2014 (6) TMI 932 - AT - Income Tax

Allowable expenditure u/s.48(i) - brokerage/commission - that - When the total capital gain earned by the assessee is 26.13 crores for the A.Y. 2006-07 to A.Y. 2008-09 and he has duly paid taxes thereon and the capital gain earned by the individual members of the group is 148.95 crores there was no justification on the part of the assessee to claim such a meagre commission for sale of the land which is hardly 0.5% to 1.5% as against the prevailing market rate of about 2% and above. In this view of the matter we find merit in the submission of the Ld.counsel for the assessee that the payment of brokerage at 25, 96, 400/- was an expenditure incurred wholly and exclusively in connection with the transfer of the land which is an allowable expenditure u/s.48(i) of the I.T. Act. We therefore set-aside the order of the CIT(A) and direct the AO to delete the disallowance made. - Decided in favour of assessee Addition on account of unexplained jewellery found during the course of search action at the residential premises of the assessee - Held that - Admittedly the AO has already given credit for explaining the jewellery belonging to the family members as per the instruction of the CBDT. The assessee could not bring on record anything more to prove that he has purchased the jewellery out of his withdrawals. In absence of the same we do not find any infirmity in the order of the CIT(A) sustaining the addition - Decided against assessee

Summary

Issues Involved:
1. Disallowance of brokerage expenses claimed as deduction under Section 48(i) of the Income Tax Act.
2. Addition on account of unexplained jewelry found during the search.

Issue-wise Detailed Analysis:

1. Disallowance of Brokerage Expenses Claimed as Deduction under Section 48(i):

Facts:
The assessee, an individual, filed returns disclosing total income after a search and seizure action. During assessment, the AO noted that brokerage was paid to M/s. Regenesis PMCPL, a related party, for the sale of land. The AO disallowed the brokerage, considering it a tax avoidance measure.

Arguments by Assessee:
- The brokerage was paid as per an MOU with Regenesis PMCPL to find a joint venture partner for land development.
- Regenesis PMCPL, a subsidiary of KPDL, employed professionals to secure a joint venture with ICICI Ventures.
- The brokerage rate was reasonable (0.5%-1.5%) compared to market rates (2%).
- The assessee argued that the transaction was legitimate and not a tax avoidance device.

Arguments by AO:
- The brokerage payment to Regenesis PMCPL was seen as a colorable device to reduce tax liability.
- The AO noted that Regenesis PMCPL showed losses or nominal incomes, suggesting the arrangement was to minimize tax.
- The AO disallowed the brokerage, stating the assessee did not need a broker from a related party for the transaction.

CIT(A) Findings:
- The CIT(A) upheld the AO's disallowance, stating the brokerage was not linked to the land transfer but to finding an investment partner.
- The CIT(A) noted the sale price received was at market value, not higher, and thus the brokerage was not justified.
- The CIT(A) found no documentary evidence of services rendered by Regenesis PMCPL.

Tribunal's Decision:
- The Tribunal allowed the brokerage expenses, finding the payment justified and incurred wholly and exclusively for the land transfer.
- The Tribunal noted Regenesis PMCPL employed qualified professionals and facilitated the sale at a higher price.
- The Tribunal observed that Regenesis PMCPL paid substantial taxes on its income, and the assessee paid service tax on the brokerage, negating the tax avoidance claim.
- The Tribunal directed the AO to delete the disallowance of brokerage expenses.

2. Addition on Account of Unexplained Jewelry:

Facts:
During the search, gold jewelry was found, and the AO disallowed part of it as unexplained.

Arguments by Assessee:
- The jewelry was received as gifts and purchased over time.
- The assessee relied on CBDT instructions for explaining the jewelry.

Arguments by AO:
- The AO considered only a part of the jewelry as explained, disallowing the rest due to lack of satisfactory explanation.

CIT(A) Findings:
- The CIT(A) upheld the AO's decision, noting the assessee failed to substantiate the claim with records.
- The CIT(A) found the AO's allowance of part of the jewelry reasonable and in line with CBDT instructions.

Tribunal's Decision:
- The Tribunal upheld the CIT(A)'s decision, finding no infirmity.
- The Tribunal noted the assessee could not provide evidence for the unexplained jewelry, sustaining the addition.

Conclusion:
- The Tribunal allowed the brokerage expenses as deductible under Section 48(i), finding them justified and incurred wholly and exclusively for the transfer.
- The Tribunal upheld the addition of unexplained jewelry due to lack of evidence from the assessee.

Result:
- ITA No.1358/PN/2013 was dismissed.
- All other appeals filed by the respective assessees were allowed.