ITAT Mumbai: Brokerage Paid After Sale Allowed against Capital Gains

Mahendra Pratap Singh Vs ITO (ITAT Mumbai)

Mahendra Pratap Singh filed an appeal before the ITAT Mumbai against the order of the CIT(A), NFAC, Delhi dated 13 December 2025 for AY 2020-21. The appeal challenged the ex-parte dismissal by the CIT(A) and the additions made by the Assessing Officer in respect of capital gains arising from the sale of four residential flats in Vasudev Sky High.

The assessee had claimed deductions aggregating to ₹37,16,244 towards brokerage, other charges and improvement costs relating to the purchase and sale of the four flats. The AO had disallowed the claims and assessed short-term and long-term capital gains at amounts higher than those computed by the assessee in a revised computation furnished during the assessment proceedings.

For Flat No. 1004/3, the assessee claimed ₹1,75,000 towards brokerage and computed a short-term capital loss of ₹1,25,200 against the AO’s assessment of short-term capital gain of ₹50,400. For Flat No. 1006/3, the assessee claimed deductions relating to indexed other charges, improvement costs, purchase brokerage and sale brokerage, and computed long-term capital gain of ₹2,11,761 against ₹17,16,830 assessed by the AO. For Flats No. 1108/1 and 203/3, the assessee claimed other charges, improvement costs and brokerage, resulting in claimed capital gains of ₹3,85,625 and ₹11,01,000 respectively, compared with the higher amounts assessed by the AO.

The AO rejected the claims mainly on two grounds: the deductions had not been claimed in the original return or through a revised return, and the brokerage payments were made after completion of the respective property transactions.

The ITAT noted that the entire expenditure was paid through banking channels and that neither the AO nor the CIT(A) disputed this fact. Regarding brokerage, the Tribunal rejected the reasoning that payment after completion of the transaction undermined the claim, observing that brokerage becomes payable after completion of the transaction. The Tribunal also noted that the incurring of the expenditure had not been doubted by the AO.

On the issue of fresh deduction claims, the AO had relied upon Goetze (India) Limited vs. Commissioner of Income Tax (284 ITR 343) (Supreme Court). The Tribunal, however, considered the decision of the Bombay High Court in CIT vs. Pruthvi Brokers and Shareholders in ITA No. 3908 of 2010. The supplied order records that the Bombay High Court distinguished the limitation on the Assessing Officer’s power from the wider powers of appellate authorities to entertain additional claims. The Tribunal accordingly held that legitimate deductions could be entertained by the appellate authorities even when claimed for the first time.

The Tribunal further noted that the assessee had furnished a revised computation during assessment proceedings and had submitted supporting documents. The AO had examined those documents and issued notices under Section 133(6) to the respective parties. Since the claims had already been examined and the genuineness of the expenses had not been doubted, the Tribunal held that the assessee was entitled to the deductions.

The ITAT therefore directed the AO to delete the additions made in the case. The assessee’s appeal was allowed. The order was pronounced in open court on 3 August 2026.

Cases Discussed

• Goetze (India) Limited vs. Commissioner of Income Tax (Supreme Court), 284 ITR 343
• CIT vs. Pruthvi Brokers and Shareholders in (Bombay High Court), ITA No. 3908 of 2010
• Commissioner of Income Tax v. Jai Parabolic Springs Limited (Delhi High Court), (2008) 306 ITR 42

FULL TEXT OF THE ORDER OF ITAT MUMBAI

This appeal is filed by the Assessee against the order of Ld. CIT (Appeal), NFAC, Delhi vide DIN: ITBA/NFAC/S/250/2025-26/1082277295(1) dated 13-Dec-2025 for the Assessment Year 2020-21. The Assessee has raised the following grounds of appeal:

1. That on facts and circumstances of the case and in law the Id. C.I.T. (Appeals) has erred in dismissing the appeals ex-partee despite filing of adjournment application by AR of the assessee appellant for the reasons beyond his control and also without discussing the merits of the grounds raised duly supported by detailed statements of the facts.

2. That on facts and circumstances of the case and in law the Id. A.O. has erred in assessing the short-term capital gain income at Rs.50,400/- on sale of Flat No.1004/3 in Vasudev Sky High by wrongly not allowing the brokerage paid exclusively on purchase and sale of the said flat amounting to Rs.75,000/- and Rs.1,00,000/-respectively, as against the short-term capital loss of Rs.1,25,200/- computed correctly as per provisions of the tax on transfer of the said flat and offered for assessment in the course of reassessment proceeding.

