TIGERS WORLDWIDE LOGISTICS PVT LTD,MUMBAI vs. DCIT (3)(3)(1) , MUMBAI

PER OM PRAKASH KANT, AM

These two appeals by the assessee are directed against two separate orders, both dated 31.10.2022 passed by the Ld. Commissioner of Income-tax – National Faceless Appeal Centre, Delhi [in short ‘the Ld. CIT(A)’] for assessment year 2001-02 and

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2008-09. The facts and circumstances being identical 09. The facts and circumstances being identical, these 09. The facts and circumstances being identical appeals were heard together appeals were heard together and disposed off by way of this and disposed off by way of this consolidated order for convenience. consolidated order for convenience.

Firstly, we take the appeal of the assessee for assessment year 2. Firstly, we take the appeal of the assessee for assessment year Firstly, we take the appeal of the assessee for assessment year 2001-02. The relevant grounds raised by the assessee are 02. The relevant grounds raised by the assessee are 02. The relevant grounds raised by the assessee are reproduced as under: reproduced as under:

“1. On the facts and circumstances of the 1. On the facts and circumstances of the case, and in Law, case, and in Law, the CIT (Appeals) erred in confirming the addition of Rs. the CIT (Appeals) erred in confirming the addition of Rs. the CIT (Appeals) erred in confirming the addition of Rs. 23,25,585/-, being disallowance made u/s 40(a)(i) of the Act , being disallowance made u/s 40(a)(i) of the Act , being disallowance made u/s 40(a)(i) of the Act 2. On the facts and circumstances of the case and in law the 2. On the facts and circumstances of the case and in law the 2. On the facts and circumstances of the case and in law the CIT(A) failed to appreciate that CIT(A) failed to appreciate that a) The amount of Rs. 23,2 a) The amount of Rs. 23,25,585/- is towards management is towards management fees paid to Kamino LTD, UK without deduction of TDS fees paid to Kamino LTD, UK without deduction of TDS fees paid to Kamino LTD, UK without deduction of TDS b) With regards to the income element from the parent b) With regards to the income element from the parent b) With regards to the income element from the parent company Kamino Ltd, UK, the income element is already company Kamino Ltd, UK, the income element is already company Kamino Ltd, UK, the income element is already added to the income of the assessed by way of disallowed of added to the income of the assessed by way of disallowed of added to the income of the assessed by way of disallowed of 7% of the gross debits. the gross debits. c) c) Thus, Thus, 23,25,585/ 23,25,585/- already already forming forming part part of of Rs.3,43,48,443/ Rs.3,43,48,443/- on which 7% is already added once further on which 7% is already added once further disallowing the same again would result in double taxation. disallowing the same again would result in double taxation. disallowing the same again would result in double taxation. 3. The appellant, therefore, prays that the disallowance of 3. The appellant, therefore, prays that the disallowance of 3. The appellant, therefore, prays that the disallowance of Rs. 23,25,585 Rs. 23,25,585/-may please be deleted.” 3. Briefly stated, facts of the case are that the assessee is Briefly stated, facts of the case are that the assessee is Briefly stated, facts of the case are that the assessee is a private limited company incorporated in India. The 51 percent of private limited company incorporated in India. The 51 percent of private limited company incorporated in India. The 51 percent of the equity share capital of the assessee is held by “Kamino Ltd. the equity share capital of the assessee is held by the equity share capital of the assessee is held by London”. The group companies he group companies of the assessee i.e. Associated of the assessee i.e. Associated Enterprises, used to sen used to send shipments by air/sea to India by making shipments by air/sea to India by making

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payment of freight and other charges in the country of the origin payment of freight and other charges in the country of the origin payment of freight and other charges in the country of the origin and the cost for door to air shipment. The assessee company used and the cost for door to air shipment. The assessee company and the cost for door to air shipment. The assessee company to receive those shipments those shipments and deliver the same to custom customerin India and and and collecting collecting collecting the the the freight freight freight and and and other other other charges charges charges from from from those those those customers/parties. This freight has customers/parties. This freight has been remitted by the assessee been remitted by the assessee in foreign currency in foreign currency to M/s Kamino Ltd. London and other Kamino Ltd. London and other Associated concern from time to time. from time to time.

