ADITYA BIRLA GLOBAL TRADING (INDIA) PRIVATE LIMITED,GUJARAT vs. ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 1, GANDHIHDAM, GANDHIDHAM, GUJARAT

The Grounds of appeal raised by the Revenue in appeal in for A.Y. 2017-18, are as follows:

We have heard the rival parties and have gone through the material placed on record. We find that Customs Act, 1962 has a separate chapter XVI-Offences and Prosecution under which punishment is mentioned for violation of law. However, the section under which charges was levied on the assessee falls under Chapter VII of Customs Act, 1962. If the assessee had violated any law the said charges would have been charged under chapter XVI of Customs Act, 1962. Thus, it is clearly seen that the said charges levied was due to late submission of bill of entry but not due to infringement of any law. For this, the Id. Counsel for the assessee, has relied on the decision of the 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 delayed remittance of customs duty is compensatory in nature and hence allowable as business expenditure. Therefore, we find that the said expenses were compensatory in nature and hence allowable expenses as per section 37 of the Act. During the course of appellate proceedings, the assessee 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 Page | 6 353, 225 & 226/RJT/2024 Aditya Birla Global Trading (India) Pvt. Ltd. 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 stipulates as under.

The Id CIT(A) referred the judgement of the Hon'ble Delhi High Court in the case of M/s Usha Micro Process Controls Ltd, reported in 37 taxmann.com 324, wherein it was held that where the assessee Importer paid redemption fine in lieu of confiscation of re-exported goods is 353, 225 & 226/RJT/2024 Aditya Birla Global Trading (India) Pvt. Ltd. compensatory in nature and not penal and was therefore an allowable deduction u/s u/s 37(1) of the Act. The Hon'ble Delhi Tribunal in the case of Akshay Khetterpal, in vide its decision dated 31.05.2022, while adjudicating issue for A.Y.2015-16 has held that the Hon'ble Supreme Court in the case of Prakash Cotton Mills Pvt Ltd has clearly held that when an amount is paid as interest or damages or penalty as would regard as compensatory (reparatory in character), the Assessee would entitled to claim it as an allowable expenses u/s 37(1) of the Act. Therefore, whenever any statutory impost paid by an Assessee by way of damages or penalty or interest, is claimed as an allowable expenditure u/s 37(1) of I.T. Act, the assessing officer is required to examine the scheme of relevant statute providing of such impost not-withstanding the nomenclature of the impost as given by the statute, to find whether it is compensatory or penal in nature. The authority has to allow deduction u/s.37(1) of the I.T. Act, wherever such examination reveals 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.

In the result, ground No. 1 raised by the Revenue, in for A.Y. 2016-17, is dismissed.

Ground No.2 and 3 raised by the Revenue in 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 for A.Y. 2017-18, which relates to deleting the addition of Rs. 1,09,30,126/-, made on account of disallowance u/s. 40(a)(i) with respect to Commission on exports sales to non-resident parties, which is similar and identical, therefore, we shall adjudicate these grounds together, by taking the lead case in ITA No.284/Rjt/2024 for A.Y. 2016-17.

Brief facts qua the issue are that on perusal of details of commission expenses in the head 'other expenses' as provided by the assessee, vide annexure iv, of submission dated 10.12.2018, it was noticed by the assessing officer that the assessee -company has paid commission on exports sales to following non- resident parties:

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. The Id. CIT(A) held that 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. Aggrieved by the order of the Ld. CIT(A), the Revenue is in appeal before us.

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. Page | 10 353, 225 & 226/RJT/2024 Aditya Birla Global Trading (India) Pvt. Ltd.

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 have accrued in India in view of specific provision in clause (a) of the Explanation of section 9(1) of the Act. Since the Commission was not chargeable to tax in India, hence there was no requirement to deduct TDS, therefore, Id. Counsel stated that order passed by the Id. CITA, is just and proper, hence it may up be upheld.

