M/s. Friends Infrastructure Pvt. Ltd vs DCIT, Circle-1, Ghaziabad

PER M. BALAGANESH, A. M.:

The appeal in ITA No.5673/Del/2025 for AY 2009-10, arises out of the order of the National Faceless Appeal Centre (NFAC), Delhi [hereinafter referred to as ‘ld. CIT(A)’, in short] dated 14.07.2025 against the order of assessment passed u/s 263/ 143(3) of the Income-tax Act, 1961 (hereinafter referred to as ‘the Act’) dated 25.03.2015 by the Assessing Officer, DCIT, Circle-1, New Delhi (hereinafter referred to as ‘ld. AO’).

The only issue to be decided in this appeal is as to whether the ld NFAC was justified in confirming the addition of Rs. 42,32,296 on account of commission in the facts and circumstances of the instant case.

We have heard the rival submissions and perused the materials available on record. The assessee is engaged in the business of real estate. The assessment for the AY 2009-10 was completed originally under section 143(3) of the Act by the ld Additional Commissioner of Income Tax, Range-1, Ghaziabad determining total income at Rs. 172,69,580/- as against the returned income of Rs. 166,42,830/-. This assessment was sought to be revised by the ld Commissioner of Income Tax, Ghaziabad vide order u/s 263 of the Act dated 19.03.2014 setting aside the assessment order framed by stating that the assessment order has been passed without appropriate enquiries on certain issues. One such issue was payment made on account of commission. Accordingly, in the giving effect proceedings, the ld AO sought to examine the issues raised by the ld PCIT in the revision order.

The assessee company incurred commission expenses of Rs. 82,75,780/- out of which Rs. 70,53,826 was incurred on account of Expert Capital Services Pvt. Ltd. The ld AO noted that the said company and the assessee company share the same address of C-22,RDC, Rajnagar, Ghaziabad. The assessee had paid commission @10% to M/s. Expert Capital Services Pvt. Ltd. committed for underwriting the real estate projects. The ld AO observed that the rate of commission vary depending upon the market situation but are generally in the range of 3 to 4% which the assessee had paid to other brokers but whereas it had paid 10% to Expert Capital Services Pvt. Ltd which is found to be excessive. Accordingly, the ld AO observed that 6% excessive commission has been paid to the said party which was sought to be disallowed u/s 37 of the Act in the sum of Rs. 42,32,296. The assessee submitted before the ld CIT(A) that it had filed before the ld AO the copy of confirmation from Expert Capital Services Pvt. Ltd, ITR of Expert Capital Services Pvt. Ltd, audited financial statements, Form No. 26AS, TDS certificates, agreement entered into by assessee with Expert Capital Services Pvt. Ltd which is engaged into financial consulting and project management agreeing for the payment of commission @ 10% and copy of bills raised by the said party on the assessee. In fact, during the assessment proceedings, statement of Principal Officer and representatives of M/s. Expert Capital Services Pvt. Ltd were also recorded u/s 131 of the Act by the ld AO wherein the rendition of services to the assessee and receipt of commission from the assessee through regular banking channels after deduction of tax at source was duly confirmed by the said party. Further, the said party had duly offered to tax in its returns the amount of commission received from the assessee. Hence, there is absolutely no basis for disallowance of commission to the extent of 60% treating it to be excessive. It was specifically clarified that the underwriting agreement does not contemplate ordinary sales commission/ brokerage but is much wider in its scope which included project consulting including complete marketing and sales execution. Thus, the entire project was subject to the said party’s supervision and control so far as the marketing and sales aspect was concerned. They were under a contractual obligation to sell out 95% of the saleable area within 5 years and any shortfall arising there on were to be bought by the said party itself. Further, it was submitted that the similar payment of underwriting commission paid to the very same party in earlier years were duly accepted by the revenue in the scrutiny assessments framed u/s 143(3) of the Act dated 02.03.2009 for AY 2007-08 and 13.12.2010 for AY 2008-09 respectively. It is also pertinent to note that Expert Capital Services Pvt. Ltd is the subsidiary of assessee Company. The ld CIT(A) upheld the action of the ld AO based on absolutely irrelevant considerations.

We find that the need for services from Expert Capital Services Pvt. Ltd had been duly proved by documentary evidences by the assessee. The rendition of services by the commission agent had been duly proved with documentary evidences. Payment of commission by the assessee had been duly made through regular banking channels after due deduction of tax at source. Statement on oath was recorded from the recipient of commission by the ld AO during the course of assessment proceedings and the said party had duly confirmed both rendition of services to assessee and receipt of commission from the assessee. Similar payments made to the very same party in earlier years in the immediately preceding two assessment years had been allowed by the revenue in scrutiny assessment proceedings. In these circumstances, there is absolutely no case for disallowance of commission in the hands of the assessee company. Hence, the disallowance made is hereby deleted and grounds raised by the assessee are allowed.

In the result, the appeal of the assessee is allowed.