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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 ..... assessee in connection with effecting sales to various Government authorities. It is also not in dispute that these commission agents had acted on behalf of the assessee to liaison with the Government parties and they are appointed as agents only by the assessee and not by the Government parties. Hence, the Government parties in response to notice under section 133(6) of the Act had replied, wherever applicable, that they had dealt with the assessee directly and not through the agent. We also find that the majority of the commission agents had indeed furnished the confirmations duly specifying the requisite details before the learned AO which are already on record but we find that there is no factual finding recorded by the lower authorities with regard to veracity of the said confirmations. Hence, as vehemently argued by the learned DR, we deem it appropriate to remand this issue to the file of the AO for de novo adjudication in accordance with law. Claim of depreciation on Gopalpur project assets - HELD THAT:- DR submitted that this issue is not covered by the orders passed by this Tribunal for earlier years as the same is incurred for ISP project at Bareili. We find that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enue 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 vehemently pleaded that the learned AO erred in observing that said expenditure pertains to import of technical knowhow in relation to a specific plant commissioned at Jamshedpur. He argued that this statement made by the learned AO is factually incorrect. The learned AR submitted that the said expenditure has been incurred for Titania project in Tamil Nadu. The learned AR further elaborated that a Memorandum of Understanding (MOU) was entered into with Government of Tamil Nadu on 27.06.2002 in connection with this Titania Project which involves mining, mineral separation and value addition i.e. Pigments production in phases subject to techno-economic vi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 undertaken to analyze the minerals for determining the viability with regard to production of Titanium metal which also involved inter se production of Titanium Di-Oxide. The main object of the assessee company was to manufacture Titanium metal having its utility in steel business of the assessee company. 7. We find that the learned AR argued that the issue is covered by the decision of the Tribunal in assessee s own case from AY 1986-87 onwards and placed the orders on record. He also stated that the Revenue had not preferred any appeal against the orders passed by this Tribunal in earlier years on this issue before Hon ble Bombay High Court except for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efit, 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 ₹ 2,75,107/- as capital expenditure, that a sum of ₹ 1,40,000/- was paid for techno economic feasibility report for slaked lime and water addition facilities at sinter plant, that the sinter plant was a part of the assessee s works for sizing and sintering of iron ore, that the study was undertaken to improve the efficiency in the existing trading operations, that the expenditure was incurred in connection with the existing trading operations and the expenditure incurred is in the revenue field, that Fee of ₹ 17,500/-was paid to Tata Consultancy Services for conducting a feasibility study on elevator industry was conducted, that the study had no relationship with the existing business and the assessee intended to start a new product line, that the expenditure incurred was in the capital ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... earing 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 court) dated 31.07.2018, wherein the question raised before the High Court as under: - Q.3 in ITA No 52/2018 Whether under the facts and circumstances of the case, the learned ITAT has not erred in holding that the education cess is disallowable expenditure under section 40(a)(ii) of the Act? 12. We find that the Hon ble Rajasthan High court took note of the CBDT Circular No. 91.58/66-ITJ (19) dt. 18.05.1967 and held as under: - Interpretation of provision of s.40(a)(ii) of IT Act, 1961-Clarification regarding 18/05/1967 BUSINESS EXPENDITURE SECTION ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 377; 11.18 crores Total ₹ 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 ₹ 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 made applicable only from AY 2008-09 onwards. Hence, there cannot be any disallowance under section 14A of the Act by applying the computation maximum provided in Rule 8D of the Rules for the year under consideration. We find from the perusal of the balance sheet that the assessee is having sufficient own funds in its kitty and hence, there cannot be any disallowance of interest even if it is to be treated as direct expenditure of the purpose of earning exempt income. With regard to disallowance of administrati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3,28,809.00 Greenfield Associated 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the total commission paid to various parties in the respective region together with the total sales derived from the respective regions in the form of following table: - Region Commission Sales % of sales Northern 5557258 480471655 1% Eastern 15274457 1142410989 1% Western 2532798 121464436 2% 23. The learned CIT(A) disposed off this issue raised before him by observing as under: - 9.3 I have gone through the order of the AO and submissions of the appellant. It is seen from page 22 to 23 of the assessment order 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y commission agents on the issue clearly mentioning (a) the fact of rendering of services to the assessee ; (b) liaison services rendered by those commission agents to the respective Government parties clearly mentioning the name of the Government parties also ; (c) the quantities sold by assessee to those respective Government parties ; (d) the rate of commission as agreed to be paid to each of the commission agent for effecting sales to various Government parties. We also find from the said invoices that the said commission bills raised by the agents on the assessee were duly subjected to levy of service tax and TDS compliance thereon have been duly made by the assessee. We find that the assessee had paid commission to the very same parties in subsequent years also and the learned AO had allowed the same in AY 2006-07. The details of the same are as under: 3. Trend of Commission 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Gross sales 0.27% 0.33% 0.35% 0.31% % of net sales - - 0.40% 0.35% The total gross sales and net sales for the year under consideration is ₹ 15876.87 and ₹ 14498.95 respectively. 27. The total commission paid to selling agents during the year is ₹ 49.65 crores which works out to 0.31% of gross sales and 0.34% of net sales, which is exactly identical to that in the earlier years as tabulated above. It is not in dispute that the sum of disputed commission i.e. ₹ 2.33 crores is included in the total commission payment of ₹ 49.65 crores. In the instant case, we find that the learned CIT(A) had categorically observed that the commission agents had indeed rendered liaison services to the assessee in connection with effecting sales to various Government authorities. It is also not in dispute that these commission agents had acted on behalf of the assessee to liaison with the Government parties and they are appointed as agents only by the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 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 the Result, the appeal of the revenue for AY 2005-06 is dismissed. ITA No. 4043/Mum/2012 for AY 2006-07 Assessee Appeal 34. Grounds No. 1 and 3 raised by the assessee for AY 2006-07 were stated to be not pressed at the time of hearing before us by the learned AR and the same is reckoned as a statement made from the bar. Accordingly, the grounds No. 1 and 3 raised by the assessee are dismissed as not pressed. 35. The ground nos. 2 and 2.1 raised by the assessee with regard to disallowance of expenditure incurred on feasibility study are similar to the ground Nos. 2.2 to 2.5 raised by the assessee for AY 2005-06 and hence, the decision rendered thereon would apply with equal force for this assessment year also except with variance in figures. 36. The ground nos. 4 and 4.1 raised by the assessee for AY 2006-07 are similar to ground Nos. 4 to 4.3 of Asst Year 2005-06 and the decision rendered thereon would apply with equal force for this assessment year also except variance in figures. 37. The ground nos. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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