3.1 For the year under consideration, the assessee filed return of For the year under consideration, the assessee filed return of For the year under consideration, the assessee filed return of income on 22.10.2001 declaring loss of Rs.19,921/-. The income on 22.10.2001 declaring loss of Rs.19,921/ income on 22.10.2001 declaring loss of Rs.19,921/ assessment u/s 143(3) of the Income assessment u/s 143(3) of the Income-tax Act, 1961 (in short ‘the tax Act, 1961 (in short ‘the Act’) was passed on 29.03.2004 by the Assessing Officer assessing Act’) was passed on 29.03.2004 by the Assessing Officer assessing Act’) was passed on 29.03.2004 by the Assessing Officer assessing total income at Rs.3,90,10,956/ total income at Rs.3,90,10,956/-. On appeal by the assessee by the assessee, the Ld. CIT(A) allowed part relief. On further appeal, the Income-tax Ld. CIT(A) allowed part relief. On further appeal, the Income Ld. CIT(A) allowed part relief. On further appeal, the Income Appellate Tribunal (ITAT) vide order dated 30.11.2009 restored Appellate Tribunal (ITAT) vide order dated 30.11.2009 restored Appellate Tribunal (ITAT) vide order dated 30.11.2009 restored some of the issues to the file of the Assessing Officer. The issues some of the issues to the file of the Assessing Officer. The i some of the issues to the file of the Assessing Officer. The i restored included disallowance u/s 40a(i) of the Act for non- restored included disallowance u/s 40a(i) of the Act for non restored included disallowance u/s 40a(i) of the Act for non deduction of tax at source u/s 195 of the Act on the remittances deduction of tax at source u/s 195 of the Act on the remittances deduction of tax at source u/s 195 of the Act on the remittances made to the related parties and others. The Tribunal restored the made to the related parties and others. The Tribunal restored the made to the related parties and others. The Tribunal restored the issue to the file of the Assessing Officer for examining the taxability issue to the file of the Assessing Officer for examining t issue to the file of the Assessing Officer for examining t of the remittance in view of double tax avoidance agreement (DTAA) of the remittance in view of double tax avoidance agreement of the remittance in view of double tax avoidance agreement between India and United Kingdom and other countries. between India and United Kingdom and other countries. between India and United Kingdom and other countries.

3.2 In the assessment order passed by the Assessing Officer in In the assessment order passed by the Assessing Officer in In the assessment order passed by the Assessing Officer in compliance to the direction of the ITAT compliance to the direction of the ITAT, he disallowed 7% he disallowed 7% of the

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gross remittance made by the assessee gross remittance made by the assessee, considering the 7% as considering the 7% as income component element embedded in remittances element embedded in remittances, which was element embedded in remittances liable for deduction of tax at source u/s 195 of the Act and due to liable for deduction of tax at source u/s 195 of the Act and due to liable for deduction of tax at source u/s 195 of the Act and due to non-deduction of tax deduction of tax at source on the said component at source on the said component remittance to that extent was held as disallo was held as disallowable u/s 40a(i) of the Act. Rega wable u/s 40a(i) of the Act. Regarding the management fee paid of Rs.23,35,585/ the management fee paid of Rs.23,35,585/- to M/s Kamino Ltd. to M/s Kamino Ltd. United Kingdom, it was submitted by the assessee it was submitted by the assessee that that firstly, said amount was included in the remittances, for which included in the remittances, for which included in the remittances, for which the Assessing Officer already disallowed income element involved therein and Officer already disallowed income element involved therein and Officer already disallowed income element involved therein and therefore, separate disallowance of Rs.23,25,585/ therefore, separate disallowance of Rs.23,25,585/- as management as management fee would amount to double disallowance. Secondly, it was fee would amount to double disallowance. Secondly, it was fee would amount to double disallowance. Secondly, it was submitted that the TDS was duly deducted and paid in subsequent submitted that the TDS was duly deducted and paid in su submitted that the TDS was duly deducted and paid in su assessment year i.e. AY 2002 assessment year i.e. AY 2002-03 and therefore, same should be 03 and therefore, same should be allowed in that year. However, no documentary evidence in support allowed in that year. However, no documentary evidence in support allowed in that year. However, no documentary evidence in support of submissions were filed by the assessee before the Assessing of submissions were filed by the assessee before the Assessing of submissions were filed by the assessee before the Assessing Officer and therefore, he sustained the disallowance of management Officer and therefore, he sustained the disallowance of Officer and therefore, he sustained the disallowance of fee of Rs.23,25,585/- - u/s 40a(i) of the Act due to non u/s 40a(i) of the Act due to non-deduction of the tax at source u/s 195 of the Act. the tax at source u/s 195 of the Act.

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for management fee for management fee. In the ground raised, the assessee has the assessee has challenged the disallowance mainly on the two reasons. Firstly, the sallowance mainly on the two reasons. Firstly, the sallowance mainly on the two reasons. Firstly, the amount disallowed already included already included in the total remittances made. in the total remittances made. Secondly, tax was also deducted in subsequent assessment year. Secondly, tax was also deducted in subsequent assessment year. Secondly, tax was also deducted in subsequent assessment year.