We have heard both the parties and carefully gone through the submission put forth on behalf of the assessee along with the documents furnished and the case laws relied upon, and perused the fact of the case including the findings of the Id CIT(A) and other materials brought on record. In these grounds issue pertain to action of the assessing officer in making disallowance of commission expenses paid to foreign agents. It is an undisputed fact that payment was made to a foreign commission agents and said commission was for export sales for which the agent had rendered services as a commission agent, outside India. The Commission agents never delivered services in India and these commission agents did not have any business connection in India. No any business activity or operations were carried out in India by these commission agents, hence no portion of the commission can be said to have accrued in India in view of specific provision in clause (a) of the Explanation of section 9(1) of the Act. The assessee has further claimed that the liability to deduct tax under section 195 of the Act, is only when a sum is chargeable to tax in India. As commission earned by non-resident commission agents falls outside the Page | 11 353, 225 & 226/RJT/2024 Aditya Birla Global Trading (India) Pvt. Ltd. purview of section 9 of the Act, the liability to deduct tax u/s 195 of the Act did not arise as no income was accrued in India. During the appellate proceedings, before the learned CIT(A), the assessee has relied on the following judgements:

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.

The Ld. CIT(A) also relied on the decision of the Hon'ble Jurisdictional High Court of Gujarat in the case of Principal Commissioner of Income- tax vs. Ferromatic Milacron India (P.) Ltd. [2018] 99 taxmann.com 154 (Gujarat) dated 09.10.2018, wherein the Hon'ble High Court has decided the appeal in favour of the assessee. The findings of the Hon'ble Court is reproduced below:

In view of the above factual position, the Id CIT(A) deleted the addition. We have gone through the above findings of the Id. CIT(A) and noted that there is no any infirmity in the conclusion reached by the 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.

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 Page | 14 353, 225 & 226/RJT/2024 Aditya Birla Global Trading (India) Pvt. Ltd. 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 Shipping services, a pen drives 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 is 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 to M/s Swiss Singapore India Pvt Ltd, as per the data impounded from the premises of Shiv Shipping Services. They also stated that all such payments were in cash and unaccounted in the books of account. These transactions are out of books transactions. On verification of such data, it was noticed by the assessing officer that during the year relevant to the assessment year under question, an amount of Rs. 1,47,17,000/-was paid by M/s Shiv Shipping Services to the assessee in cash. During the course of assessment proceeding, assessee was asked to explain such cash receipts and also was asked to show- cause, as to why such cash receipt of Rs. 1,47,17,000/- should not be added to the total income, as unexplained and unaccounted cash receipts u/s 68 of the Act.

In response, the assessee has replied to the assessing officer that company has not received such cash. However, the assessing officer rejected the contention of the assessee and observed that the imponded material at the premises at Shiv Shipping Services and statement of the partners clearly shows that assessee- company have received such cash payment after receiving the cheque for bill raised which has not been recorded in the books of accounts of the assessee. In view of these facts the amount of Rs. 1,47,17,000/- was added to the total income of the assessee, Page | 15 353, 225 & 226/RJT/2024 Aditya Birla Global Trading (India) Pvt. Ltd. as unexplained and unaccounted income received in cash u/s 68 of the Income Tax act 1961.

On appeal by the assessee, the Ld. CIT(A), has deleted the addition made by the assessing officer. The Id CIT(A) after analysis of various documents and statements held that assessing officer has not brought any evidence in support of receipt of cash by making any independent enquiry. The partners and the employees had filed retraction with proper explanation before the Hon'ble Settlement Commission and 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.

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 to M/s Swiss Singapore India Pvt Ltd, as per the data impounded from the premises of Shiv Shipping Services. They also stated that all such payments were in cash and unaccounted in the books of account. These Page | 16 353, 225 & 226/RJT/2024 Aditya Birla Global Trading (India) Pvt. Ltd. transactions are out of books transactions. Therefore, assessing officer correctly made the addition in respect of such cash receipts of Rs. 1,47,17,000/-, hence, addition made by the assessing officer may be sustained.

