TaxTMI 
TaxTMI 
2025 (2) TMI 1756
X X X X Extracts X X X X
X X X X Extracts X X X X
.... clubbed these appeals and heard together and consolidated order is being passed for the sake of convenience and brevity. therefore, these appeals have been clubbed and heard together and a consolidated order is being passed for the sake of convenience and brevity. 3. First, we shall take Revenue's appeals in ITA Nos. 284 & 353/Rjt/2024 for assessment Years (A.Ys.) 2016-17 and 2017-18. 4. The Grounds of appeal raised by the Revenue in appeal in ITA No.284/Rjt/2024 for A.Y. 2016-17, are as follows: 1). On the facts and in the circumstances of the case and in law, learned Commissioner (Appeals) erred in deleting the addition made on account of disallowance of penalty on custom duty of Rs. 7,53,200/- 2). On the facts and in the circumstances of the case and in law, learned Commissioner (Appeals) erred in deleting the addition made on account of commission expenses paid to foreign agents of Rs. 2,21,28,335/- 3). On the facts and in the circumstances of the case and in law, learned Commissioner (Appeals) erred in ignoring the fact that remittance on account of commission expenses is liable to attract TDS provisions u/s 195 of the Act. 4). Th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ds, arrived at the Customs station, at which such goods were to be cleared for home consumption or warehousing. The intention of the assessee was not to violate any law or infringement of law, therefore, the penalty paid by it was for inadvertently occurred and hence requested the assessing officer not to disallow the same. However, the assessing officer had not accepted the reply of the assessee- company and made disallowance of said expense of Rs. 7,53,200/- and added to the total income of the assessee. 9. Aggrieved by the order of the assessing officer, the assessee, carried the matter in appeal before the Ld. CIT(A), who has deleted the addition made by the assessing officer. Before Id CIT(A), the assessee has submitted that said penalty is compensatory in nature and not penal in nature. The Id CIT(A) noticed that in section 46(3) of the Customs Act, 1961 and the Notification issued by the Government, the word used is Charge for late filing of bill of entry (BOE) and not "penalty". The Id CIT(A) also relied on the judgement of Hon'ble Madras High Court in the case of CIT Vs. India Pistons Ltd. (250 ITR 279), wherein the Hon'ble High Court held that interest paid for....
X X X X Extracts X X X X
X X X X Extracts X X X X
....has submitted before ld. CIT(A) that the importer also has to file the Bill of Entry (BOE) for removal of goods from customs and customs clearance and formalities and in case of delay in filing, the importer shall be liable for fine for late submission of bill of entry (in brief 'BOE'). As per Explanation 4(3) of Electronic Integrated Declaration and Paperless Processing Regulations, 2018, where the BOE is not filed within the time specified in sub-regulation (1) and the proper officer of Customs is satisfied that there was no sufficient cause for such delay, the importer shall be liable to pay charges for late presentation of the BOE at the rate of rupees five thousand per day for the initial three days of default and at the rate of rupees ten thousand per day for each day of default thereafter, provided that where the proper officer is satisfied with the reasons of delay, he may waive off the charges referred to in the second proviso to sub-section (3) of section 46 of the Customs Act, 1962. Further, the section 46 of the Customs Act, 1952 deals with the provisions of filing of BOE and consequence of late filing of the same. The said section 46(3) of the Customs Act, 1962....
X X X X Extracts X X X X
X X X X Extracts X X X X
....eveals the concern impost to be purely compensatory in nature. Based on the above facts, the Id. CIT(A) observed that both, the sections 46(3) of the Customs Act and said Bill of Entry (Electronic Integrated Declaration and Paperless Processing) Regulations stipulates payment of charge for late filing of BOE, which is levied on the basis of per day of default and considering the nature of same, it is evident that the same is compensatory in nature and therefore, Id. CIT(A) deleted the addition. The above conclusions arrived at by the CIT(A) are, therefore, correct and admit no interference by us. We, approve and confirm the order of the CIT(A) and dismissed the ground raised by the Revenue. 15. In the result, ground No. 1 raised by the Revenue, in ITA No.284/Rjt/2024 for A.Y. 2016-17, is dismissed. 16. Ground No.2 and 3 raised by the Revenue in ITA No.284/Rjt/2024 for A.Y. 2016-17, pertains to deleting the addition made on account of commission expenses paid to foreign agents of Rs. 2,21,28,335/- ignoring the fact that remittance on account of commission expenses is liable to attract TDS provisions u/s 195 of the Act. The ground No.1 of Revenue's appeal in ITA No.353/Rjt/....
