AIR PAC EXPORTS, MUMBAI V. ASST CIT CIR5 20(1), MUMBAI

ITA 2983/MUM/2012

• Counselvise Citation: 298319914 RSA 2012
• Duration Of Justice: 2 year(s) 1 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-06-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 12-05-2014
• Assessment Year: 2002-2003
• Appeal Filed On: 02-05-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: MRS PARMINDER
• Section: 80HHC; 37(1); 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL 'A' BENCH, MUMBAI BEFORE SHRI D. MANMOHAN, VICE PRESIDENT AND SHRI RAJENDRA, ACCOUNTANT MEMBER ITA NO. 2981, 2982 & 2983/MUM/2012 (ASSESSMENT YEARS: 2000-01 TO 2002-03) M/S. AIR PAC EXPORTS ACIT, CIRCLE 20(1) 615, JANKI CENTRE, OFF VEERA DESAI ROAD, ANDHERI (W) MUMBAI 400053 VS. PIRAMAL CHAMBERS LALBAUG, MUMBAI PAN - AABFA1961B APPELLANT RESPONDENT APPELLANT BY: SHRI NISHIT GANDHI RESPONDENT BY: MRS. PARMINDER DATE OF HEARING: 12.05.2014 DATE OF PRONOUNCEMENT: 11.06.2014 O R D E R PER D. MANMOHAN, V.P. THESE THREE APPEALS ARE FILED AT THE INSTANCE OF TH E ASSESSEE FIRM AND THEY ARE DIRECTED AGAINST THE ORDERS PASSED BY THE CIT(A)-31, MUMBAI. 2. THOUGH SEVERAL GROUNDS WERE RAISED BY THE ASSESSEE IN THE APPEALS FILED FOR A.Y. 2000-01 TO 2002-03, AT THE TIME OF H EARING THE LEARNED COUNSEL FOR THE ASSESSEE PRESSED ONLY GROUND NO. 3 IN ALL T HESE APPEALS. IN OTHER WORDS, THE PLEA OF THE ASSESSEE IS THAT THE LEARNED CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE REFERABLE TO COMMISSION PAID ON EX PORTS MADE TO IRAQ UNDER FOOD FOR OIL PROGRAMME, BASED ON THE FINDIN GS IN THE VOLCKER COMMITTEE REPORT. 3. FACTS NECESSARY FOR DISPOSAL OF THE APPEALS ARE STA TED IN BRIEF. THE ASSESSEE FIRM IS ENGAGED IN THE BUSINESS OF EXPORT OF MACHINES USED IN PHARMACEUTICAL INDUSTRY. THOUGH, IN THE SHORT NOTE FILED BEFORE US, IT IS STATED THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS FOR OVER 25 YEARS, IN THE STATEMENT OF FACTS FILED BEFORE THE CIT(A) IT WAS S TATED THAT THE ASSESSEE IS IN THE BUSINESS FOR THE LAST MORE THAN 10 YEARS AS GEN ERAL MERCHANT AND ITA NO. 2981 TO 2983/MUM/2012 M/S. AIR PAC EXPORTS 2 EXPORTER AND THE ENTIRE SALES WERE BY WAY OF EXPORT S. IT IS NOT IN DISPUTE THAT THE EXPORTS WERE MADE TO IRAQ UNDER THE FOOD FOR O IL PROGRAMME RUN BY THE UNITED NATIONS. FOR THE YEARS UNDER CONSIDERATI ON IT DECLARED INCOME EARNED THEREFROM AND CLAIMED DEDUCTION UNDER SECTIO N 80HHC OF THE ACT AND ALSO FURNISHED TAX AUDIT REPORT, ETC. IN SUPPOR T OF ITS CLAIM. 4. IT IS NOT IN DISPUTE THAT THE CONTRACT WAS WITH THE GOVERNMENT OF IRAQ AND IT WAS APPROVED BY THE UNITED NATIONS SECURITY COUNCIL. THE CASE OF THE ASSESSEE IS THAT IT PAID COMMISSION TO VARIOUS PART IES IN CONNECTION WITH ITS EXPORT AND SUCH PAYMENTS WERE MADE THROUGH AGENCY O F RESERVE BANK OF INDIA, WHICH IN TURN APPROVED FOR RELEASE OF FUNDS AFTER PROPER VERIFICATION. DURING THE ASSESSMENT PROCEEDINGS AS WELL AS IN THE REMAND PROCEEDINGS THE ASSESSEE CLAIMED TO HAVE FURNISHED THE FOLLOWIN G DOCUMENTS: - (A) COPIES OF THE CONTRACT WITH IRAQ GOVERNMENT FOR SUP PLY OF MEDICAL MACHINERIES. (B) APPROVAL OF THE UNITED NATION SECURITY COUNCIL FOR THE SAID CONTRACT. (C) DETAILS OF SALES MADE. (D) DETAILS OF COMMISSION PAID ON EXPORT TO IRAQ AND TO OTHER COUNTRIES. (E) COPIES OF THE DEBIT NOTES RAISED BY THE COMMISSION AGENTS AND THE DOCUMENTARY EVIDENCE