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TMI Blog2019 (12) TMI 750X X X X Extracts X X X X X X X X Extracts X X X X ..... om the bar and accordingly, the ground Nos. 1 and 1.1 are dismissed as not pressed. 3. The ground Nos. 2 to 2.5 raised by the assessee are with regard to action of the learned CIT(A) upholding the disallowance of expenditure incurred on feasibility study. 4. We have heard rival contentions and gone through the facts and circumstances of the case. This issue is a recurring issue in the case of assessee from AY 1986-87 onwards. The assessee submitted that it has incurred expenditure on feasibility study on a recurring basis year on year and during the year under consideration, the expenditure incurred thereon was Rs. 5,04,60,373/- which was claimed as revenue expenditure. The learned AO treated the same as capital expenditure and granted depreciation at 25% while completing the assessment. The assessee submitted that the said payment for feasibility study was incurred in connection with its manufacturing activity. The said expenses were incurred for the purpose of excavation of raw materials, i.e. water, power, minerals, etc. for production of Steel. These expenses are recurring in nature and does not result in acquiring any enduring benefit in the capital field. The learned AR has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enite, etc. for producing the titanium metal. The proposed study would involve mineral and separation of limenite and other valuable minerals from inland heavy mineral sand deposits in the districts of Tuticorin and Tirunelveli in the state of Tamil Nadu and its upgradation to synthetic Rutile later to Titanium Di-Oxide and ultimately to Titanium metal. This entire modus operandi of the aforesaid process had been duly explained by the assessee before the lower authorities. Hence, it can be safely concluded that the feasibility study was conducted for prospecting various minerals which will cater to the current steel and mineral business. We also find that the assessee has submitted before the lower authorities that it had undertaken the entire process for production of Titanium metal in different phases and hence, it would not be correct to state that the company had started mining for Titanium, which is used in paint industry, sunscreen, coloring etc., and not for the purpose of excavation of water, power, mineral etc. for production of steel. The learned AR also drew our attention to the Objects clause provided in the Memorandum of Association and argued that the study was undert ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee, that the study conducted by the consultant was in respect of a new product and it was a new line of activity and not with reference to the existing business operations, that it resulted in enduring benefit, that pamyment of Rs. 5 lakhs made to M.N.Dastur & Co. for conducting feasibility studies on production of stainless steel slabs, that it was a new product line, that the assessee got the evaluation of location, capacity, process and inputs availability for manufacture of stainless steel slabs, that expenditure was incurred in connection with the establishment of a new product line, that the assessee derived enduring benefit, that Fees/hotel and travel expenses paid for techno economic feasibility report by Holtec Engineers Pvt.Ltd. for slag cement project was incurred for a new product and a new project, that it was not related to the existing trading opera -tions, that the waste produced by the assessee became the raw material for the slag cement project, that the AO had rightly treated a sum of Rs. 2,75,107/- as capital expenditure, that a sum of Rs. 1,40,000/- was paid for techno economic feasibility report for slaked lime and water addition facilities at sinter pla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the same in favour of the assessee. In view of the aforesaid observations, respectfully following the aforesaid jurisdictional precedents in assessee's own case and in view of the fact that no appeal was preferred by the Revenue for AYs 1986-87 to 2004-05 on the similar issue of incurrence of expenditure for feasibility study for project consultancy, we hold that the assessee is entitled for deduction of Rs. 5,04,60,373/- as Revenue expenditure. Accordingly, the ground nos. 2 to 2.5 are allowed. 9. The ground nos. 3 to 3.1 were stated to be not pressed by the learned AR at the time of hearing and the same is reckoned as statement made from bar and accordingly, the said grounds are dismissed as not pressed. 10. Ground nos. 4 to 4.3 raised by the assessee are with regard to the challenging the action of the learned CIT(A) upholding the disallowance of expenses on account of education cess. 11. We have heard rival contentions and gone through the facts and circumstances of the case. We find that this issue is squarely covered by the decision of Hon'ble Rajasthan High court in the case of Chambal Fertilisers and Chemicals Ltd. & Anr. Vs. JCIT reported in 102 CCH 0202 (Rajasthan High ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 39,52,672/- and claimed the same as exempt in the return of income. The assessee submitted that it did not incurr any expenditure for the purpose of earning exempt income and hence, no disallowance under section 14A of the Act need to be made thereon. The learned AO, however did not agree to the said claim of the assessee and proceeded to apply the computation mechanism provided in Rule 8D(2) of the Rules and made disallowance under section 14A of the Act as under: - "under Rule 8D(2)(ii) Rs. 29.32 crores Under Rule 8D(2)(iii) Rs. 11.18 crores Total Rs. 40.50 crores." 