Issue- On the facts and in the circumstances of the case, the Ld.CIT(Appeals) has erred on facts and in law in deleting the addition of Rs.10,83,555/- which was made by the Assessing Officer by invoking the provisions of section 43B of the Act as the service tax payable in the balance sheet was not deposited before due date of filing of return.
Held- Disallowance u/s 43B of the Act. No expenditure has been claimed by the assessee in its books of accounts. Under such circumstances the question of disallowance u/s 43B does not arise.
INCOME TAX APPELLATE TRIBUNAL, DELHI
BEFORE SHRI J.SUDHAKAR REDDY, AM
AND SHRI RAJPAL YADAV, JM
ITA No: 3848/Del/2012-AY : – 2008-09
ITO vs. Nafe Singh Gahalawat
PER J.SUDHAKAR REDDY, ACCOUNTANT MEMBER This is an appeal filed by the Revenue directed against the order of the Learned Commissioner of Income Tax (Appeals), Faridabad dt. 23.4.2012 pertaining to the Assessment Year 2008-09.
2. Facts in brief:- The facts are recorded at para 4, page of the Ld.CIT(Appeals)’s order which is extracted for ready reference.
“4. The brief facts of the case are that the return of income declaring income of Rs.18,06,140/- was filed by the assessee on 29.9.2008, which was processed u/s 143(1) of the Act on 30.11.2009. The assessee is retired from Indian Air Force as Wing Commander and engaged in the business of Property Dealer and Consultant as proprietor of M/s U.Choudhary Estate Agency. The assessee has declared income from commission on booking of flats/plots and other sources. The case was selected for scrutiny and a notice u/s 143(2) was issued on 25.9.2009. During the course of assessment proceedings, the Assessing Officer observed that the assesse had declared gross commission receipts amounting to Rs.1,06,95,491/- (exclusive of service tax) from Business Park and Tonw Planners Ltd. (BPTP) against which expenditure on account of discount forwarded was claimed to the extent of Rs.81,17,040/-. The detailed filed in this regard revealed that the assessee forwarded discount of Rs.35,03,883/- to his son Shri Ashish, Rs.7,05,000/- his wife Smt.Urvashi and Rs.50,000/- to his daughter in law Smt. Pooja. On the basis of details, the Assessing Officer observed that discount to his son was only in respect of one plot no. D-36, Sector 85, Faridabad and discount to his wife was in respect of two plots. Considering the provisions of section 40A(2)(b) and reasonable amount of discount of Rs.50,000/- for each plot, the Assessing Officer has disallowed Rs.40,58,883/- out of total discount forwarded of Rs.42,58,883/-. A sum of Rs.10,83,555/- being Service Tax was outstanding as payable on 31.3.2008 which was not paid on or before the due date of filing of return. The Assessing Officer has made addition of same by invoking the provisions of section 43B of the Act. On examination of ledger account filed by the assessee as appearing in the books of BPTP, the Assessing Officer observed that the assessee has undertaken and paid liabilities towards payment of instalment and interest of other persons which was debited in the said account but not allowable as business expenditure. Consequently, a sum of Rs.16,78,601/- has been added to the income. Besides, the liability towards interest paid to BPTP and pertaining to the plots booked by the assessee was also debited in the said ledger account with BPTP which has been disallowed as not being a business expenditure but personal liability of the assessee.”
3. On appeal the First Appellate authority accepted the contentions of the assessee and granted relief. Aggrieved, the Revenue has filed the present appeal before us on the following grounds.
“1. On the facts and in the circumstances of the case, the Ld.CIT(Appeals) has erred on facts and in law in not sustaining the whole addition of Rs.40,58,883/- by observing that ‘there is no effective yardstick for comparison, in the facts and circumstances of the case I deem it fair and reasonable to disallow 25% of discount forwarded to Shri Ashish and Smt.Urvashi as excessive and unreasonable and sustain the addition to the extent of Rs.10,14,720/-. Ld.CIT(Appeals) has ignored the fact that the discount forwarded to his family members is far beyond the limit of commission payable by BPTP to the assessee which proves that the assessee is diverting his income in the name of his family members to minimize his tax liability.