“6.3 Disallowance of Rs.23,25,585/ Disallowance of Rs.23,25,585/-, u/s.40(a)(i) towards , u/s.40(a)(i) towards Management Management Fees The appellant, though not in the grounds of appeal, in its The appellant, though not in the grounds of appeal, in its The appellant, though not in the grounds of appeal, in its submissions, has submitted that the disallowance towards submissions, has submitted that the disallowance towards submissions, has submitted that the disallowance towards management fees u/s.40(a)(i) for non management fees u/s.40(a)(i) for non-deduction of tax under deduction of tax under sec. 195 am sec. 195 amounts to double taxation of the same amount ounts to double taxation of the same amount since the income element on the remittances made to the since the income element on the remittances made to the since the income element on the remittances made to the parent company is already added to the income and parent company is already added to the income and parent company is already added to the income and disallowed the same u/s.40(a)(ia). The submission of the disallowed the same u/s.40(a)(ia). The submission of the disallowed the same u/s.40(a)(ia). The submission of the appellant is carefully considered. Based on the s appellant is carefully considered. Based on the s appellant is carefully considered. Based on the submission made by the appellant, the AO in Para 2.1 and 2.2 of the made by the appellant, the AO in Para 2.1 and 2.2 of the made by the appellant, the AO in Para 2.1 and 2.2 of the assessment order has averred that the appellant has made assessment order has averred that the appellant has made assessment order has averred that the appellant has made the management fees in terms of duly executed agreements the management fees in terms of duly executed agreements the management fees in terms of duly executed agreements and it was mandatorily paid to the parent company. The and it was mandatorily paid to the parent company. The and it was mandatorily paid to the parent company. The appellant further su appellant further submitted before the AO that the TDS on bmitted before the AO that the TDS on such Management fees was deducted during the F.Y.2001 such Management fees was deducted during the F.Y.2001 such Management fees was deducted during the F.Y.2001- 02 relevant to the A.Y 2002 02 relevant to the A.Y 2002-03 and remittances were also 03 and remittances were also made in F.Y 2001 made in F.Y 2001-02. The appellant vide its submission 02. The appellant vide its submission dated 06.09.2004 (as seen in para 2.2 of the assessm dated 06.09.2004 (as seen in para 2.2 of the assessm dated 06.09.2004 (as seen in para 2.2 of the assessment order) also pleaded before the AO that the such deduction order) also pleaded before the AO that the such deduction order) also pleaded before the AO that the such deduction should be allowed for the A.Y 2002 should be allowed for the A.Y 2002-03. Since no TDS was 03. Since no TDS was made, in F.Y 1999 made, in F.Y 1999-00, the appellant was liable to deduct the 00, the appellant was liable to deduct the tax us. 195 and the sum of Rs.23.25,585/ tax us. 195 and the sum of Rs.23.25,585/-was added to the was added to the total Income. From total Income. From the above facts, it emanates that the the above facts, it emanates that the

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management fees are totally different from the issue of management fees are totally different from the issue of management fees are totally different from the issue of remittances made towards freight charges made to parent remittances made towards freight charges made to parent remittances made towards freight charges made to parent company and other group companies/associates. The company and other group companies/associates. The company and other group companies/associates. The appellant company itself has deducted the TDS on appellant company itself has deducted the TDS on appellant company itself has deducted the TDS on management fee in the subsequent financial years and ent fee in the subsequent financial years and ent fee in the subsequent financial years and hence there no question of non hence there no question of non-deduction of TDS for the FY deduction of TDS for the FY 2000-01 relevant to the AY 2001 01 relevant to the AY 2001-02. Hence, the AO was fully 02. Hence, the AO was fully justified in adding the management fees of Rs.23,25.585/ justified in adding the management fees of Rs.23,25.585/ justified in adding the management fees of Rs.23,25.585/- on account of the facts admitted on account of the facts admitted by the appellant during the by the appellant during the assessment proceedings. assessment proceedings. The appellant submitted that TDS is not liable to be deducted The appellant submitted that TDS is not liable to be deducted The appellant submitted that TDS is not liable to be deducted on those remittances towards sea freight charges as per on those remittances towards sea freight charges as per on those remittances towards sea freight charges as per Circular No.723 dated19/9/95. The copy of the Circulars Circular No.723 dated19/9/95. The copy of the Circulars Circular No.723 dated19/9/95. The copy of the Circulars reproduced as under: reproduced as under: SECTION 172 SHIPPINGBUSINESS OF NON 72 SHIPPINGBUSINESS OF NON-RESIDENTS RESIDENTS 913. Tax deduction at source from payment made to foreign 913. Tax deduction at source from payment made to foreign 913. Tax deduction at source from payment made to foreign shipping companies shipping companies 1. Representations have been received regarding the scope 1. Representations have been received regarding the scope 1. Representations have been received regarding the scope ofsections 172, 194C and 195 of the Income ofsections 172, 194C and 195 of the Income-tax Act, 1961, in tax Act, 1961, in connection with tax ded connection with tax deduction at source from payments uction at source from payments made to the foreign shipping companies or their agents. made to the foreign shipping companies or their agents. made to the foreign shipping companies or their agents. 2. Section 172 deals with shipping business of non 2. Section 172 deals with shipping business of non 2. Section 172 deals with shipping business of non- residentsSection 172(1) provides the mode of the levy and residentsSection 172(1) provides the mode of the levy and residentsSection 172(1) provides the mode of the levy and recovery of tax in the case of any ship, belonging to or recovery of tax in the case of any ship, belonging to or recovery of tax in the case of any ship, belonging to or chartered by a non rtered by a non-resident, which carries passengers, resident, which carries passengers, livestock, mail or goods shipped at a port in India. An livestock, mail or goods shipped at a port in India. An livestock, mail or goods shipped at a port in India. An analysis of the provisions of section 172 would show that analysis of the provisions of section 172 would show that analysis of the provisions of section 172 would show that these provisions have to be applied to every journey a ship, these provisions have to be applied to every journey a ship, these provisions have to be applied to every journey a ship, belonging to or chartered by belonging to or chartered by a non-resident, undertakes from resident, undertakes from any port in India. Section 172 is a self any port in India. Section 172 is a self-contained code for the contained code for the levy and recovery of the tax, ship levy and recovery of the tax, ship-wise, and journeywise, wise, and journeywise, and requires the filing of the return within a maximum time and requires the filing of the return within a maximum time and requires the filing of the return within a maximum time of thirty days from the date of departure of thirty days from the date of departure of the ship of the ship 3. 3. 3. The The The provisions provisions provisions of of of section section section 172 172 172 are are are to to to apply, apply, apply, notwithstanding anything contained in other provisions of notwithstanding anything contained in other provisions of notwithstanding anything contained in other provisions of the Act. Therefore, in such cases, the provisions of sections the Act. Therefore, in such cases, the provisions of sections the Act. Therefore, in such cases, the provisions of sections 194C and 195 relating to tax deduction at source are not 194C and 195 relating to tax deduction at source are not 194C and 195 relating to tax deduction at source are not

