Brokerage Exp. On Sale of Property Allowable Even if There Was No Written Agreement With Broker | ITAT

Case Details: Sunil Kapoor v. ACIT - [2024] 161 taxmann.com 748 (Delhi - Trib.)

Judiciary and Counsel Details

• G.S. Pannu, Vice President & Ms Astha Chandra, Judicial Member
• Rajiv Tyagi, Adv. for the Appellant. 
• Vizay B. Vasanta, CIT-DR for the Respondent.

Facts of the Case

The assessee is an individual who filed its return of income for the relevant assessment year. During the year, the assessee sold a property and claimed deduction of transfer expenses of Rs. 45 lakhs on account of brokerage/commission paid to three parties.

Assessing Officer (AO) issued a show cause notice to the assessee to explain why the indexed cost of improvement and transfer expenses are not disallowed in the absence of documentary evidence. In response, the assessee submitted payment details regarding transfer expenses of Rs. 45 lakhs towards sales commission in connection with the transfer of property containing the name of the party and address, PAN, Cheque No and date and amount. Copies of three invoices from the parties to whom the commission is paid for the commission amount were also produced.

However, the AO disallowed the claim of deduction of transfer expenses and made the addition to the assessee’s income. Aggrieved by the order, the assessee filed an appeal to the Dispute Resolution Panel (DRP), but the appeal was dismissed. The matter then reached the Delhi Tribunal.

ITAT Held

The Tribunal held that during the assessment proceedings, the assessee submitted vouchers in support of transfer expenses, and the AO accepted that payments were made through the assessee’s bank account. The genuineness of the impugned payment of Rs. 45 lakhs as transfer expenses in connection with the transfer of property is well established.

Despite that, disallowance was made only because the copy of agreements with respect to commission services was not submitted. The contention of the assessee was that in the real estate business, there is no practice to enter into a written agreement between the seller of the property and the commission recipients for rendering the services of arranging prospective buyers. The commission recipients act on the oral instructions of the seller of the property. Undoubtedly, the commission has been paid through the assessee’s bank account with J&K Bank. Thus, the impugned disallowance was not justified.

List of Cases Referred to

• Ashwin Kapur v. ACIT ITA No. 474/Del/2023 (para 10),
• N Govindaraju v. ITO [2015] 60 taxmann.com 333/280 CTR 316/377 ITR 243/233 Taxman 376 (Karnataka) (para 13)
• CIT v. Venkata Rajendran [2015] 59 taxmann.com 98/373 ITR 424/232 Taxman 660 (Karnataka) (para 13).