2012 (8) TMI 799 - AT - Income Tax

Addition on account of undisclosed brokerage income received on sale of land not offered for tax assessee contended that income was earned by sister concern of the assessee M/s. SPL, however records reveal that SPL as not engaged in brokerage business and did not had requisite manpower Held that - It is found from record that brokerage income was received by the assessee in respect of services rendered by it for sale of land. All the work relating to brokerage income was undertaken by the assessee company, but this income was not offered in the return of income. Mere entering of MOU between the assessee and its sister concern SPL will not allow the assessee to divert its income to the sister concern. Since the rendering of services for which income was not only accrued but also received by the assessee, we do not see any reason for not offering the same in assessee s hands. It was actual income of the assessee, therefore, the AO was justified in making addition of income actually earned and received by the assessee during the year under consideration. Merely because this income was offered by SPL in its return of income will not exonerate the assessee from inclusion of such income in its return which was earned and received by it Decided against assessee

Summary

Issues:
Appeal against CIT(A) order for 2008-09 regarding undisclosed brokerage income.

Analysis:
The Assessing Officer observed the appellant company received brokerage income but did not offer it for tax. The appellant claimed the work was done for another company, but the AO rejected the explanation due to both companies being sister concerns. The CIT(A) confirmed the brokerage income in the appellant's hands after detailed examination of agreements and payments received. The CIT(A) found that all work related to brokerage income was undertaken by the appellant company, not the sister concern. The appellant's argument that the income belonged to the sister concern was dismissed as the services were rendered by the appellant, and the income rightfully belonged to them.

The CIT(A) noted agreements between the appellant and landowners for brokerage services, with payments received directly by the appellant company. The CIT(A) highlighted that the appellant had the necessary expertise and manpower for the brokerage work. The CIT(A) also reviewed resolutions passed by both the appellant and the sister concern, emphasizing that the income rightfully belonged to the appellant. The CIT(A) concluded that the appellant diverted income to the sister concern to avoid proper taxation, leading to the confirmation of the addition of the brokerage income in the appellant's hands.

The ITAT upheld the CIT(A)'s decision, emphasizing that the income earned and received by the appellant should have been offered in their return. The ITAT rejected the appellant's claim that the income belonged to the sister concern, as detailed findings by the lower authorities confirmed the appellant's involvement in earning the income. The ITAT concluded that the Assessing Officer was justified in adding the actual income earned by the appellant to their return, regardless of how the sister concern reported it. The appeal of the assessee was ultimately dismissed.