The assessee, DLF Universal Ltd. is a company carrying on the business of real estate development. For Assessment Year 2011-12 the assessee filed its return of income declaring total loss of Rs. 1,63,24,28,377.
The return of income was revised at income of Rs. 41,49,07,760/-. On selection of scrutiny the AO assessed the income under section 143(3) of the Act per order dated 31.03.2014 at Rs. 52,46,66,977/-. The ld AO made the various additions/ disallowances.
The assessee has challenged the deletion of the disallowances u/s 40A(2)(b) of the Act of Rs.83,08,348 made on account of payment commission made to related party M/s. DLF Home Developers Ltd for service charges on account of collection received from customers on account of project Capital Green Phase.
The assessee has deducted tax at source on the same. The DLF Home Developers is a subsidiary company of the assessee company and therefore, claim of the assessee is that provision of section 40A(2)(b) do not apply to such payment. The said payment being made by the developers assessee for arranging and organizing the collection from customers on behalf of the assessee as marketing right of the project lies with DLF Home Developers only. The AO held that the assessee has not incurred these expenses to meet legitimate needs of the business.
Therefore, he applied the provisions of section 40A(2)(a) and held that the expenditure made by the assessee are excessive in nature. The CIT(A) deleted the above disallowances.
The coram of Kul Bharat and Prashant Maharishi noted that AO has disallowed the amount involved in the last bill but has allowed the earlier two bills despite the payments made for the same services. There is no reasoning given by the AO that why the earlier two payments to the same party for the same services for the same accounting period on same terms and conditions are allowable, whereas the last bill itself was found to be not justified.
“Even at the time of disallowances, the ld AO could not show any comparable cases that the payment made to the recipient of income is unreasonable or excessive. In fact, the CIT(A) has noted that the assessee has paid commission to this party @ 1% whereas commission to other brokers is paid @2%. Therefore it is apparent that conditions satisfied u/s 40A(2) of classifying expenditure as excessive or unreasonable is not satisfied as the comparable market rate for same services provided by unrelated parties are higher,” the ITAT observed
Therefore, the ITAT has found any infirmity in the order of the CIT(A) in deleting the disallowance. Accordingly, the appeal against the deletion of the disallowance u/s 40A(2)(b) of Rs. 83,08,348/- for payment made to the related party M/s. DLF Home Developers Ltd is confirmed.Subscribe Taxscan AdFree to view the Judgment