2. On the facts and in the circumstances of the case, the Ld.CIT(Appeals) has erred on facts and in law in deleting the addition of Rs.16,78,601/- which was made by the Assessing Officer on account of discount forwarded when the assessee could not substantiate his claim.
3. On the facts and in the circumstances of the case, the Ld.CIT(Appeals) has erred on facts and in law in deleting the addition of Rs.3,84,563/- by observing that ‘the amount has been added twice, apart from having been already included in the total addition of Rs.16,78,601/-. Ld.CIT(Appeals) has ignored the facts that these are separate entries which have been debited to discounted forwarded amount but were not reflected in the ledger account of the assessee with BPTP.
4. On the facts and in the circumstances of the case, the Ld.CIT(Appeals) has erred on facts and in law in deleting the addition of Rs.10,83,555/- which was made by the Assessing Officer by invoking the provisions of section 43B of the Act as the service tax payable in the balance sheet was not deposited before due date of filing of return.
5. That the appellant craves for the permission to add, delete or amend the grounds of appeal before or at the time of hearing of appeal.’
4 We have heard Shri Gurjeet Singh, the Ld.Counsel for the assessee and Shri Gagan Sood, Ld.Sr.D.R. on behalf of the Revenue.
5. On a careful consideration of the facts and circumstances of the case and perusal of papers on record, orders of the authorities below, we hold as under.
6. On ground No.1 the First Appellate Authority has admitted additional evidence and also called for a Remand Report. After considering the Remand Report the Ld.CIT(Appeals) concluded as follows:-
“I have considered all the relevant material on this issue. The Assessing Officer has held that the assessee failed to substantiate his claim of discount forwarded to his family members while comparing with the cases of other customers for the same description of the property. No cogent reason were given for giving a discount of about Rs. 42.00 lacs for just three plots to his family members out of which more than Rs.35.00 lacs was given against one plot in the name of his son whereas the discount ranging between Rs.10,000/- to Rs. 50,000/- was paid to other Customers. Assessee made payments of installments of plots/properties and interest owned by his family members out of his commission income and adjusted discount forwarded expenses against commission, which was not allowable as business expenditure. How the installment of the plots/properties and interest thereon owned by his family members can be allowed to be adjusted in the disguise of discount forwarded against the business income of the assessee. The assessee did not furnish any details as to how much commission he received on these plots/properties in the name of his family members against which he paid heavy discount and the assessee can only be allowed to pay maximum discount to the extent of commission received by him on these plots/properties from BPTP. In absence of any details, discount as indicated in the show cause notice @ 50,000/- on each plot/ property totaling Rs. 2,00,000/ – for four properties/plots in the name of his family members has been allowed by treating them at par with other customers. The excess payment claimed as discount forwarded to his family members of Rs. 42,58,883/- has accordingly been disallowed under the provisions of section 40A(2)(b) of the Act. The AO has further submitted that, ‘It is denied that the assessee has forwarded the discount to his son Shri Ashish Gahlawat for several plots. As per records of office it is pertinent to mention here that the assessee has forwarded discount about Rs. 42 lacs against only three plots to his family members and out of which more than Rs. 33 lacs has been forwarded to his son Shri Ashish Gahlawat against only one plot No. D- 36. The assessee delayed proceedings himself by not furnishing required details/information in time which is clearly inferred from his behavior. The assessee cannot be allowed to take advantage of his willful negligence of Act and statutory proceedings before the Appellate Authorities. The appellant has contended that the profits increased to double at Rs.15,96,770/- over Rs.8,35,018/- of the last year, maximum customers were brought through various marketing strategies; modus operandi of discount forwarded brought on records as being done in the preceding years; discounts offered through bank accounts and after raising the debit notes to BPTP whereby the customers get the flat/plot cost adjusted by the discount offered; the target for reaching the sales having