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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 ..... deduction. While coming to this conclusion, we also draw our support from the decision of the Co-ordinate Bench of Bangalore in the case of Kanhaiyalal Dudheria Vs. JCIT, Bellary [2017 (6) TMI 779 - ITAT BANGALORE ], wherein one of us (Accountant Member) is the Author and in that case, involving identical fact situation and it was held that on failure of assessee to discharge onus of proving that expenditure was incurred for the purpose of business, it amounts to application of income voluntarily towards charity which cannot be allowed as deduction. - Decided against assessee Disallowance of commission expenditure on account of non-deduction of tax at source - appellant had not deducted tax at source on the commission paid @ 2.8% of the FOB price paid to the MMTC - Held that:- No doubt, there is no direct payment in the form of commission payment to the MMTC by the appellant. But the mode of payment and the treatment in the Books of Account has no relevance to determine the nature of transaction. It is a case of the AO that the appellant had paid commission @2.8% of FOB value of the exports for acting as canalising agent to the MMTC. This commission was paid in the form of redu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8377; 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 ₹ 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 ₹ 108,81,81,45,363/- after making the following disallowances:- S.No. Rs. 1. Disallowance of mine closure obligation 9,12,00,000 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee was asked to explain the reasons as to why such expenses should not be disallowed. The assessee explained vide letter dt. l0.03.2015 which is as under: The company has charged of ₹ 65.25 lakhs on the basis 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to explain the reason as to why such expenses should not be disallowed and the assessee explained that the company has charged of ₹ 65.25 lakhs on the basis 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 are 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ried 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 payment to/from Buyer. The demurrage settled in accordance with above will be released by Seller to Buyer in 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. Accordin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e serves as a strategic branding tool in differentiating from competitors. The efficiency of a business is about productivity and effective use of resources. CSR can help to increase efficiency through environment conservation and recycling initiatives, as part of Eco-efficiency strategy. Positive management-employee relations are also crucial in bringing about 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (2) The Board's report under sub-section (3) of section 134 shall disclose the composition of the Corporate Social Responsibility Committee. (3) The Corporate Social Responsibility Committee shall,- (a) formulate and recommend to the Board, a Corporate Social Responsibility Policy which shall indicate the activities to be undertaken by the company as specified in Schedule VII; (b) recommend the amount of 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... But the onus lies on the assessee to prove that the expenditure was incurred wholly for the purpose of business. Once the assessee discharge this onus, the assessee would be entitled for deduction u/s. 37(1) of the Act. In the present case, from the explanation furnished before the AO, it is manifest that the assessee was only harping that the expenditure was incurred towards corporate social responsibility. We do not discern any attempt made by the appellant 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 h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issed. 6. Next Ground of appeal relates to disallowance of commission expenditure on account of non-deduction of tax at source. The AO disallowed a sum of ₹ 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 MMTC. The AO observed that from the record of Minutes of discussion held on 31-03-2007 between the appellant and MMTC that the appellant was paying a commission @2.8% 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 amou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o rejected the submissions of the appellant that the relationship between appellant and MMTC is that of principal to principal basis by holding that the commission payment was reduced from the value of invoice instead of directly paying in the form of commission. Therefore, the AO held that the appellant was liable to deduct tax at source on the commission payment made to the MMTC and therefore, disallowed the same by invoking the provisions of Section 40(a)(ia). On appeal before the CIT(A), the CIT(A) in principle upheld the liability of 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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