Mumbai ITAT Rules Brokerage Paid After Deal Completion Cannot Be Denied While Computing Capital Gains
In a practical and taxpayer-friendly ruling, the Income Tax Appellate Tribunal (ITAT), Mumbai Bench ‘D’ has held that brokerage paid on the purchase or sale of property is a legitimate deduction while computing capital gains, even if the payment is made after the transaction is completed.
The Tribunal set aside the Assessing Officer’s disallowance of brokerage and other related expenses claimed by the assessee on the sale of four residential flats, and directed the AO to delete the additions.
The order was pronounced on 3 August 2026 in the case of Mahendra Pratap Singh vs. Income Tax Officer (ITA No. 8801/Mum/2025) for Assessment Year 2020-21.
Background of the Case
The assessee, Mahendra Pratap Singh, had sold four flats in the project Vasudev Sky High, Malad West, Mumbai, during the relevant year. While computing capital gains, he claimed deductions towards:
- Brokerage paid on purchase of the flats
- Brokerage paid on sale of the flats
- Cost of improvement
- Other charges paid at the time of purchase
The total expenditure claimed was ₹37,16,244. The Assessing Officer disallowed the entire amount. One of the main reasons for rejecting the brokerage claim was that the payments were made after the purchase and sale transactions were completed.
The CIT(A), National Faceless Appeal Centre, dismissed the appeal ex-parte. The assessee then approached the ITAT.
Key Issue: Can Brokerage Paid After the Deal Be Denied?
The Assessing Officer took a hyper-technical stand. He held that since the brokerage was paid after the registration and completion of the transactions, it could not be treated as expenditure incurred “in connection with the transfer” under Section 48 of the Income-tax Act.
The ITAT strongly disagreed with this view.
The Tribunal observed that in the real estate market, brokerage becomes payable only after the deal is successfully completed. No seller or buyer is expected to pay the full brokerage in advance before the transaction is finalised. The fact that payment was made later does not break the connection between the expenditure and the transfer of the property.
Importantly, the ITAT noted that:
- All brokerage payments were made through banking channels.
- The Assessing Officer had never doubted the genuineness of the payments.
- The AO had even issued notices under Section 133(6) to verify the payments from the recipients.
In these circumstances, the Tribunal held that the AO’s reason for disallowing brokerage “does not inspire confidence.”
Other Important Findings of the Tribunal
Apart from the brokerage issue, the ITAT also dealt with the larger question of whether a claim can be allowed if it was not made in the original return of income.
The Assessing Officer had relied on the Supreme Court judgment in Goetze (India) Ltd. to argue that a fresh claim cannot be entertained unless a revised return is filed.
The ITAT rejected this argument by relying on the jurisdictional Bombay High Court decision in CIT vs. Pruthvi Brokers and Shareholders. The High Court had clarified that while the Assessing Officer’s powers are limited, the appellate authorities (including the Tribunal) have wider powers and can entertain additional claims if the expenditure is genuine and supported by evidence.
In the present case, the assessee had already filed a revised computation during the assessment proceedings, and the AO had examined the supporting documents. Therefore, the claim could not be rejected on technical grounds.
Final Direction
The ITAT directed the Assessing Officer to delete the additions made on account of the disallowed expenditure, including brokerage on purchase and sale of the four flats. The appeal of the assessee was allowed in full.
Why This Order Matters
This ruling is significant for property sellers and buyers for two clear reasons:
- Timing of brokerage payment is not decisive — Paying the broker after registration or after receiving the sale consideration is normal commercial practice and does not make the claim invalid.
- Genuine claims cannot be defeated by technicalities — Once the expenditure is proved through banking channels and verification, it should be allowed even if claimed for the first time during assessment or before the appellate authorities.
The order brings much-needed clarity on a frequently disputed issue in capital gains assessments involving residential properties.
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