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applicable. The reco applicable. The recovery of tax is to be regulated, for a very of tax is to be regulated, for a voyage undertaken from any port in India by a ship under voyage undertaken from any port in India by a ship under voyage undertaken from any port in India by a ship under the provisions of section 172. the provisions of section 172. 4. Section 194C deals with work contracts including carriage 4. Section 194C deals with work contracts including carriage 4. Section 194C deals with work contracts including carriage of goods and passengers by any mode of transport other of goods and passengers by any mode of transport other of goods and passengers by any mode of transport other than railways. than railways. This section applies to payments made by a This section applies to payments made by a person referred to in clauses (a) to () of sub person referred to in clauses (a) to () of sub-section (1) to section (1) to any"resident" (termed as contractor). It is clear from the any"resident" (termed as contractor). It is clear from the any"resident" (termed as contractor). It is clear from the section that the area of operation of TDS is confined to section that the area of operation of TDS is confined to section that the area of operation of TDS is confined to payments made to any "resident. On payments made to any "resident. On the other hand, section the other hand, section 172 operates in the area of computation of profits from 172 operates in the area of computation of profits from 172 operates in the area of computation of profits from shipping business of non shipping business of non-residents. Thus, there is no residents. Thus, there is no overlapping in the areas of operation of these sections. overlapping in the areas of operation of these sections. overlapping in the areas of operation of these sections. 5. There would, however, be cases where payments are 5. There would, however, be cases where payments are 5. There would, however, be cases where payments are made to shi made to shipping agents of non-resident ship resident ship-owners or charterers for carriage of passengers etc., shipped at a port charterers for carriage of passengers etc., shipped at a port charterers for carriage of passengers etc., shipped at a port in India. Since, the agent acts on behalf of the non Since, the agent acts on behalf of the non-resident Since, the agent acts on behalf of the non ship-owner or charterer, he steps into the shoes of the owner or charterer, he steps into the shoes of the owner or charterer, he steps into the shoes of the principal. Accordingly, provisio Accordingly, provisions of section 172 shall apply ns of section 172 shall apply and those of sections 194C and 195 will not apply. and those of sections 194C and 195 will not apply. and those of sections 194C and 195 will not apply. Circular: No. 723, dated 19 Circular: No. 723, dated 19-9-1995. As it can be seen from the above, this circular is applicable to As it can be seen from the above, this circular is applicable to As it can be seen from the above, this circular is applicable to foreign shipping companies which is governed by Sec.172 of foreign shipping companies which is governed by Sec.172 of foreign shipping companies which is governed by Sec.172 of the IT Act, 196 the IT Act, 1961. Hence the circular is not applicable to the 1. Hence the circular is not applicable to the appellant's case. Hence this ground is dismissed. appellant's case. Hence this ground is dismissed.” ” 6.1 Before us, the addition has not been challenged either as Before us, the addition has not been challenged either as Before us, the addition has not been challenged either as income not taxable under the double tax avoidance agreement or taxable under the double tax avoidance agreement or taxable under the double tax avoidance agreement or under the provisions of the Incom under the provisions of the Income-tax Act. The only ground on tax Act. The only ground on which this addition is challenge which this addition is challenged by the assessee is that this by the assessee is that this amount already included in the remittances made by the assessee amount already included in the remittances made by the assessee amount already included in the remittances made by the assessee and for which 7% of the remittance amount of the remittance amount has been treated as has been treated as income element, which has been disall which has been disallowed u/s 40a(i) for non owed u/s 40a(i) for non- deduction of tax at source u/s 195 of the Act and therefore, no deduction of tax at source u/s 195 of the Act and therefore, no deduction of tax at source u/s 195 of the Act and therefore, no

