ITAT deletes Section 69C addition as payments per business agreement cannot be deemed bogus without adverse evidence

ITAT Mumbai allowed the assessee's appeal, deleting the addition made under Section 69C. The tribunal held that payments made as per business agreement terms cannot be deemed bogus or for non-business purposes without adverse material evidence. The AO and CIT(A) failed to consider relevant records or provide evidence of any sham arrangement. Section 69C (unexplained expenditure) was incorrectly invoked since the assessee had properly recorded the payment in books and claimed it as legitimate business expenditure in profit and loss account.

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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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