On the other hand, learned Counsel for the assessee argued that assessee 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. 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 assessee has accepted over invoicing and receipt of cash by the assessee. The assessing officer has not brought on record any evidence of whatsoever nature to suggest that the assessee has received cash from M/s Shiv Shipping Services. The assessing officer, while making addition, had not given an opportunity to cross examine the persons of M/s. Shiv Shipping Services. The assessee had also filed the copy of the Hon'ble Income Tax Settlement Commission order passed in the case of Shiv Shipping Services on January 20, 2021 wherein, the Hon'ble Settlement Commission, had accepted the disclosure of additional income and the manner in which such additional income was earned after considering all the facts including that the statements furnished by the partners and employee of Shiv Shipping Services which were subsequently retracted and clarified the contents of the excel sheet found in the pen drive at premises of M/s Shiv Shipping Services. The Id. Counsel, thus pointed out that assessing officer made the addition on surmises and guess work, Page | 17 353, 225 & 226/RJT/2024 Aditya Birla Global Trading (India) Pvt. Ltd. which has rightly been deleted by the Id. CIT(A). Therefore, Id. Counsel stated that order passed by the Id. CIT(A) may be upheld.

We have given our thoughtful consideration 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:

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 stated to having received cash of Rs. 2 to 3 lakhs in some instances from Shiv Shipping Services. In his statement recorded during survey, he has mentioned that small amount of cash received was towards distribution of gifts during festivals like Diwali etc and arranging get togethers. However, nowhere had Mr. Paliwal accepted that the Assessee and its employees are engaged in any alleged over- invoicing with Shiv Shipping Services, In fact, in his other statement, Shri Dharmendra Paliwal had mentioned the names of Shri Rajat Chitlangia and Shri Rajat Ahluwalia who were responsible for finalising handling contracts with CHAs. On a conjoint reading of aforesaid extracted statements of Shri Dharmendra Paliwal, it is evident that the assessing officer had erroneously drawn an adverse inference by misinterpreting the aforesaid statements. The assessee submitted that Shri Dharmendra Paliwal has furnished an affidavit clarifying the abovementioned statements made during the course of survey proceedings. From this affidavit it is clearly evident that such cash was given by M/s Ship Shipping to Mr. Dharmendra Paliwal for distribution of gifts, arranging get togethers, parties etc. Page | 22 353, 225 & 226/RJT/2024 Aditya Birla Global Trading (India) Pvt. Ltd.

The Assessee further submitted the below comparative chart which clearly shows that for a similar vessel size, the average rates charged by M/s Shiv Shipping for providing CHA services is similar to that charged by order third-party CHA to the assessee during the captioned assessment year:

The Id. CIT(A) observed from copy of the Hon'ble Income Tax Settlement Commission order passed in the case of Shiv Shipping Services dated 29.01.2021 that the Hon'ble Settlement Commission, had accepted the disclosure of additional income and the manner in which such additional income was earned after considering all the facts including that the statements furnished by the partners and employee of Shiv Shipping Page | 25 353, 225 & 226/RJT/2024 Aditya Birla Global Trading (India) Pvt. Ltd. Services before whom the transactions/ contents of the excel sheet found in the pen drive at premises of M/s Shiv Shipping Services were clarified. It is also found that Shiv Shipping Services in its application before Hon'ble Settlement Commission had submitted that the statements given by its partners and employee with incorrect facts, had been retracted and explanations given with respect thereto. It has been reiterated by M/s. Shiv Shipping Services that it had not given back any amounts to its customers. The partners and employee of M/s. Shiv Shipping Services summarized correct facts in affidavit before the Hon'ble Settlement Commission. The employee of M/s. Shiv Shipping Services i.e. Shri Suresh Pillai clarified in affidavit that he did not make any payment 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 to the employee, the real purpose of payment was never revealed to employees and was fed with the information that cash was given to the customers against inflated sale invoices. It was further stated that invoices Page | 26 353, 225 & 226/RJT/2024 Aditya Birla Global Trading (India) Pvt. Ltd. raised for services to customers was neither inflated nor any amount was given back. The firm had not given any amounts to its customer and the payments in the impounded material were in fact loans and advances given by the firm to various parties at interest. The noting does not represent any repayment in cash and it was reiterated that those noting were merely pertaining to the advance given in cash to various parties for earning interest.

In the result, ground Nos. 2 and 3 in raised by the Revenue, are dismissed.