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separate disallowance is called for. In our opinion, the management separate disallowance is called for. In our opinion, the management separate disallowance is called for. In our opinion, the management fee paid is different in character from the remittances made for fee paid is different in character from the remittances made for fee paid is different in character from the remittances made for air/freight sea payments/reimbursem air/freight sea payments/reimbursement. Therefore, it ent. Therefore, it cannot be treated at par with the remittances in which only 7% amount has treated at par with the remittances in which only 7% amount has treated at par with the remittances in which only 7% amount has been accepted by the Income been accepted by the Income-tax Authorities as income element. tax Authorities as income element. The assessee has not challenged that whole of the management fee The assessee has not challenged that whole of the management fee The assessee has not challenged that whole of the management fee was not liable for tax in the hands liable for tax in the hands of the recipients and therefore, of the recipients and therefore, we do not find any error in the order of the Ld. CIT(A) in upholding we do not find any error in the order of the Ld. CIT(A) in upholding we do not find any error in the order of the Ld. CIT(A) in upholding the disallowance. However, if the amount is also included in the the disallowance. However, if the amount is also included in the the disallowance. However, if the amount is also included in the remittance and 7% of the said has been tax remittance and 7% of the said has been taxed for non for non-deduction of tax at source, then th then the Assessing Officer may may verify and corresponding amount may corresponding amount may be reduced from the remittances which from the remittances which have been held as disallowable. have been held as disallowable. Further, if tax has been deducted at Further, if tax has been deducted at source on the management fee and paid in subsequent year then source on the management fee and paid in subsequent year then source on the management fee and paid in subsequent year then assessee may claim the deduction in subsequent year as per assessee may claim the deduction in subsequent year as per assessee may claim the deduction in subsequent year as per provisions of the law. provisions of the law. The ground of the appeal of the assessee is The ground of the appeal of the assessee is accordingly allowed partly for accordingly allowed partly for statistical purposes.

“GROUND NO I GROUND NO I 1. On the facts and circumstances of the case, and in Law, 1. On the facts and circumstances of the case, and in Law, 1. On the facts and circumstances of the case, and in Law, the CIT (Appeals) erred in confirming the addition of 7% on the CIT (Appeals) erred in confirming the addition of 7% on the CIT (Appeals) erred in confirming the addition of 7% on total freight payment of R$. Put 29,58,49,113/ total freight payment of R$. Put 29,58,49,113/- instead of instead of

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7% of Rs. 1,30,77,020/ 7% of Rs. 1,30,77,020/- payment made to theRelated payment made to theRelated party. 2. On the facts and 2. On the facts and circumstances of the case and in law circumstances of the case and in law the CIT(A) failed to appreciate that the tax Audit report of the CIT(A) failed to appreciate that the tax Audit report of the CIT(A) failed to appreciate that the tax Audit report of the Assessed where the payment to the related parties is the Assessed where the payment to the related parties is the Assessed where the payment to the related parties is listed U/s40A(2)(b). This aspect confirms the business listed U/s40A(2)(b). This aspect confirms the business listed U/s40A(2)(b). This aspect confirms the business connection of the Assessed. Therefore, the exp connection of the Assessed. Therefore, the expenses of Rs. enses of Rs. Rs. 82,00,048/ to Holding company Kamino Ltd towards Rs. 82,00,048/ to Holding company Kamino Ltd towards Rs. 82,00,048/ to Holding company Kamino Ltd towards freight and Rs. 48,76,972/ freight and Rs. 48,76,972/- towards management fees towards management fees does qualify for the business connections. does qualify for the business connections. 3. The appellant, therefore, prays that the disallowance of 3. The appellant, therefore, prays that the disallowance of 3. The appellant, therefore, prays that the disallowance of 7% of Rs. 1.30.77.020/ 7% of Rs. 1.30.77.020/- shown in Tax Audit Report x Audit Report amounting to Rs. 9,15,391/ amounting to Rs. 9,15,391/-may please be made and may please be made and balance be deleted. balance be deleted. GROUND NO I GROUND NO II 1. On the facts and circumstances of the case, and in Law, 1. On the facts and circumstances of the case, and in Law, 1. On the facts and circumstances of the case, and in Law, the CIT (Appeals) erred in confirming the disallowance of the CIT (Appeals) erred in confirming the disallowance of the CIT (Appeals) erred in confirming the disallowance of provision for sales commission U/s43B of provision for sales commission U/s43B of the Act. 2. On the facts and circumstances of the case and in law 2. On the facts and circumstances of the case and in law 2. On the facts and circumstances of the case and in law the CIT(A) failed to appreciate that the CIT(A) failed to appreciate that a Sales incentive is a regular feature and provisions are a Sales incentive is a regular feature and provisions are a Sales incentive is a regular feature and provisions are made at the end ofthe year as a usual practice. made at the end ofthe year as a usual practice. b) Sales incentive cannot be covered U/s43B of b) Sales incentive cannot be covered U/s43B of the Act. the Act. 3. The appellant, therefore, prays that the disallowance of 3. The appellant, therefore, prays that the disallowance of 3. The appellant, therefore, prays that the disallowance of Provision for sales commission may please be allowed. Provision for sales commission may please be allowed. Provision for sales commission may please be allowed.” 8. The First ground relates to addition of 7% The First ground relates to addition of 7% The First ground relates to addition of 7% of remittances confirmed confirmed confirmed by by by the the the Ld. Ld. Ld. CIT(A) CIT(A) CIT(A) on on on freight freight freight payment payment payment of of of Rs.29,58,49,113/-. Bu . But according to the assessee disallowance according to the assessee disallowance should have been restricted to 7% should have been restricted to 7% of Rs.1,30,77,020/ 77,020/-, which was remittances made to the related parties made to the related parties only. We find that the . We find that the Tribunal in assessment year 2001 Tribunal in assessment year 2001-02 had set aside the issue of set aside the issue of

