Tribunal allows appeal on commission expenses paid to sister concern for iron ore procurement. Upholds full deduction under Section 80IA.

The Tribunal allowed the assessee's appeal regarding the commission expenses paid to its sister concern for procuring iron ore, noting the genuineness of the payments and the necessity of using a commission agent due to supply issues. The Tribunal directed the AO to delete the disallowance. Additionally, the Tribunal dismissed the Revenue's appeal challenging the apportionment of expenses between units, upholding the CIT(A)'s decision to grant the full deduction under Section 80IA.

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Issues Involved:
1. Allowability of commission expenses paid to a sister concern.
2. Validity of apportionment of expenses between Sponge Iron Unit and Power Plant Unit affecting the deduction claimed under Section 80IA.

Detailed Analysis:

1. Allowability of Commission Expenses:

The primary issue in the assessee's appeal was the allowability of commission expenses of Rs. 1,20,00,000 paid to its sister concern, M/s. A. M. Ispat Ltd. The assessee contended that the commission was paid for procurement of iron ore during a period of supply disturbances in Karnataka. The AO disallowed the expense, questioning its genuineness, noting the absence of such payments in the previous year, and alleging that the payment was made to nullify the losses of the sister concern. The AO also pointed out the lack of supporting travel and telephone expenses and negative replies from suppliers regarding dealings with M/s. A. M. Ispat Ltd.

The Tribunal observed that the commission was paid for services rendered in procuring iron ore, which was crucial due to supply issues in the region. The commission was accounted for in the sister concern's books, and TDS was deducted. The Tribunal found the assessee's explanations plausible, particularly the difficulties in supply and the necessity of using a commission agent. It was noted that the commission agent was not required to reveal its identity to suppliers, which explained the negative replies. The Tribunal concluded that the claim was bona fide and allowed the commission expenses, directing the AO to delete the disallowance.

2. Validity of Apportionment of Expenses:

The Revenue's appeal contested the CIT(A)'s decision to reverse the AO's apportionment of expenses between the Sponge Iron Unit and the Power Plant Unit, which had reduced the deduction claimed under Section 80IA by Rs. 40,17,406. The AO had increased the expenses attributed to the power plant, thereby reducing the eligible deduction.

The Tribunal noted that a similar issue had been decided in favor of the assessee in the previous assessment year (2008-09), where the CIT(A) had granted relief, and the Tribunal had upheld this decision. The Tribunal reiterated that the power plant was new, required minimal maintenance, and had separate financing arrangements, justifying the exclusion of certain expenses from apportionment. The Tribunal found no basis for the AO's adjustments and upheld the CIT(A)'s decision, dismissing the Revenue's appeal.

Conclusion:

The Tribunal allowed the assessee's appeal regarding the commission expenses and dismissed the Revenue's appeal concerning the apportionment of expenses, thereby affirming the CIT(A)'s decision to grant the full deduction under Section 80IA.

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