ITAT allows commission expenses in connection with sale of property despite no written agreement
ITAT allows commission expenses as deduction from capital gain in connection with transfer of property despite no written agreement
In a recent judgment, the ITAT has allowed commission expenses in connection with transfer of property considering that in real estate business there is no practice of written agreement.
ABCAUS Case Law Citation:
ABCAUS 3941 (2024) (04) ITAT
Important Case Laws relied upon:
Ashwin Kapur vs. ACIT
Govind Raju (N) vs. ITO (2015) 377 ITR 243 (Kar)
CIT vs. Venkat Rajendran (2015) 373 ITR 424 (Kar)
In the instant case, the assessee had challenged the order passed by the Assessing Officer (AO) passed under section 143(3) r.w.s. 144C(13) of the Income Tax Act, 1961 (the Act) pursuant to the directions of Ld. Dispute Resolution Panel (“DRP”).
The assessee was a non-resident individual. He filed his revised return for relevant Assessment Year which was selected for complete scrutiny for the reason that large deduction/exemption had been claimed under section 54 etc.
The assessee had claimed large amount of capital gain exemption u/s 54 of the Act. Out of the sale consideration of the plot of land, the assessee had claimed deductions inter alia towards commission/transfer expenses paid for arranging the buyer.
Replying to the show cause notice, the assessee submitted that he has paid the commission to three individuals through cheque for arranging the buyer and provided copies of invoices and bank statement of assessee as proof.
The submission of the assessee was not accepted by the AO who disallowed the expenses on commission and prepared the draft assessment order under section 144C(1) of the Act.
The assessee objected to the proposed aforesaid disallowances before the DRP. It was submitted that disallowance had been made only for the reason of want of copy of agreement with the recipients of the commission.
However, the DRP rejected the assessee’s claim of brokerage and observed that just because payment had gone from assessee’s bank account does not qualify it, ipso facto as transfer expenses for the property.
Pursuant to the directions of the DRP, the AO completed the final assessment under section 143(3) r.w.s. 144C(13) of the Act.
Before the Tribunal, the assessee pointed out that the copy of invoices/bill were produced before the AO/DRP in support of transfer expenses paid to three parties. Details of payment e.g. names of the parties, their complete address, PAN, cheque No. and date with amount were also furnished. It was submitted that the assessee had discharged his burden of proving the genuineness of expenses incurred by him in connection with transfer of his property.
The assessee further submitted that there is no prevailing trade practice in real estate business to sign written agreement/contract documents for obtaining commission. The agents act upon oral instructions to look for prospective buyers. He contended that proof submitted towards payment through banking channel could not be controverted by the AO/DRP. The assessee placed reliance on the decision of the Co-ordinate Bench in this regard.
The Tribunal observed that during assessment proceedings the assessee submitted details of payment regarding transfer/commission expenses in connection with transfer of property containing therein name of the party and address, PAN, Cheque No. and date and amount and copies of invoices from the parties to whom commission was paid were also produced. Copy Bank statement of the assessee showing total payment of commission.
The Tribunal observed that AO had accepted that the assessee had submitted vouchers in support of transfer expenses and that payments were made through assessee’s bank account. It was therefore evident that genuineness of the impugned payment as commisison expenses in connection with transfer of property was well established.
The Tribunal further noted that despite that disallowance was made only for the reason that copy of agreements with respect to commission services was not submitted. The contention of the assessee is that in real estate business there is no practice to enter into written agreement between the seller of the property and the commission recipients for rendering the services of arranging prospective buyers. The commission recipients act on oral instructions of the seller of the property.
The Tribunal opined that undoubtedly, the commission had been paid through the bank account of the assessee. Therefore the impugned disallowance was not justified.
The Tribunal observed that Hon’ble High Court has held that brokerage in connection with transfer is deductible expenditure.
Accordingly, the Tribunal deleted the addition.
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