National Mineral Development Corporation Limited, Hyderabad, Hyderabad V. DCIT, Circle-16(1), Hyderabad, Hyderabad

ITA 194/HYD/2017

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 2669 (ITAT-HYDERABAD)
• Duration Of Justice: 6 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-09-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 30-08-2017
• Assessment Year: 2012-2013
• Appeal Filed On: 08-02-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: PALLAVI AGARWAL
• Assessee Lawyers: LAXMINIWAS SHAR MA
• Keywords: Depreciation; Business expenditure; Additional depreciation; Capital expenditure
• Section: 143(3); 37(1); 32

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES A, HYDERABAD BEFORE SHRI D. MANMOHAN, VICE PRESIDENT AND SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER I.T.A. NO. 194/HYD/2017 ASSESSMENT YEAR: 2012-13 NMDC LIMITED, HYDERABAD [PAN: AAACN7325A] VS THE DCIT, CIRCLE-16(1), HYDERABAD (APPELLANT) (RESPONDENT) FOR ASSESSEE : SHRI LAXMINIWAS SHARMA, AR FOR REVENUE : SMT. PALLAVI AGARWAL, DR DATE OF HEARING : 30-08-2017 DATE OF PRONOUNCEMENT : 07-09-2017 O R D E R PER INTURI RAMA RAO, A.M. : THIS APPEAL FILED BY ASSESSEE IS DIRECTED AGAINST TH E ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-4, HYDERABAD, DATED 21-11-2016 FOR THE AY. 2012-13. THE APPELLANT RA ISED THE FOLLOWING GROUNDS OF APPEAL: REVISED GROUNDS OF APPEAL: 1. THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) 4, HYDERABAD IS ERRONEOUS BOTH ON FACTS AND IN LAW TO THE EXTENT IT IS PREJUDICIAL TO THE ASSESSEE. 2. THE LEARNED CIT(A) HAS ERRED IN UPHOLDING THE AD DITION MADE BY ASSESSING OFFICER OF RS. 65,25,000/- AS DEMURRAGES ON SHIPMENT FOR I.T.A. NO. 194/HYD/2017 :- 2 - : WHICH NMDC IS LIABLE TO PAY AS PER UNDERSTANDING BE TWEEN NMDC & MMTC. 3. THE LEARNED CIT(A) ERRED IN CONFIRMING THE ADDIT ION AMOUNTING TO RS. 17,39,00,000/- ON CSR, INCURRED WHOLLY & EXCLUSIVEL Y FOR THE PURPOSE OF THE BUSINESS AND CLAIMED AS DEDUCTION U/S 37(1) OF THE IT ACT. EXPENDITURE INCURRED IS NOT A CAPITAL EXPENDITURE F OR NMDC SINCE IT IS NOT CAPITALIZED IN ITS BOOKS OF ACCOUNTS. 4. THE LEARNED CIT(A) ERRED WHILE ADJUDICATING GROU ND NO. 7 OF APPEAL AS THE LEARNED CIT(A) ALLOWED THE GROUND OF RS. 7,64,2 0,400/- BY RELYING ON CASE OF MERLYIN SHIPPING AND TRANSPORTS, VIZAG IGNO RING THAT THERE WAS NO SUCH RELIANCE PLACED BY THE ASSESSEE AND ASSESSEE R ELIED ON HON'BLE ITAT'S ORDER IN ITS OWN CASE AND IGNORING THE FACT THAT THE ASSESSEE WAS NOT LIABLE TO DEDUCT TAX AT SOURCE AS THERE WAS NO COMMISSION PAID BY NMDC TO MMTC AS THEY ACTED ON PRINCIPAL TO PRINCIPA L BASIS. 5. FOR THESE AND ANY OTHER GROUNDS WHICH MAY BE RAI SED ON OR BEFORE HEARING OF THE APPEAL. 2. BRIEFLY, FACTS OF THE CASE ARE THAT THE APPELLANT IS A PUBLIC SECTOR UNDERTAKING, ENGAGED IN THE MINING OF IR ON ORE, DIAMONDS, WIND POWER GENERATION AND SALE. IT FILED R ETURN OF INCOME FOR THE AY. 2012-13 DECLARING A TOTAL INCOME OF RS. 107,67,59,24,950/- ON 24-09-2012. AGAINST THE SAID RETURN OF INCOME, THE ASSESSMENT WAS COMPLETED U/S. 143(3) OF TH E INCOME TAX ACT [ACT] VIDE ORDER DT. 23-03-2015 AT A TOTAL INCOME OF RS. 108,81,81,45,363/- AFTER MAKING THE FOLLOWING DISALL OWANCES: S.NO. RS. 1. DISALLOWANCE OF MINE CLOSURE OBLIGATION 9,12,00,000 2. DISALLOWANCE OF DEPRECIATION ON INTANGIBLE ASSETS 14,19,31,410 3. DEMURRAGES ON SHIPMENT CHARGES 65,25,000 4. DISALLOWANCE OF EXPENSES ON ACCOUNT OF CORPORATE SOCIAL RESPONSIBILITY 63,32,00,000 5. DISALLOWANCE OF ADDITIONAL DEPRECIATION WRONGLY CLAIMED 17,40,11,599 6. DISALLOWANCE U/S. 40(A)(IA) FOR NON- DEDUCTION OF TAX ON COMMISSION PAID 7,64,20,400 7. DISALLOWANCE U/S. 35(2AB) 1,89,32,004 I.T.A. NO. 194/HYD/2017 :- 3 - : 2.1. BEING AGGRIEVED, THE APPELLANT PREFERRED AN APP EAL BEFORE THE CIT(A), WHO VIDE IMPUGNED ORDER HAD PARTLY ALLOWED BY GRANTING RELIEF. HOWEVER, HE CONFIRMED THE ADDITION IN RESPECT OF DEMURRAGES ON SHIPMENT CHARGES OF RS. 65,25,000/- AN D CORPORATE RESPONSIBILITY EXPENDITURE INCURRED ON COR PORATE RESPONSIBILITY OF RS. 17,39,00,000/- TO THE EXTENT H ELD TO BE CAPITAL IN NATURE AND DISALLOWANCE ON ACCOUNT OF COMMISSION PAYMENT. BEING AGGRIEVED, APPELLANT IS IN APPEAL BEFORE US IN THE PRESENT APPEAL. 3. THE APPELLANT HAS RAISED FIVE GROUNDS OF APPEAL BEFORE US. OUT OF WHICH, GROUND NOS. 1 & 5 ARE GENERAL IN NATURE, DOES NOT REQUIRE ANY ADJUDICATION. 