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2025 (3) TMI 410 - AT - Income TaxDisallowance of interest / compensation u/s 69C - levying tax rate of 115BBE - HELD THAT - It is an undisputed fact that assessee has made payment as per the terms of agreement entered during the course of business then such payment neither can be held to be bogus nor for any non-business purpose. The considerations which arise during the course of business as a part of commercial / business expediency the same cannot be questioned or can be doubted by AO without bringing any adverse material on record that it is some kind of make-belief arrangement or some kind of colourable device. Both ld. AO and ld. CIT(A) have decided this issue in a very slip shot manner without even considering the relevant records or bringing any adverse material on record. Also we are unable to appreciate how Section 69C can be invoked i.e. unexplained expenditure outside the books. When assessee has duly shown the payment from the books and claimed as an expenditure debited to the profit and loss account then how section 69C can be invoked. Reasons given by the AO and CIT (A) for making the addition is set aside and the claim of assessee is allowed. Thus addition is deleted. Appeal of the assessee is allowed.
The appeal in this case was filed by the assessee against an order passed by NFAC / CIT(A) for the quantum of assessment for the A.Y.2018-19. The core issue in question was the disallowance of Rs. 70,00,000 on account of interest/compensation and the application of tax rate of 115BBE under section 69C.The brief facts of the case are that the assessee, a Non-Banking Financial Company (NBFC), entered into an agreement with Milestone Commercial Advantage Fund (MCAF) for investment opportunities. The agreement included provisions for payment of compensation in the form of interest at 18% per annum on the initial commitment amount of Rs. 20 Crores if the deal was not concluded within 71 days. The assessee failed to conclude the deal within the agreed period, leading to the termination of the agreement and the payment of Rs. 70,00,000 as compensation.The Assessing Officer (AO) disallowed the amount of Rs. 70,00,000 as it was unclear whether it was interest or compensation, invoking section 69C and levying taxes under section 115BBE. The CIT(A) upheld the addition, questioning the termination reasons and the justification for the substantial compensation paid to MCAF.In the appeal before the Tribunal, the assessee argued that the payment was part of its business activity, emphasizing that MCAF was neither a related party nor a sister concern. The assessee contended that the payment was a legitimate business expenditure and provided evidence to support its position.The Tribunal analyzed the terms of the agreement between the assessee and MCAF, noting that the payment of compensation was in line with the agreement's provisions. It observed that the transaction was part of the assessee's business activity and not a non-business purpose. The Tribunal found that there was no evidence to suggest any malpractice or non-business motive behind the payment.The Tribunal further criticized the AO and CIT(A) for their hasty decision-making without proper consideration of the facts and records. It concluded that the addition made by the authorities was unjustified and allowed the assessee's appeal, thereby deleting the addition of Rs. 20 Crores.In conclusion, the Tribunal ruled in favor of the assessee, emphasizing the legitimate business nature of the transaction and the absence of any adverse material to question the payment. The Tribunal set aside the reasons given by the lower authorities and allowed the claim of the assessee, ultimately deleting the addition of Rs. 20 Crores.
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