been made through the family members. A property dealer or assessee can forward maximum discount to his customers on booking of BPTP Plot/ Flat to attract maximum customer to achieve the topmost slab so that maximum percentage of commission is received on the total value of each booking. The assessee gets commission from BPTP. Ltd. through cheques/drafts against his bookings and forward the amount of discount through cheques to his customers directly. The assessee submits a discount letter in the form of debit note to BPTP and BPTP credits the amount in the account of the customer and debit to the assessee’s account. The said amount is also credited to the account of customer against the demands in form of installment and other charges, interest for delayed payment, against amount of the rate difference of the plot/unit etc. The appellant has filed a copy of e mail dated 08.08.2011 enclosing therewith the list showing the flats/plots booked, discount allowed by the BPTP Ltd and discount forwarded by the appellant to various customers. On consideration of aforesaid facts and circumstances of the case, a factual aspect needs to be addressed. It is revealed that BPTP has allowed commission of Rs.2,72,325/- to the appellant in respect of booking of a plot No. D-46 in the name of Mrs. Urvashi and Commission of Rs.2,12,500/- in respect of plot No. D-43 in the name of Shri Ashwani Sood. Out of the commission of Rs.2,12,500/- received for plot No. D-43, the discount of Rs.1,88,250/- has been forwarded in the BPTP ledger on 31.03.2009 i.e. subsequently which refers to total discount on that plot. The AO has accepted the figures ranging from Rs.10,000/ – to Rs.50,000/ – which are not in respect of total consideration but on the amounts so paid till that amount of commission was received. Thus the AO has erred in estimating the quantum of discount forwarded by the appellant. The discount forwarded as per the records made available from BPTP ranges from Rs.20,000/- to 2,72,325/- and this is a matter of fact which cannot be disputed. Secondly, the AO has treated the discount forwarded of Rs.35,03,883/- to Shri Ashish in respect of one plot No.D-36, which in not the discount forwarded but the amount actually paid towards the installments of this plot through the discount forwarded account. It is clearly established from the narrations given in the ledger account with BPTP that the installments have been paid towards the cost of said plot including late payment interest also. Similar is the position of payment of installments towards plots booked in the name of Smt. Urvashi, Therefore, the AO has erroneously referred to the said payments in the nature of discount forwarded for one plot only, which, of course, is impossible looking to the maximum amount of discount even allowed by the BPTP. In the remand report, the AO has adhered to these facts only and asserted that discount forwarded was in respect of only three plots including Smt. Pooja. The appellant’s contention has been that the total commission received from BPTP by M/s. U.Choudhary Estate on account of bookings done by Shri Ashish was Rs.46,05,972/- out of which Rs.16,53,575/- was forwarded to the customers as discount by way of discount forwarded and out of balance, the amount of Rs.27,07,172/- has been given as discount forwarded to Shri Ashish as the bookings were done by him. The commission received from the BPTP on accounting of bookings in the name of Ashish Gahlawat was Rs.7,96,762/-. Thus, it was not only one plot but seven plots booked in the name of Shri Ashish with BPTP as per the factual aspects examined. Similarly, Smt. Urvashi has booked five plots including two in her name as per the /details provided by BPTP Ltd. Out of total commission of Rs.8,84,266/ – received by the assessee against the bookings of Mrs. Urvashi Gahlawat from the BPTP Ltd., Rs.7,05,000/- has been given as discount forwarded. The discount of Rs.50,000/- forwarded to Smt. Pooja in respect of one plot is not in dispute. The above details have been received by the assessee from BPTP on 08.08.2011 through e-mail and filed before the AO with a copy marked to this office but the AO has preferred not to examine these factual aspect either by calling the assessee or by conducting any inquiry form BPTP but ignores the said submissions. Having examined these factual aspects, the only question that needs consideration is the applicability of the provisions of section 40A(2)(b) of the Act. These provisions mandatorily require recording of findings regarding incurring of expenditure for the purpose of business, which in the opinion of AO is excessive or unreasonable having regard to the Fair Market Value for which payments is made looking to the legitimate needs of the business or the benefit derived from the expenditure. If there is some connection or nexus between the expenditure and the business carried on by the assessee it would amount to an expenditure incurred in the course of business and for the purpose of the same. The discount forwarded to the family members by the appellant has also to be considered in the light of provisions of section 40A(2)(b