4. GROUND NO.2 CHALLENGES THE ADDITION ON ACCOUNT OF DEMURRAGE CHARGES ON SHIPMENT OF RS. 65,25,000/-. T HE FACTS AS STATED BY THE AO IN THE ASSESSMENT ORDER ARE AS UNDER: 5.1. THE ASSESSEE DURING THE YEAR UNDER CONSIDERAT ION HAS EXPORTED LUMPS AND FINES UNDER AGREEMENT THROUGH MINERALS AN D METALS TRADING CORPORATION. THE ASSESSEE WAS ASKED TO FURNISH A FE W COPIES OF THE AGREEMENTS. THE AGREEMENT COPY IN RESPECT OF SALE O F IRON ORE FOR EXPORT TO PASCO AND TO JAPANESE STEEL MILLS (JSM) WAS PROVIDE D BY THE ASSESSEE. AS PER THIS AGREEMENT, THE SHIPMENT DOCUMENTATION F OR ALL SHIPMENTS WOULD BE DONE BY MMTC INCLUDING SHIPPING BILL, BILL OF LOADING ETC. IT MEANS THAT THE SHIPMENT CHARGES ETC., HAVE TO BE BO RNE BY THE BUYER NAMELY, M/S MMTC. HOWEVER, THE ASSESSEE HAS SHOWN T HE FOLLOWING DEMURRAGES ON SHIPMENT AMOUNTING TO RS.65,25,000/- WHICH WAS CLAIMED UNDER SELLING EXPENSES. 5.2. IN VIEW OF THE ABOVE, THE ASSESSEE WAS ASKED T O EXPLAIN THE REASONS AS TO WHY SUCH EXPENSES SHOULD NOT BE DISALLOWED. T HE ASSESSEE EXPLAINED VIDE LETTER DT. L0.03.2015 WHICH IS AS UN DER: I.T.A. NO. 194/HYD/2017 :- 4 - : THE COMPANY HAS CHARGED OF RS.65.25 LAKHS ON THE BA SIS OF PAYMENT MADE TO VIZAG PORT TRUST & CHENNAI PORT TRUST DEMURRAGE ON SHIPMENT AS PER AGREEMENT BETWEEN NMDC LTD., AND MMTC LTD. FOR SALE OF IRON ORE FOR EXPORT TO JAPANESE STEEL MILLS (JSM) & POSCO. AS PER CLAUSE NO.3 UNDER ARTICLE VII OF GENERAL CON DITIONS OF THE ABOVE AGREEMENT WHICH IS RELEVANT FOR THE ASSESSMENT ARE REPRODUCED BELOW :- 'SELLER WOULD PAY THE PORT CHARGES RELATING TO EXPO RT OF CARGO OF NMDC ORIGIN DIRECTLY TO THE PORT IN THE DESIGNATED BUYER DEPOSIT ACCOUNT WI TH THE RESPECTIVE PORTS. PAYMENT OF OTHER STATUTORY DUES LIKE LABOUR WELFARE CESS, ETC. WOULD ALSO BE MADE ON SIMILAR BASIS'. THE PAYMENT OF DEMURRAGE CHARGES ARE MENTIONED CLEA RLY UNDER ARTICLE IX OF THE AGREEMENT. UNDER THE AGREEMENT, THE DEMURRAGES WILL BE RELEASED BY SELLER TO BUYER IN INDIAN RUPEES WITHIN TWO BANK WORKING DAYS AFTER IT IS RELEASED BY BUYER TO THE FOREIGN BUYER. AS PER THE AGREEMENT, THE SELLER (NMDC) IS LIABLE T O THE PORT CHARGES INCLUDING DEMURRAGES. THE CIT(A)-V HAS ALLOWED THE EXPENSES FOR A.Y.2008- 09 ON THE SAME ISSUE VIDE ITA NO.0305/JC-16/CIT(A)-V/2010-11 DATED 08.03.2012. TH E CIT(A)-V HAS ALSO ALLOWED THE EXPENSES FOR THE AY 2009-10 ON THE SAME ISSUE VIDE ITA NO.0311/ADDL.CIT-16/CIT(A)- V/2011-12 DATED 03.12.2012. THIS EXPENSE HAS BEEN A LLOWED BY THE ITAT ALSO. 5.3. AS SEEN FROM THE EXPLANATION OF THE ASSESSEE, THE SAID EXPENDITURE IS TO BE BORNE BY M/S MMTC AS PER AGREEMENT. THE ASSES SEE CANNOT BE ALLOWED THIS DEDUCTION IN THE FACE OF THE CLAUSE IN THE AGREEMENTS, WHICH READS AS UNDER: 'THE SHIPMENT DOCUMENTATION FOR ALL SHIPMENTS EX-CH ENNAI WOULD BE DONE BY MMTC INCLUDING SHIPPING BILL, BILL OF LOADING ETC. COORD INATION WITH CUSTOMS FOR INSPECTION OF CARGO WILL BE DONE BY MMTC AT CHENNAI. MMTC SHALL D EPUTE PERSONAL ON BOARD VESSEL AT THE TIME OF LOADING AND CO-ORDINATE FOR PROPER LOAD ING.' 5.4. IN THE NOTE SUBMITTED BY THE ASSESSEE COMPANY WITH REGARD TO AGREEMENT FOR EXPORTS WITH M/S.MMTC FOR THE F.Y.201 1-12, IT IS STATED THAT THERE WAS NO AGREEMENT INTO BY THE ASSESSEE CO MPANY WITH M/S.MMTC AND WHATEVER EXPORTED DURING THE YEAR WAS ONLY SPILL OVER OF THE PREVIOUS YEAR. THUS, THE SAME IS CONSIDERED AS PRIOR PERIOD EXPENDITURE. IN VIEW OF THE ABOVE FACTS AND CIRCUMS TANCES, THE EXPENDITURE OF RS.65,25,000/- IS NOT AN ALLOWABLE E XPENDITURE IN THE HANDS OF I.T.A. NO. 194/HYD/2017 :- 5 - : M/S NMDC. THE SAME IS DISALLOWED AND ADDED BACK TO THE INCOME OF THE ASSESSEE COMPANY. 4.1. ON APPEAL BEFORE THE CIT(A), THE SAME WAS CON FIRMED BY THE LD.CIT(A) BY HOLDING AS UNDER: 7.1 WITH REGARD TO ABOVE GROUND, THE ASSESSING OFF ICER OBSERVED THAT, THE ASSESSEE DURING THE YEAR UNDER CONSIDERAT ION HAS EXPORTED LUMPS AND FINES UNDER AGREEMENT THROUGH MINERALS AN D METALS TRADING CORPORATION. THE ASSESSEE WAS ASKED TO FURNISH A FE W COPIES OF THE AGREEMENTS. THE AGREEMENT COPY IN RESPECT OF SALE O F IRON ORE FOR EXPORT TO POSCO AND TO JAPANESE STEEL MILLS (JSM) WAS PROVIDE D BY THE ASSESSEE. AS PER THIS AGREEMENT, THE SHIPMENT DOCUMENTATION FOR ALL SHIPMENTS WOULD BE DONE BY MMTC INCLUDING SHIPPING BILL, BILL OF LO ADING ETC. IT MEANS THAT THE SHIPMENT CHARGES ETC HAVE