IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH "G" NEW DELHI
BEFORE SHRI S.V. MEHROTRA : ACCOUNTANT MEMBER
AND
SHRI H.S. SIDHU : JUDICIAL MEMBER
ITA No. 4427/Del/2012
Asstt. Yr: 2009-10
ACIT, Circle 9(1), Vs. Surendra Buildtech Pvt. Ltd.,
New Delhi. J-3/19, DLF, Qutab Enclave,
Phase-II, Gurgaon.
PAN: AAICS 0538 E
AND
ITA No. 3572/Del/2012
Asstt. Yr: 2009-10
Surendra Buildtech Pvt. Ltd., Vs. ACIT, Circle 9(1),
J-3/19, DLF, Qutab Enclave, New Delhi.
Phase-II, Gurgaon.
( Appellant ) ( Respondent )
Department by : Shri Rakesh Kumar Sr. DR
Assessee by : Shri M.P. Rastogi
Date of hearing : 27-08-2014
Date of order : 05-09-2014.
ORDER
PER S.V. MEHROTRA, A.M:
These cross appeals, by the revenue as well as the assessee, are
directed against the order dated 30-05-2012 passed by the ld. CIT(A)-XII,
New Delhi, in appeal no. 399/11-12, relating to A.Y. 2009-10.
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2. Brief facts of the case are that the assessee, a real estate dealer/ agent/
broker, in the relevant assessment year, was involved in fresh bookings of
the launched projects of big builders/ developers and was an authorized
dealer/ agent/ broker of various dealers/ developers. The modus operandi of
the assessee was that as and when a builder announces its project, the
assessee used to underwrite the builders/ developers project and then in turn
starts booking of the property through various sub-dealers/ agents/ brokers,
as and when directed by itself. For the purpose of bookings, the assessee
maintained offices at various locations and also opened temporary offices at
the project sites of the developer.
2.1. The persons who managed and controlled the offices for the purposes
of bookings were allowed sub-commissions instead of remuneration and
similarly the sub-dealers/ agents/ brokers who were instrumental in
procuring the bookings were also allowed sub-commissions. On all the sub-
commissions, as paid and allowed to various such persons, the TDS had
been deducted at source and all the persons were regular income-tax
assessees and were in the business of real estate since last so many years.
2.2. The persons who had applied for the launched original bookings
directly themselves, in their own names, the assessee allowed them
incentive/ discount against their bookings on account of commercial and
business expediency.
2.3. The assessee had filed its return of income declaring income of Rs.
30,62,480/-. The assessment was completed u/s 143(3) at a total income of
Rs. 46,88,350/- by making following disallowances:
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(i) Disallowance on a/c of marketing
expenses including incentive and
discount Rs. 4,43,927/-
(ii) Disallowance of commission Rs. 5,50,970/-
(iii) 20% of advertisement expenses Rs. 1,57,740/-
2.4. In first appeal, the ld. CIT(A) deleted the disallowances made on a/c
of marketing expenses (including incentive and discount), commission and
restricted the disallowance to 10% in respect of advertisement expenses.
2.5. Aggrieved from the order of ld. CIT(A) the revenue is in appeal
against the deletion of disallowances in respondent of marketing expenses
(including incentive and discount), commission and restriction of
disallowance in respect of advertisement expenses to 10% as against 20%
made by the AO, whereas the assessee is in appeal against the part
sustenance of disallowance @ 10% in respect of advertisement expenses.
3. Ground no. 1 of revenue's appeal challenges the deletion of addition
of Rs. 4,43,927/- made by the AO on account of Marketing expenses
inclusive of incentive and discounts.
3.1. We have considered the rival submissions of the parties and have
perused the record of the case. At the out set ld. Counsel for the assessee
submitted that this issue is covered by the ITAT Delhi Bench `G' order
dated 27-5-2011 in ITA no. 4854/Del/2010, rendered in assessee's own case
for A.Y. 2007-08, observing as under:
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5. We have duly considered the rival contention and gone
through the record carefully. Section 194H has a direct bearing
on the controversy. Therefore, it is salutary upon us to take note
of the section which read as under :-
"194H. Commission or brokerage.
