NMDC Limited, Hyderabad V. CIT-IV, Hyderabad

ITA 976/HYD/2014

• Counselvise Citation: 97622514 RSA 2014
• Duration Of Justice: 4 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-09-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2009-2010
• Appeal Filed On: 20-05-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P SOMASEKHAR REDDY
• Assessee Lawyers: LAXMINIWAS SHAR MA
• Keywords: Non-deduction of tax
• Section: 143(3); 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A, HYDERABAD BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER ITA NO. 976/HYD/2014 ASSESSMENT YEAR : 2009-10 NMDC LTD., HYDERABAD PAN AAACN7325A COMMISSIONER OF INCOME-TAX, HYDERABAD. (APPELLANT) (RESPONDENT) ASSESSEE BY SHRI LAXMINIWAS SHARMA REVENUE BY SHRI P. SOMA SEKHAR REDDY DATE OF HEARING 11-09-2014 DATE OF PRONOUNCEMENT 24 -09-2014 O R D E R PER SAKTIJIT DEY, J.M.: THIS APPEAL BY ASSESSEE IS AGAINST ORDER DATED 20/0 3/14 PASSED U/S 263 OF THE ACT BY CIT-IV, HYDERABAD SETT ING ASIDE THE ASSESSMENT ORDER U/S 143(3) OF THE ACT FOR THE AS SESSMENT YEAR 2009-10. 2. BRIEFLY THE FACTS ARE, ASSESSEE IS A PUBLIC SECT OR UNDERTAKING ENGAGED IN EXPLORATION AND SALE OF MINERALS. FOR TH E ASSESSMENT YEAR UNDER DISPUTE, ASSESSEE FILED ITS RETURN OF INCOME ON 24/09/09 DECLARING TOTAL INCOME OF RS. 6570,29,27,920. ASSES SMENT IN CASE OF ASSESSEE WAS COMPLETED U/S 143(3) OF THE ACT VIDE O RDER DATED 30/12/11. SUBSEQUENT TO THE COMPLETION OF ASSESSMEN T AS AFORESAID, LEARNED CIT IN EXERCISE OF POWER U/S 263 OF THE ACT CALLED FOR THE RECORDS OF ASSESSEE RELATING TO THE IMPUGNED ASSESS MENT YEAR AND 2 ITA NO. 976/H/14 NMDC LTD. AFTER EXAMINING THE SAME WAS OF THE VIEW THAT ASSES SMENT ORDER PASSED IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST S OF REVENUE FOR THE FOLLOWING REASONS: 2. IT IS NOTICED FROM RECORD THAT MMTC IS ACTING AS A CANALYZING AGENT TO YOUR COMPANY IN EXPORT OF IRON ORE AND IN TURN YOU ARE MAKING PAYMENT OF COMMISSION OF 2.8% O F FOB PRICE. HOWEVER, YOU HAVE FAILED TO DEDUCT TAX AT SO URCE ON THE ABOVE PAYMENTS AS IS REQUIRED U/S 194H OF THE ACT. 3. WHILE PASSING ORDER U/S 143(3) OF THE IT ACT, 19 61 FOR THE AY 2009-10 ON 30/12/2011, THE ABOVE ISSUE WAS OMITT ED TO BE CONSIDERED. THE GROSS VALUE OF EXPORTS BY YOU THROU GH MMTC AS PER THE INFORMATION GATHERED FROM MMTC AMOUNTED TO RS. 1759.27 CRORES FOR THE FY 2008-09 RELEVANT TO AY 20 09-10. THE COMMISSION PAID BY YOU TO MMTC @ 2.7% WORKS OUT TO RS. 49.26 CRORES. AS YOU HAVE FAILED TO DEDUCT TDS ON T HE ABOVE PAYMENT OF COMMISSION, THE SAME WAS REQUIRED TO BE DISALLOWED INVOKING THE PROVISIONS OF SECTION 40(A) (IA) OF THE