X X X X Extracts X X X X
X X X X Extracts X X X X
....company had made payment of commission to foreign agents and no part of the income had arisen or accrued in India. Therefore, the payee was not liable to pay tax at such income and thus, requirement of TDS therefore would not arise. Aggrieved by the order of the Ld. CIT(A), the Revenue is in appeal before us. 19. Learned DR for the Revenue argued that since the assessee-company, has not deducted TDS on this commission payment, as per the provision of section 195 of the Act. As, TDS was not deducted from the payment, made to non-resident parties, hence, the same is not allowable as expenses in view of the provisions of 40(a)(i) of the Act. Accordingly, an amount of Rs. 2,21,28,355/- was rightly disallowed by the assessing officer. 20. On the other hand, Learned Counsel for the assessee argued that the payment was made to a foreign commission, agents and the commission was for export sales for which the agent had rendered services, as a commission agent, outside India. These commission agents did not have any business connection in India. Besides, no any business operations were carried out in India by these commission agents, hence no portion of the commission can be said to h....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n the case of CIT vs. Gujarat Raclaim & Rubber products Ltd. [2016] (383 ITR 236) (following the decision of the Hon'ble Supreme Court in the case of CIT Vs. Toshoku Ltd.) (iii) The Hon'ble ITAT, Ahmedabad in the case of DCIT Vs. Welspun Corporation Ltd. [55 ITR (T) 405 (Ahmedabad Tribunal)]. (iv) The decision of the Hon'ble Delhi High Court in the case of CIT VS. Angelique International Ltd. 38 taxmann.com 425. (v) The Allahabad High Court in the case of CIT Vs. Model Exims (358 ITR 72) (vi) The decision of the Hon'ble Jurisdictional High Court of Gujarat in the case of PCIT Vs. Jay Chemical Industries Ltd. (120 taxmann.com 315 (Gujarat High Court). 22. The Ld. CIT(A) after going through the above facts of the assessee and the case law applicable on the facts, observed that the claim of the assessee is correct because it is an undisputed fact that the assessee company had made payment of commission to foreign agents and no part of the income had arisen or accrued in India. Therefore, the payee was not liable to pay tax at such income and thus, requirement of TDS therefore would not arise. 23. The Ld. CIT(A) also relied on t....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Id. CIT(A). That being so, we decline to interfere with the order of Id. CIT(A) in deleting the aforesaid additions. His order on this addition is, therefore, upheld and the grounds of appeal of the Revenue are dismissed. 25. In the result, ground No.2 and 3 raised by the Revenue in ITA No.284/Rjt/2024 for A.Y. 2016-17 and ground No.1 of Revenue's appeal in ITA No.353/Rjt/2024 for A.Y. 2017-18, are dismissed. 26. Now, we shall take remaining ground Nos. 2 and 3 in ITA No.353/Rjt/2024, raised by the Revenue, which relate to deleting the addition of Rs. 1,47,17,000/- made on account of unaccounted cash receipts and without giving a reasonable opportunity to the assessing officer in respect of the additional evidence produced by the assessee, despite the provisions of the Rule 46A(3) of the I.T. Rules. 27. Brief facts qua the issue are that during the assessment proceedings, the assessing officer observed that in the case of M/s Shiv Shipping Services, Gandhidham, a survey u/s 133A was carried out by the investigation wing of the department on 15.03.2018, at the business premises along with the other group concerns. During the survey on the business premises of M/s Shiv ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nd the same has been accepted by the Hon'ble Settlement Commission. In view of the fact that Hon'ble Settlement Commission has accepted the claim/explanation of M/s Shiv Shipping regarding the impugned transactions and treated the same being in the nature of loan given to others and also directed to tax the interest income out of such loan in the hands of Shiv Shipping, therefore, the addition made by the assessing officer does not survive and hence, the Id. CIT(A) deleted the addition. Therefore, the Revenue is in appeal before us. 30. Learned DR for the Revenue submitted that during the survey, on the business premises of M/s Shiv Shipping services, a pen drive was found and impounded which contains certain incriminating files /excel sheets. A statement of Sh. V. Ananthraman, Sh. Dharmesh Thakker partner of M/s Shiv Shipping services was also recorded on oath u/s 131 of the Act. In the statement it was admitted by Shri V. Anantharaman (Partner of Shiv Shipping Services) in the statement recorded on oath during the survey proceedings, that Shiv Shipping Services was involved in generation of Cash by doing Over-invoicing and the generated cash by such act, was returned t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ration to rival contention. We have perused case file as well as paper books furnished by assessee. We find that during the course of appellate proceedings, the assessee has made the following arguments, before ld CIT(A), which are reproduced below: (1) The assessee being involved in import and export of commodities, employ various service providers for carrying out discharging and handling of bulk cargo like coal, Iron Ore, Agri Products etc. In the normal course of its business, the Assessee had engaged M/s. Shiv Shipping for carrying out clearing and forwarding activities for its shipments of the goods imported from outside India and accordingly all the payments made to them were against the services provided by them. (ii) The assessee has contended that the assessing officer had solely placed reliance on the statements recorded of the partners and employee of Shiv Shipping Services during the course of survey at the premises of Shiv Shipping Services. However, during the course of survey at premises of the assessee, no incriminating material or cash was found and statements of various employees of assessee were recorded and none of the executives of the assess....