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TMI Blog2017 (9) TMI 573X X X X Extracts X X X X X X X X Extracts X X X X ..... ction U/s 37(1) of the IT Act. Expenditure incurred is not a capital expenditure for NMDC since it is not capitalized in its books of accounts. 4. The learned CIT(A) erred while adjudicating ground no. 7 of appeal as the learned CIT(A) allowed the ground of Rs. 7,64,20,400/- by relying on case of Merlyin Shipping and Transports, Vizag ignoring that there was no such reliance placed by the assessee and assessee relied 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 principal basis. 5. For these and any other grounds which may be raised 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 Iron ore, Diamonds, Wind Power Generation and sale. It filed return 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 the Income Tax Act [Act] vide order dt. 23-03-2015 at a total income of Rs. 108,81,81,45,363/- after making t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t & 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 Conditions of the above agreement which is relevant for the assessment are reproduced below:- "Seller would pay the port charges relating to export 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, etc. would also be made on similar basis". The payment of Demurrage charges are mentioned clearly 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 to 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. The 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 date ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re for export to Japanese Steel Mills (JSM) & POSCO. The payment of Demurrage charges are mentioned clearly 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 to the port charges including demurrages. As per the explanation of the assessee, the said expenditure is to be borne by M/s. MMTC as per agreement. As per the note submitted with 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 expenditure in the hands of M.s NMDC. Therefore, the assessing officer disallowed 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 the payment of demurrage charges. It is submitted that in terms of MoU entered by the app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Indian Rupee within two bank working days after it is released by Buyer to the foreign buyer. Similarly the buyer shall pay the seller the dispatch money within two bank working days on receipt of corresponding payment from JSM". Therefore, the allowability of the expenditure of port charges as well as the demurrage charges have to be determined having regard to the above two clauses of the agreement. On plain reading of the above two clauses, it is manifest that the appellant has to bear the expenditure of port charges relating to export of cargo and the demurrage charges and therefore, we hold that the AO as well as the CIT(A) mis-construed the provisions of clauses governing the port charges and demurrage charges and erroneously held that expenditure was reimbursable to the appellant. In these circumstances, we direct the AO to allow this expenditure. Accordingly, this ground of appeal is allowed. 5. The next ground of appeal relates to disallowance of expenditure incurred on Corporate Social Responsibility expenditure. The facts set out by AO leading to the above addition are as under: "6.2. The assessee was asked to explain as to why the expenditure darned towards CSR shou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bout good customer service, productivity and product innovation. CSR can involve almost any aspect of a company's operations. It ranges from workplace safety, family-friendly practices to community contribution. Every company has a story to tell that sets it apart. It is important for every company to find its story for effective communication to its stakeholders. A company that is considered a good corporate citizen is one that demonstrates commitment towards socially responsible business practices and fair operations. Expenses on CSR have become mandatory in order to operate the mines in remote places. Allotment of new mines and renewal of 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 Govts/Govt. Amount allowed as business expenditure in the following cases:- (a) CIT vs. Madras Refineries Ltd (2004) 266 ITR 170 (Mad) (b) Hindustan Petroleum Corporation Limited vs. Dy.CIT (2005) 92 TTJ (Mumbai) 168 (c) CIT vs. Rupsa Rice Mills (1976) 104 ITR 249 (Ori) and (d) Orissa Forest Development Corporation Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expenditure to be incurred on the activities referred to in clause (a); and (c) monitor the Corporate Social Responsibility Policy of the company from time to time. (4) The Board of every company referred to in sub-section (1) shall,- (a) after taking into account the recommendations made by the Corporate Social Responsibility Committee, approve the Corporate Social Responsibility Policy for the company and disclose contents of such Policy in its report and also place it on the company's website, if any, in such manner as may be prescribed; and (b) ensure that the activities as are included in Corporate Social Responsibility Policy of the company are undertaken by the company. (5) The Board of every company referred to in sub-section (1), shall ensure that the company spends, in every financial year, at least two per cent. of the average net profits of the company made during the three immediately preceding financial years, in pursuance of its Corporate Social Responsibility Policy: Provided that the company shall give preference to the local area and areas around it where it operates, for spending the amount earmarked for Corporate Social Responsibility activities: Provi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to discharge the onus that this expenditure was incurred out of business expediency. In fact, no details of the expenditure incurred were filed before the lower authorities. Even before us also the Ld.AR made no attempt to discharge onus, who was simply harping on that expenditure was incurred for the purpose of business. Thus, no factual foundation was laid by the assessee to establish that this expenditure was incurred for the purpose of business. Mere bald assertion that expenditure was incurred for promoting the business cannot be accepted without establishing the nexus between the expenditure and business. Even before us, the Ld.AR for the appellant had failed miserably to establish this onus nor any attempt was made by him to establish business expediency for incurring this expenditure. He merely submitted that he filed details of the expenditure incurred before 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 the Rules of the Tribunal. Reliance placed by Ld.AR on the decision of the Co- ordinate Bench in assessee's own case also is misplaced. On mere perusal of the orders of the Co-ordinate Bench decis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on FOB value of the price to the MMTC towards commission for acting as an agent for the appellant for export of iron ore and the AO also examined on oath the directions of the appellant, wherein the Director of Marketing stated as under: "Statement of Shri Adarsh R. Goyal (Retd. Dir(Marketing), MMTC): Q49. Please state what is the nature of agreement between 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 foreign parties. Ans. MMTC receives the money from the buyer or foreign parties and after adjusting amounts due to MMTC releases the payment to NMDC. Statement of Shri Sunit Khurana, (Dir(Marketing), MMTC)" Q14. Please explain the procedure of exports by MMTC. Ans. MMTC procures iron are from NMDC and exports it to Japan and South Korea Steel Mills under the long term agreements which are signed between the two sides that is, between JSM on one side and MMTC/NMDC on the other side. Similarly, for posco of South Korea. All expenses of the ore and export process are borne by NMDC. MMT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f payment to deduct TDS at sources, however, deleted the addition applying the ratio of the decision of the Special Bench of the Tribunal in the case of Merilyn Shipping and Transport Ltd., Vs. ACIT reported as 136 ITD 23 (SB) [16 ITR 1] (SB)(Visakha.)(Trib.) 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 that no commission was paid to MMTC towards export of iron ore, relationship between the appellant and the MMTC is that of principal to principal and also placed reliance on the 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 respectively. 6.3. On the other hand, Ld.CIT-DR placed reliance on the orders of the lower authorities. 6.4. We have heard the rival submissions and perused 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 payment in the form of commission payment to the MMTC by th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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