Feedback   New User   Login      
Tax Management India. Com TMI - Tax Management India. Com
Home Acts / Rules Notifications Circulars Tariff/ ITC HSN Forms Case Laws Manuals Short Notes Articles News Highlights
Extracts
Home List
← Previous Next →

NMDC Limited Versus The DCIT, Circle-16 (1) , Hyderabad

2017 (9) TMI 573 - ITAT HYDERABAD

Allowable business expenditure - demurrages on shipment for which NMDC is liable to pay as per understanding between NMDC & MMTC - Held that:- 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 .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

iency? - Held that:- the entire expenditure incurred on corporate responsibility cannot be allowed as 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 tha .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

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 reduction from the value of the invoices. The AO also referred to the discussion note between the appellant and MMTC on 31-03-2007 and also examined the Director (Marketing) and had come to the conclu .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

in fact absence of any evidence brought on record indicating that no commission paid to the MMTC, we uphold the action of the AO, holding that the assessee is liable to deduct tax at source on commission payment. Accordingly, the AO was justified in disallowing the same in invoking the provision of section 40(a)(ia). - Decided against assessee. - I.T.A. No. 194/HYD/2017 - Dated:- 7-9-2017 - Shri D. Manmohan, Vice President And Shri Inturi Rama Rao, Accountant Member For the Assessee : Shri Laxm .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ee. 2. The learned CIT(A) has erred in upholding the addition made by Assessing Officer of ₹ 65,25,000/- as demurrages on shipment for which NMDC is liable to pay as per understanding between NMDC & MMTC. 3. The learned CIT(A) erred in confirming the addition amounting to ₹ 17,39,00,000/- on CSR, incurred wholly & exclusively for the purpose of the business and claimed as deduction U/s 37(1) of the IT Act. Expenditure incurred is not a capital expenditure for NMDC since it is .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

s 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 I .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

) for non- deduction of tax on commission paid 7,64,20,400 7. Disallowance u/s. 35(2AB) 1,89,32,004 2.1. Being aggrieved, the appellant preferred an appeal before the CIT(A), who vide impugned order had partly allowed by granting relief. However, he confirmed the addition in respect of demurrages on shipment charges of ₹ 65,25,000/- and Corporate Responsibility expenditure incurred on Corporate Responsibility of ₹ 17,39,00,000/- to the extent held to be capital in nature and disallow .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

exported lumps and fines under agreement through Minerals and Metals Trading Corporation. The assessee was asked to furnish a few copies of the agreements. The agreement copy in respect of sale of iron ore for export to Pasco and to Japanese Steel Mills (JSM) was provided by the assessee. As per this agreement, the shipment documentation for all shipments would be done by MMTC including shipping bill, bill of loading etc. It means that the shipment charges etc., have to be borne by the buyer na .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

r 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. woul .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

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 dated 03.12.2012. This expense has been allowed by the ITAT also. 5.3. As seen from the explanation of the assessee, the said expenditure is to be borne by M/s MMTC as per agreement. The assessee cannot be allowed this deduction in the face of the clause in the agreements, which reads as under: "The shipment documentation for all shipments ex-Ch .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

the year was only spill over of the previous year. Thus, the same is considered as prior period expenditure. In view of the above facts and circumstances, the expenditure of ₹ 65,25,000/- is not an allowable expenditure in the hands of M/s NMDC. The same is disallowed and added back to the income of the assessee company . 4.1. On appeal before the CIT(A), the same was confirmed by the Ld.CIT(A) by holding as under: 7.1 With regard to above ground, the Assessing Officer observed that, the .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

t charges etc have to be borne by the buyer namely, M/s MMTC. However, the assessee has shown the following demurrages on shipment amounting to ₹ 65,25,000/- which was claimed under selling expenses. However, the Assessing Officer asked the assessee 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 shipmen .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

n 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 .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

t of cargo of NMDC and also Article 11 of the agreement do stipulates that the demurrage charges paid by the appellant. It is further submitted that in the earlier years, this Tribunal for the AY. 2011-12 in ITA No. 1593/Hyd/2014 dt. 20-03-2015. He also placed reliance on the order of the ITA Nos. 292 & 293/Hyd/2013 for the AYs. 2008- 09 & 2009-10 dt. 31-05-2013. 4.3. On the other hand Ld.DR placed reliance on the orders of the lower authorities. 4.4. We have heard the rival submissions .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

relevant extracts of the agreement are extracted below: Article-VII 1………….. 2………….. 3. Seller would pay the port charges relating to exports 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. However, the reconciliation of accounts shall be carried out on quarterly basis without fai .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

tement 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 allowab .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

