2014 (3) TMI 25 - AT - Income Tax

Deletion made on commission expenses - Held that - CIT(A) held that the payment made by the appellant to the various specific persons be called as commission or rebate or incentive, was for the purpose of business and in accordance with the prevalent business trends in this trade - in the assessee s business, it is a common practice to provide rebate or commission or incentive to various persons with whom the assessee has brokered the deal thus, the commission has been paid for the business purpose of the assessee Decided against Revenue. Deletion made on account of STCG Held that - CIT(A) was of the view that the payment paid to the builder directly was only one form of payment of installment by the appellant either the same should have been added in the cost of acquisition and also in the sale proceeds or should have been eliminated from both as was done by the appellant - The assessee has sold property for a sale consideration - The CIT (A) deleted the addition by holding that direct payment to M/s. DLF Universal Ltd. was only one form of payment of installment to builder, M/s. DLF Universal Ltd - In one way, it has to be added to the cost of acquisition if this added to the sale proceeds for working out the taxability, income has no impact the order of the CIT(A) upheld Decided against Revenue.

Summary

Issues:
1. Deletion of addition of Rs.11,23,263/- regarding commission expenses.
2. Deletion of addition of Rs.16,87,432/- on account of short term capital gain.

Analysis:

Issue 1: Deletion of addition of Rs.11,23,263/- regarding commission expenses
The CIT (A) deleted the addition by emphasizing the commercial expediency of commission payments in the real estate business. The CIT (A) noted that commission payments were common practice in the trade and were justified for business purposes. Specific recipients of commission were verified, and it was found that the payments were in line with prevalent business trends. The CIT (A) highlighted that the AO's objections were based on nomenclature rather than relevant facts. The Tribunal concurred with the CIT (A)'s findings, stating that commission payments were made for business purposes and upheld the deletion of the addition.

Issue 2: Deletion of addition of Rs.16,87,432/- on account of short term capital gain
The CIT (A) deleted the addition by clarifying that the balance amount of Rs.16,01,432/- was directly paid by the buyer to the builder, M/s. DLF Universal Ltd., and not routed through the assessee. This direct payment was considered one form of installment payment to the builder. The Tribunal agreed with the CIT (A)'s reasoning, stating that adding this amount to the sale consideration without including it in the cost of acquisition was unreasonable. The Tribunal upheld the CIT (A)'s decision, emphasizing that for taxability calculations, the direct payment had no impact on income. Therefore, making the addition in the sale proceeds and then reducing it for the cost of acquisition would be an academic exercise. Consequently, the appeal of the revenue was dismissed, affirming the CIT (A)'s order on this issue.

In conclusion, the Tribunal upheld the CIT (A)'s decisions on both issues, emphasizing the business justifications and proper accounting treatment of the disputed amounts in the assessments.