2014 (6) TMI 250 - AT - Income Tax

Applicability of section 40A(2)(b) of the Act - Partial deletion of discount forwarded excessive or unreasonable expenses Held that - The assessee did not furnish any details as to how much commission he received on these plots/properties in the name of his family members against which he paid heavy discount and the assessee can only be allowed to pay maximum discount to the extent of commission received by him on these plots/properties from BPTP - In absence of any details, discount as indicated in the show cause notice @ 50,000/- on each plot/ property totaling Rs. 2,00,000/ - for four properties/plots in the name of his family members has been allowed by treating them at par with other customers - the AO has erred in estimating the quantum of discount forwarded by the appellant - the installments have been paid towards the cost of said plot including late payment interest also - the AO has erroneously referred to the said payments in the nature of discount forwarded for one plot only which is impossible looking to the maximum amount of discount even allowed by the BPTP - there is no effective yardstick for comparison and having regards to the above discussion, it would be deem it fair and reasonable to disallow 25% of discount forwarded to Shri Ashish and Smt. Urvashi as excessive Decided against Revenue. Deletion of discount forwarded Amount has been added twice but not reflected in ledger accounts - When BPTP Ltd. has given the commission to the assessee and has itself recovered part of the commission through raising debit notes, the genuineness of the discount forwarded cannot be doubted unless it is established that the discount forwarded to BPTP Ltd. was received back by the appellant in some other form the AO has either not looked into the ledger account narrations properly or has drawn his adverse conclusion due to short time available for passing the order - the AO has also not given any adverse finding on this issue in the remand report the order of the CIT(A) is upheld Decided against Revenue.

Summary

Issues Involved:
1. Disallowance of discount forwarded to family members under Section 40A(2)(b).
2. Deletion of addition on account of discount forwarded.
3. Deletion of addition due to alleged double counting.
4. Disallowance under Section 43B for unpaid service tax.

Issue-wise Detailed Analysis:

1. Disallowance of Discount Forwarded to Family Members under Section 40A(2)(b):
The Assessing Officer (AO) disallowed Rs.40,58,883/- out of the total discount forwarded of Rs.42,58,883/- to the assessee's family members, considering it excessive and unreasonable under Section 40A(2)(b). The First Appellate Authority admitted additional evidence, called for a remand report, and concluded that the AO's estimation was erroneous. It was found that the discounts forwarded ranged from Rs.20,000/- to Rs.2,72,325/- and were not limited to one plot but multiple plots. The First Appellate Authority deemed it fair to disallow 25% of the discount forwarded as excessive and unreasonable, thus sustaining an addition of Rs.10,14,720/- and granting relief of Rs.30,44,163/-. The Revenue's ground was dismissed as the Senior Departmental Representative (D.R.) could not controvert these findings.

2. Deletion of Addition on Account of Discount Forwarded:
The AO added Rs.16,78,601/- on account of discount forwarded, claiming the assessee could not substantiate his claim. The First Appellate Authority observed that the assessee worked exclusively for BPTP Ltd., which paid commission and recovered amounts via debit notes. It was noted that the discount forwarded was genuine and aligned with commercial norms in the real estate business. The AO had not provided adverse findings in the remand report. Consequently, the addition was deleted, and the Revenue's ground was dismissed.

3. Deletion of Addition Due to Alleged Double Counting:
The AO added Rs.3,84,563/- by alleging double counting, which was already included in the total addition of Rs.16,78,601/-. The First Appellate Authority found that the AO had not properly reviewed the ledger account narrations and had drawn adverse conclusions due to time constraints. It was clarified that the amount was not double-counted, and the addition was deleted. The Revenue's ground was dismissed.

4. Disallowance under Section 43B for Unpaid Service Tax:
The AO disallowed Rs.10,83,555/- under Section 43B as the service tax payable was not deposited before the due date of filing the return. The First Appellate Authority noted that no expenditure was claimed by the assessee in its books of accounts. Therefore, the question of disallowance under Section 43B did not arise. The Revenue's ground was dismissed.

Conclusion:
The appeal of the Revenue was dismissed, and the order of the First Appellate Authority was upheld. The disallowance of discount forwarded to family members was partially sustained, while other additions were deleted. The disallowance under Section 43B was also dismissed as no expenditure was claimed by the assessee. The judgment was pronounced in the Open Court on 21st May 2014.