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 should not be disallowed since such expenditure is not relate .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

umers, investors, governments and even employees have become more sophisticated and more aware of good corporate behavior, or lack thereof. In this new business environment, a company's reputation has become one of its most valuable assets, and CSR has become one the key components of corporate reputation. Positive CSR experiences build confidence and goodwill with stakeholders. Many organizations have developed clear CSR efforts as strategic branding and management approach in achieving a w .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

s and cause related marketing could build reputation and goodwill among suppliers and customers. Employees who identified with the social mission are likely to be motivated, committed and more prepared to make sacrifices as a team member. A company's reputation is fundamental in maintaining and attracting new customer base. Consumers today are more sophisticated, becoming more selective and sensitive to a company's image and CSR efforts. A distinctive CSR profile serves as a strategic br .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ly-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 mine .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

elopment Corporation Ltd. vs. CIT (2002) 75 TTJ (ctk) 87 : (2002) 80 ITD 300 (ctk) (e) Infosys Technologies Ltd., v. Jt.CIT [(2007) 109 TTJ (Bang.) 631] On appeal before the Ld.CIT(A) and after going through the nature of expenditure held that expenditure to the extent of ₹ 17,39,00,000/- in the nature of capital expenditure and therefore disallowed to that extent and the balance was allowed expenditure. Being aggrieved by this disallowance, appellant is in appeal before us. 5.1. The Ld.AR .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ave heard the rival submissions and perused the material on record. The issue in this ground of appeal is whether the expenditure incurred towards corporate social responsibility can be allowed as an expenditure. Before adverting to the facts of the present case, it is pertinent to note that the Companies Act, 2013 has prescribed corporate responsibility to incur the expenditure in case of certain companies making the profits. These provisions are applicable for the FY. 2014-15. The relevant pro .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ent director. (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); an .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

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 ar .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

e Tax Act was inserted by Finance Act, 2014 w.e.f. 01-04-2015 clarifying that the expenditure incurred on the corporate social responsibility u/s. 135 of the Companies Act, 2013 shall not be deemed to be expenditure of assessee for the purpose of business. Now adverting to the facts of the present case, we are concerned with the AY. 2012-13, for which the provisions of the Companies Act, 2013 are not applicable. It does not mean that there is a bar on the part of corporates to incur any expendit .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

t should be laid out wholly and exclusively for the purpose of business or profession. Needless to mention that all the three conditions are required to be cumulatively satisfied. In the present case, there is no dispute as regards the satisfaction of the first two conditions mentioned supra. The bone of contention is only regarding satisfaction of the condition that the expenditure was incurred wholly and exclusively for the purpose of business. It is also settled principle of law that there is .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

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 expe .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

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 decisions, the decision of the Co-ordinate Bench in assessee s own case, it is clear that the nature of expenditure is different and in the same assessment year in the Revenue s appeal, the Co-ordinate Bench merely followed the earlier decision of the Co-ordinate Bench of the Tribunal in .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

as this kind of contracts are against public policy and are void u/s. 23 of the Contract Act. Therefore, it can be said that this expenditure was incurred voluntarily there was no business expediency and therefore, it amounts to application of income voluntarily towards charity which cannot be allowed as a deduction. Reliance in this regard can be placed on the decision of the Addl. CIT Vs. Badrinarayan Shrinarayan Akodiya [101 ITR 817] (MP) and cannot be allowed as deduction. Therefore, the en .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ess, it amounts to application of income voluntarily towards charity which cannot be allowed as deduction. Thus, therefore, this ground of appeal is dismissed. 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 M .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

egard 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 pro .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ally declares an FOR procurement price for Bellary - Hospet sector and for Eastern Sector, separately. Mine owners / traders who are prepared to offer iron are to MMTC at the declared procurement price supply the ore to MMTC on FOR basis. MMTC transports the material from the mining area loading station to the port of shipment and carries out the shipment to the foreign buyers. Q18. Please explain what is the role of MMTC in signing long term agreement? Ans. MMTC is a canalizing agency for expor .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

tatement of Shri Rana Som, [Chairman-cum-Managing Director (NMDC)]: Q11. Please explain what is the nature of agreement or arrangement between MMTC and NMDC for the purpose of export of iron ore? Ans. NMDC is a back to back supplier to MMTC which charges 2.8% trading commission on FOB price. " 8.4. Further, relevant extracts of record note of discussions held on 31.01.2007 between NMDC and MMTC, obtained from MMTC are as under: "MMTC shall be entitled to a trade margin of 2.80% of FOB .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ct 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 ch .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

/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 the appellant. But the mode of payment and the treatment in the Books of Account has no .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

 

 

 

 

 

Forum
what is new what is new
  ↓     bird's eye view     ↓  


|| Home || About us || Feedback || Contact us || Disclaimer || Terms of Use || Privacy Policy || TMI Database || Members ||

© Taxmanagementindia.com [A unit of MS Knowledge Processing Pvt. Ltd.] All rights reserved.

Go to Mobile Version