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examining the taxability examining the taxability of remittances and profit element involved of remittances and profit element involved therein under the double tax avoidance agreement and provisions of therein under the double tax avoidance agreement and provisions of therein under the double tax avoidance agreement and provisions of the Act.We find that in assessment year 2001 e find that in assessment year 2001-02 02,before us, the assessee has not challenged the addition of 7% on the freight assessee has not challenged the addition of 7% on the freight assessee has not challenged the addition of 7% on the freight payment u/s 40a(i) o payment u/s 40a(i) of the Act for non-deduction of tax at source deduction of tax at source u/s 195 of the Act. The only dispute in the year under u/s 195 of the Act. The only dispute in the year under u/s 195 of the Act. The only dispute in the year under consideration is that addition @ 7% should have been restricted to consideration is that addition @ 7% should have been restricted consideration is that addition @ 7% should have been restricted the payments to related parties only and it should not have been related parties only and it should not have been related parties only and it should not have been extended to the total fr extended to the total freight payment of Rs.29,58,49, 49,113/- by the assessee. In our opinion, assessee. In our opinion, following issues need to be following issues need to be examined:

i. Whether Whether Whether remittances remittances remittances to to to other other other parties parties parties are are are pure pure pure reimbursement or any profit element is involved. If profit reimbursement or any profit element is involved. If profit reimbursement or any profit element is involved. If profit element is there, element is there, then same would be liable for deduction same would be liable for deduction of the tax at source. of the tax at source. ii. Whether the remittances to other parties include sea Whether the remittances to other parties include sea Whether the remittances to other parties include sea freight remittances, which already stand excluded from freight remittances, which already stand excluded from freight remittances, which already stand excluded from TDS under provision of section 195 of the Act . TDS under provision of section 195 of the Act TDS under provision of section 195 of the Act iii. Whether any tax was already deducted by the assessee Whether any tax was already deducted by th Whether any tax was already deducted by th on the remittances made to other parties. on the remittances made to other parties.

8.1 We find that the Tribunal in assessment year 2007 We find that the Tribunal in assessment year 2007 We find that the Tribunal in assessment year 2007-08 recorded the fact of the remittances made to the group concern as recorded the fact of the remittances made to the group concern as recorded the fact of the remittances made to the group concern as well as other and the issue was restored back for verification. The well as other and the issue was restored back for verification. The well as other and the issue was restored back for verification. The

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relevant finding of the Tribunal in assessment year 2007 ding of the Tribunal in assessment year 2007 ding of the Tribunal in assessment year 2007-08 in ITA No. 4961/Del/2010 is reproduced as under: No. 4961/Del/2010 is reproduced as under:

