IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCHES : "E NEW DELHI
BEFORE SHRI J.SUDHAKAR REDDY, AM
AND SHRI RAJPAL YADAV, JM
ITA No: 3848/Del/2012
AY : - 2008-09
ITO, Ward 11(3) vs. Nafe Singh Gahalawat
Block B, CGO Complex, NH IV H.No. 1032, Sector 14
Faridabad Faridabad
PAN: AANPG 3944 N
(Appellant) (Respondent)
Appellant by : Shri Gurjeet Singh, C.A..
Respondent by: Shri Gagan Sood, Sr.D.R.
ORDER
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
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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. Besdies, 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.
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"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.
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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
RsAO,S8,883/- 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
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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
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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,
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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
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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.
Sd/- Sd/-
(RAJPAL YADAV) (J.SUDHAKAR REDDY)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Dated: the 21st May, 2014
*manga
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Copy of the Order forwarded to:
1. Appellant; 2.Respondent; 3.CIT; 4.CIT(A); 5.DR; 6.Guard File
By Order
Asst. Registrar
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