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rs while recording the transactions. Further, So, Shri Suresh Pillai in his statement stated that the explanations provided in respect of various notings (more specifically with respect to BGH Exim) are incorrect and do not represent any repayment in cash to the assessee. Shri Suresh Pillai reiterated that the recording in the pen drive is as per the direction received from partners and that no cash has been given to any employee of the assessee. The partners of M/s Shiv Shipping services in their affidavits before the Hon'ble Settlement Commission stated that the averments made by Shri Suresh Pillai in statement and confirmed in their statement were incorrect. It was stated that certain expenses were incurred for the benefit of business of the firm, which were not fully recorded in books of account. Unaccounted funds were generated for the purpose of business and firm would be left with surplus unaccounted cash, which were lent to various persons and entities on interest. Record of such investment were required to be maintained at hands of the employee. To hide real worth from employee and not to reveal the nature of transaction to the employee; the real purpose of payment was....
X X X X Extracts X X X X
X X X X Extracts X X X X
....untrue. Further, the assessee has submitted that there is no appeal made by the Department against the Hon'ble Settlement Commission's order which also is an evidence of the Department having accepted the facts submitted by Shiv Shipping Services before the Hon'ble Settlement Commission. 33. Without prejudice to the above, the Assessee also submitted before ld. CIT(A) that in reopening proceedings in Assessee's own case for earlier Years, the assessing officer had relied on statements of its own employee also. In this connection, the Assessee submitted that the assessing officer in the reopening proceedings had merely assumed from the statements recorded of the assessee's employee that it is engaged in over- invoicing with Shiv Shipping Services. In this regard, the assessee has reproduced the relevant para of the statement given by its employee Shri Dharmendra Paliwal in para 1.3.10 of its submission dated 12.03.2024 (reproduced supra). On perusal of statement of Shri Dharmendra Paliwal, it is clearly seen that Shri Dharmendra Paliwal has clearly denied receiving cash as shown in the excel sheet presented to him during the time of survey. Further, he had sta....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ding handling services to the Appellant for the year under consideration was in line with the rates charged by the other handling agents. This further strengthens the contention of the appellant that there was no over Invoicing by M/s, Shiv Shipping as interpreted by the AO. 36. It was submitted that the partners and the employee of Shiv Shipping Services have already retracted their statements. This retracement was made in front of Hon'ble Settlement commission and the same is accepted by the Hon'ble Settlement commission. No adverse findings regarding the retraction had been given by the Hon'ble Settlement commission. 37. Based on the above facts, the Id. CIT(A) noted from the records that the assessee was involved in import and export of commodities, employ various service providers, like M/s, Shiv Shipping Service for carrying out discharging and handling of bulk cargo like coal, Iron Ore, Agri Products etc. It is also a fact that the assessing officer had made the addition on the basis of statements recorded of the partners and employee of Shiv Shipping Services during the course of survey at the premises of Shiv Shipping Services. However, it is also a fact ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ayment to any employee of the assessee and his replies in statement given during the survey was based on what was informed to him by the partners while recording the transactions. Further, Shri Suresh Pillai in his statement stated that the explanations provided in respect of various notings (more specifically with respect to BGH Exim) are incorrect and do not represent any repayment in cash to the assessee. The partners of M/s. Shiv Shipping services in their affidavits before the Hon'ble Settlement Commission stated that the averments made by Shri Suresh Pillai in statement and confirmed in their statement were incorrect. It was stated that certain expenses were incurred for the benefit of business of the firm, which were not fully recorded in books of account. It was claimed by M/s Shiv Shipping before Hon'ble Settlement Commission that unaccounted funds were generated for the purpose of business and the firm had been left with surplus unaccounted cash, which were lent to various persons and entities on interest. Record of such investment were required to be maintained at hands of the employee. To hide real worth from employee and not to reveal the nature of transaction ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ts and circumstances, the Id CIT(A) deleted the addition. 