Any person, not being an individual or a Hindu
undivided family, who is responsible for paying, on
or after the 1st day of June, 2001, to a resident,
any income by way of commission (not being
insurance commission referred to in section 194D)
or brokerage, shall, at the time of credit of such
income to the account of the payee or at the time of
payment of such income in cash or by the issue of
a cheque or draft or by any other mode, whichever
is earlier, deduct income-tax thereon at the rate of
ten per cent:
Provided that no deduction shall be made under
this section in a case where the amount of such
income or, as the case may be, the aggregate of the
amounts of such income credited or paid or likely
to be credited or paid during the financial year to
the account of, or to, the payee, does not exceed
two thousand five hundred rupees:
Provided further that an individual or a Hindu
undivided family, whose total sales, gross receipts
or turnover from the business or profession
carried on by him exceed the monetary limits
specified under clause (a) or clause (b) of section
44AB during the financial year immediately
preceding the financial year in which such
commission or brokerage is credited or paid, shall
be liable to deduct income-tax under this section:
Provided also that no deduction shall be made
under this section or any commission or brokerage
payment by Bharat Sanchar Nigam Limited or
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Mahanagar Telephone Nigam Limited to their
public call office franchisees.
Explanation. For the purposes of this section :-
(i) "commission or brokerage" includes any
payment received or receivable, directly or
indirectly, by a person acting on behalf of another
person for services rendered (not being
professional services) or for any services in the
course of buying or selling of goods or in relation
to any transaction relating to any asset, valuable
article or thing, not being securities;
xxxx"
6. The expression "commission or brokerage" has been
explained in the explanation appended to this section.
According to the meaning provided in the explanation, the
commission would be considered, if any person received it
directly or indirectly on behalf of another person for the
services rendered, and such services should not be professional
services. In the present case, admittedly the person to whom
discount was granted by the assessee were not acting as an
agent for the assessee, rather they are the purchaser of the
property. They have not provided any type of services to the
assessee. They have just booked the flat through the assessee.
In fact, assessee is an agent between the builder and the
ultimate purchaser of the flats. The assessee has parted with
some part of the commission received from the builder from
alluring the purchaser so that it can earn more commission. It
is just providing a discount to the purchaser and not paying any
commission for any services taken from such customers. It
appears that Ld. AO was influenced by the nomenclature of the
receipt in the hands of the assessee. He failed to distinguish
what character such receipt would attain when it will be offered
to the customer. The relationship between the assessee and the
purchaser of the flat is of buyer and seller. The Ld. First
Appellate Authority has appreciated the controversy in right
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perspective and we do not see any reason to interfere in his
order."
3.2. We may mention that the aforementioned order, upholding the
deletion of disallowance, has also been followed by the ITAT in assessee's
own case for A.Y. 2006-07 rendered in ITA no. 4449/Del/2012 vide order
dated 28-8-2014. In view of above, we see no reason to interfere in the order
of CIT(A) on this count. Ground is dismissed.
4. Ground no. 2 raised by the Revenue challenges the deletion of
addition of Rs. 5,50,970/- made on account of commission paid to Shri
Gaurav Mukhija u/s 40A(2)(b).
4.1. Brief facts, apropos this issue, are that assessee had claimed an
amount of Rs. 10,95,471/- under the head "Commission". The assessee's
contention was that the commission was paid to various parties for procuring
pre-launch booking. The assessing officer required the assessee to prove the
genuineness of the expenses. The assessee's reply has been reproduced in
para 4.2 at page 5 of the assessment order, in which the assessee, inter alia,
gave details of services rendered by the persons to whom commission was
paid and also pointed out that the running commission account contained the
details of commission paid party-wise, describing their address and PAN no.
Photocopies of their invoices and identity proof in the shape of PAN,
passport, voter ID Card etc. along with list of bookings project wise
reflecting their applications were also filed along with the reply. It was
further pointed out that the TDS had also been deducted at source. The
assessee further pointed out that a sum of Rs. 5,50,970/- was paid to Gaurav
Mukhija, who was having his individual business and also gave business to
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assessee. The assessee also pointed out that Gaurav Mukhija was a Diploma
Holder in real estate Management and he looked after Gurgaon office. A
certificate issued by Guru Gobind Indraprastha University to Shri Gaurav
Mukhija was also filed in support of the contention that he was Diploma
Holder in Real Estate Management. However, assessing officer observed
that Shri Gaurav Mukhija had undergone a certificate programme only in
Real Estate Management. He, therefore, disallowed a sum of Rs. 5,50,970/-
out of expenditure of Rs. 10,95,471/- paid to Shri Gaurav Mukhija under
section 40A(2)(b) on the ground that Shri Gaurav Mukhija was son of the
director of the assessee company.