Now we shall take assessee's appeal in for assessment year 2018-19, wherein grounds of appeal raised by the assessee, are as follows:

Succinct facts qua the issue are that during the course of assessment proceedings, the assessing officer noticed that assessee has debited commission expenses in the profit and loss discount, however, the rate of commission has been decided and determined without any due diligence between related entities. Therefore, during the course of assessment proceeding, the assessee was asked to explain the above mentioned overseas transaction Rs. 1,80,23,440/-. In response to this, the assessee has submitted his reply, before the assessing officer that commission expenses have been incurred during the course of business, and these expenses has actually been accrued to the assessee. The assessee also submitted that due to restriction on remittance, the amount actually was not paid on time, but there is a definite obligation on the assessee to pay it, and in fact, the amount was paid in subsequent years. The actual services have been rendered by the parties/Commission agents, therefore there was definite obligation on the assessee to pay it as per the accrual concept.

However, the assessing officer, rejected the above reply of the assessee and made addition of Rs. 1,80,23,440/-, to the total income of the assessee as unexplained expenditure u/s. 69C of the Act.

On appeal, the Id. CIT(A) confirmed the action of the assessing officer. The Id. CIT(A) just reiterated the facts narrated in the assessment order and stated that since the assessee did not submit relevant evidence to prove the expenses, therefore, addition made by assessing officer, should be 353, 225 & 226/RJT/2024 Aditya Birla Global Trading (India) Pvt. Ltd. confirmed. Aggrieved by the order of the Id CIT(A), the assessee is in appeal before us.

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.

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 allowed, and hence, addition made by the assessing officer may be sustained.

We have heard the rival contentions, perused the material on record and duly considered facts of the case in the light of the applicable legal position. We find that assessee had debited in its profit and loss account an amount of Rs. 1,80,23,440/-towards commission expense payable to the overseas entity, M/s. Phoenix Gulf FZE, Iran. During the course of assessment proceedings, the assessing officer had asked the assessee to Page | 30 353, 225 & 226/RJT/2024 Aditya Birla Global Trading (India) Pvt. Ltd. explain the said overseas transaction of Rs. 1,80,23,440/-. The assessee had justified the expenses by submitting a memorandum of understanding and stated that assessee has been paying such expenses since long, for business purpose. The assessee had clearly stated before assessing officer that these commission expenses have incurred during the course of business and for the purpose of business, hence the same may be allowed. However, ignoring the above submissions of the assessee, the assessing officer had made the disallowance of the entire commission expense of Rs. 1,80,23,440/-.

We do not agree with the above action of the assessing officer. It is also a settled-principle that ordinarily, it is for the assessee to decide whether any expenditure should be incurred in the course of his business. The Hon'ble Apex Court in the case of Sassoon J David and Co. (P) Ltd vs CIT Bombay (118 ITR 261)(SC) held that expenditure may be incurred voluntarily and without any necessity and if it is incurred for promoting the business and to earn profits, the assessee can claim deduction for the same. Even the Hon'ble Karnataka High Court in the case Commissioner of Income-tax vs Motor Industries Company Limited (1907) (223 ITR 112) was of the view that the commercial expediency of a businessman's decision to incur, an expenditure cannot be tested on the touchstone of strict legal liability to incur such an expenditure. Such decisions in the very nature of things have to be taken from a business point of view and have to be respected by the authorities no matter that it may appear, latter, that the expenditure incurred was unnecessary or avoidable. The assessing officer ought not to have questioned the commercial prudence of the transaction entered into by the assessee, businessman, when there was nothing on record to show that the transaction was not genuine. It is a settled principle of law that business or commercial expediency has to be judged from the perspective of the Page | 31 353, 225 & 226/RJT/2024 Aditya Birla Global Trading (India) Pvt. Ltd. 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.