IT ACT, 1961. AS THE SAME HAS NOT BEEN DISALLOWED IN T HE ORDER PASSED U/S 143(3) DATED 30/12/2011 BY THE AO, THE O RDER HAS BECOME ERRONEOUS AND ALSO PREJUDICIAL TO THE INTERE STS OF REVENUE IN THE EXTENT OF THE ABOVE AMOUNT. ACCORDINGLY, THE CIT ISSUED A NOTICE DIRECTING ASSE SSEE TO SHOW CAUSE AS TO WHY ASSESSMENT ORDER PASSED SHALL NOT B E REVISED. IN REPLY TO THE SHOW CAUSE NOTICE, ASSESSEE SUBMITTED THAT IT HAS NOT GIVEN ANY COMMISSION TO MMTC AS MMTC HAS PURCHASED IRON ORE FROM ASSESSEE ON PRINCIPAL TO PRINCIPAL BASIS, THER EFORE, PROVISIONS OF SECTION 194H IS NOT APPLICABLE. IN THESE CIRCUMSTAN CES, ESTIMATING THE COMMISSION AND DISALLOWING THE SAME U/S 40(A)(IA) W OULD NOT ARISE. IT WAS ALSO CONTENDED BY ASSESSEE THAT IDENTICAL ADDIT ION MADE BY AO ON ACCOUNT OF ALLEGED PAYMENT OF COMMISSION ON SALE S TO NMDC BY INVOKING PROVISIONS OF SECTION 40(A)(IA) WAS A SUBJ ECT MATTER OF APPEAL BEFORE CIT(A) AS WELL AS BEFORE ITAT IN ASSE SSMENT YEARS 2003-04 TO 2005-06, 2007-08, 2008-09 AND 2010-11. I T WAS SUBMITTED THAT BOTH THE APPELLATE AUTHORITIES HAVE HELD THAT SALE OF IRON ORE TO MMTC BEING ON PRINCIPAL TO PRINCIPAL BASIS, THE PRO VISIONS OF SECTION 194H ARE NOT APPLICABLE, HENCE, THE QUESTION OF DIS ALLOWANCE U/S 40(A)(IA) WOULD NOT ARISE. CIT, HOWEVER, WAS NOT C ONVINCED BY THE SUBMISSIONS OF ASSESSEE AND HELD THAT THE SALES OF IRON ORE MADE BY 3 ITA NO. 976/H/14 NMDC LTD. ASSESSEE TO MMTC IS NOTHING BUT SALES ON COMMISSION BASIS, WHICH IS PROVED FROM THE FACT THAT THE MARGIN OF 2.8% OF FOB INVOICE PRICE WAS RETAINED BY MMTC, WHICH IS NOTHING BUT COMMISSION F OR RENDERING SERVICES IN THE AREA OF MARKETING, CARGO CONVERGENC E ARRANGEMENTS AND COORDINATION AT LOAD PORTS, LOAD PORT SUPERVISI ON, FORWARDING OF LAYDAY STATEMENTS, DEMURRAGES/DESPATCHES AND OTHER CLAIMS FROM BUYERS ETC. HE, THEREFORE, HELD THAT AS ASSESSEE WA S LIABLE TO DEDUCT TAX ON SUCH COMMISSION PAYMENT, BUT, HAS FAILED TO DO SO, THE AMOUNT RELATING TO SUCH PAYMENT OF COMMISSION SHOULD HAVE BEEN DISALLOWED U/S 40(A)(IA) OF THE ACT. AS AO, ACCORDING TO CIT, HAS NOT DISALLOWED THE COMMISSION PAYMENTS U/S 40(A)(IA) ON ACCOUNT OF FAILURE TO DEDUCT TAX, THE ASSESSMENT ORDER PASSED IS ERRONEOUS AND P REJUDICIAL TO THE INTERESTS OF THE REVENUE. ACCORDINGLY, HE SET ASIDE THE ASSESSMENT ORDER BY DIRECTING THE AO TO REDO THE ASSESSMENT KE EPING IN VIEW THE OBSERVATIONS MADE BY HIM. SO FAR AS THE DECISIONS O F ITAT, HYDERABAD IN ASSESSEES OWN CASE, LEARNED CIT OBSER VED THAT THE DEPARTMENT HAS NOT ACCEPTED THE ITATS DECISION AND HAS CONTESTED THE SAME BEFORE HONBLE HIGH COURT FOR THE AY 2008- 09. 