2016 (12) TMI 180 - AT - Income Tax

Disallowance of brokerage amount paid - Held that - AO has not brought any evidence on record either to prove that the transaction is a colourable device to disallow the same or the brokerage paid by the assessee in the present case is excessive or unreasonable to apply the provisions of section 40(A)(2) of the Act. Similarly, the Ld. CIT(A) has not recorded the reasons for holding that the object behind making payment of the amount in question was tax avoidance through a colorable device. The finding of the Assessing Officer as well as the Ld. CIT(A) are, therefore, not based on any evidence. Since, the Ld. CIT(A) has not referred any evidence to justify the disallowance made by the AO or to enhance the same, it can safely be presumed that the payment in question has been made by the assessee as brokerage. The impugned order is therefore not sustainable in the eyes of law. Accordingly, we set aside the findings of the Ld. CIT(A) - Decided in favour of assessee. Disallowance of repairs and maintenance expenses - Held that - We notice that the AO has disallowed 20% of expenses for want of evidence, however, the Ld. CIT(A) has taken altogether new ground and taken the view that the expenditure other than the society charges aforesaid, are capital in nature. We also notice that the CIT(A) did not seek any explanation from the assessee before arriving at such a conclusion. Accordingly, we are of the view that this issue requires fresh examination at the end of the Ld. CIT(A). We, therefore, restore this issue to the file of the Ld. CIT(A) with the direction to adjudicate this issue afresh after affording a reasonable opportunity to the assessee to explain the same.

Summary

Issues:
1. Disallowance of brokerage paid by the assessee.
2. Disallowance of repairs and maintenance expenses.

Issue 1: Disallowance of Brokerage Paid by the Assessee

The appellant challenged the disallowance of brokerage paid amounting to ?21,19,020, claiming it was wrongly based on Section 40A(2)(b) of the Income Tax Act. The appellant argued that the payee company was not covered under the said provision, as one of its directors was not a son of the partners. The appellant contended that the disallowance made by the Assessing Officer was incorrect, and the Commissioner should have deleted it instead of enhancing it beyond his jurisdiction under Section 251 of the Act. The Departmental Representative supported the Commissioner's order, stating it was in accordance with the law and evidence on record.

The Tribunal found that the appellant had paid ?19,42,777 as brokerage and deducted TDS of ?2,48,243, establishing the genuineness of the transaction. The Tribunal held that the authorities' conclusions were based on surmises and lacked convincing evidence to prove the transaction was a colorable device or that the brokerage payment was excessive. As a result, the Tribunal set aside the Commissioner's findings, ruling in favor of the appellant on this issue. Since this issue was decided in favor of the appellant, the Tribunal did not address the jurisdictional aspect separately.

Issue 2: Disallowance of Repairs and Maintenance Expenses

The appellant contested the disallowance of repairs and maintenance expenses amounting to ?3,14,322. The Counsel argued that the Commissioner wrongly confirmed the disallowance made by the Assessing Officer. During the assessment, the appellant presented a ledger account showing expenses for repair works at a flat and servant's quarter, along with expenses for office premises maintenance. The Assessing Officer disallowed 20% of the claimed amount due to lack of verification. The Commissioner, based on vouchers produced during appellate proceedings, allowed society maintenance charges but considered the remaining expenses as capital in nature, affirming the disallowance.

The Tribunal noted discrepancies in the Commissioner's approach, as the initial disallowance was due to lack of evidence, while the Commissioner deemed the remaining expenses as capital without seeking clarification from the appellant. Consequently, the Tribunal remanded this issue back to the Commissioner for fresh examination, directing a reasonable opportunity for the appellant to explain the expenses. Ultimately, the Tribunal partly allowed the appeal for the assessment year 2008-09.

In conclusion, the Tribunal ruled in favor of the assessee regarding the disallowance of brokerage paid, finding the transaction genuine and the disallowance unjustified. The issue of repairs and maintenance expenses was remanded for further review due to discrepancies in the Commissioner's reasoning.