Further, the Hon'ble Supreme Court in the decision rendered in the case of Eastern Investments Limited vs. CIT reported in 20 1TR 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 whether the result could have been achieved in another way. What one should be concerned with is whether the transaction was done in the ordinary course of business. Attention in this regard may also be drawn towards the decision of the Hon'ble Supreme Court in the case of Sassoon J David & Co. P Ltd vs. CIT reported in 118 ITR 261 (SC) wherein it was held that "It has to be observed here that the expression 'wholly and exclusively used in section 10(2)(xv) of the Act of the 1922 Act, corresponding to section 37(1) of the 1961 Act, does not mean 'necessarily. Ordinarily, it is for the assessee to decide whether any expenditure should be incurred in the course of his or its business. Such expenditure may be incurred voluntarily and without any necessity and if it is incurred for promoting the business and to earn profits, the assessee can claim deduction under section 37 (1) of the Act, even though there was no compelling necessity to incur such expenditure. We find that Pheonix Gulf FZE is an unrelated party Page | 32 353, 225 & 226/RJT/2024 Aditya Birla Global Trading (India) Pvt. Ltd. with whom the assessee had been dealing with since many past years, and Pheonix Gulf FZE used to buy tea from Global Exports & Marketing Division of the assessee- company (earlier known as BGH Exim Ltd.) for direct shipments to its Iranian buyer Golestan Co. till 2012. The Assessee, being the exporting company used to raise invoices on Phoenix Gulf FZE, but the shipment was going directly to Bander Abbas port to the ultimate consignee i.e. Golestan Co. Phoenix Gulf FZE, in turn used to raise invoice on Golestan Co. The terms of such buying were both on L/C and D/A basis and the currency of these transactions were USD or AED. It was also agreed to pay commission to Phoenix Gulf FZE for such sales as the customer was introduced by them and also, they were having long established relationship with them for supply of tea. Accordingly, a Memorandum of Understanding was entered into between the Assessee and Pheonix Gulf FZE such that commission at 6% would be paid to M/s. Phoenix Gulf FZE only after realization of export proceeds from the aforesaid Iranian customer. Further, the Assessee submits that when the export sales were made to the aforesaid Iranian customer i.e. M/s. Golestan Co, the United States of America had imposed various sanctions on trade with Iran, as a result of which there was a substantial delay in the realization of export proceeds. The 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.

The Id Counsel for the assessee, also stated that similar transactions with Phoenix Gulf FZE, the assessee had also entered into transactions Page | 33 353, 225 & 226/RJT/2024 Aditya Birla Global Trading (India) Pvt. Ltd. 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, hence the assessee can claim deduction under section 37 (1) of the Act. Based on these facts, we delete the addition.

In the result, the assessee's appeal in for assessment year 2018-19, is allowed.

Now we shall take assessee's appeal in for assessment year 2015-16, wherein grounds of appeal raised by the assessee, are as follows:

The facts necessary for disposal of the above issue are stated in brief. During the course of assessment proceedings, it was noticed by the assessing officer that assessee -company had made provision for leave salary of Rs.25,04,651/-. As no provision for any expenses is allowed as per the Act, therefore, the assessee vide order sheet noting dated 20.11.2017, was requested to show cause, why these should not be disallowed. The AR of the assessee vide submission dated 27.11.2017 furnished its explanation, and stated that there is a definite liability to pay Page | 34 353, 225 & 226/RJT/2024 Aditya Birla Global Trading (India) Pvt. Ltd. these expenses as per actuary report, and in fact, the assessee, paid these expenditure in subsequent years. However, the assessing officer rejected the claim of the assessee and made the addition of Rs. Rs.25,04,651/-.

On appeal, the Id. CIT(A) has confirmed the addition made by the assessing officer. The Id. CIT(A) has just reiterated the facts narrated in the assessment order, and confirmed the action of the assessing officer. Aggrieved by the order of the assessing officer, the assessee is in appeal before us.

Learned Counsel for the assessee, argued that in the assessee's case, the assessee- company, has made provision for leave salary of Rs.25,04,651/- on the basis of actuarial valuation, which is definite liability and paid by the assessee in subsequent years. Reliance was placed on the decision of PCIT Vs. Akzo Noble India Ltd, where the Hon`ble Calcutta High Court held that deduction of liability on account of provision of leave encashment having been made, which had not fallen due within relevant assessment year would be allowable as same 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 SriKakollu 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 Co- ordinate 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 Page | 35 353, 225 & 226/RJT/2024 Aditya Birla Global Trading (India) Pvt. Ltd. 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.

