the brokerage was paid has failed to establish that it was authorized to act as a broker. Moreover, mere payment of money by the assessee in this case is not sufficient to prove the genuineness of the transaction and real substance of the transaction is required to be seen.
Admittedly, the assessee has made payment of Rs.19,42,777/-vide cheque dated 27.3.2008 issued in favour of Viwa Chem. Pvt. Ltd. and deposited TDS of Rs. 2,48,243/- thereon vide cheque dated 27.3.2008 issued by the assessee firm. The said facts prima facie establish the claim of the assessee that it has paid net brokerage of Rs. 19,42,777/-and deducted the tax of Rs 2,48,243/- at source. In our considered opinion the said facts are sufficient to draw a presumption that the transaction in question is genuine and said presumption can only be rebutted by cogent and convincing evidence. The authorities below have held the transaction as colourable device on the basis of surmises and conjunctures without referring to any convincing evidence. AO has not brought any evidence on record either to prove that the transaction is a colourable device to disallow the same or the brokerage paid by the assessee in the present case is excessive or unreasonable to apply the provisions of section 40(A)(2) of the Act. Similarly, the Ld. CIT(A) has not recorded the reasons for holding that the object behind making payment of the amount in question was tax avoidance through a colorable device. The finding of the Assessing Officer as well as the Ld. CIT(A) are, therefore, not based on any evidence. Since, the Ld. CIT(A) has not referred any evidence to justify the disallowance made by the AO or to enhance the same, it can safely be presumed that the payment in question has been made by the assessee as brokerage. The impugned order is therefore not sustainable in the eyes of law. Accordingly, we set aside the findings of the Ld. CIT(A) on this issue and allow this ground of appeal of the assessee. Since, we have decided the first issue in favour of the assessee on merit, the issue regarding jurisdiction of Ld. CIT(A) to enhance the disallowance becomes academic hence we do not consider it necessary to adjudicate this issue separately.
8. Second issue pertains to disallowance of repairs and maintenance expenses of Rs 3,14,322/-. The Ld. Counsel for the assessee referring to the profit and loss account, in which a sum of Rs. 15,71,612/-had been debited being expenses for repair and maintenance of premises, submitted that the Ld. CIT(A) has wrongly confirmed the disallowance made by the AO. Per contra the Ld. DR relying on the findings of the Ld. CIT(A) submitted that since the assessee had incurred the expense of Rs. 11,83,241/- in connection with maintenance of assessee’s office premises at 3rd floor, Liberty Building, the Ld. CIT(A) has rightly confirmed the disallowance.
9. During assessment proceedings the assessee produced copy of ledger account as per which the assessee had incurred the expense of Rs. 3,88,371/- for repairing works carried out at Flat in Sunita Building and servant’s quarter and remaining amount of Rs. 11,83,241/- was incurred for painting, purchase of paint, paint materials and contractor’s charge for office premises of the assessee firm at 3rd Floor, Liberty Building. Accordingly, the A.O disallowed 20% of the total amount claimed on the ground that no bills & vouchers were produced for verification. On the basis of vouchers produced by the assessee during appellate proceedings, the Ld. CIT(A) allowed society maintenance charges aggregating to Rs. 293866/-. With regard to the remaining expenses he took the view that they are capital in nature and accordingly confirmed the disallowance made by AO.
10. We notice that the AO has disallowed 20% of expenses for want of evidence, however, the Ld. CIT(A) has taken altogether new ground and taken the view that the expenditure other than the society charges aforesaid, are capital in nature. We also notice that the CIT(A) did not seek any explanation from the assessee before arriving at such a conclusion. Accordingly, we are of the view that this issue requires fresh examination at the end of the Ld. CIT(A). We, therefore, restore this issue to the file of the Ld. CIT(A) with the direction to adjudicate this issue afresh after affording a reasonable opportunity to the assessee to explain the same.
In the result appeal filed by the assessee for A.Y. 2008-09 is partly allowed. Order pronounced in the open court on 18thNovember, 2016 Sd/- Sd/- (B.R.BASKARAN) (RAM LAL NEGI) ACCOUNTANT MEMBER JUDICIAL MEMBER मुंबई Mumbai; �दनांक Dated:18/11/2016