ITAT allows Sub-Brokerage expenses against Real Estate Commission Income

ITAT “D” BENCH, MUMBAI

BEFORE SHRI I.P. BANSAL, JM AND SHRI SANJAY ARORA, AM

I.T.A. No. 1455 TO 1459/MUM/2010 -Assessment Years: 2001-02 TO 2005-06)

Smt. Renu Sudesh Kapoor

Vs.

The DCIT

Date of Hearing: 21/05/2013

Date of Pronouncement: 21/05/2013

ORDER

PER I.P.BANSAL, J.M:

All these appeals are filed by the assessee. They are directed against five separate orders passed by Ld. CIT(A)-39, Mumbai dated 2 1/12/2009 in respect of assessment years 2001-02 to 2005-06. All the impugned assessments have been framed under section 153A(1) r.w.s. 143(3) of the Income Tax Act, 1961 (the Act). The grounds of appeal in all the years are identical and read as under:

“1. On the facts and circumstances of the case and in Law the 1d. Commissioner of Income Tax (A) erred in confirming the additions made by the Assessing Officer holding that the claim of sub-brokerage paid by the appellant is not supported by any evidence.

2. On the facts and circumstances of the case and in law the Ld. Commissioner of Income Tax (A) failed to appreciate the fact that it is a common practice in the broking business to take the help of sub-brokers to whom the amount of sub-brokerage are paid.

3.On the facts and circumstances of the case and in law the Ld. Commissioner of Income Tax (A) erred in rejecting the contention of the appellant that the completed assessment should not be disturbed unless there is an independent evidence unearthing the undisclosed income found in the search.”

2. The only identical issue involved in these appeals is disallowance of sub-brokerage paid by the assessee. The amount involved in each of the year is as under:

Assessment Year	Amount.
2001-02	Rs. 1,05,000/- (Wrongly added by AO at Rs.1,50,00/- and mistake has been corrected by Ld. CIT(A) and dis allowance is only Rs. 1,05,000/-
2002-03	Rs. 96,500/-
2003-04	Rs. 89,000/-
2004-05	Rs. 30,000/-
2005-06	Rs. 24,000/-

3. The residence and office premises of the husband of the assessee namely, Shri. Sudesh Kapoor was searched on 6/11/2006, with regard to which impugned assessments have been framed under the provisions of section 1 53A. It is a matter of fact that no incriminating material was found during the course of search pertaining to sub-brokerage stated to be paid by the assessee. The assessee is stated to be engaged in the business of brokerage with regard to real estate from where the income has been earned by the assessee. For example a net commission of Rs. 6,26,250/- has been earned by the assessee in respect of assessment year 2001-02, which is after making payment of sub-brokerage of Rs. 1,35,000/-. The total commission as per letter dated 2/3/2009 filed before Ld. CIT(A) is a sum of Rs. 7,61,250/-. A copy of such reply is filed at page 4 to 8 of the paper book. The assessee has also given details with regard to commission earned by her in respect of the properties and such details for A.Y 2001-02 is filed at page -8 of the paper book and date of payments made to the various persons is also described and the said chart is reproduced below:

S.No./ Date	Name        of       the purchaser / seller	Name of the building, with full postal address	Total area what rate it is sold / purchased	Consideration receipt/      brokerage amount, what%
19/8/ 00	Puneet           Gupta (Owner)	Lease Flat-Maker Tower       19th Floor,    Flat    No.2, Cuff Parade	Lease rent- 1,05,000 (Area 1700 built up)	One month rent 1,05,000/- vide chq No.908 194 Bank of Baroda
10.1.01	Seller      –      Maker Developers Services Pvt.	Maker     Tower     F, 21st      Floor,    Cuffe Parade	Area 5500 12,50,00,000/- (Lumpsum)	Part payment 6,56,250/-          LessTDS vide chq No.00856 1 Bank of Baroda
			Total	7,61,250/-
	Less                 Paid Commission         to Sub- Brokers
	A) Cash Payments
22.8.00	Paid     to     Raman Pandey	15000/-
12.1.01	Paid      to     Ashok Pawar	15000/-
15.2.01	Paid       to      Arjun Sawant	15000/-
22.2.01	Paid       to      Arjun Sawant	15000/-
22.2.01	PaidtoSekawat	15000/-
10.3.01	Paid      to      Rajan Singh	15000/-
10.3.01	Paid       to       Arun Sampat	15000/-
10.3.01	PaidtoRajpal	15000/-
12.3.01	Paid       to       Arun Sampat	15000/-
		————
	Total	1,35,000/-		1,35,000/-
				————–
			Net	6,25,250/-

3.1 Similar details are filed with respect to other years also and for the sake of brevity the details in its entirety are not reproduced and details regarding gross commission earned by the assessee and sub-brokerage paid out of that are described year wise as follows:

Assessment Year	Gross        Commission earned         by        the assessee (Rs.)	Sub-brokerage (Rs.)	Net amount. (Rs.)
2002-03	6,56,250/ –	96,500/ –	5,59,750/ –
2003-04	6,66,323/ –	89,000/ –	5,77,363/ –
2004-05	6,56,500/ –	30,000/ –	6,26,500/ –
2005-06	5,34,300/-	24,000/-	5,10,300/-

3.2 It may also be mentioned here that the entire brokerage received by the assessee was through cheques and during the assessment year 2003-04 the payment of sub-brokerage amounting to Rs. 44,000/- has been made by cheque. For A.Y 2004-05 the entire payment of sub-brokerage of Rs. 30,000/- is made through cheque and similar is the position with respect to sub-brokerage paid of Rs. 24,000/- in respect of A.Y 2005-06. All other sub-brokerage payments are made through cash. The dis allowance has been made by the AO for the reason that the assessee failed to submit the evidence and addresses of the parties to whom the sub-brokerage was paid. Ld. CIT(A) has sustained the dis allowances for the same reasons.

4. It is the case of the assessee that even during the course of search proceedings no evidence was found according to which it could be said that assessee did not pay sub-brokerage. As the matter was old assessee was not able to give details regarding the persons to whom sub-brokerage have been paid. As per common practice in the real estate brokerage small portion of the brokerage is to be paid to the person who has given information about the availability of the premises. Sub-brokerage paid by the assessee in all the cases is less than 20% of the amount earned by the assessee. Therefore, dis allowance should not be sustained.

5. As against this it is the case of the Ld. DR that assessee having remained unable to furnish evidence regarding payment of sub-brokerage, the dis allowance has rightly been sustained by Ld. CIT(A).6. We have heard both the parties and their contentions have carefully been considered. The figures regarding earning of commission and sub-brokerage have already been mentioned in the above part of this order. The assessee has furnished full details regarding properties in respect of which she has earned commission income. Due to the oldness of the matter the assessee was unable to furnish the details regarding persons to whom the sub-brokerage has been paid.   The amount of sub-brokerage is a small portion of the income earned by the assessee and it can reasonably be viewed that in the activity of earning commission from real estate, certain part of the brokerage sometime has to be parted with as sub-brokerage. It is also seen that in some cases the assessee did not pay sub-brokerage. Keeping in view the entirety of facts which have been submitted by the assessee in the written submission filed before Ld. CIT(A) and which is part of the paper book, we see no justification in the dis allowance made by the AO particularly, keeping in view the fact that there is no evidence with the department to establish that the sub-brokerage claimed to be paid by the assessee was not in fact paid. In this view of the situation we delete the dis allowances for all these years in their entirety without going into the legal aspects which were also sought to be raised by Ld. A.R to contend that addition could not be made as no evidence was found during the course of search.