On the other hand, Ld. DR for the revenue strongly argued that as per the provision of section 43B(f) of the Act, the eligibility for deduction arises in previous year in which payment liability is actually made and not in which provision was made in that regard, irrespective of system of accounting followed by the assessee. Therefore, the action of the assessing officer in making disallowance for A.Y.2015-16, should be confirmed.

We have given our thoughtful consideration to rival contention. We find merit in the submissions of ld. DR for the revenue to the effect that as per the provision of section 43B(f) of the Act, the eligibility for deduction arises in previous year in which payment liability is actually made and not in which provision was made in that regard, irrespective of system of accounting followed by the assessee. The various judgements relied on by ld. Counsel for the assessee, has been reversed by the Hon`ble Supreme Court in the case of Union of India Vs. Exide industries Limited (2020), 116 taxmann.com.378 (SC), order dated 24.04.2020. The findings of the Hon`ble Supreme Court are as follows: “34. Before stepping into the next ground, we are inclined to observe that the approach of constitutional courts ought to be different while dealing with fiscal statutes. It is trite that the legislature is the best forum to weigh different problems in the fiscal domain and form policies to address the same including to create a new liability, exempt an existing liability, create a deduction or subject an existing deduction to new regulatory measures. In the very nature of taxing statutes, legislature holds the power to frame laws to plug in specific leakages. Such laws are always pin-pointed in nature and are only meant to target a specific avenue of taxability depending upon the experiences of tax evasion and tax avoidance at the ground level. The general principles of exclusion and inclusion do not apply to taxing statutes with the same vigour unless the law reeks of constitutional infirmities. No doubt, fiscal statutes must comply with the tenets of Article 14. However, a larger discretion is given to the legislature in taxing Page | 36 353, 225 & 226/RJT/2024 Aditya Birla Global Trading (India) Pvt. Ltd. statutes than in other spheres. In Anant Mills Co. Ltd. v. State of Gujarat & Ors. [1975] 2 SCC 175, this Court noted thus: "25. ...But, in the application of the principles, the courts, in view of the inherent complexity 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 abovesaid settled principles to the facts of the case at hand we are satisfied that provision made by the appellant Company for meeting the liability incurred by it under the leave encashment scheme proportionate with the entitlement earned by employees of the Company, inclusive of the officers and the staff, subject to the ceiling on accumulation as applicable on the relevant date, is entitled to deduction out of the gross receipts for the accounting year during which the provision is made for the liability. The liability is not a contingent liability. The High Court was not right in taking the view to the contrary."

Before the judgment in Bharat Earth Movers (supra), various tribunals and High Courts across the country were treating the liability in lieu of leave encashment as contingent liability. This did not go down well with the assessees following the mercantile accounting system, as they were not able to avail deductions upon mere creation of a provision against such liability without making the actual payment. challenge to this legal position reached before this Court in Bharat Earth Movers (supra), wherein the Court reversed the position.

It is no doubt true that the legislature cannot sit over a judgment of this Court or so to speak overrule it. There cannot be any declaration of invalidating a judgment of the Court without altering the legal basis of the judgment - as a judgment is delivered with strict regard to the enactment as applicable at the relevant time. However, once the enactment itself stands corrected, the basic cause of adjudication stands altered and necessary effect follows the same. A legislative body is not supposed to be in possession of a heavenly wisdom so as to contemplate all possible exigencies of their enactment. As and when the legislature decides to solve a problem, it has multiple solutions on the table. At this stage, the Parliament exercises its legislative wisdom to shortlist the most desirable solution and enacts a law to that effect. It is in the nature of a 'trial and error' exercise and we must note that a law-making body, particularly in statutes of fiscal nature, is duly empowered to undertake such an exercise as long as the concern of legislative competence does not come into doubt. Upon the law coming into force, it becomes operative in the public domain and opens itself to any review under Part III as and when it is found to be plagued with Page | 37 353, 225 & 226/RJT/2024 Aditya Birla Global Trading (India) Pvt. Ltd. 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.

