2019 (2) TMI 1836 - AT - Income Tax

Addition of commission - assessee submitted that the amount paid to Sh. Surendera Agarwal and Sh. Narendra Agarwal (referred to as the Agarwal Brothers ) was wrongly depicted as Commission , whereas it was, in fact, in the nature of their share in the sale consideration - HELD THAT - When we note the contents of both the MOUs, it becomes vivid that there is no difference in any of the relevant clauses except for providing a token amount of ₹ 1,001/- in the latter MOU, veracity of which we have discussed and rejected hereinabove. These MOUs were admittedly not registered as well and further no reason has been adduced as to why second MOU was executed when the first MOU was already in existence. It is, therefore, held that the first MOU dated 21-08-2007 has no sanctity and the same was executed just in furtherance of the motive of diverting income to Sh. Agarwal. We are not inclined to accept the version given by the assessee that he genuinely transferred 33168 sq. ft. of the developed land to Sh. Agarwal at ₹ 335/- per sq.ft. It is, therefore, held that the entire sale consideration of ₹ 3.64 crore belongs to the assessee and the alleged amount shown as commission or part of sale consideration to Sh. Agarwal, pertains to the assessee himself. Business income shown by the Agarwal Brothers at ₹ 3.34 lakh and ₹ 3.76 lakh respectively is no match to the income of ₹ 1.05 crore which should have been taxed in the hands of the assessee but was sought to be transferred to them. The amount of income transferred by the assessee through these dubious transactions to the Agarwal brothers, was adjusted by them, thereby denying the rightful taxability of ₹ 1.05 crore and odd in the hands of the assessee. Assessee claimed to have transferred his 50% share in both the pieces of the developed lands to the Agarwal brothers at the uniform rate of ₹ 335/- per sq. ft. However, the interesting point is that the MOU for the first transaction was claimed to have been entered into on 21.8.2007 and for the second transaction on 18.10.20008. Albeit rate of consideration is static at ₹ 335/- per sq. ft., but there is a difference of more than one year in the two MOUs, meaning thereby, that despite a gap of more than one year, the price negotiated with the Agarwal brothers remained fixed at ₹ 335/- per sq. ft., even though the land under the second transaction was more commercial, as ultimately sold to Patel brothers at ₹ 620.76 per sq.ft. against the land under the first transaction at ₹ 548.72 per sq.ft. In a normal commercial parlance, the price of the second transaction should have been higher than the first one, which is actually not the case here because of the simple fa ade of the genuine nature of both the transactions of sale of right in the developed land to the Agarwal brothers, which are actually not genuine transactions. This factor also jeopardizes the bona fides of the MOUs and the resultant genuine involvement of Agarwal brothers in the transactions. We are satisfied that the authorities below were justified in making and sustaining addition. Disallowance of commission expense paid by the assessee to his wife Smt. Chhaya Mane - HELD THAT - Assessee claimed to have paid a sum of ₹ 8,80,000/- to his wife as commission. On a pertinent query for adducing specific evidence of services rendered by her, the ld. AR failed to draw our attention towards any such evidence. He made general submissions that Ms. Chhaya Mane convinced the lady members of the family of the sellers and brought them to the registration office for agreement. In view of the fact that the assessee failed to lead even a shred of evidence proving the rendition of actual services by Ms. Chhaya Mane, we have no option but to uphold the addition sustained in the first appeal.

Summary

Issues Involved:
1. Confirmation of disallowance of ?1,05,64,282/- paid to Agarwal Brothers.
2. Confirmation of disallowance of commission expense of ?8,80,000/- paid to the assessee's wife.

Issue-wise Detailed Analysis:

1. Confirmation of Disallowance of ?1,05,64,282/- Paid to Agarwal Brothers:

The assessee, a dealer in lands, filed a return declaring total income of ?74,46,700/- and claimed a deduction for ?1,28,44,282/- paid as commission, including ?1,05,64,282/- to Agarwal Brothers. The assessee later clarified that this amount was not commission but their share in the sale consideration. The Government of Maharashtra had a scheme for acquiring land from farmers and allotting them 12.5% of developed land. The assessee had agreements with the Sane family and Sh. Subhash Anand to transfer their 12.5% developed land to him at predetermined prices. The assessee then agreed to transfer 50% of this land to Agarwal Brothers at ?335/- per sq. ft. However, the AO observed that the MOUs between the assessee and Agarwal Brothers were aimed at shifting the assessee’s profit to them and treated the amount as "Commission," disallowing it. The CIT(A) sustained this addition.

Upon review, the Tribunal noted that the assessee's transactions with the Sane family and Sh. Subhash Anand were undisputed. However, the alleged transfer of 50% share to Agarwal Brothers was found to be dubious. The Tribunal examined the sequence of events and MOUs, noting inconsistencies and lack of genuine financial transactions between the assessee and Agarwal Brothers. The Tribunal cited the Supreme Court's decision in Sumati Dayal vs. CIT, emphasizing that the apparent must be considered real until proven otherwise and that human probabilities should guide the inference.

The Tribunal found that the MOU dated 01.09.2008, just one day before the actual sale, was not genuine. The assessee's claim of financial difficulties was not supported by evidence of actual payments received from Agarwal Brothers. The Tribunal concluded that the entire sale consideration of ?3.64 crore belonged to the assessee and upheld the disallowance of ?1,05,64,282/-.

2. Confirmation of Disallowance of Commission Expense of ?8,80,000/- Paid to the Assessee's Wife:

The assessee claimed a deduction of ?9 lakh as commission paid to his son and ?8,80,000/- to his wife, Ms. Chhaya Mane. While the AO allowed the deduction for the commission paid to the son, the payment to the wife was disallowed due to lack of evidence of services rendered. The CIT(A) upheld this disallowance.

The Tribunal observed that the assessee failed to provide specific evidence of services rendered by Ms. Chhaya Mane. General submissions about her role in convincing family members and bringing them to the registration office were not substantiated with concrete evidence. Consequently, the Tribunal upheld the addition of ?8,80,000/-.

Conclusion:

The appeal was dismissed, with the Tribunal upholding the disallowance of ?1,05,64,282/- paid to Agarwal Brothers and ?8,80,000/- paid as commission to the assessee's wife. The judgment emphasized the importance of genuine financial transactions and adequate evidence to substantiate claims for deductions.