“2.3 Having heard both the sides and perused the Having heard both the sides and perused the Having heard both the sides and perused the material on record it is relevant to mention that the material on record it is relevant to mention that the material on record it is relevant to mention that the Tribunal in the assessee's own case for the Assessment Tribunal in the assessee's own case for the Assessment Tribunal in the assessee's own case for the Assessment Years ears 2001-02,2004-05, 2001 2005-06 & 2006-07 07 has has restored the matter back to the file of the AO for a fresh restored the matter back to the file of the AO for a fresh restored the matter back to the file of the AO for a fresh adjudication. It is noted that the Ld.CIT(A) has confirmed adjudication. It is noted that the Ld.CIT(A) has confirmed adjudication. It is noted that the Ld.CIT(A) has confirmed the impugned disallowances following the orders of the the impugned disallowances following the orders of the the impugned disallowances following the orders of the predecessors for the Assessment Years 2 predecessors for the Assessment Years 2001-02 & 2004 02 & 2004- 05.This is evidenced in para 5.3 of the order of the 05.This is evidenced in para 5.3 of the order of the 05.This is evidenced in para 5.3 of the order of the id.CIT(A). It is pertinent to mention that against the orders id.CIT(A). It is pertinent to mention that against the orders id.CIT(A). It is pertinent to mention that against the orders of the La.CIT(A) for re AYs 1031 of the La.CIT(A) for re AYs 1031-92 3. 2004- -05, the Tribunal has set aside the matter to the AO, for a fresh Tribunal has set aside the matter to the AO, for a fresh Tribunal has set aside the matter to the AO, for a fresh adjudication. Ther adjudication. Therefore, it would be just and proper that efore, it would be just and proper that this issue is also restored back to this issue is also restored back to the file of the Ad for the file of the Ad for fresh adjudication in the similar line of direction given by judication in the similar line of direction given by judication in the similar line of direction given by the Tribunal in the said cases. While deciding the issue the Tribunal in the said cases. While deciding the issue the Tribunal in the said cases. While deciding the issue afresh, the A is directed to decide the afresh, the A is directed to decide the issue on the basis issue on the basis of the facts emerging from the records for the year under of the facts emerging from the records for the year under of the facts emerging from the records for the year under consideration as it is brought to our notice by the Ld.AR consideration as it is brought to our notice by the Ld.AR consideration as it is brought to our notice by the Ld.AR that major portion of remittances during the previous year that major portion of remittances during the previous year that major portion of remittances during the previous year relevant to the assessment year under consideration are relevant to the assessment year under consideration are relevant to the assessment year under consideration are made to non group payees out of the total remittances to to non group payees out of the total remittances to to non group payees out of the total remittances to 49 payees and the orders of the Ld.CIT(A) & the Tribunal 49 payees and the orders of the Ld.CIT(A) & the Tribunal 49 payees and the orders of the Ld.CIT(A) & the Tribunal have considered the facts emerging from records of the have considered the facts emerging from records of the have considered the facts emerging from records of the AY 2001-92 where remittances have been made to group 92 where remittances have been made to group 92 where remittances have been made to group companies only and al companies only and also that remittances to these s to these payees are covered by Article 7 of es are covered by Article 7 of the various DTAAs as the various DTAAs as the remittance tance are of business profit accordingly, the AO iness profit accordingly, the AO is directed to d is directed to decide whether the assessee is li ecide whether the assessee is liable to deduct any tax us 195 of the Act in the light of the deduct any tax us 195 of the Act in the light of the deduct any tax us 195 of the Act in the light of the provisions contained i provisions contained in Article 7 of applicable DTAA DTAA. We order and direct accordingly.” order and direct accordingly.” 8.2 Respectfully, following the finding of the Tribunal in following the finding of the Tribunal in following the finding of the Tribunal in assessment year 2007 assessment year 2007-08 the issue of disallowance of remittances 08 the issue of disallowance of remittances made to parties other than related parties is restored to the file of made to parties other than related parties is restored to the file made to parties other than related parties is restored to the file

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the Assessing Officer for verification as directed above. The ground the Assessing Officer for verification as directed above. The ground the Assessing Officer for verification as directed above. The ground No. 1 of the appeal of the assessee is accordingly allowed for No. 1 of the appeal of the assessee is accordingly allowed for No. 1 of the appeal of the assessee is accordingly allowed for statistical purposes.

In ground No. 2, the assessee has challenged disallowance of 9. In ground No. 2, the assessee has challenged disallowance of In ground No. 2, the assessee has challenged disallowance of provisions for sales commission ex provisions for sales commission expenses of Rs.5,00,000/ penses of Rs.5,00,000/-. The relevant finding of the Ld. CIT(A) on the issue in dispute is relevant finding of the Ld. CIT(A) on the issue in dispute is relevant finding of the Ld. CIT(A) on the issue in dispute is reproduced as under: reproduced as under:

