Actual Service rendered by each Individual need not be Established for allowing Commission in Land Transactions: Karnataka HC [Read Judgment]

The Karnataka High Court in the case of Commissioner of Income Tax (Appeals) v. Sri. H. Nagaraja has held that the actual consideration rendered by each individual need not be established for allowing commission expenses in case of land transactions.

The assessee runs a partnership firm named M/s. SLV Housing Development Corporation. Another partner of the firm is assessee’s wife and his father. The firm is engaged in the business of purchasing agricultural lands, converting them to non-agricultural lands i.e. for the formation of a residential layout and thereafter sells them.

The Assessing Officer (AO) made an addition which the Commissioner of Income Tax (CIT) partly confirmed. The Revisional Commissioner exercising its powers u/s 263 of the Income Tax Act directed reconsideration of the entire matter. He further found that the development expenses consisting of labor charges, work in progress had to be added. Also, the cheque payments and TDS made towards commission claiming expenditure had to be verified. The Tribunal, however, set aside the order of the Revisional Commissioner.

The issue before the High Court was that whether the Tribunal is right in holding that the Revisional Commissioner is not justified in deleting the additions.

The department submitted that development expenses were not considered by the AO and the Appellate Commissioner. Further, the Commissioner was justified in exercising revisional jurisdiction for the expenses on purchase of land and profit from the sale of property and expenses claimed for payment of commission to agents for purchase and sale of lands.

The assessee-respondent contended that the Commissioner could not have exercised jurisdiction since the order disallowing the above expenses had been considered by both the AO and the Appellate Commissioner. Furthermore, rebutting the arguments of the revenue the assessee relying upon case laws submitted that the Revisional Commissioner could not have taken a different view with respect to the expenses on purchase of land and profit from the sale of the property.

The Hon’ble Court after hearing both the parties supported the view taken by the assessee with respect to developmental expenses and treatment of expenses of purchase of land and profit from the sale of properties. The Court held that no need for revision of an issue already considered by both AO and the Commissioner arose in the Revisional proceedings.

With respect to the third issue with regard to the commission expenses claimed by the assessee supported the view taken by the Tribunal i.e. the Commissioner was in error in proceeding to take the view that actual service rendered by each of the individuals had to be established for accepting the commission in the sale and purchase of land.

Hence, the appeals filed by the Revenue were dismissed.