TO BE BORNE BY THE BU YER NAMELY, M/S MMTC. HOWEVER, THE ASSESSEE HAS SHOWN THE FOLLOWING DEMURRAGES ON SHIPMENT AMOUNTING TO RS.65,25,000/- WHICH WAS CLAI MED UNDER SELLING EXPENSES. HOWEVER, THE ASSESSING OFFICER ASKED THE ASSESSEE TO EXPLAIN THE REASON AS TO WHY SUCH EXPENSES SHOULD NOT BE DI SALLOWED AND THE ASSESSEE EXPLAINED THAT THE COMPANY HAS CHARGED OF RS.65.25 LAKHS ON THE BASIS OF PAYMENT MADE TO VIZAG PORT TRUST & CHE NNAI PORT TRUST DEMURRAGE ON SHIPMENT AS PER AGREEMENT BETWEEN NMDC LTD., AND MMTC LTD. FOR SALE OF IRON ARE FOR EXPORT TO JAPANESE ST EEL MILLS (JSM) & POSCO. THE PAYMENT OF DEMURRAGE CHARGES ARE MENTIONED CLEA RLY UNDER ARTICLE IX OF THE AGREEMENT. UNDER THE AGREEMENT, THE DEMURRAG ES WILL BE RELEASED BY SELLER TO BUYER IN INDIAN RUPEES WITHIN TWO BANK WORKING DAYS AFTER IT IS RELEASED BY BUYER TO THE FOREIGN BUYER. AS PER T HE AGREEMENT, THE SELLER (NMDC) IS LIABLE TO THE PORT CHARGES INCLUDING DEMU RRAGES. AS PER THE EXPLANATION OF THE ASSESSEE, THE SAID EXPENDITURE I S TO BE BORNE BY M/S. MMTC AS PER AGREEMENT. AS PER THE NOTE SUBMITTED WI TH REGARD TO AGREEMENT, IT IS STATED THAT THERE WAS NO AGREEMENT INTO BY THE ASSESSEE COMPANY WITH M/S MMTC AND WHATEVER EXPORTED DURING THE YEAR WAS ONLY SPILLOVER OF THE PREVIOUS YEAR. THUS, THE SAME WAS CONSIDERED AS PRIOR PERIOD EXPENDITURE AND NOT AN ALLOWABLE EXPEN DITURE IN THE HANDS OF M.S NMDC. THEREFORE, THE ASSESSING OFFICER DISALLOW ED THE SAME AND ADDED BACK TO THE INCOME OF THE ASSESSEE. 4.2. THE LD.AR HAD SUBMITTED THAT THE AO AS WELL AS THE CIT(A) HAD MIS-CONSTRUED THE TERMS OF THE MOU BETWEEN THE APPELLANT AND MMTC FOR EXPORT OF IRON ORE GOVERNING T HE PAYMENT OF DEMURRAGE CHARGES. IT IS SUBMITTED THAT IN TERMS OF M OU ENTERED BY THE APPELLANT AND THE MMTC, THE APPELLANT HA S TO BEAR I.T.A. NO. 194/HYD/2017 :- 6 - : THE SHIPMENT CHARGES AND HE HAS DRAWN OUR ATTENTION TO CL AUSE NO. 3 UNDER ARTICLE 7 OF THE SAID MOU WHICH STIPULATES THAT THE APPELLANT SHALL PAY THE PORT CHARGES RELATING TO EXPORT O F CARGO OF NMDC AND ALSO ARTICLE 11 OF THE AGREEMENT DO STIPULAT ES THAT THE DEMURRAGE CHARGES PAID BY THE APPELLANT. IT IS FURTHE R SUBMITTED THAT IN THE EARLIER YEARS, THIS TRIBUNAL FOR THE AY. 20 11-12 IN ITA NO. 1593/HYD/2014 DT. 20-03-2015. HE ALSO PLACED REL IANCE ON THE ORDER OF THE ITA NOS. 292 & 293/HYD/2013 FOR THE A YS. 2008- 09 & 2009-10 DT. 31-05-2013. 4.3. ON THE OTHER HAND LD.DR PLACED RELIANCE ON THE ORDERS OF THE LOWER AUTHORITIES. 4.4. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE ISSUE IN THIS GROUND OF APPEAL IS WITH REGARD TO ALLOWABILITY OF DEMURRAGE CHARGES AND SHIP MENT CHARGES PAID. THE AO AFTER PURSUING THE AGREEMENT BETWEEN THE APPELLANT AND MMTC HAD CONSIDERED THAT THIS EXPENDITURE IS TO BE REIMBURSED BY THE MMTC LTD. WHEREAS THE APPELLANT CONTE NDS THAT THE AO AS WELL AS THE CIT(A) MIS-UNDERSTOOD THE TERM S OF THE AGREEMENT AND THE RESPONSIBILITY ALWAYS LIES ON THE AP PELLANT TO BEAR THIS EXPENDITURE IN TERMS OF THE MOU. THE RELEVA NT EXTRACTS OF THE AGREEMENT ARE EXTRACTED BELOW: ARTICLE-VII 1.. 2.. 3. SELLER WOULD PAY THE PORT CHARGES RELATING TO EX PORTS OF CARGO OF NMDC ORIGIN DIRECTLY TO THE PORT IN THE DESIGNATED BUYER DEPOSIT ACCOUNT WITH THE RESPECTIVE PORTS. PAYMENT OF OTHER STATUTORY DUES LIKE LABOUR WELFARE CESS I.T.A. NO. 194/HYD/2017 :- 7 - : ETC., WOULD ALSO BE MADE ON SIMILAR BASIS. HOWEVER , THE RECONCILIATION OF ACCOUNTS SHALL BE CARRIED OUT ON QUARTERLY BASIS WI THOUT FAIL. 4.. ARTICLE-IX: THE BUYER WOULD FORWARD THE LAY DAY STATEMENT TO SE LLER WITHIN SEVEN DAYS AFTER SAILING OF VESSEL FOR APPROVAL BEFORE FO RWARDING THE SAME TO FOREIGN BUYER. SELLER WILL COMMUNICATE THEIR CONFI RMATION TO BUYER WITHIN SEVEN DAYS UPON RECEIPT OF LAY DAYS STATEMENT. ALL THE CORRESPONDENCE FOR FINALIZATION OF DEMURRAGE/DISPATCH AND OTHER CL AIMS WILL BE CARRIED OUT BY BUYER IN CONSULTATION WITH SELLER AND FINALIZED STATEMENT OF DEMURRAGE AND DISPATCH AND DETAILS OF OTHER CLAIMS ALONG WITH RELEVANT DOCUMENTS WILL BE PROVIDED TO SELLER FOR MAKING/RECEIVING PAY MENT TO/FROM BUYER. THE DEMURRAGE SETTLED IN ACCORDANCE WITH ABOVE WILL BE RELEASED BY SELLER TO BUYER IN INDIAN RUPEE WITHIN TWO BANK WORKING DA YS AFTER IT IS RELEASED BY BUYER TO THE FOREIGN BUYER. SIMILARLY THE BUYER SHALL PAY THE SELLER THE DISPAT CH MONEY WITHIN TWO BANK WORKING