16. We find that the learned CIT(A) had directed the AO to disallow the interest under Rule 8D(2)(ii) by applying the formula followed by him in AY 2007-08 vide assessment order dated 28.10.2011. The learned CIT(A), however, upheld the disallowance made in sum of Rs. 11.18 crores under Rule 8D(2)(iii) of the Rules. 17. We find that the Hon'ble Supreme Court in the case of Maxopp Investment Ltd. vs. CIT reported in [2018] 402 ITR 640 (SC) and Godrej & Boyce Manufacturing Company Ltd vs. DCIT reported in [2017] 394 ITR 449 (SC) had observed that the computation mechanism provided in Rule 8D(2) of the Rules could be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sp; 7,93,356,03 (B) 1,52,74,457.28 C. Western Region M/s Nayan Enterprises 19,05,097.00 M/s Nayan Traders 1,22,495.00 M/s Junee Mktg. Co. 4,02,715.00 M/s Industrial Steel 1,02,491.00 (C) 25,32,798.00 A+B+C 233,64,513.61 21. The learned AO issued notices under section 133(6) of the Act to all the Government parties to verify the claim of the assessee. The reply given by the Government parties fell in two categories (i) where the Government parties have either dealt with assessee on person to person basis or directly; (ii) where the Government parties had accepted that it has dealt through a commission agent. Some of the Government parties did not respond to the notice under section 133(6) of the Act issued by the learned AO. Notice under section 133(6) of the Act issued by the learned AO to some of the parties have been returned unserved. The learned AO on perusal of the various replies received in response to notice under section 133(6) of the Act from the Government parties concluded that only one party i.e. Department of Sunderban Affairs had conf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der that all the Government Departments from Sr. No. 1 to 31 has stated that there was direct person to person dealing and in case of CPWD (Sr. No. 24) and PWD (Sr. No.25) the notice under section 133(6) of AO were returned back. Sunderban Developed in "II)1" i.e. in the middle part of the assessment order stated that the sale was through agent and in part III, Page 23 & 24, the AO has listed 29 Companies mostly Government companies/ agencies like Railway Board, BSNL, NTPC, irrigation & Waterways, Metro Railway, Sardar SArovar Nagar Nigam Ltd., etc no replies were received by the Assessing Officer. The payments have been made by the appellant through bank to all parties is not a matter of dispute. Various kinds of activities are required to be taken for making sales to various government Agencies and despite various instructions to public sector companies and Goernment Agencies, not to deal through middle man or commission agents, the fact of the mater is that the activity of making sales, receiving payment etc. do require services of commission agents. The appellant shall produce the confirmation of the commission agents before AO and the AO after being satisfied that the commissi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssion in next years. Northern AY 2005-06 AY 2006-07 Combined Marketing Service 18,09,819.00 2,24,322.00 United Steel Industries 8,43,341.00 21.57,025.00 M & M International 29,04,098.00 1,47,488.65 Eastern Israfil Middya 11,33,921.00 16,50,356.00 Karnataka Agencies 1,20,95,224.00 1,66,40,425.99 Kalinga Agencies 1,66,708.00 1,99,376.64 Bengal Iron & Steel Corpn 1,28,747.00 - Industry & Commerce Ent P. Ltd 6,27,692.00 5,52,837.73 Rungta Agencies 3,28,809.00 27,909.72 Geenfield Associates 7,93,356.00 Western Nayan Enterprises 19,05,097.00 3,02,011.00 Nayan Traders 1,22,495.00 - June Makg Co 4,02,715.00 - Industrial Steel 1,02,491.00 - 26. We also find from the chart produced by the assessee that similar payments of commission were made to various selling agents in the past by the assessee and the same were allowed as deduction by the Revenue. The details of commission payments in earlier years are as under: - FY 2000-01 2001-02 2002-03 2003-04 AY 2001-02 2002-03 2003-04 2004-05 Total commission 21.10 24.83 34.60 37.34 Gross sales 7759.44 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rned AR also placed on record the copy of the order of Hon'ble Jurisdictional High court in assessee's own case for AY 1985-86 in Income Tax Appeal No. 3176/2010 dated 26.04.2012, wherein the question raised by the Hon'ble High Court is as under: - "F. Whether on the facts and in the circumstances of the case and in law, the Tribunal was justified in allowing contributions to various institutions with whom the assessee had no business nexus;" The Hon'ble High Court held as under: - "7. As regards question F, it is common ground between the learned Counsel that the same reasoning that has governed question B would govern question F. The Tribunal has noted in paragraph 43 of its decision that the expenses were incurred keeping in mind business expediency in order to have a motivated work force. Hence, no substantial question of law would arise." 31. Respectfully following the said decision, the ground No. 1 raised by the Revenue is dismissed. 32. Ground No. 2 raised by the Revenue is already addressed above in ground No. 5 of the assessee. The decision rendered therein would apply with equal force for Revenue's appeal also on this issue of disallowance of section 14A. 33. In ..... X X X X Extracts X X X X X X X X Extracts X X X X
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