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Income Tax Appellate Tribunal, “C”, BENCH
Before: SHRI M.BALAGANESH, AM & SHRI AMARJIT SINGH, JM
आदेश / O R D E R PER M. BALAGANESH (A.M): This appeal in A.Y.2011-12 arises out of the order by the ld. Commissioner of Income Tax (Appeals)-54, Mumbai in appeal No.CIT(A)-41/ACCC-39/IT-326/14-15 (New No. CIT(A)- 54/ACCC-39/IT-180/14-15 dated 03/03/2016 (ld. CIT(A) in short) against the order of assessment passed u/s.143(3)of the Income Tax Act, 1961 (hereinafter referred to as Act) dated 28/03/2014 by the ld. Asst. Commissioner of Income Tax, Central Circle-39, Mumbai (hereinafter referred to as ld. AO).
The only issue to be decided in this appeal is as to whether the ld. CIT(A) was justified in confirming the disallowance made by the ld. AO in respect of payment of Rs.24,00,000/- made to M/s. Kalpana Struct-Con Pvt. Ltd. towards commission in the facts and circumstances of the case.
The brief facts of this issue are that the assessee had made payment of commission to M/s. Kalpana Struct-Con Pvt.Ltd. in terms of Finance Agreement entered into with M/s. Kalpana Struct-Con Pvt.Ltd. dated 21/01/2018 which is valid for ten years. The assessee is a partnership firm engaged in trading of plots. The assessee received amounts during the financial year 2007-08 relevant to Asst Year 2008-09 from M/s. Kalpana Struct-Con Pvt.Ltd. (KSCPL in short) pursuant to the Finance Agreement dated 21/01/2008. The consideration to be paid to KSCPL by the assessee was as under:-
(a) The Finance amount shall be repayable as per the terms of agreement with interest @9% per annum. (b) The assessee shall pay 12% commission on total sale value of plots.
3.1. Admittedly, the amounts received by the assessee from KSCPL were utilised for purchase of lands by the assessee in the normal course of its trading business. The entire transactions have been carried out based on this Finance Agreement dated 21/01/2008. The ld. AO and the ld. CIT(A) sought to treat the said Finance Agreement as a sham agreement / arrangement wherein they observed that there is no requirement for the assessee to pay the commission @12% on sale value of plots to KSCPL. The ld. CIT(A) also observed that the assessee was not able to bring evidences on record to prove that services were rendered by KSCPL enabling it to receive commission from the assessee. Accordingly, the commission which was disallowed by the ld. AO was upheld by the ld. CIT(A).
Aggrieved, the assessee is in appeal before us.
We have heard submissions. At the outset, we find that the monies received by the assessee firm from this private limited company pursuant to the Finance Agreement dated 21/01/2008, valid for 10 years, was sought to be treated as deemed dividend by the ld. AO in the earlier years in the hands of the assessee. We find that this Tribunal for A.Yrs. 2008-09 & 2009-10 in and 1499/Mum/2012 dated 13/02/2015 had categorically held that the amounts received by the assessee from KSCPL pursuant to the Finance Agreement was for its business purpose and hence, takes the character of trade advance received by the assessee. This Tribunal had also taken note of the objections made by the ld. AO to disregard the said Finance Agreement on the plea that the said agreement did contain the element of commission payment to the assessee on sale of plots and that no commission was indeed paid by the assessee for A.Yrs 2008-09 and 2009- 10. In this regard, the ld AR explained that as per the Finance Agreement, commission is payable to KSCPL as and when the sale of plots happened. Since, no sale of plots was made in the A.Yrs 2008-09 & 2009-10, no commission was payable by the assessee to KSCPL. The ld. CIT(A) on due appreciation of these facts had accepted the plea of the assessee and had stated that the amounts received by the assessee from KSCPL was in the normal course of its business and clearly a business transaction. The nature of receipt as trade advance was also accepted by the ld. CIT(A) for those years. These observations were further upheld by this Tribunal in the order mentioned supra for A.Yrs 2008-09 and 2009-10. We also find that this Tribunal for A.Y.2011-12 in ITA No.4247/Mum/2016 dated 27/04/2018 had also considered the aspect of deemed dividend and deleted the addition made towards deemed dividend on the ground that the monies received by the assessee pursuant to Finance Agreement dated 21/01/2008, was only in the nature of trade advance and hence, cannot be taxed as deemed dividend. The addition made towards deemed dividend was also deleted on yet another ground that assessee firm was not a shareholder in the said private limited company ( ie the lending company).
5.1. We find from the aforesaid orders of this Tribunal for the A.Yrs 2008-09, 2009-10 and 2011-12 in assessee’s own case, it has been held that the monies received pursuant to Finance Agreement dated 21/01/2008 is genuine business transaction received in the normal course of its business; that the Finance Agreement dated 04/01/2008 is genuine agreement and not a sham agreement. Since the sale of plots had happened for the first time in A.Y.2011-12, the assessee is bound to pay commission @12% on sale of plots as per the said Finance Agreement dated 21/01/2008. Infact the assessee during the year had merely discharged its contractual obligation by paying commission to KSCPL. It cannot be brushed aside that assessee had received this amount from KSCPL without offering any security at an interest rate of 9% per annum. In these circumstances, it is not uncommon on the part of the assessee to have compensated KSCPL by way of commission @12% on sale value of plots from the year in which sale actually happened. It is a fact that the bank lending rates during the relevant period was not less than 12.5% to 13% and assessee per se did not have any collateral security to avail loans from bank. In this factual matrix and background of the case, KSCPL had come forward to advance money to assessee @9% interest per annum without asking for any security. Hence, there is nothing wrong on the part of the assessee to pay commission @12% on sale value of plots to KSCPL. We find that the lower authorities had proceded on the usual routine manner of disallowing commission from the angle of non-rendering of services by the recipient. The facts of the case before us are more like revenue sharing arrangement which is compensated to KSCPL in the form of commission. The ld. AR also placed on record the copy of show-cause notice issued by the ld. AO for A.Y.2014-15 on the very same issue of payment of commission during scrutiny proceedings. On appreciating the various explanations given by the assessee vis-à-vis the fulfilment of contractual obligation pursuant to the Finance Agreement dated 21/01/2008, the ld. AO proceeded to accept the contentions of the assessee and did not make any disallowance in Asst Year 2014-15 for payment of commission on the same set of facts and based on the same agreement which is disputed by the lower authorities before us for the year under consideration. The copy of the said scrutiny assessment order passed u/s.143(3) on 07/12/2016 for A.Y.2014-15 is placed on record at page 132 of the paper book. We find that the lower authorities also had observed that since the loan transaction received pursuant to Finance Agreement has not been accepted as genuine, all payments emanating from such Finance Agreement are also to be disallowed. We find that the loan transaction has been accepted as genuine by this Tribunal for A.Yrs 2008-09, 2009-10 and 2011-12 in assessee’s own case vide orders mentioned supra. Hence, on this count itself, payment emanating out of such loan transaction in the form of commission deserves to be allowed. In view of the aforesaid observations, we are not inclined to agree to the arguments made by the ld. DR that it is merely an arrangement made by the assessee and KSCPL for payment of commission. Accordingly, the grounds raised by the assessee are allowed.
In the result, appeal of the assessee is allowed. Order pronounced in the open court on this 02/08/2019