3. WE HAVE HEARD THE SUBMISSIONS OF THE PARTIES AND PERUSED THE RESPECTIVE ORDERS OF AO AS WELL AS CIT(A). WE HAVE ALSO GONE THROUGH THE ORDERS OF THE TRIBUNAL IN ASSESSEES OW N CASE COPIES OF WHICH WERE PLACED BEFORE US. BOTH LEARNED DR AND CO UNSEL FOR ASSESSEE AGREED THAT THE ISSUE IN DISPUTE VIZ., DIS ALLOWANCE U/S 40(A)(IA) ON ALLEGED COMMISSION TO MMTC ON SALE OF IRON ORE IS COVERED BY THE DECISIONS OF THE TRIBUNAL IN ASSESSE ES OWN CASE FOR THE ASSESSMENT YEARS 2003-04 TO 2005-06 AND 2008-09 . ON PERUSAL OF THE ORDERS OF THE COORDINATE BENCH ON THIS ISSUE IN ASSESSEES OWN CASE FOR THE PRECEDING ASSESSMENT YEARS AS NOTED AB OVE, IT TRANSPIRES THAT IDENTICAL ISSUE OF DISALLOWANCE MAD E U/S 40(A)(IA) OF THE ACT CAME UP FOR CONSIDERATION BEFORE THE TRIBUN AL AND THE TRIBUNAL AFTER CONSIDERING THE SUBMISSIONS OF THE P ARTIES AS WELL AS OTHER MATERIALS ON RECORD CATEGORICALLY CAME TO A C ONCLUSION THAT 4 ITA NO. 976/H/14 NMDC LTD. PURCHASE OF IRON ORE BY MMTC FROM ASSESSEE IS ON PR INCIPAL TO PRINCIPAL BASIS, HENCE, OUTSIDE THE PURVIEW OF SECT ION 194H OF THE ACT. THEREFORE, NO DISALLOWANCE CAN BE MADE U/S 40(A)(IA ). IN THIS CONTEXT, WE REFER TO THE DECISION OF THE COORDINATE BENCH IN ASSESSEES OWN CASE FOR AY 2008-09 AND 2009-10 IN ITA NO. 292 & 29 3/HYD/13 DATED 31/05/13 WHEREIN FOLLOWING EARLIER ORDER OF THE CO ORDINATE BENCH IN ASSESSEES OWN CASE IN ITA NO. 145, 146 & 147/V/06, DATED 20/07/09 HELD AS UNDER: 4.4 IT IS VERY PERTINENT TO NOTE THAT THE LEARNED CIT(A) HAS NOTED THE FACT THAT THE ASSESSEE HAS ROUTED THE TRA NSACTION OF EXPORT THROUGH MMTC ONLY BECAUSE THE ASSESSEE WAS N OT ALLOWED TO EFFECT THE EXPORT ON ACCOUNT OF GOVERNME NT REGULATIONS. IT IS THE MOST STRIKING FEATURE IN THE IMPUGNED TRANSACTIONS WHICH WAS NOT AT ALL CONSIDERED BY THE TAX AUTHORITIES. IT IS WELL SETTLED LAW THAT IN ANY AGE NCY AGREEMENT, AN AGENT CAN ACT ON BEHALF OF THE PRINCIPAL ONLY IN RESPECT OF THOSE TRANSACTIONS WHICH THE PRINCIPAL IS ENTITLED TO CARRY ON DIRECTLY WITHOUT THE ASSISTANCE/HELP OF THE AGENT, I.E. EVEN IN THE ABSENCE OF AN AGENT, THE PRINCIPAL SHOULD BE ENTITL ED TO CARRY ON THE SAID TRANSACTION. IN THE INSTANT CASE THERE IS NO DISPUTE WITH REGARD TO THE FACT THAT HE ASSESSEE HEREIN IS NOT E NTITLED TO EXPORT THE IRON ORE WITH FE CONTENT OF 64% AND ABOV E. SINCE THE ASSESSEE IS DISENTITLED TO EXPORT THESE GOODS, IT C ANNOT BE POSSIBLE TO SAY THAT THE GOODS WERE EXPORTED BY MMT C ON BEHALF OF THE ASSESSEE ON A PRINCIPAL TO AGENT BASI S. AS CONTENDED BY THE ASSESSEE, IT CAN ONLY BE HELD THAT THE MMTC HAS EXPORTED THE GOODS ON ITS OWN AND NOT ON BEHALF OF THE ASSESSEE HEREIN. BY VIRTUE OF THE GOVERNMENT