DAYS ON RECEIPT OF CORRESPONDING PAYME NT FROM JSM. THEREFORE, THE ALLOWABILITY OF THE EXPENDITURE OF PORT CHARGES AS WELL AS THE DEMURRAGE CHARGES HAVE TO BE DETERMINED H AVING REGARD TO THE ABOVE TWO CLAUSES OF THE AGREEMENT. ON PL AIN READING OF THE ABOVE TWO CLAUSES, IT IS MANIFEST THAT THE APPELL ANT HAS TO BEAR THE EXPENDITURE OF PORT CHARGES RELATING TO EXPORT O F CARGO AND THE DEMURRAGE CHARGES AND THEREFORE, WE HOLD THAT THE A O AS WELL AS THE CIT(A) MIS-CONSTRUED THE PROVISIONS OF CLAUSES GOVERNING THE PORT CHARGES AND DEMURRAGE CHARGES AND ERRONEOUSLY H ELD THAT EXPENDITURE WAS REIMBURSABLE TO THE APPELLANT. IN THES E CIRCUMSTANCES, WE DIRECT THE AO TO ALLOW THIS EXPENDITUR E. ACCORDINGLY, THIS GROUND OF APPEAL IS ALLOWED. 5. THE NEXT GROUND OF APPEAL RELATES TO DISALLOWANCE OF EXPENDITURE INCURRED ON CORPORATE SOCIAL RESPONSIBIL ITY I.T.A. NO. 194/HYD/2017 :- 8 - : EXPENDITURE. THE FACTS SET OUT BY AO LEADING TO THE ABO VE ADDITION ARE AS UNDER: 6.2. THE ASSESSEE WAS ASKED TO EXPLAIN AS TO WHY T HE EXPENDITURE DARNED TOWARDS CSR SHOULD NOT BE DISALLOWED SINCE SUCH EXPENDITURE IS NOT RELATED TO THE BUSINESS OF THE ASSESSEE. THE ASSESSEE REPLIED VIDE LETTER DT. 10.0 2.2015 AS UNDER: CORPORATE SOCIAL RESPONSIBILITY (CSR) IS GENERALLY USED TO DESCRIBE BUSINESS'S EFFORTS TO ACHIEVE SUSTAINABLE OUTCOMES BY COMMITTING TO GOOD BUSINESS PRACTICES AND STANDARDS. WHILE THE CONCEPT MAY BE RELATIVELY NEW IN THE REGION, THE ACTUAL PRACTICES AND RELATED POLICIES ARE NOT NEW. THE KEY ROLE AND RESPONSIBILITY ARE OFTEN DISCUSSED IN THE ASPECTS OF BUSINESS, SOCIAL AND THE ENVIRONMENT. TODAY CONSUMERS, INVESTORS, GOVERNMENTS AND EVEN EM PLOYEES HAVE BECOME MORE SOPHISTICATED AND MORE AWARE OF GOOD CO RPORATE BEHAVIOR, OR LACK THEREOF. IN THIS NEW BUSINESS ENVIRONMENT, A C OMPANY'S REPUTATION HAS BECOME ONE OF ITS MOST VALUABLE ASSETS, AND CSR HAS BECOME ONE THE KEY COMPONENTS OF CORPORATE REPUTATION. POSITIVE CSR EXPERIENCES BUILD CONFIDENCE AND GOODW ILL WITH STAKEHOLDERS. MANY ORGANIZATIONS HAVE DEVELOPED CLEAR CSR EFFORTS AS STRATEGIC BRANDING AND MANAGEMENT APPROACH IN ACHIEVING A WIN -WIN OUTCOME. CSR IS INCREASINGLY BEING SEEN AS AN IMPORTANT AND INTEGRAL PART OF NORMAL BUSINESS OPERATIONS. INVESTORS ARE BECOMING MORE CONCERNED TO INVEST IN COMPANIES THAT ACT WITH GOOD CORPORATE GOVERNANCE AND SOCIAL RESPONSIB ILITY. INCREASINGLY, A COMPANY'S PERFORMANCE AS A RESPONSI BLE BUSINESS IS KEY TO ITS FINANCIAL AND STOCK MARKET STANDING, HELPING TO PROTECT IT FROM INSTABILITY AND SHARE PRICE VOLATILITY. CSR CAN BOOST FACTORS THAT DRIVE REVENUE IN IMPORTA NT WAYS. CSR INITIATIVES AND CAUSE RELATED MARKETING COULD BUILD REPUTATION AND GOODWILL AMONG SUPPLIERS AND CUSTOMERS. EMPLOYEES W HO IDENTIFIED WITH THE SOCIAL MISSION ARE LIKELY TO BE MOTIVATED, COMM ITTED AND MORE PREPARED TO MAKE SACRIFICES AS A TEAM MEMBER. A COMPANY'S REPUTATION IS FUNDAMENTAL IN MAINTAININ G AND ATTRACTING NEW CUSTOMER BASE. CONSUMERS TODAY ARE MORE SOPHISTICAT ED, BECOMING MORE SELECTIVE AND SENSITIVE TO A COMPANY'S IMAGE AND CS R EFFORTS. A DISTINCTIVE CSR PROFILE SERVES AS A STRATEGIC BRANDING TOOL IN DIFFERENTIATING FROM COMPETITORS. I.T.A. NO. 194/HYD/2017 :- 9 - : THE EFFICIENCY OF A BUSINESS IS ABOUT PRODUCTIVITY AND EFFECTIVE USE OF RESOURCES. CSR CAN HELP TO INCREASE EFFICIENCY THRO UGH ENVIRONMENT CONSERVATION AND RECYCLING INITIATIVES, AS PART OF ECO-EFFICIENCY STRATEGY. POSITIVE MANAGEMENT-EMPLOYEE RELATIONS ARE ALSO CRU CIAL IN BRINGING ABOUT GOOD CUSTOMER SERVICE, PRODUCTIVITY AND PRODUCT INN OVATION. CSR CAN INVOLVE ALMOST ANY ASPECT OF A COMPANY'S OP ERATIONS. IT RANGES FROM WORKPLACE SAFETY, FAMILY-FRIENDLY PRACTICES TO COMMUNITY CONTRIBUTION. EVERY COMPANY HAS A STORY TO TELL THA T SETS IT APART. IT IS IMPORTANT FOR EVERY COMPANY TO FIND ITS STORY FOR E FFECTIVE COMMUNICATION TO ITS STAKEHOLDERS. A COMPANY THAT IS CONSIDERED A GOOD CORPORATE CITIZ EN IS ONE THAT DEMONSTRATES COMMITMENT TOWARDS SOCIALLY RESPONSIBL E BUSINESS PRACTICES AND FAIR OPERATIONS. EXPENSES ON CSR HAVE BECOME MANDATORY IN ORDER TO O PERATE THE MINES IN REMOTE PLACES. ALLOTMENT OF NEW MINES AND RENEWAL O F EXISTING MINES ARE DEPENDENT ON THE CLEARANCE CERTIFICATE GIVEN BY THE VARIOUS STATUTORY BODIES, STATE GOVTS. AND OTHER MINISTRIES OF GOVT. OF INDIA. SO EXISTENCE OF ASSESSEE'S BUSINESS