) of the Act. The AO has allowed deduction for adhoc amount of Rs.50,000/- on imaginary basis which is contrary to the facts discussed above. It remains an admitted fact that the family members of the appellant have utilized the entire business setup, infrastructure, clientele, contacts, goodwill and reputation of the appellant in earning commission from BPTP and, therefore, retaining meager part of commission by the appellant is not commensurate with these facilities provided by the appellant which appears only because of close relation. Though there is no effective yardstick for comparison, in the facts and circumstances of the case and having regards to the above discussion, I deem it fair and reasonable to disallow 25% .of discount forwarded to Shri Ashish and Smt. Urvashi as excessive and unreasonable and sustain the addition to the extent of Rs.10, 14,720/ -. Consequently, the appellant the gets a relief of Rs.30,44,163/-. Ground No.4 of appeal is partly allowed. “
6.1. The Ld.Sr.D.R. could not controvert this factual finding of the First Appellate Authority. Hence we uphold the order of the Ld.CIT(Appeals) and dismiss ground no.1 of the Revenue.
7. Ground nos. 2 and 3 have been dealt with by the Ld.CIT(Appeals) in para 6.5 of his order wherein he held as follows:
“There is no dispute to the fact that the appellant has been working exclusively for BPTP Ltd. and has shown entire commission from it. The BPTP Ltd. has paid commission and recovered certain amounts as per the debit note issued. Hence, it is not a case that the appellant has diverted commission to any outside party but in fact, the amounts have been recovered by BPTP Ltd. from the assessee. As explained in the business procedures, either the assessee can extend the discount directly to the customers from his bank account, which has in fact been done in several cases as revealed from the copy of discount forwarded account or can get the discount availed from the BPTP. In former situation, the assessee will get more commission from BPTP Ltd. as compared to latter. Thus, when BPTP Ltd. has given the commission to the assessee and has itself recovered part of the commission through raising debit notes, the genuineness of the discount forwarded cannot be doubted unless it is established that the discount forwarded to BPTP Ltd. was received back by the appellant in some other form. The obvious inference from these facts is that the assessee has received commission from BPTP, as included in the total commission receipts, but at the time of payment of instalment or interest by the buyers/ customers, the discount has been allowed through BPTP instead of giving directly, for which debit notes have been raised by BPTP Ltd. This is as per the prevailing commercial and business norms in the real estate business. In para 4(c )(i) of the submissions dated 26.03.2012, the appellant has sufficiently explained the claim of discount forwarded with relevant particulars/ evidences and a copy of debit note raised by BPTP dated 25.06.2007 in respect of discount forwarded to Shri Romel Nijhawan is filed, which reveals that the amount has been recovered by the BPTP from the appellant. It appears that the AO has either not looked into the ledger account narrations properly or has drawn his adverse conclusion due to short time available for passing the order. I find that the AO has also not given any adverse finding on this issue in the remand report. Even otherwise, looking into the totality of the facts, the submissions of the appellant and reasoning assigned in para 6.3 above, the addition made by the AO is not sustainable and consequently deleted.”
7.1. We find no infirmity in these findings. Hence we uphold the same and dismiss ground nos. 2 and 3.
8. Ground no.4 is on the disallowance u/s 43B of the Act. No expenditure has been claimed by the assessee in its books of accounts. Under such circumstances the question of disallowance u/s 43B does not arise. In the result this ground of the Revenue is dismissed.
9. In the result the appeal of the Revenue is dismissed.
Order pronounced in the Open Court on 21st May,2014.
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