2015 (1) TMI 352 - AT - Income Tax

TDS u/s 194H - Commission or discount - Marketing expenses inclusive of incentive and discounts disallowed Held that - following the decision in Deputy Commissioner of Income-tax Circle-9(1), New Delhi Versus Surendra Buildtech (P.) Ltd. 2011 (5) TMI 512 - ITAT, DELHI - The expression commission or brokerage has been explained in the explanation appended to this section - According to the meaning provided in the explanation, the commission would be considered, if any person received it directly or indirectly on behalf of another person for the services rendered, and such services should not be professional services - admittedly 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. In fact, 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 the order of the CIT(A) is upheld Decided against revenue. Commission paid to Shri Gaurav Mukhija disallowed u/s 40A(2)(b) Held that - The assessee had opened the office on various locations and for the purpose either the assessee had to manage there or it had to be managed by engaging some other persons - The assessee allowed remuneration to such persons on commission basis, on the basis of their performance by way of bookings - Shri Gaurav Mukhija controlled and managed the Gurgaon office of the company and the commission was allowed to him on the basis of procurement of the pre launched bookings wherein the Gurgaon office was instrumental - Shri Gaurav Mukhija s mobile number was also flashed in the advertisement issued by the assessee in news papers for general public at large informing the bookings, which clearly showed that Shri Gaurav Mukhija was closely associated as a responsible person and was instrumental in booking the properties by satisfying customers at large the order of the CIT(A) is upheld Decided against revenue. Reduction of disallowance to 10% as against 20% on advertisement expenses Held that - following the decision in Deputy Commissioner of Income-tax Circle-9(1), New Delhi Versus Surendra Buildtech (P.) Ltd. 2011 (5) TMI 512 - ITAT, DELHI M/s Surnder Properties is in the existence of the real estate business even before the assessee came into existence. The name of Surnder Mukhija in a way enhanced the business of assessee - there is no evidence available on record to this effect. The assessee has placed on record copy of the asstt. Order passed in the case of Shri Surender Mukhija - Shri Surender Mukhija had incurred a sum towards advertisement and the name of assessee has been appearing in his advertisement - assessee has been fairly compensated, the expenses incurred by both the concerns mutually give benefit to each other mutually - 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 AO - the expenses were incurred exclusively for the business purpose and no disallowance deserves to be made Decided in favour of assessee.

Summary

Issues Involved:
1. Disallowance of marketing expenses, including incentive and discount.
2. Disallowance of commission paid under section 40A(2)(b).
3. Disallowance of advertisement expenses.

Detailed Analysis:

1. Disallowance of Marketing Expenses, Including Incentive and Discount:
The revenue challenged the deletion of an addition of Rs. 4,43,927/- made by the Assessing Officer (AO) on account of marketing expenses, inclusive of incentives and discounts. The assessee argued that this issue was already covered by the ITAT Delhi Bench 'G' order dated 27-05-2011 in the assessee's own case for A.Y. 2007-08. The Tribunal noted that Section 194H of the Income Tax Act, which deals with commission or brokerage, was relevant to the issue. The Tribunal clarified that the discounts granted by the assessee were not commissions as the recipients were not acting as agents but were purchasers of property. The Tribunal upheld the CIT(A)'s decision to delete the disallowance, stating that the AO failed to distinguish the nature of the receipt when offered to the customer, and the relationship was that of a buyer and seller. Consequently, the Tribunal dismissed the revenue's ground on this issue.

2. Disallowance of Commission Paid Under Section 40A(2)(b):
The revenue challenged the deletion of an addition of Rs. 5,50,970/- made on account of commission paid to Shri Gaurav Mukhija under section 40A(2)(b). The assessee had claimed a total amount of Rs. 10,95,471/- under the head "Commission" and provided detailed evidence of services rendered by the recipients, including TDS deductions. The AO disallowed the commission paid to Shri Gaurav Mukhija, son of the director, questioning the genuineness of the expenses. The CIT(A) allowed the appeal, considering the services rendered by Shri Gaurav Mukhija, who managed the Gurgaon office and was instrumental in procuring pre-launch bookings. The Tribunal found no reason to interfere with the CIT(A)'s order, as the department did not provide any contrary evidence. Therefore, the Tribunal confirmed the CIT(A)'s decision and dismissed the revenue's ground on this issue.

3. Disallowance of Advertisement Expenses:
Both the revenue and the assessee challenged the CIT(A)'s decision to restrict the disallowance of advertisement expenses to 10% as against 20% made by the AO. The assessee had claimed Rs. 7,88,700/- on account of advertisement expenses and provided details to substantiate the claim. The AO disallowed 20% of these expenses, questioning their genuineness. The CIT(A) restricted the disallowance to 10%. The Tribunal noted that in A.Y. 2007-08, the ITAT had allowed the assessee's claim for advertisement expenses, observing that the expenses were incurred exclusively for business purposes and no disallowance was warranted. The Tribunal found no distinction in the facts for the assessment year in question and followed the earlier order, deleting the addition made by the AO. Consequently, the Tribunal dismissed the revenue's ground and allowed the assessee's ground on this issue.

Conclusion:
The Tribunal dismissed the revenue's appeal and allowed the assessee's appeal. The decisions were based on the consistency of the assessee's business practices, the genuineness of the expenses, and the lack of contrary evidence from the department. The Tribunal upheld the CIT(A)'s decisions, emphasizing the relevance of prior ITAT orders in similar cases.