2016 (2) TMI 661 - AT - Income Tax

Disallowance of commission payment on sale of property - Held that - In this case, the claim of the assessee is that payment of ₹ 3,12,000/- towards brokerage on sale of M/s Sundaram Theatre. The said payment has been made to four persons viz. (i)R. Muthu Kamatchi, (ii)K. Ganesan, (iii)K Muthiah and (iv) M. Selvam. The Department summoned them by issuing notice u/s 131 of the Act. However, all the letters issued to the above persons returned unserved by the postal authorities with an endorsement no such address . Later on, the Assessing Officer was able to trace only one Shri K. Ganesan who has given receipt for ₹ 80,000/- and the same was allowed by the Department. The other three persons cannot be traced and there is no iota of evidence to show that payments towards brokerage were made to them. The assessee is not able to place any material to show that the other three persons actually rendered service to the assessee in the sale of Sundaram Theatre. Being so, in our opinion, the assessee has not discharged the initial burden cast upon it first to prove the genuineness of payment. Therefore, the CIT(A) is justified in disallowing the payment of brokerage to three persons. Accordingly, we have no hesitation to confirm the order of the CIT(A) on this issue. Disallowance of payment being the amount paid for enabling the lessee to vacate the premises and handover vacant possession to the buyer of the property - Held that - As rightly pointed out by the ld. DR, the assessee is not able to point out any specific condition in the sale deed of the property to suggest the payment of ₹ 10 lakhs to Shri Rajan for vacating and handing over the peaceful possession of the property. Being so, in the absence of any such clause in the sale deed warranting payment of ₹ 10 lakhs to Shri Rajan, we are not in a position to appreciate the argument of the ld. Representative. Accordingly, this ground is rejected. Disallowance of claim of the assessee in respect of payment of electricity dues to the Electricity Board - Held that - In the present case, in respect of giving repeated opportunity to the assessee by the lower authorities to place necessary evidence for bearing that expenditure by the assessee itself, the assessee failed and at all times given a very evasive reply. In such circumstances, we are not in a position to allow the claim of the assessee by following the above judgment. This ground of the assessee is also rejected.In the result, the appeal filed by the assessee is dismissed. Indexation claimed by the assessee on the goodwill while determining the capital gains - Held that - Admittedly, while adjudicating the issue, the CIT(A) has considered the trial balance and the partnership deed cited (supra). In our opinion, these are fresh documents and the Assessing Officer has to examine the documents regarding the payment of goodwill and if there is actual payment of goodwill then there is a cost to goodwill and the claim of the assessee has to be considered on examination of records relating to the payment of goodwill. Accordingly, this ground is remitted back to the file of the Assessing Officer for reconsideration of the issue of payment towards goodwill and decide in accordance with law after giving a reasonable opportunity of hearing to the assessee.

Summary

Issues Involved:
1. Disallowance of commission payment.
2. Disallowance of payment for enabling lessee to vacate the premises.
3. Disallowance of payment of electricity dues.
4. Granting of indexation on goodwill while determining capital gains.

Issue-wise Detailed Analysis:

1. Disallowance of Commission Payment:
The first issue pertains to the disallowance of commission payment of Rs. 2,32,000 out of Rs. 3,12,000 on the sale of property. The assessee claimed to have paid brokerage to four persons, but could not provide adequate proof of payment. The Assessing Officer (AO) disallowed the entire brokerage amount due to lack of evidence. The CIT(A) allowed Rs. 80,000 based on the confirmation from one broker, Shri K. Ganesan, but disallowed the remaining Rs. 2,32,000. The Tribunal upheld the CIT(A)'s decision, stating that the assessee failed to prove the genuineness of the payments to the other three brokers.

2. Disallowance of Payment for Enabling Lessee to Vacate the Premises:
The second issue involves the disallowance of Rs. 10 lakhs claimed as payment to a lessee for vacating the property. The assessee argued that this payment should be considered as a cost of transfer under Section 48 of the Income-tax Act. However, the CIT(A) and the Tribunal found no evidence or clause in the sale deed to support this claim. Consequently, the Tribunal rejected the assessee's claim, emphasizing the absence of any contractual obligation in the sale deed to pay the lessee.

3. Disallowance of Payment of Electricity Dues:
The third issue concerns the disallowance of Rs. 12.50 lakhs claimed as payment towards electricity charges to the Electricity Board. The assessee contended that this amount was withheld by the buyer towards probable dues. However, the CIT(A) and the Tribunal found no evidence to support this claim, noting that the full sale consideration was received by the assessee. The Tribunal upheld the disallowance, stating that there was no clause in the sale deed authorizing the withholding of this amount for electricity charges.

4. Granting of Indexation on Goodwill:
The fourth issue raised by the Revenue involves the granting of indexation on goodwill while determining capital gains. The assessee claimed that goodwill was acquired during the year 1985-86 for Rs. 9 lakhs and indexed the cost to Rs. 30,18,045. The AO disallowed this, considering goodwill as a self-generated asset. The CIT(A) allowed the claim based on the trial balance and partnership deed, which indicated a cost of acquisition for goodwill. The Tribunal remitted this issue back to the AO for reconsideration, directing the AO to verify the documents and determine if there was actual payment for goodwill.

Conclusion:
The Tribunal dismissed the assessee's appeal and allowed the Revenue's appeal for statistical purposes, remanding the issue of indexation on goodwill back to the AO for further examination. The order was pronounced in the open court on 11.12.2015.