40. We note that during the appellate proceedings, the assessee submitted a copy of the decision of the Hon'ble settlement commission dated 29th January 2021, the same should not be treated as an additional evidence. The copy of the decision/judgement of any authority does not fall in the definition of additional evidence, and normally the judgements are in rem, hence, are not additional evidences. Further, the copy of various statements of these persons taken by the department, were on the record of the assessing officer, and in fact, the copy of statements of persons were provided by the department to the assessee, hence these statements were on the record of the lower authorities, therefore, these cannot be treated as an additional evidence, hence, we do not agree with Id DR for the revenue, to the effect that assessee has produced additional evidence and violated the provisions of Rule 46A of the Income Tax Rules. We find that above conclusion, so reached by the Id. CIT(A), does not contain any infirmity. Hence, the conclusions arrived at by the CIT(A) are, therefore, correct and admit no interference by us. We, a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....us. 46. Learned Counsel for the assessee argued that a Memorandum of Understanding was entered into between the Assessee and Pheonix Gulf FZE that commission at 6% would be paid to M/s. Phoenix Gulf FZE after realization of export proceeds from the Iranian customer. The commission expenses has accrued, however, post financial year 2018-19, the banks have absolutely declined to make any payment which is linked with an underlying Iranian transaction, and for that assessee has submitted before the assessing officer, the correspondences with UCO Bank in 2019 and 2021 requesting the bank to make payments. The obligation to pay the expenditure/ commission has arisen and it is a definite liability to pay the commission, hence such expenses should be allowed. 47. On the other hand, the Id. DR for the revenue submitted that assessee has shown the commission expenses to be paid, however, the rate of commission was not decided with due diligence. Since it is a transaction between related entities, hence, there is always doubt that assessee might have shown more expenses to reduce the net profit and consequently to avoid the payment of taxes, therefore, these expenses should not be allow....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ine. It is a settled principle of law that business or commercial expediency has to be judged from the perspective of the businessman and not of the Revenue, since it is the businessman who is being benefited from the services rendered and also it is he who knows to what extent the benefit ensures to him. Reliance in this regard may be placed on the decision of the Hon'ble Supreme Court in the case of CIT vs. Dhanrajgiri Raja Narasingirji, reported in 91 ITR 544 (SC), wherein it was held that "it is not open to the department to prescribe what expenditure an assessee should incur and in what circumstances he should incur the expenditure. Every businessman knows his interest best. 50. Further, the Hon'ble Supreme Court in the decision rendered in the case of Eastern Investments Limited vs. CIT reported in 20 ITR 1 (SC) has opined that the aspect of prudency of entering into a transaction and making an expenditure in connection therewith will have to be judged from the point of view of the businessman and not of the Department. The ratio of the said decision clearly emanates the view that one should not be concerned with the legality or propriety of a transaction or whethe....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he assessee had still managed to make payments towards commission to Pheonix Gulf over the past years. However, post FY 2018-19, the banks have absolutely declined to make any payment which is linked with an underlying Iranian transaction. To substantiate the same, the assessee had filed its correspondences with UCO Bank in 2019 & 2021 requesting the bank to make payments. The above facts clearly explain that the assessee has incurred Commission expenses of Rs.1,80,23,440/-, for the purpose of business. 51. The Id Counsel for the assessee, also stated that similar transactions with Phoenix Gulf FZE, the assessee had also entered into transactions with Delmon Star General Trading, a commission agent of Dubai who exported tea to assessee's customers in Iran during the earlier assessment years 2016-17. Further, the rate of commission charged by Delmon Star General Trading was similar to the rate charged by Phoenix Gulf FZE i.e. at 6%. The assessee has also furnished the copy of annual summary of Statement of accounts of M/s Phoenix Gulf FZE in the Assessee books. Therefore, we find that the assessee had incurred these expenses for promoting the business and to earn profits, hen....