TaxTMI 
TaxTMI 
2016 (5) TMI 1490
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....had sold a Plot No. T-80 at T-Block, MIDC, Pimpri in Pune for a consideration of Rs. 3 crores. On this sale consideration, the assessee claimed deduction towards commission expenses of Rs. 90,00,000/- attributable to its sale. The aforesaid commission of Rs. 90,00,000/- for sale of plot was paid to one Shri B.S. Agarwal. The TDS of Rs. 10,19,700/- was deducted and paid by the assessee while making the payment towards commission. For verification of bonafides of the commission payment, the assessee produced the payee of the commission Shri B.S. Agarwal personally before the Assessing Officer as its witness. He was examined by the Assessing Officer under section 131(1) of the Act. On examination, it was observed by the Assessing Officer that witness Shri Balkrishna Agarwal was neither engaged in the business of brokerage/commission including the land transactions nor earned income either prior to these transactions or subsequent to these transactions. Further, the Assessing Officer also observed that on examination under section 131(1) of the Act, it was found that the payee of the commission did not know the person to whom the land was sold and also could not reveal any relevant det....
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....within a period of six months and if Shri B.S. Agarwal cannot sell this plot within six months, then he will buy this particular property from the assessee for a consideration of Rs. 2 crore. However, if he sells the plot within six months to outside party, then the assessee firm is entitled to receive the price of Rs. 2.10 crores. In such a situation, if so arises, excess price received over and above Rs. 2.10 crores shall be retained as a commission by Shri B.S. Agarwal. It was further agreed between the assessee and Shri B.S. Agarwal that Shri Agarwal will take the responsibility of clearing the illegal encroachments, help in clearing PMC taxes, get building completion from MIDC, restore the water connection, MSEB power to be activated, getting the plot measured and confirm the area, rectification of boundary and appoint a security guard to take care of the property till the property is sold out. Pursuant to the MOU, Shri Agarwal identified a customer in the month of July, 2008. After discussion and negotiation, M/s. Dynalog India Ltd. represented by its Chairman Shri Shivajirao Adhalrao Patil has agreed to purchase the said plot for a total consideration of Rs. 3 crores. Accord....
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....akes it obvious that the recipient of the commission was having no knowledge of the subject and has not rendered any valuable services to the assessee. The commission payment is without obtaining any services as a quid pro quo. He accordingly insisted that the no interfere with the order of the CIT(A) is called for. 9. We have carefully considered the rival submissions and perused the material available on record and referred the case laws cited. The Assessing Officer has impugned the bonafides of the commission payment of Rs. 90,00,000/- on sale of its land purportedly arranged by Shri B.S. Agarwal. To pay this extra-ordinary sum, the Assessee heavily relied upon the Memorandum of Understanding (MOU) dated 17.04.2008 entered into between assessee and recipient of commission; Shri B.S. Agarwal which serves as a guiding factor in this regard. It is the contention of the assessee that by virtue of this MOU, aforesaid payment of Rs. 90,00,000/- had been made to Shri B.S. Agarwal for rendering the services as per MOU. It would be therefore pertinent to note the contents of the MOU which is reproduced hereunder:-- "MEMORANDUM OF UNDERSTANDING THIS MEMORANDUM OF UNDERSTANDING IS MADE ....
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....sdiction sub Register Haveli, Pune On or towards North : By Plot No. T-79 On or towards South : By Plot No. T-81 On or towards East : By Plot No. T-92/91 On or towards West : By Road IT WITNESS WHEREOF THE PARTIES HERETO HAVE SIGNED HEREUNDER ON THE DAY AND DATE FIRST HEREIN ABOVE WRITTEN. Sd/- 1) Ishwarchand Ramdhari Agarwal Sd/- 2) Rajendra Chandrabhan Gupta Partners of Devchhaya Industries (Party of the first part) Sd/- Balkrishna Sadhuram Agarwal (Party of the second part) In the presence of:-- ) Name : Y.K. Sharma. Address: Bhosari, Pune - 39. Signature: Sd/-" 10. From a bare perusal of the MOU reproduced hereinabove, it is evident that MOU falls short of basic traits of a commercial transaction. The purported MOU only asserts alleged understanding that Shri B.S. Agarwal will sell the property at Rs. 2,10,00,000/- within a period of six months. The surplus amount received on sale of plot will be taken as the profit/commission in the hands of Shri B.S. Agarwal. In the alternate, he will purchase the property himself at Rs. 2 crore. The MOU also mentions that Shri B.S. Agarwal shall have the responsibilities to remove illegal encroachments and other services a....
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....ands Hindi and Marathi. Notably, the witness confessed before the AO that he was hardly engaged in broking of any land/property deals and has barely done so in the past once or twice. The aforesaid witness also failed to provide any clue of prevailing brokerage rate in the last three years on land deals. The witness also observed on oath that in 10 years prior to impugned assessment year 2008-09 and in the subsequent year also, he has not earned any income out of land deals. As regards sale of land of assessee to Dynalog India Ltd., the witness stated on oath that he did not enter into any communication for sale of land with the aforesaid party. In a very curious assertions, he stated that all talks and conversions were made by his employee Shri Pandurang Gomde. He also failed to provide any information of what transpired between Shri Gomde and prospective buying parties prior to crystallization of sale. He even stated that sale consideration was also negotiated only by Shri Gomde. Shri B.S. Agarwal also admitted that he did not pay any amount to Shri Gomde for such services. In sum and substance, as made out in the statement under S. 131 dated 14.10.2011 [page No. 41-42 of paper b....
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....nto communication with one Shri Shivajirao Adhalrao Patil (representing the buyers) for sale of plot. He also stated that he has acted as a middle man between assessee and the buyer for sale of plot. It was inter-alia pointed out by the AO to the Witness that the buyer denies by a written communication of any involvement of any middle man in the deal. In response thereto, Shri B.S. Agarwal stated that he met Shri Shivajirao Adhalrao Patil at his home where he arranged for the meeting of the buyer and seller. He claimed that he received Rs. 90,00,000/- as a profit on arrangement of such sale. Thus, in departure to the initial statement given as witness of the Assessee before the AO, Shri B.S. Agarwal now in the second round of examination i.e. cross-examination by the Assessee in the presence of AO states that he arranged for the finalization of deal with purchaser Shri Shivajirao Adhalrao Patil. But for this assertion, no other corroboration is discernible. It is obvious that statement made in the second round is tutored one. 13. When the statements deposed before the AO are read as a whole, they do not inspire any confidence in the bonafides of engagement of Shri B.S. Agarwal in ....