2011 (5) TMI 512 - AT - Income Tax

Non deduction of TDS u/s 194H on commission payment - DR contended that assessee has paid the commission to the ultimate purchaser therefore it should have deduct the TDS - Held that - 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 - 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 - Decided in favour of assessee. Commission expenses - Held that - AO has not highlighted what is the fair market value of the services rendered by these persons and how AO has availed their services at a higher rate than the one available in the open market - CIT(A) further observed that there is no substantial decline in the net margin of the assessee - Its turn over has been increased from Rs. 1, 65, 28, 203 to Rs. 3, 36, 78, 330 - Thus the turn over has become almost double - Decided in favour of assesee. Advertisment Expenditure - According to the assessee M/s Surender Properties is in the existence of the real estate business even before the assessee came into existence - Held that - The name of Surender 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 assessment order passed in the case of Shri Surender Mukhija from which it is found that Shri Surender Mukhija had incurred a sum of Rs. 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 Assessing Officer - Decided in favour of assessee.

Summary

Issues Involved:
1. Deletion of addition under section 40(a)(ia) for non-deduction of TDS on commission payment.
2. Deletion of disallowance of commission expenses under section 40A(2)(b).
3. Confirmation of disallowance of advertisement expenses.

Issue-wise Detailed Analysis:

1. Deletion of addition under section 40(a)(ia) for non-deduction of TDS on commission payment:

The Assessing Officer (AO) added Rs. 1,19,16,142 under section 40(a)(ia) for the assessee's failure to deduct TDS under section 194H on commission payments. The assessee contended that the payments were discounts to buyers, not commissions, and thus did not require TDS deduction. The CIT(A) agreed with the assessee, stating that the payments were discounts, not commissions, as no services were rendered by the recipients, and there was no principal-agent relationship. The tribunal upheld the CIT(A)'s decision, noting that the payments were discounts reducing the cost price for buyers, not commissions requiring TDS deduction.

2. Deletion of disallowance of commission expenses under section 40A(2)(b):

The AO disallowed Rs. 25 lakhs out of Rs. 43,99,257 commission expenses, suspecting excessive payments to related persons under section 40A(2)(b). The assessee provided detailed submissions and evidence, including confirmations and advertisements, proving the genuineness and necessity of the payments for business purposes. The CIT(A) deleted the disallowance, and the tribunal upheld this decision, emphasizing the lack of evidence from the AO to prove excessive payments or absence of services rendered.

3. Confirmation of disallowance of advertisement expenses:

The AO disallowed 20% of Rs. 61,24,952 advertisement expenses, suspecting that the expenses were not exclusively for the assessee's business, as the name of a related proprietary concern appeared in the advertisements. The CIT(A) reduced the disallowance to 10%. The tribunal, considering the mutual benefit derived by both concerns and the lack of evidence to prove undue benefit, deleted the disallowance, concluding that the expenses were incurred exclusively for the business purpose.

Conclusion:

The tribunal dismissed the revenue's appeal and allowed the assessee's appeal, confirming the CIT(A)'s decisions on all issues. The tribunal emphasized the importance of evidence and the nature of payments in determining the applicability of TDS and the genuineness of expenses.