3. That on facts and circumstances of the case and in law the Id. A.O. has erred in assessing the long-term capital gain income at Rs.17,16,830/ on sale of Flat No.1006/3 in Vasudev Sky High by wrongly not allowing the following stated legitimate deduction claim as against the correct long-term capital gain income of Rs.2,11,761/-computed rightly under the relevant provisions of the tax on transfer of the said flat and offered for assessment in the course of reassessment proceeding:

i) Indexed value of Other Charges paid at Rs.2,79,450/- for purchase 3,17,957/-

ii) Indexed Value of improvement cost of Rs.9,15,000/- 10,07,012/-

iii)Indexed Value of Brokerage paid at Rs.74,000/- on purchase 84,197/-

iv) Brokerage paid on sale 1,00,000/-

Being non-allowance of above stated specific deduction claims by ld. AO in the impugned assessment order since have been incurred by assessee appellant exclusively in relation to purchase and sale of above mentioned Flat No.1006/3 in Vasudev Sky High thus, duly admissible under the relevant provisions of tax law hence action of Id. AO in this regard being wrong on facts and bad in law therefore, may kindly be set aside with a direction to him to allow the above stated deduction claims.

4. That on facts and circumstances of the case and in law the ld. A.O. has erred in assessing the short-term capital gain income at Rs.16,99,800/- on sale of Flat No.1108/1 in Vasudev Sky High by wrongly not allowing the following stated legitimate deduction claim as against the correct short-term capital gain income of Rs.3,85,625/-computed rightly under the relevant provisions of the tax on transfer of the said flat and offered for assessment in the course of reassessment proceeding:

i) Other Charges paid to owner for purchase 1,52,260/-

ii) Improvement cost 10,31,915/-

iii) Brokerage paid on sale 1,30,000

Being non-allowance of above stated specific deduction claims by ld. AO in the impugned assessment order since have been incurred by assessee appellant exclusively in relation to purchase and sale of above mentioned Flat No.1108/1 in Vasudev Sky High thus, duly admissible under the relevant provisions of tax law hence action of Id. AO in this regard being wrong on facts and bad in law therefore, may kindly be set aside with a direction to him to allow the above stated deduction claims.

5. That on facts and circumstances of the case and in law the Id. A.O. has erred in assessing the short-term capital gain income at Rs.18,23,000/- on sale of Flat No.203/3 in Vasudev Sky High by wrongly not allowing the following stated legitimate deduction claim as against the correct short-term capital gain income of Rs.11,01,000/-computed rightly under the relevant provisions of the tax on transfer of the said flat and offered for assessment in the course of reassessment proceeding:

i) Improvement cost 5,06,000/

iv) Brokerage paid on sale 2,16,000

Being non-allowance of above stated specific deduction claims by ld. AO in the impugned assessment order since have been incurred by assessee appellant exclusively in relation to purchase and sale of above mentioned Flat No.1006/3 in Vasudev Sky High thus, duly admissible under the relevant provisions of tax law hence action of Id. AO in this regard being wrong on facts and bad in law therefore, may kindly be set aside with a direction to him to allow the above stated deduction claims.

5. That all the appeal grounds raised are independent grounds and without prejudice to one another.

6. That the appellant craves the leave to amend alter substitute and or to raise new or additional grounds of appeal at the time of hearing.

2. All the grounds raised by the assessee are interrelated and interconnected and relates to challenging the order of the Ld. CIT(A) in upholding the addition made by the AO. Therefore, we have decided to adjudicate these grounds by way of this consolidated order.

3. The Ld. AR appearing on behalf of the assessee reiterated the same arguments as were raised by him before the Revenue Authorities.

4. On the contrary, the Ld. DR relied on the orders passed by the Revenue Authorities.

5. We have heard the counsel for both the parties, perused the material placed on record, the judgments cited before us, and also the orders passed by the Revenue Authorities. From the records, we noticed that the total expenditure claimed by the assessee amounting to Rs. 37,16,244/- was disallowed/rejected by the AO.

6. Before we come to the merits of the case, it is necessary to evaluate the facts of the present case. As per the facts, the assessee had filed the computation of capital gains in respect of 4 residential flats sold during the year under consideration. The details of the flats sold during the year under consideration, the deductions claimed which were not allowed by the AO, and the other particulars are as under and the same is reproduced herein below:

7. Since the case of the assessee was reopened, the assessee also filed a revised computation during the assessment proceedings and the same is reproduced hereinbelow:

8. However, the claim of the assessee was rejected by the AO mainly on two grounds. Firstly, the assessee had not raised the claim in the original return of income and subsequently had also not filed a revised return of income. Secondly, the AO was of the view that the brokerage paid by the assessee was after the completion of the purchase and sale of the property in question.

9. Since the claim of the assessee was rejected mainly on these two grounds, we will deal with the merits of the grounds of rejection mentioned by the AO.