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 effect; (vi) the consistent thread that runs through all the decisions of this Court is that the legislature cannot directly overrule the decision or make a direction as not binding on it but has power to make the decision ineffective by removing the base on which the decision was rendered, consistent with the law of the Constitution and the legislature must have competence to do the same." The Court then relied upon State of T.N. v. Arooran Sugars Ltd. [1997] 1 SCC 326 to reaffirm the point and noted thus: "48. In State of Tamil Nadu v. Arooran Sugars Ltd., the Constitution Bench made an exhaustive review of all the available decisions on the point and summed up the law by holding: — "It is open to the legislature to remove the defect pointed out by the court or to amend the definition or any other provision of the Act in question retrospectively. In this process it cannot be said that there has been an encroachment by the legislature over the power of the judiciary. A court's directive must always bind unless the conditions on which it is based are so fundamentally altered that under altered circumstances such decisions could not have been given. This will include removal of the defect in a statute pointed out in the judgment in question, as well as alteration or substitution of provisions of the enactment on which such judgment is based, with retrospective effect.” In Indian Aluminium Co. (supra), the Court relied upon a set of authorities and extended its approval to the above stated position of law thus: "41. ... A Constitution Bench of this Court had held that the distinction between legislative act and judicial act is well-known. The adjudication of the rights of the parties is a judicial function. The legislature has to lay down the law prescribing the norms or conduct which will govern the parties and transactions to require the court to give effect to that law. Validating legislation which removes the norms of invalidity of action or providing remedy is not an encroachment on judicial power. Statutory rule made under the proviso to article 309 was upheld. The legislature cannot by a bare declaration without anything more, directly overrule, reverse or override a judicial decision at any time in exercise of the plenary power conferred on the legislature by articles 245 and 246 of the Page | 38 353, 225 & 226/RJT/2024 Aditya Birla Global Trading (India) Pvt. Ltd. Constitution. 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 under consideration, it was rendered in light of general dispensation of autonomy of the assessee to follow cash or mercantile system of accounting prevailing at the relevant time, in absence of an express statutory provision to do so differently. It is an authority on the nature of the liability of leave encashment in terms of the earlier dispensation. In absence of any such provision, the sole operative provision was section 145(1) of the 1961 Act that allowed complete autonomy to the assessee to follow the mercantile system. Now a limited change has been brought about by the insertion of clause (f) in Section 43B and nothing more. It applies prospectively. Merely because a liability has been held to be a present liability qualifying for instant deduction in terms of the applicable provisions at the relevant time does not ipso facto signify that deduction against such liability cannot be regulated by a law made by Parliament prospectively. In matter of statutory deductions, it is open to the legislature to withdraw the same prospectively. In other words, once the Finance Act, 2001 was duly passed by the Parliament inserting clause (f) in section 43B with prospective effect, the deduction against the liability of leave encashment stood regulated in the manner so prescribed. Be it noted that the amendment does not reverse the nature of the liability nor has it taken away the deduction as such. The liability of leave encashment continues to be a present liability as per the mercantile system of accounting. Further, the insertion of clause (f) has not extinguished the autonomy of the assessee to follow the mercantile system. It merely defers the benefit of deduction to be availed by the assessee for the purpose of computing his taxable income and links it to the date of actual payment thereof to the employee concerned. Thus, the only effect of the insertion of clause (f) is to regulate the stated deduction by putting it in a special provision.

Notably, this regulatory measure is in sync with other deductions specified in Section 43B, which are also present and accrued liabilities. To wit, the liability in lieu of tax, duty, cess, bonus, commission etc. also arise in the present as per the mercantile system, but assessees used to defer payment thereof despite claiming deductions there against under the guise of mercantile system of accounting. Resultantly, 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, Page | 39 353, 225 & 226/RJT/2024 Aditya Birla Global Trading (India) Pvt. Ltd. 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.

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 clause (f).

Respectfully following the judgement of the Hon`ble Supreme Court, in the case of Exide industries Limited (supra), we dismiss the appeal of the assessee.

In the result, appeal filed by the assessee, in for assessment year 2015-16, is dismissed.

In the combined result, appeals filed by the Revenue ( in &284) are dismissed. The appeal of the assessee, in is allowed and the appeal of the assessee, in ITA No.225/RJT/2024, is dismissed.