“6.3Ground No. 8 Provision for commission on sales 6.3Ground No. 8 Provision for commission on sales 6.3Ground No. 8 Provision for commission on sales incentives Rs.5,00,000: incentives Rs.5,00,000: Assessing officer: Assessing officer: 2. During the relevant year the assessee has made 2. During the relevant year the assessee has made 2. During the relevant year the assessee has made an adhoc adhoc provision provision of of 5,00,000/- 5,00,000/ towards towards sales sales incentives.Assessee failed to file details and justification incentives.Assessee failed to file details and justification incentives.Assessee failed to file details and justification of this provision and as how it is an ascertained of this provision and as how it is an ascertained of this provision and as how it is an ascertained liability. The claim remains unverifiable and therefore liability. The claim remains unverifiable and therefore liability. The claim remains unverifiable and therefore same is disallowed and Rs.5,00,000/ same is disallowed and Rs.5,00,000/-is added to the ed to the income of the assessee. income of the assessee. Appellant's submission: Appellant's submission: The Assessee gives sales incentives after calculation of The Assessee gives sales incentives after calculation of The Assessee gives sales incentives after calculation of business. As at the end of the year the calculations business. As at the end of the year the calculations business. As at the end of the year the calculations were not complete and accordingly an ad hoc provision were not complete and accordingly an ad hoc provision were not complete and accordingly an ad hoc provision of Rs.5 lacs were made towards the of Rs.5 lacs were made towards the Incentive. We Incentive. We submit that the provision for expenses is made based on submit that the provision for expenses is made based on submit that the provision for expenses is made based on estimates as available on the balance sheet date by estimates as available on the balance sheet date by estimates as available on the balance sheet date by following the mercantile method of accounting. Any following the mercantile method of accounting. Any following the mercantile method of accounting. Any small shortfall or excess of the said provision gets small shortfall or excess of the said provision gets small shortfall or excess of the said provision gets adjusted in the ensuing years adjusted in the ensuing years. Thus, there is no loss to . Thus, there is no loss to the exchequer. The provisions are based on the the exchequer. The provisions are based on the the exchequer. The provisions are based on the estimates which are confirmed by the Auditors of the estimates which are confirmed by the Auditors of the estimates which are confirmed by the Auditors of the Company. We therefore submit that the same may Company. We therefore submit that the same may Company. We therefore submit that the same may kindly be allowed as expenses. kindly be allowed as expenses.

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Decision: The commission is admittedly payable on Decision: The commission is admittedly payable on Decision: The commission is admittedly payable on sales. The books having been closed and subjected to sales. The books having been closed and subjected to sales. The books having been closed and subjected to audit need not haveany provision for commission on audit need not haveany provision for commission on audit need not haveany provision for commission on sales and any provision made may always be brought sales and any provision made may always be brought sales and any provision made may always be brought to actuals which is sales which is ascertainable and to actuals which is sales which is ascertainable and to actuals which is sales which is ascertainable and there cannot be any change thereof. Unlike warra there cannot be any change thereof. Unlike warra there cannot be any change thereof. Unlike warranty expenses, expenses, expenses, commission commission commission on on on sales sales sales being being being an an an event event event associated associated associated with with with sales sales sales which which which has has has already already already been been been ascertained and crystalized, the need for provision ascertained and crystalized, the need for provision ascertained and crystalized, the need for provision cannot be appreciated. The disallowance is upheld. cannot be appreciated. The disallowance is upheld. cannot be appreciated. The disallowance is upheld. This ground is dismissed. This ground is dismissed.” 10. We have heard rival submissi We have heard rival submission of the parties on the issue on of the parties on the issue-in- dispute and perused the relevant material on record. Any provision dispute and perused the relevant material on record. dispute and perused the relevant material on record. of liability which has not ascertained of liability which has not ascertained is not allowable under the is not allowable under the provisions of the Act provisions of the Act. According to the assessee this provision for ccording to the assessee this provision for expenses was based on ses was based on the estimate on the balance sheet the balance sheet date by following mercantile following mercantile method of accounting and therefore it was of accounting and therefore it was allowable. We find that the Ld. allowable. We find that the Ld. CIT(A) himself h has treated the provision as ascertained. According to him the commission on sales provision as ascertained. According to him the commission on sales provision as ascertained. According to him the commission on sales have been associated have been associated with sales, which has already ascertained and has already ascertained and crystallized and therefore, once it crystallized and therefore, once it is held by the Ld by the Ld. CIT(A) himself that provision of sales commission provision of sales commission is a ascertained liability, is a ascertained liability, same cannot be disallowed under the provisions of the Act. Accordingly, cannot be disallowed under the provisions of the Act. Accordingly, cannot be disallowed under the provisions of the Act. Accordingly, we set aside the finding of the Ld. CIT et aside the finding of the Ld. CIT(A) and delete the addition (A) and delete the addition upheld by him. The ground No. 2 of the appeal of the assessee is ld by him. The ground No. 2 of the appeal of the assessee is ld by him. The ground No. 2 of the appeal of the assessee is accordingly allowed.

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Order pronounced Order pronounced in the open Court on 30/0 03/2023. Sd/- Sd/ Sd/- (ABY T VARKEY ABY T VARKEY) (OM PRAKASH KANT OM PRAKASH KANT) JUDICIAL MEMBER JUDICIAL MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER Mumbai; Dated: 30/03/2023 Rahul Sharma, Sr. P.S. Copy of the Order forwarded to Copy of the Order forwarded to : 1. The Appellant 2. The Respondent. 3. CIT 4. DR, ITAT, Mumbai 5. Guard file. BY ORDER, BY ORDER, //True Copy// (Assistant Registrar) (Assistant Registrar) ITAT, Mumbai ITAT, Mumbai