IS VERY MUCH DEPENDABLE ON GOVT S/GOVT. AMOUNT ALLOWED AS BUSINESS EXPENDITURE IN THE FOLLOWING CA SES:- (A) CIT VS. MADRAS REFINERIES LTD (2004) 266 ITR 17 0 (MAD) (B) HINDUSTAN PETROLEUM CORPORATION LIMITED VS. DY. CIT (2005) 92 TTJ (MUMBAI) 168 (C) CIT VS. RUPSA RICE MILLS (1976) 104 ITR 249 (OR I) AND (D) ORISSA FOREST DEVELOPMENT CORPORATION LTD. VS. CIT (2002) 75 TTJ (CTK) 87 : (2002) 80 ITD 300 (CTK) (E) INFOSYS TECHNOLOGIES LTD., V. JT.CIT [(2007) 10 9 TTJ (BANG.) 631] ON APPEAL BEFORE THE LD.CIT(A) AND AFTER GOING THROU GH THE NATURE OF EXPENDITURE HELD THAT EXPENDITURE TO THE EXTENT OF RS. 17,39,00,000/- IN THE NATURE OF CAPITAL EXPENDITURE AND THEREFORE DISALLOWED TO THAT EXTENT AND THE BALANCE WAS ALLOWED EX PENDITURE. BEING AGGRIEVED BY THIS DISALLOWANCE, APPELLANT IS IN APPEAL BEFORE US. I.T.A. NO. 194/HYD/2017 :- 10 -: 5.1. THE LD.AR CONTENDED THAT THIS EXPENDITURE WAS ALL OWED BY THIS TRIBUNAL IN THE EARLIER YEARS AND PLACED RELI ANCE ON THE ORDER OF ITAT FOR THE AYS. 2008-09 & 2009-10 IN ITA NOS. 287 & 288/HYD/2013 DT. 18-07-2014 AND ALSO PLACED RELIANCE ON THE REVENUES APPEAL FOR THE SAME ASSESSMENT YEAR IN ITA NO. 148/HYD/2017. 5.2. ON THE OTHER HAND, THE LD.CIT-DR PLACED RELIAN CE ON THE ORDERS OF THE AO AND ON EXPLANATION-2 TO SECTION 37( 1) OF THE ACT INSERTED BY THE FINANCE ACT, 2014 W.E.F.01-04-2015 . 5.3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE ISSUE IN THIS GROUND OF APPEAL IS WHETHER THE EXPENDITURE INCURRED TOWARDS CORPORATE SOCIAL RESPO NSIBILITY CAN BE ALLOWED AS AN EXPENDITURE. BEFORE ADVERTING T O THE FACTS OF THE PRESENT CASE, IT IS PERTINENT TO NOTE THAT THE COMPANIES ACT, 2013 HAS PRESCRIBED CORPORATE RESPONSIBILITY TO INC UR THE EXPENDITURE IN CASE OF CERTAIN COMPANIES MAKING THE PR OFITS. THESE PROVISIONS ARE APPLICABLE FOR THE FY. 2014-15. THE RELEVANT PROVISIONS ON CORPORATE SOCIAL RESPONSIBILITY UNDER THE COMPANIES ACT, 2013 ARE EXTRACTED AS UNDER: SEC.135. CORPORATE SOCIAL RESPONSIBILITY: ( 1 ) EVERY COMPANY HAVING NET WORTH OF RUPEES FIVE HUN DRED CRORE OR MORE, OR TURNOVER OF RUPEES ONE THOUSAND CRORE OR MORE OR A NET PROFIT OF RUPEES FIVE CRORE OR MORE DURING ANY FINANCIAL YEAR SHALL CONSTITUTE A CORPORATE SOCIAL RESPONSIBILITY COMMITTEE OF THE BOARD CONSISTING OF THREE OR MORE DIRECTORS, OUT OF WHICH AT LEAST ONE DIRECTOR SHALL BE AN INDEPEND ENT DIRECTOR. ( 2 ) THE BOARD'S REPORT UNDER SUB-SECTION ( 3 ) OF SECTION 134 SHALL DISCLOSE THE COMPOSITION OF THE CORPORATE SOCIAL RESPONSIBILITY COMMITTEE. I.T.A. NO. 194/HYD/2017 :- 11 -: ( 3 ) THE CORPORATE SOCIAL RESPONSIBILITY COMMITTEE SHA LL, ( A ) FORMULATE AND RECOMMEND TO THE BOARD, A CORPORATE SOCIAL RESPONSIBILITY POLICY WHICH SHALL INDICATE THE ACTI VITIES TO BE UNDERTAKEN BY THE COMPANY AS SPECIFIED IN SCHEDULE VII; ( B ) RECOMMEND THE AMOUNT OF EXPENDITURE TO BE INCURRE D ON THE ACTIVITIES REFERRED TO IN CLAUSE ( A ); AND ( C ) MONITOR THE CORPORATE SOCIAL RESPONSIBILITY POLICY OF THE COMPANY FROM TIME TO T IME. ( 4 ) THE BOARD OF EVERY COMPANY REFERRED TO IN SUB-SEC TION ( 1 ) SHALL, ( A ) AFTER TAKING INTO ACCOUNT THE RECOMMENDATIONS MAD E BY THE CORPORATE SOCIAL RESPONSIBILITY COMMITTEE, APPROVE THE CORPOR ATE SOCIAL RESPONSIBILITY POLICY FOR THE COMPANY AND DISCLOSE CONTENTS OF SUCH POLICY IN ITS REPORT AND ALSO PLACE IT ON THE COMPA NY'S WEBSITE, IF ANY, IN SUCH MANNER AS MAY BE PRESCRIBED; AND ( B ) ENSURE THAT THE ACTIVITIES AS ARE INCLUDED IN COR PORATE SOCIAL RESPONSIBILITY POLICY OF THE COMPANY ARE UNDERTAKEN BY THE COMPANY. ( 5 ) THE BOARD OF EVERY COMPANY REFERRED TO IN SUB-SEC TION ( 1 ), SHALL ENSURE THAT THE COMPANY SPENDS, IN EVERY FINANCIAL YEAR, AT LEA ST TWO PER CENT. OF THE AVERAGE NET PROFITS OF THE COMPANY MADE DURING THE THREE IM MEDIATELY PRECEDING FINANCIAL YEARS, IN PURSUANCE OF ITS CORPORATE SOCIAL RESPONS IBILITY POLICY: PROVIDED THAT THE COMPANY SHALL GIVE PREFERENCE TO THE LOCAL AREA AND AREAS AROUND IT WHERE IT OPERATES, FOR SPENDING THE AMOUN T EARMARKED FOR CORPORATE SOCIAL RESPONSIBILITY ACTIVITIES: PROVIDED FURTHER THAT IF THE COMPANY FAILS TO SPEND SUCH AMOUNT, THE BOARD SHALL, IN ITS REPORT MADE UNDER CLAUSE ( O ) OF SUB-SECTION ( 3 ) OF SECTION 134, SPECIFY THE REASONS FOR NOT SPENDING THE AMOUNT. EXPLANATION .FOR THE PURPOSES OF THIS SECTION AVERAGE NET PRO FIT SHALL BE CALCULATED IN ACCORDANCE WITH