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TMI Blog2025 (3) TMI 410X X X X Extracts X X X X X X X X Extracts X X X X ..... st / compensation and levying tax rate of 115BBE as ld. AO has made addition u/s. 69C. 3. The brief facts are that assessee is a NBFC having income from interest income and also deriving income from referral fees. During the year assessee has made an offer to Milestone Commercial Advantage Fund (MCAF) which is an investment fund having certificate of registration as a Category II Alternative Investment Fund (AIF) which is regulated by SEBI. The entire income of MCAF is exempt u/s. 10(23FBA) in the hands of MCAF and is taxable in the hands of investors / contributors of AIF as per the provision of Section 115UB. The offer to MCAF was to deploy funds raised by MCAF in an investment opportunity. A Memorandum of Understanding (MOU) there enter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... June 12, 2017 No of days 71 days Initial commitment amount Rs. 20,00,00,000 Rate of interest 18% p.a. Amount of interest payable on termination Rs. 70,00,000 5. The ld. AO disallowed the said compensation / interest on the ground that, on one hand assessee is saying it is an interest expense debited to the profit and loss account of Rs. 70,00,000/-; and at the same time he has stated that it has paid compensation of Rs. 70,00,000/-. Since assessee could not establish whether it is an interest or compensation he disallowed the amount of Rs. 70,00,000/- and made addition u/s 69C. Thus, this was the only ground for making the disallowance. However, he levied taxes u/s. 115BBE after invoking section 69C. 6. The ld. CIT(A) has confirme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee and trustees of MCAF and also filed a structure chart before us. Thus, the allegation of the ld. CIT (A) is that it is a sister concern is false. He further clarified that investor of the MCAF are not related or connected to the assessee and the entire payment of compensation in the nature of interest is taxable in the hands of the investors as the MCAF is only a pass through entity as per the provision of Section 10(23FBA) r.w.s. 115UB of the Act. He also drew our attention to the audited annual accounts of MCAF and Form No.64C / 64D. Thus, it was stated that assessee did not get any advantage either directly or indirectly by paying the compensation and it was purely a business transaction with commercial / business exigency, acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rent and nowhere, they are connected to each other. Thus, the observation of the ld. CIT (A) is not emanating from any records. The assessee is NBFC and one of the activities carried out by the assessee company is on account of a referral fees, i.e., referring the investments to various investment funds or other parties in which it gets a referral fees. As part of this activity, assessee had entered into an MOU on 03/04/2017 with MCAF where assessee had approached MCAF for sourcing a deal of warehouse investment. After analyzing the documents and the proposal of the said deal, MCAF entered into an agreement with the assessee company. The relevant terms of MOU has been incorporated above. The aforesaid terms clearly spells out that assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .Y. 2016-17 MCAF has raised funds from various investors and has made huge investments in liquid mutual funds. If an agreement has been entered for rendering services and relevant documents and agreement have been furnished, then it cannot be said to be some kind of an afterthought or any kind of colourable device once it is established that there is no nexus between the assessee and MCAF. It is an undisputed fact that assessee has made payment of Rs. 70,00,000/- 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 que ..... X X X X Extracts X X X X X X X X Extracts X X X X
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