Income Tax Appellate Tribunal (ITAT) New Delhi in a recent judgment allowed the brokerage charges on the ground that restricting the deduction was arbitrary and disallowance was made without rebutting the evidences provided by assessee.

Case Details:
ITA No.94/Del/2015  AY: 2008-09
DCIT (Appellant) vs Parav Builders Pvt. Ltd (Respondent)
Date of Order: 09-11-2015

Case Laws referred:
CIT vs Discovery Estates (P.) Ltd. [2013] 356 ITR 159 (Delhi High Court)
CIT vs Walchand & Co. (P.) Ltd. [1967] 65 ITR 381 (SC);
Jamna Auto Industries v CIT [2008] 167 Taxmann 192 (Punjab & Haryana High Court);
CIT vs Chandulal Keshavlal & Co. P [1960] 38 ITR 601 (SC);
J.K. Commercial Corporation Ltd. vs CIT [1969] 72 ITR 296 (Allahabad High Court)

Brief Facts of the Case:
A search was conducted in IREO Group of cases. Later the assessee was issued notice u/s 153A requiring it to furnish its return of income. In pursuance to the notice, the return as originally filed u/s 139 declaring NIL income with loss in the year under consideration was again filed. In the course of the assessment proceedings, the assessee was asked to substantiate the claim of brokerage charges paid to M/s Ajanta Estate & Developers on account of purchase of land from one Virender K Khosla. The assessee claimed that it has paid brokerage charges amount to Rs.66,63,987/- beside other expenses. The Assessing Officer (AO) in order to verify the brokerage charges issued a letter to M/s M/s Ajanta Estate & Developers u/s 133(6) of the Act. However, the said letter returned unserved.

The assessee argued that the assessee has discharged the primary onus to substantiate the genuineness of the brokerage expenses by filing the address, PAN, copy of invoice, TDS certificate etc. of the said broker.

However, the claim of the assessee was rejected by the AO on the ground that the notice u/s 133(6) issued to the broker returned and also the assessee had not produced the broker. Accordingly the brokerage was restricted to 2% instead of 2.8% as claimed by the assessee resulting in the addition by way of a disallowance amounting to Rs.19,19,247/-

The assessee contested the assessment before CIT(Appeals) and contended that the genuineness of the payment has not been questioned and for restricting expenses no evidence has been placed on record. The assessee argued that the following evidences remained unrebutted on record:-
(a) Copy of Invoice raised by Ajanta Estate & Developers;
(b) Copy of Form 16A issued to Broker;
(c) Copy of PAN of broker;
(d) Copy of Bank Statement showing payment of brokerage from account of appellant company.

The assessee also pleaded that it had never dealt with the said broker in the future and infact had only one transaction with this broker. Thus the assessee was not in a position to put any pressure or influence on the broker as he was not related to the assessee and nor was he under his control.

CIT(A) allowed the appeal and deleted the additions for disallowance holding as under:

“...... the onus was duly discharged by the appellant by filing the requisite details with the AO and the AO had ample powers under the Act to enforce the attendance of M/s Ajanta Estate & Developer and I find that instead of using the powers available to the AO to enforce the attendance of M/s Ajanta Estate, the disallowance of the part of brokerage expenditure is not on sound footing but is purely based on conjecture and surmises. The AO admits that the payment of brokerage expenses to the extent of 2% is wholly and exclusively towards his business but an adhoc and part disallowance is not as per the cannon of natural justice. There was no concrete evidence and material available with the AO to hold that the brokerage expenses are excessive and it being the search case, no evidence was either found during the search regarding the bogus or disproportionate expenses. Hence, in view of the above discussion and also without any inquiry and any adverse material, an adhoc disallowance made by the AD towards the brokerage expenses deserves to be deleted.”

Important Excerpts from ITAT Judgment:
Aggrieved by which the Revenue is in appeal before the Tribunal. Ld. Sr. DR sought time. The findings in the entire order were read out alongwith the Sr. DR and he was required to address whether the Revenue would be in a position to rebut the evidences as in that eventuality time would be granted as otherwise adjournment would not be granted. On going through the entire order the Ld. Sr. DR still did not make any request seeking time to rebut the facts on record. Thus considering the peculiar facts and circumstances of the case as have been elaborated in the earlier part of this order and in the absence of any infirmity in the impugned order the request of the Sr. DR was rejected as no prayer for rebutting the facts on record was made. In the circumstances where on facts there is no dispute and no infirmity in the impugned order is brought out it was pronounced that the departmental appeal would be dismissed. However subsequently Mr. Goel appeared alongwith the Bench Clerk and stated that he was delayed accordingly his Power of Attorney may be taken. It was informed that the Departmental appeal anyway had been dismissed and the hearing stood concluded. On his insistence that presence may be recorded he was required to come alongwith the Ld. Sr. DR. Accordingly in the presence of the Sr. DR. the Bench clerk took the Power of Attorney on record. The parties were heard again wherein the Ld. AR placed reliance upon the impugned order and the Ld. SR.DR having gone through the facts on record still did not make any prayer seeking time for rebutting the facts and evidences on record. In the afore-mentioned peculiar facts and circumstances as per the pronouncement made in the Court at the time of hearing, the departmental appeal is dismissed. The reasons for the conclusion have already been brought out in the earlier part of this order as the facts would show that the genuineness of the transaction; the existence of the party etc. stood accepted by the AO himself as brokerage to the extract of 2% has been allowed. However the basis for arbitrarily restricting the same based on suspicions to the extent of 2% as opposed to the claim of 2.8% duly supported by unrebutted evidences and facts on record is absent on record. In the absence of any material justifying the restriction to 2% in the facts of the case and considering the legal position thereon, I am of the view that the finding arrived at by the First Appellate Authority deserves to be upheld.

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