THE PROVISIONS OF SEC TION 198. THE EXPLANATION-2 TO SECTION 37(1) OF THE INCOME TAX ACT WAS INSERTED BY FINANCE ACT, 2014 W.E.F. 01-04-2015 CLA RIFYING THAT THE EXPENDITURE INCURRED ON THE CORPORATE SOCIAL RESPONSI BILITY U/S. 135 OF THE COMPANIES ACT, 2013 SHALL NOT BE DEEMED TO BE I.T.A. NO. 194/HYD/2017 :- 12 -: EXPENDITURE OF ASSESSEE FOR THE PURPOSE OF BUSINESS. NOW ADVERTING TO THE FACTS OF THE PRESENT CASE, WE ARE CONCE RNED WITH THE AY. 2012-13, FOR WHICH THE PROVISIONS OF THE COMPA NIES ACT, 2013 ARE NOT APPLICABLE. IT DOES NOT MEAN THAT THERE IS A BAR ON THE PART OF CORPORATES TO INCUR ANY EXPENDITURE ON SOCI AL RESPONSIBILITY. BUT THE QUESTION NOW IS WHETHER THIS EX PENDITURE CAN BE CONSIDERED AS BUSINESS EXPENDITURE WHOLLY AN D EXCLUSIVELY INCURRED FOR THE PURPOSE OF BUSINESS UNDER THE PROVIS IONS OF SECTION 37(1) OF THE ACT. IN ORDER TO CLAIM DEDUCTION U /S. 37(1), THE CONDITION TO BE SATISFIED ARE THAT THE ITEM OF EXPENDIT URE SHOULD NOT BE AN ITEM OF EXPENDITURE PRESCRIBED IN SECTION 3 2 AND 36 AND SHOULD NOT BE IN THE NATURE OF CAPITAL EXPENDITURE OR PE RSONAL EXPENDITURE OF THE ASSESSEE. IT SHOULD BE LAID OUT WHO LLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS OR PROFESSI ON. NEEDLESS TO MENTION THAT ALL THE THREE CONDITIONS ARE REQUIRED TO BE CUMULATIVELY SATISFIED. IN THE PRESENT CASE, THERE IS NO DISPUTE AS REGARDS THE SATISFACTION OF THE FIRST TWO CONDITIONS MENTI ONED SUPRA. THE BONE OF CONTENTION IS ONLY REGARDING SATISF ACTION OF THE CONDITION THAT THE EXPENDITURE WAS INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. IT IS ALSO SETTLED PRINCIP LE OF LAW THAT THERE IS NO NEED TO ESTABLISH NECESSITY OF SUCH EXPEN DITURE. BUT THE ONUS LIES ON THE ASSESSEE TO PROVE THAT THE EXPENDIT URE WAS INCURRED WHOLLY FOR THE PURPOSE OF BUSINESS. ONCE T HE ASSESSEE DISCHARGE THIS ONUS, THE ASSESSEE WOULD BE ENTITLED FOR DEDUCTION U/S. 37(1) OF THE ACT. IN THE PRESENT CASE, FROM THE EX PLANATION FURNISHED BEFORE THE AO, IT IS MANIFEST THAT THE ASSESSE E WAS ONLY HARPING THAT THE EXPENDITURE WAS INCURRED TOWARDS CORPO RATE SOCIAL RESPONSIBILITY. WE DO NOT DISCERN ANY ATTEMPT M ADE BY THE APPELLANT TO DISCHARGE THE ONUS THAT THIS EXPENDITURE WAS INCURRED I.T.A. NO. 194/HYD/2017 :- 13 -: OUT OF BUSINESS EXPEDIENCY. IN FACT, NO DETAILS OF TH E EXPENDITURE INCURRED WERE FILED BEFORE THE LOWER AUTHORITIES. EV EN BEFORE US ALSO THE LD.AR MADE NO ATTEMPT TO DISCHARGE ONUS, WHO WA S SIMPLY HARPING ON THAT EXPENDITURE WAS INCURRED FOR THE PURPOSE OF BUSINESS. THUS, NO FACTUAL FOUNDATION WAS LAID BY T HE ASSESSEE TO ESTABLISH THAT THIS EXPENDITURE WAS INCURRED FOR THE PUR POSE OF BUSINESS. MERE BALD ASSERTION THAT EXPENDITURE WAS INC URRED FOR PROMOTING THE BUSINESS CANNOT BE ACCEPTED WITHOUT ESTABL ISHING THE NEXUS BETWEEN THE EXPENDITURE AND BUSINESS. EVEN B EFORE US, THE LD.AR FOR THE APPELLANT HAD FAILED MISERABLY TO EST ABLISH THIS ONUS NOR ANY ATTEMPT WAS MADE BY HIM TO ESTABLISH BUSI NESS EXPEDIENCY FOR INCURRING THIS EXPENDITURE. HE MEREL Y SUBMITTED THAT HE FILED DETAILS OF THE EXPENDITURE INCURRED BEFOR E THE CIT(A) AND FOR THE REASONS BEST KNOWN TO HIM HAD CHOSEN NOT TO FILE BEFORE US BY WAY OF PAPER BOOK IN CONFORMITY WITH TH E RULES OF THE TRIBUNAL. RELIANCE PLACED BY LD.AR ON THE DECISION OF THE CO- ORDINATE BENCH IN ASSESSEES OWN CASE ALSO IS MISPLA CED. ON MERE PERUSAL OF THE ORDERS OF THE CO-ORDINATE BENCH DECISIO NS, THE DECISION OF THE CO-ORDINATE BENCH IN ASSESSEES OWN C ASE, IT IS CLEAR THAT THE NATURE OF EXPENDITURE IS DIFFERENT AND IN THE SAM E ASSESSMENT YEAR IN THE REVENUES APPEAL, THE CO-ORDIN ATE BENCH MERELY FOLLOWED THE EARLIER DECISION OF THE CO-ORDINA TE BENCH OF THE TRIBUNAL IN ASSESSEES OWN CASE WITHOUT REFERRING TO A NY FACTUAL NATURE OF THE EXPENDITURE. NEITHER OF THE PARTIES TO THE APPEAL HAD BROUGHT TO THE NOTICE OF THIS TRIBUNAL THAT THE ASSESSEE- COMPANY ALSO FILED AN APPEAL CHALLENGING THE FINDINGS OF THE LD.CIT(A) THAT PART OF THE CORPORATE SOCIAL RESPONSIBILITY EXPENDITUR E WHICH WAS IN THE NATURE OF CAPITAL IS DISALLOWED. THE SUBMISSI ON OF THE LD.AR THAT THIS EXPENDITURE WAS INCURRED IN CONSIDERATION OF G OVERNMENT I.T.A. NO. 194/HYD/2017 :- 14 -: GRANTING LICENSE FOR MINING CANNOT BE ACCEPTED AS TH IS KIND OF CONTRACTS ARE AGAINST PUBLIC POLICY AND ARE VOID U/S. 23 OF THE CONTRACT ACT. THEREFORE, IT