REGULA TIONS, BOTH THE COMPANIES HAD TO REACH AN AGREEMENT WITH REGARD TO THE MODALITIES OF THE INCURRING EXPENSES AND PAYMENT AN D IN OUR OPINION, THE SAID MODALITIES OF PAYMENT ARE NOT THE DECIDING FACTOR TO DETERMINE THE NATURE OF TRANSACTION. IN V IEW OF THE FOREGOING, WE SET ASIDE THE ORDERS OF THE LD. CIT(A ) AS WELL AS THAT OF THE ASSESSING OFFICER . SINCE WE HAVE DECID E D THE FIRST ISSUE IN FAVOUR OF THE ASSESSEE, THE SECOND ISSUE U RGED BY THE ASSESSEE BECOMES INFRUCTUOUS. THE SAME VIEW WAS AGAIN REITERATED BY THE ITAT IN I TA NO. 1792/H/13 AND OTHERS DATED 09/05/14 FOR AY 2007-08. SINCE THE TRIBUNAL IN ASSESSEES OWN CASE HAS CONSISTENTLY HELD THAT EXPO RT THROUGH MMTC IS ON PRINCIPAL TO PRINCIPAL BASIS AND THERE CAN BE NO COMMISSION 5 ITA NO. 976/H/14 NMDC LTD. PAYMENT TO MMTC, THE CIT, IN OUR VIEW, WAS NOT JUST IFIED IN REVISING THE ASSESSMENT ORDER BY OVER-REACHING THE ORDER OF ITAT IN ASSESSEES OWN CASE, WHICH IS BINDING ON HIM. MERE FILING OF APPEAL IN THE HONBLE HIGH COURT AGAINST THE ORDER OF THE TRI BUNAL IN NO WAY MAKES THE ORDER OF THE TRIBUNAL INOPERATIVE OR DILU TES ITS BINDING EFFECT, UNLESS IT IS REVERSED OR SET ASIDE BY A HIG HER APPELLATE AUTHORITY. THE LEARNED CIT HAS HELD THE ASSESSMENT ORDER PASSED BY THE AO TO BE ERRONEOUS AND PREJUDICIAL TO THE INTER EST OF REVENUE MERELY BECAUSE HE HAS NOT DISALLOWED THE ALLEGED CO MMISSION PAYMENT TO MMTC U/S 40(A)(IA) OF THE ACT. HOWEVER, IN OUR VIEW, THE ASSESSMENT ORDER PASSED CANNOT BE HELD TO BE ERRONE OUS AND PREJUDICIAL TO THE INTERESTS OF REVENUE FOR THE AFO RESAID REASON, AS AOS DECISION FOR NOT MAKING ANY DISALLOWANCE U/S 4 0((A)(IA) ON SO CALLED COMMISSION PAYMENT TO MMTC IS IN TUNE WITH T HE DECISIONS OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR PRECEDING A SSESSMENT YEARS. RATHER, THE AOS APPROACH SHOULD BE APPRECIATED AS HE HAS ADHERED TO THE NORMS OF JUDICIAL DISCIPLINE. IN THE AFORESA ID CIRCUMSTANCES, WE ARE OF THE VIEW THAT CIT WAS NOT JUSTIFIED IN REVIS ING THE ASSESSMENT ORDER PASSED U/S 143(3) BY INVOKING HIS POWERS U/S 263. ACCORDINGLY, WE QUASH THE IMPUGNED ORDER OF CIT AND RESTORE THE ORDER PASSED BY AO. 4. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWE D. PRONOUNCED IN THE OPEN COURT ON 24/09/2014. SD/- SD/- (B. RAMAKOTAIAH) (SAKTIJIT DEY) ACCOUNTANT MEMBER JU DICIAL MEMBER HYDERABAD, DATED: 24 TH SEPTEMBER, 2014 KV 6 ITA NO. 976/H/14 NMDC LTD. COPY TO:- 1) DIRECTOR (FINANCE), NMDC LTD., 10-3-311/A, KHANJ I BHAVAN, MASAB TANK, HYDERABAD 500 028 2) CIT-IV, HYDERABAD. 3) ADDL. CIT, RANGE 16, HYDERABAD. 4)THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYDER ABAD.