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ame was not a contingent liability. Further, reliance has also been placed by the ld Counsel on the decision of Andhra Pradesh High Court in the case of Sri Kakollu Shubbarao & Co. 173 ITR 708, where it is held that, in order to apply the provisions of section 43B, not only should the liability to pay the tax or duty be incurred in the accounting year but the amount also should be statutorily "payable" in the accounting year. If the Legislature intended, it should have so provided that any sum for the payment of which liability was incurred by the assessee would not be allowed unless such sum is actually paid. Finally, ld Counsel for the assessee also relied on the judgement of the Coordinate Bench in assessee`s own group case in Aditya Birla Nuvo Ltd. Vs. ACIT (68 SOT 403) Mumbai Trib., where it was held that -A perusal of Sec. 43B(f) shows that the Explanation to Sec. 43B referring to the amendment of the word any sum payable is applicable only for clause (a) of Sec. 43B which means that it is not applicable for clause (f) of section 43B of the Act. The ld. Counsel, based on these facts, argued that addition made by the assessing officer may be deleted. 57. On the other hand, ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ity of fiscal adjustment of diverse elements, permit a larger discretion to the Legislature in the matter of classification so long as it adheres to the fundamental principles underlying the said doctrine. The power of the Legislature to classify is of wide range and flexibility so that it can adjust its system of taxation in all proper and reasonable ways..." Viewed thus, the reason weighed with the Division Bench of the High Court in the impugned judgment is untenable. Defeating the dictum in Bharat Earth Movers case 35. We shall now examine clause (f) on the ground that it defeats the judgment of this Court in Bharat Earth Movers (supra). We have carefully analysed the decision in Bharat Earth Movers (supra) and note that the Court was sitting in appeal over the nature of liability under the leave encashment scheme and held such liability to be a present liability. Resultantly, it became deductible from the profit and loss account of the assessee in the same accounting year in which provision against the same is made. The Court rejected that leave encashment liability is a contingent one and observed thus: "7. Applying the above said settled p....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t III as and when it is found to be plagued with infirmities. Upon being invalidated by the Court, the legislature is free to diagnose such law and alter the invalid elements thereof. In doing so, the legislature is not declaring the opinion of the Court to be invalid. 38. In Welfare Association. A.R.P ., Maharashtra v. Ranjit P . Gohil [2003] 9 SCC 358, this Court relied upon Indian Aluminium Co. v. State of Kerala [1996] 7 SCC 637 and upon elaborate analysis, laid down certain principles to preserve the delicate balance of separation of powers and observed thus: "47. ...(v) in exercising legislative power, the legislature by mere declaration, without anything more, cannot directly overrule, revise or override a judicial decision. It can render judicial decision ineffective by enacting valid law on the topic within its legislative field fundamentally altering or changing its character retrospectively. The changed or altered conditions are such that the previous decision would not have been rendered by the court, if those conditions had existed at the time of declaring the law as invalid.... It is competent for the legislature to enact the law with retrospective e....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ion. It can render a judicial decision ineffective by enacting a valid law on a topic within its legislative field, fundamentally altering or changing with retrospective, curative or nullifying effect, the conditions on which such a decision is based. In Hari Singh and Ors. v. The Military Estate Officer, [1973] 1 SCR 515, prior to 1958 two alternative modes of eviction under Public Premises Act were available. When the eviction was sought of an unauthorised occupant by summary procedure the constitutionality thereof was challenged and upheld. The Act was subsequently amended in 1958 with retrospective operation from September 16, 1958. Thereunder only one procedure for eviction was available. It was contended to be a legislative encroachment of judicial power. A Bench of three Judges held that the legislature possessed competence over the subject matter and the Validation Act could remove the defect which the court had found in the previous case. It was not the legislative encroachment of judicial power but one of removing the defect which the court had pointed out with a deeming date." (emphasis supplied) 39. Reverting to the true effect of the reported judgment....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ultantly, irrespective of the category of liability, such deductions were regulated by law under the aegis of Section 43B, keeping in mind the peculiar exigencies of fiscal affairs and underlying concerns of public revenue. A priori, merely because a certain liability has been declared to be a present liability by the Court as per the prevailing enactment, it does not follow that legislature is denuded of its power to correct the mischief with prospective effect, including to create a new liability, exempt an existing liability, create a deduction or subject an existing deduction to new regulatory measures. Strictly speaking, the Court cannot venture into hypothetical spheres while adjudging constitutionality of a duly enacted provision and unfounded limitations cannot be read into the process of judicial review. A priori, the plea that clause (f) has been enacted with the sole purpose to defeat the judgment of this Court is misconceived. 41. The position of law discussed above leaves no manner of doubt as regards the legitimacy of enacting clause (f). The respondents have neither made a case of non existence of competence nor demonstrated any constitutional infirmity in c....