CAN BE SAID THAT THIS EXPENDI TURE WAS INCURRED VOLUNTARILY THERE WAS NO BUSINESS EXPEDIENC Y AND THEREFORE, IT AMOUNTS TO APPLICATION OF INCOME VOLUNTARI LY TOWARDS CHARITY WHICH CANNOT BE ALLOWED AS A DEDUCTION. RELI ANCE IN THIS REGARD CAN BE PLACED ON THE DECISION OF THE ADDL. CI T VS. BADRINARAYAN SHRINARAYAN AKODIYA [101 ITR 817] (MP) AND CANNOT BE ALLOWED AS DEDUCTION. THEREFORE, THE ENTIRE EXPEND ITURE INCURRED ON CORPORATE RESPONSIBILITY CANNOT BE ALLOWE D AS DEDUCTION. WHILE COMING TO THIS CONCLUSION, WE ALSO DRAW OUR SUPPORT FROM THE DECISION OF THE CO-ORDINATE BENCH OF B ANGALORE IN THE CASE OF KANHAIYALAL DUDHERIA VS. JCIT, BELLARY [ 165 ITD 14], WHEREIN ONE OF US (ACCOUNTANT MEMBER) IS THE AUTHOR A ND IN THAT CASE, INVOLVING IDENTICAL FACT SITUATION AND IT WAS HE LD THAT ON FAILURE OF ASSESSEE TO DISCHARGE ONUS OF PROVING THA T EXPENDITURE WAS INCURRED FOR THE PURPOSE OF BUSINESS, IT AMOUNTS TO APPLICATION OF INCOME VOLUNTARILY TOWARDS CHARITY WHICH CANNOT BE ALLOWED AS DEDUCTION. THUS, THEREFORE, THIS GROUND OF APPEAL IS DISMISSED. 6. NEXT GROUND OF APPEAL RELATES TO DISALLOWANCE OF COMMISSION EXPENDITURE ON ACCOUNT OF NON-DEDUCTION O F TAX AT SOURCE. THE AO DISALLOWED A SUM OF RS. 7,64,20,400 /- ON THE GROUND THAT THE APPELLANT HAD NOT DEDUCTED TAX AT SOURCE ON THE COMMISSION PAID @ 2.8% OF THE FOB PRICE PAID TO THE MM TC. THE AO OBSERVED THAT FROM THE RECORD OF MINUTES OF DISCUSSI ON HELD ON 31-03-2007 BETWEEN THE APPELLANT AND MMTC THAT THE APP ELLANT WAS PAYING A COMMISSION @2.8% ON FOB VALUE OF THE PR ICE TO THE MMTC TOWARDS COMMISSION FOR ACTING AS AN AGENT FOR THE APPELLANT I.T.A. NO. 194/HYD/2017 :- 15 -: FOR EXPORT OF IRON ORE AND THE AO ALSO EXAMINED ON OA TH THE DIRECTIONS OF THE APPELLANT, WHEREIN THE DIRECTOR OF MAR KETING STATED AS UNDER: STATEMENT OF SHRI ADARSH R. GOYAL (RETD. DIR(MARKET ING), MMTC): Q49. PLEASE STATE WHAT IS THE NATURE OF AGREEMENT B ETWEEN NMDC AND MMTC WITH REGARD TO EXPORT OF IRON ARE. ANS. NMDC TRANSPORTS IRON ARE TO VIZAG AND CHENNAI PORT AND ARRANGES FOR LOADING OF VESSELS. MMTC GOT FIXED CHARGES @2.8 % ON THE INVOICE VALUE. Q50. PLEASE STATE WHO RECEIVES MONEY I.E., FROM FOR EIGN PARTIES. ANS. MMTC RECEIVES THE MONEY FROM THE BUYER OR FORE IGN PARTIES AND AFTER ADJUSTING AMOUNTS DUE TO MMTC RELEASES THE PAYMENT TO NMDC. STATEMENT OF SHRI SUNIT KHURANA, (DIR(MARKETING), M MTC)' Q14. PLEASE EXPLAIN THE PROCEDURE OF EXPORTS BY MMT C. ANS. MMTC PROCURES IRON ARE FROM NMDC AND EXPORTS I T TO JAPAN AND SOUTH KOREA STEEL MILLS UNDER THE LONG TERM AGREEME NTS WHICH ARE SIGNED BETWEEN THE TWO SIDES THAT IS, BETWEEN JSM ON ONE S IDE AND MMTC/NMDC ON THE OTHER SIDE. SIMILARLY, FOR POSCO O F SOUTH KOREA. ALL EXPENSES OF THE ORE AND EXPORT PROCESS ARE BORNE BY NMDC. MMTC GETS A FIXED TRADE MARGIN (CURRENTLY 2.8%) OF FOB PRICE AN D THE BALANCE ENTIRE AMOUNT REALIZED IS PASSED ON TO NMDC. FOR PROCURING IRON ARE FROM PARTIES OTHER THAN NMDC , MMTC PERIODICALLY DECLARES AN FOR PROCUREMENT PRICE FOR BELLARY - HOS PET SECTOR AND FOR EASTERN SECTOR, SEPARATELY. MINE OWNERS / TRADERS W HO ARE PREPARED TO OFFER IRON ARE TO MMTC AT THE DECLARED PROCUREMENT PRICE SUPPLY THE ORE TO MMTC ON FOR BASIS. MMTC TRANSPORTS THE MATERIAL FRO M THE MINING AREA LOADING STATION TO THE PORT OF SHIPMENT AND CARRIES OUT THE SHIPMENT TO THE FOREIGN BUYERS. Q18. PLEASE EXPLAIN WHAT IS THE ROLE OF MMTC IN SIG NING LONG TERM AGREEMENT? ANS. MMTC IS A CANALIZING AGENCY FOR EXPORTS OF IRO N ORE WITH 64%+ FE CONTENT SO ALL EXPORTS OF NMDC IRON ORE OF CANAL IZED GRADE HAVE TO BE ROUTED THROUGH MMTC I.T.A. NO. 194/HYD/2017 :- 16 -: Q19. PLEASE STATE WHETHER YOU ARE BUYING FROM NMDC AND EXPORTING TO THE JAPANESE COMPANIES. ANS. WE ARE NOT BUYING IRON ORE FROM NMDC BUT WE AR E ACTING AS A CANALIZING AGENCY SINCE NMDC CANNOT EXPORT 64%+ FE GRADE DIRECTLY. ONCE THE SALE PROCEEDS ARE REALIZED FROM THE BUYERS, MMT C DEDUCTS ITS FIXED MARGIN I.E., 2.8% OF FOB INVOICE PRICE AND PASSES O N THE BALANCE AMOUNT TO NMDC. STATEMENT OF SHRI RANA SOM, [CHAIRMAN-CUM-MANAGING DIRECTOR (NMDC)]: Q11. PLEASE EXPLAIN WHAT IS THE NATURE OF AGREEMENT OR ARRANGEMENT BETWEEN MMTC AND NMDC FOR THE PURPOSE OF EXPORT OF IRON ORE? ANS. NMDC IS A BACK TO BACK SUPPLIER TO MMTC WHICH CHARGES 2.8% TRADING COMMISSION ON FOB PRICE. ' 8.4. FURTHER, RELEVANT EXTRACTS OF