4.2. Before ld. CIT(A) the assessee had, inter alia, submitted that, keeping
in view the nature of assessee's business of original bookings of launched
projects, it was practically impossible for a person to book the project on his
own without the help of others. Therefore, the service of others was taken
by the assessee. The assessee had opened the office on various locations and
for the said purpose either the assessee had to manage there or it had to be
managed by engaging some other persons. The assessee allowed
remuneration to such persons on commission basis, on the basis of their
performance by way of bookings. It was further pointed out that Shri Gaurav
Mukhija controlled and managed the Gurgaon office of the company and the
commission was allowed to him on the basis of procurement of the pre-
launched bookings wherein the Gurgaon office was instrumental. It was
further pointed that Shri Gaurav Mukhija was having mobile no.
9810531773 and this mobile number was also flashed in the advertisement
issued by the assessee in news papers for general public at large informing
the bookings, which clearly showed that Shri Gaurav Mukhija was closely
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associated as a responsible person and was instrumental in booking the
properties by satisfying customers at large.
4.3. Ld. CIT(A) following the order for A.Y. 2007-08 allowed the
assessee's appeal.
4.4. Having heard both the parties we do not find any reason to interfere
with the order of ld. CIT(A), particularly keeping in view the services
rendered by Shri Gaurav Mukhija as is evident from the submissions made
before the assessing officer as well as the CIT(A) which have not been
controverted by the department by bringing any contrary evidence on record.
We, therefore, confirm the order of ld. CIT(A) on the issue in question.
Ground is dismissed.
5. Ground no. 3 of Revenue's appeal and the sole ground raised by the
assessee challenge the action of ld. CIT(A) in restricting the disallowance to
10% as against 20% made by the assessing officer on account of
advertisement expenses.
5.1. Brief facts of the case are that assessee had claimed Rs. 7,88,700/- on
account of advertisement expenses. The assessing officer required the
assessee to prove the genuineness of the expenses and furnish complete
particulars and evidence of the expenditure actually incurred and payment
made. In response the assessee filed certain details vide reply dated 9-12-
2011. Considering the facts of the case the assessing officer disallowed 20%
of such expenses. In appeal ld. CIT(A) restricted the disallowance to 10%.
Aggrieved by the order of ld. CIT(A), both the parties are in appeal before
us on their respective grievance.
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5.2. Ld. Counsel for the assessee at the out set contended that the issue in
question is squarely covered in favour of the assessee by the order of the
ITAT in assessee's own case for A.Y. 2007-08, rendered in ITA no.
4554/Del/10 vide order dated 27-5-2011, deleting the addition in question
by holding that the expenses were incurred exclusively for the business
purposes and no disallowance deserved to be made.
5.3. On the other hand, ld. DR relied on the order of AO.
5.4. We have heard rival submissions and perused the material available
on record. In A.Y. 2007-08 the ITAT has allowed the claim of the assessee
on account of advertisement expenses by observing as under:
"15. We have considered the rival contention and gone through the record
carefully. According to the assessee, M/s Surnder Properties is in the
existence of the real estate business even before the assessee came into
existence. The name of Surnder Mukhija in a way enhanced the business
of assessee. However, there is no evidence available on record to this
effect. The assessee has placed on record copy of the asstt. Order passed
in the case of Shri Surender Mukhija. From perusal of the asstt. Order, we
find that Shri Surender Mukhija had incurred a sum of ` 20,39,479/-
towards advertisement and the name of assessee has been appearing in his
advertisement. Thus in a way, assessee has been fairly compensated, the
expenses incurred by both the concerns mutually give benefit to each other
mutually. Hence, it cannot be termed that assessee has extended undue
benefit to third concern by giving its name in the advertisement of the
assessee. Otherwise expenses have not been doubted by the AO.
Considering all these aspects, we are of the view the expenses were
incurred exclusively for the business purpose and no disallowance
deserves to be made . Accordingly, the ground of assessee's appeal is
allowed and the disallowance made by the AO is deleted."
5.5. Ld. DR could not point out any distinction in facts for the assessment
year in question so as to deviate from the view taken by the ITAT in
assessee's own case for A.Y. 2007-08. Therefore, respectfully following the
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earlier order of the ITAT we delete the addition made by the assessing
officer on account of advertisement expenses. Accordingly, ground taken by
the department is dismissed and the ground taken by the assessee on this
count is allowed.
6. In the result, revenue's appeal is dismissed and the appeal filed by the
assessee is allowed.
Order pronounced in the open court on 05/09/14.
Sd/- Sd/-
( H.S. SIDHU ) ( S.V. MEHROTRA )
JUDICIAL MEMBER ACCOUNTANT MEMBER
Dated: 05-09-2014.
MP
Copy to :
1. Assessee
2. AO
3. CIT
4. CIT(A)
5. DR
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