10. It is an undisputed fact that the entire expenditure claimed by the assessee was incurred through banking channels and no amount was paid in cash. This fact has not been disputed at all by the AO or by the Ld. CIT(A) during the course of the proceedings. Moreover, the claim of brokerage paid by the assessee was rejected merely on the ground that the payments were made after the completion of the sale and purchase of the property in question and not before that. Whereas, it is a fact that brokerage becomes payable only after the completion of the entire transaction and not before. Therefore, the assessee was not expected to make any payment before the completion of the entire transaction. Thus, in our view, the reasons recorded by the AO do not inspire confidence and, therefore, we are not in agreement with the findings of the AO for rejecting the claim of the assessee merely on the ground that the payment was made after the completion of the transaction. The fact still remains that the making of the payment and the incurring of the expenditure have not at all been doubted by the AO. Therefore, we set aside the findings of the AO and the Ld. CIT(A) to this effect.

11. As far as the other reason for rejecting the claim of the assessee is concerned, the AO held that the assessee had not raised this claim while filing the original return of income under Section 139 or in the return of income filed in response to the notice issued under Section 148 of the Income-tax Act. Relying upon the decision in Goetze (India) Limited vs. Commissioner of Income Tax (284 ITR 343) (Supreme Court), the AO was of the view that a fresh claim of deduction is not allowable.

12. Whereas, in this regard, after hearing the parties at length, we found that the expenditure claimed on account of the cost of improvement incurred in respect of the aforesaid flats was claimed for the first time in the revised computation furnished during the course of the assessment proceedings, and this fact has already been acknowledged by the AO.

13. Apart from this, all the supporting documents were filed by the assessee while claiming the said deductions, and the AO also verified all the supporting documents filed during the course of the assessment proceedings in order to examine the said deduction. It is also an undisputed fact that the documents relied upon by the assessee in support of its contention were thoroughly examined. This fact is evident from the record, as the AO had also issued notices under Section 133(6) of the Income-tax Act to the respective parties to whom the payments were made by the assessee.

14. Even otherwise, the decision of the Hon’ble Jurisdictional High Court in the case of CIT vs. Pruthvi Brokers and Shareholders in ITA No. 3908 of 2010, wherein the Hon’ble Jurisdictional Bombay High Court, after considering various decisions of the Hon’ble Supreme Court, including the judgment rendered in Goetze (India) Limited (supra), held as under:

Question of law raised before the Hon’ble High Court:

(A) Whether an assessee can amend a return filed by him for making an additional claim for deduction otherwise than by filing a revised return?

(B) Whether, on the facts and in the circumstances of the case, the Hon’ble Income Tax Appellate Tribunal was right in holding that a claim of deduction not made in the original return and not supported by a revised return is admissible?

(C) Whether, on the facts and in the circumstances of the case, the Hon’ble Tribunal was right in not appreciating the fact that the AO has no power to entertain a claim made by an assessee after filing the original return otherwise than by filing a revised return?

Held by the Hon’ble High Court:

“23. …… The jurisdiction of the appellate authorities to entertain such a claim has not been negated by the Supreme Court in this judgment. In fact, the Supreme Court made it clear that the issue in this case was limited to the power of the assessing authority and that the judgment does not impinge on the power of the Tribunal under Section 254.

24. A Division Bench of the Delhi High Court dealt with a similar submission in Commissioner of Income Tax v. Jai Parabolic Springs Limited (2008) 306 ITR 42. The Division Bench, in paragraph 17 of the judgment, held that the Supreme Court dismissed the appeal, making it clear that the decision was limited to the power of the assessing authority to entertain a claim for deduction otherwise than by a revised return and did not impinge on the powers of the Tribunal. In paragraph 19, the Division Bench held that there was no prohibition on the powers of the Tribunal to entertain an additional ground which, according to the Tribunal, arises in the matter and is necessary for the just decision of the case.”

15. The said decision of the Hon’ble Jurisdictional High Court has categorically settled the legal proposition by holding that the power of the AO to entertain a claim for deduction otherwise than by a revised return is limited, whereas the powers of the Tribunal are wide, and the appellate authority can entertain additional grounds or additional claims and, if found allowable, grant relief to the assessee. Thus, the rights of the assessee cannot be scuttled merely on technicalities.

16. Therefore, while considering the above legal proposition as laid down by the Hon’ble Jurisdictional High Court, we are of the view that the assessee is entitled to the legitimate deductions claimed by him even if such claims are made for the first time.

17. Further, as per the facts of the present case, the assessee had already revised its computation by raising the said claims before the AO during the course of the assessment proceedings, and the AO had not doubted the genuineness of these expenses, having verified and examined the documents relied upon by the assessee in support of the claim.

18. Therefore, considering the above facts and circumstances, we are of the view that the assessee is entitled to claim the deduction before the appellate authorities if found entitled. Since, in the present case, the assessee had already filed the revised computation during the assessment proceedings and the claims raised by the assessee had already been examined, we direct the AO to delete the additions made in the present case.

19. In the result, appeal filed by the Assessee stands allowed.

Order pronounced in the open court on 03.08.2026.