RECORD NOTE OF D ISCUSSIONS HELD ON 31.01.2007 BETWEEN NMDC AND MMTC, OBTAINED FROM MMT C ARE AS UNDER: 'MMTC SHALL BE ENTITLED TO A TRADE MARGIN OF 2.80% OF FOB PRICE FOR THE PERIOD FY 2006- 07 TO FY 2010-11 ON THE INVOICED QUANTITIES. NMDC S HALL RAISE THEIR INVOICE AT THE NET PRICE AFTER ADJUSTING MMTC'S TRADE MARGIN'. AO ALSO REJECTED THE SUBMISSIONS OF THE APPELLANT THAT TH E RELATIONSHIP BETWEEN APPELLANT AND MMTC IS THAT OF PRI NCIPAL TO PRINCIPAL BASIS BY HOLDING THAT THE COMMISSION PAYMEN T WAS REDUCED FROM THE VALUE OF INVOICE INSTEAD OF DIRECTLY PAYING IN THE FORM OF COMMISSION. THEREFORE, THE AO HELD THAT THE AP PELLANT WAS LIABLE TO DEDUCT TAX AT SOURCE ON THE COMMISSION PAYME NT MADE TO THE MMTC AND THEREFORE, DISALLOWED THE SAME BY INVOKI NG THE PROVISIONS OF SECTION 40(A)(IA). ON APPEAL BEFORE TH E CIT(A), THE CIT(A) IN PRINCIPLE UPHELD THE LIABILITY OF PAYMENT TO DEDUCT TDS AT SOURCES, HOWEVER, DELETED THE ADDITION APPLYING THE R ATIO OF THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL IN THE C ASE OF MERILYN SHIPPING AND TRANSPORT LTD., VS. ACIT REPORTED AS 136 ITD 23 (SB) [16 ITR 1] (SB)(VISAKHA.)(TRIB.) I.T.A. NO. 194/HYD/2017 :- 17 -: 6.1. THE APPELLANT CHALLENGES VIDE PRESENT GROUND OF APPEAL THAT THE FINDINGS OF THE CIT(A) HOLDING THAT THE ASSESSEE IS LIABLE FOR TAX DEDUCTION AT SOURCE ON COMMISSION PAYMENT. 6.2. BEFORE US, THE LD.AR HAS VEHEMENTLY CONTENDED THA T NO COMMISSION WAS PAID TO MMTC TOWARDS EXPORT OF IRON OR E, RELATIONSHIP BETWEEN THE APPELLANT AND THE MMTC IS THAT O F PRINCIPAL TO PRINCIPAL AND ALSO PLACED RELIANCE ON TH E ORDERS OF THE CO-ORDINATE BENCH OF THE TRIBUNAL FOR THE AYS. 2008-09 AND 2009- 10 IN ITA NO. 287/HYD/2013 AND 288/HYD/2013 RESPECTI VELY. 6.3. ON THE OTHER HAND, LD.CIT-DR PLACED RELIANCE O N THE ORDERS OF THE LOWER AUTHORITIES. 6.4. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE D THE MATERIAL ON RECORD. THE ISSUE IN THIS GROUND OF APPEAL RELATES TO THE LIABILITY OF ASSESSEE TO DEDUCT TAX AT SOURCE ON THE COMMISSION PAYMENT MADE TO MMTC. NO DOUBT, THERE IS NO DIRECT PAYM ENT IN THE FORM OF COMMISSION PAYMENT TO THE MMTC BY THE APPELL ANT. BUT THE MODE OF PAYMENT AND THE TREATMENT IN THE BOOKS O F ACCOUNT HAS NO RELEVANCE TO DETERMINE THE NATURE OF TRA NSACTION. IT IS A CASE OF THE AO THAT THE APPELLANT HAD PAID COMMI SSION @2.8% OF FOB VALUE OF THE EXPORTS FOR ACTING AS CANALI SING AGENT TO THE MMTC. THIS COMMISSION WAS PAID IN THE FORM OF RE DUCTION FROM THE VALUE OF THE INVOICES. THE AO ALSO REFERRED TO THE DISCUSSION NOTE BETWEEN THE APPELLANT AND MMTC ON 31-0 3-2007 AND ALSO EXAMINED THE DIRECTOR (MARKETING) AND HAD COM E TO THE CONCLUSION THAT COMMISSION PAYMENT WAS MADE WITHOUT D EDUCTING TAX AT SOURCE. THE APPELLANT HAD NOT FILED ANY EVIDENCE EITHER I.T.A. NO. 194/HYD/2017 :- 18 -: BEFORE THE LOWER AUTHORITIES OR BEFORE US CONTROVERTING THE FINDINGS OF THE AO. HE MERELY PLACED RELIANCE ON THE ORDERS O F THE CO- ORDINATE BENCH FOR THE EARLIER YEARS. NEEDLESS TO MEN TION THAT THIS ISSUE REQUIRES TO BE ADJUDICATED HAVING REGARDS TO THE FACTS OF THE CASE. THEREFORE, PLACING RELIANCE ON THE ORDERS OF THE CO-ORDINATE BENCH IN EARLIER YEARS IS TOTALLY MISPLACED AND IN FA CT ABSENCE OF ANY EVIDENCE BROUGHT ON RECORD INDICATING THAT NO COMMI SSION PAID TO THE MMTC, WE UPHOLD THE ACTION OF THE AO, HOLDING THAT THE ASSESSEE IS LIABLE TO DEDUCT TAX AT SOURCE ON COMMISSIO N PAYMENT. ACCORDINGLY, THE AO WAS JUSTIFIED IN DISALLOWING TH E SAME IN INVOKING THE PROVISION OF SECTION 40(A)(IA). NEEDLE SS TO MENTION THAT RATIO FOLLOWED IN THE DECISION OF MERILYN SHIPPIN G AND TRANSPORT LTD., VS. ACIT REPORTED AS 136 ITD 23 (SB) [16 ITR 1] (SB)(VISAKHA.)(TRIB.) , WAS NOT UPHELD BY THE HONBLE APEX COURT IN THE CASE OF M/S. PALAM GAS SERVICE VS. CIT [394 ITR 300] . THEREFORE, THE GROUNDS OF APPEAL ARE DISMISSED. 7. IN THE RESULT, APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 7 TH SEPTEMBER, 2017 SD/- SD/- (D. MANMOHAN) (INTURI RAMA RAO) VICE PRESIDENT ACCOUNTANT MEMB ER HYDERABAD, DATED 7 TH SEPTEMBER, 2017 TNMM I.T.A. NO. 194/HYD/2017 :- 19 -: COPY TO : 1. THE DIRECTOR (FINANCE), NMDC LIMITED, KHANIJ BHA VAN, 10-3-311/A, CASTLE HILLS, MASAB TANK, HYDERABAD. 2. THE DCIT, CIRCLE-16(1), HYDERABAD. 3. CIT (APPEALS)-4, HYDERABAD. 4. PR.CIT-4, HYDERABAD. 5. D.R. ITAT, HYDERABAD. 6. GUARD FILE.