SHOWING PROOF OF REMITTANCE TO THE SAID AGENTS AS WELL FACTUM OF SERVICES RENDERED. (F) AS PER THE CONTRACT THE COMMISSIONING AND INSTALLAT ION WAS TO BE DONE BY THE ASSESSEE, WHICH WERE ARRANGED BY THE AG ENTS. (G) DETAILS SUCH AS NAMES, ADDRESSES, AND BANK ACCOUNTS OF THE CONCERNS TO WHOM THE PAYMENTS WERE MADE. 5. FOR THE YEARS UNDER CONSIDERATION ASSESSMENTS WERE REOPENED BY ISSUING NOTICE UNDER SECTION 148 OF THE ACT AND DUR ING THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSEE WAS ASKED TO SH OW CAUSE AS TO WHY THE SURCHARGES PAID DIRECTLY OR INDIRECTLY TO IRAQ SHOULD NOT BE DISALLOWED, IN THE LIGHT OF THE REPORT OF THE INDEPENDENT INQUIRY COMMITTEE INTO THE UNITED NATIONS OIL-FOR FOOD PROGRAMME PREPARED UNDER THE CHAIRMANSHIP OF PAUL ITA NO. 2981 TO 2983/MUM/2012 M/S. AIR PAC EXPORTS 3 A. VOLCKER. IN RESPONSE THERETO THE ASSESSEE SUBMIT TED THAT IT HAS NOT PAID ANY AFTER SALES SERVICE FEES TO THE IRAQ GOVERNME NT. 6. THE AO DID NOT ACCEPT THE CONTENTION OF THE ASSESSE E MAINLY BASED UPON VOLCKER COMMITTEE REPORT WHEREIN IT WAS NOTICE D THAT OIL COMPANIES AND TRADERS PAID THE INTERMEDIARY COMPANIES A PREMI UM ABOVE THE UNITED NATIONS OFFICIAL RATE AND SUCH PREMIUM WAS USED BY THE INTERMEDIARIES IN TURN TO PAY TO THE BENEFICIARY OR ANOTHER PERSON OR ENTITY WHO WAS DESIGNATED TO RECEIVE THE FUNDS AND IRAQ HAVING INI TIATED ITS POLICY OF COLLECTING ILLICIT SURCHARGE ON EVERY BARREL OF OIL SOLD UNDER THE PROGRAMME, UNDER THE CAPTION AFTER SALES SERVICES, SUCH PAYM ENTS HAVE TO BE TREATED AS PROHIBITED; HENCE EXPLANATION TO SECTION 37(1) I S APPLICABLE. MERELY BY TAKING NOTE OF THE VOLCKER COMMITTEE REPORT THE AO ASSUMED THAT 10% OF THE COMMISSION PAID BY THE ASSESSEE HAS TO BE DISAL LOWED, WHICH WAS CONFIRMED BY THE LEARNED CIT(A). 7. BEFORE US THE LEARNED COUNSEL FOR THE ASSESSEE FILE D BRIEF WRITTEN SUBMISSIONS AND A COPY OF THE ORDER OF THE TRIBUNAL IN THE CASE OF NSIL EXPORTS LTD. 44 TAXMANN.COM 246 (MUM. TRIBUNAL) TO SUBMIT THAT ON IDENTICAL CIRCUMSTANCES SIMILAR PAYMENTS WERE ALLOW ED AS DEDUCTION BY HOLDING THAT THEY ARE NOT HIT BY EXPLANATION TO SEC TION 37(1) OF THE ACT. IT WAS ALSO CONTENDED THAT THE AO DID NOT MAKE ANY ENQUIRY EXCEPT MECHANICALLY MAKING A REFERENCE TO THE COMMUNICATION RECEIVED FR OM THE CBDT AND OVERLOOKING THE FACT THAT THE ASSESSEE HAD NOT IMPO RTED OIL AT ALL AND THEREFORE THERE WAS NO QUESTION OF PAYING ANY ILLICIT SURCHAR GE ON EVERY BARREL OF OIL IMPORTED. IT WAS ALSO CONTENDED THAT IN THE FIRST Y EAR THE COMMISSION PAYMENT WAS MADE TO A PARTY AT JORDAN AND NOT TO IR AQ GOVERNMENT. SIMILARLY FOR A.Y. 2001-02 THE PAYMENTS WERE MADE T O PARTIES AT JORDAN AND SYRIA AND NOT TO PARTIES AT IRAQ OR TO IRAQ GOVERNM ENT. IT WAS ALSO CONTENDED THAT THERE IS NO PROVISION FOR PAYMENT OF AFTER SA LES SERVICE FEES IN THE CONTRACT AND COMMISSION WAS NOT PAID BEFORE THE GOO DS WERE PERMITTED TO ENTER IRAQ. IN THE ABSENCE OF DOUBTING OR DISPUTING COMMISSION PAYMENT, AND ALSO THE FACT THAT THE ASSESSEE HAS NOT IMPORTED OI L, THE MECHANICAL ITA NO. 2981 TO 2983/MUM/2012 M/S. AIR PAC EXPORTS 4 APPLICATION OF THE COMMUNICATION RECEIVED FROM THE CBDT FOR THE PURPOSE OF INVOKING EXPLANATION TO SECTION 37(1) IS NOT IN ACC ORDANCE WITH LAW. 8. ON THE OTHER HAND, THE LEARNED D.R. STRONGLY RELIED UPON THE ORDERS PASSED BY THE TAX AUTHORITIES. HE, HOWEVER, FAIRLY ADMITTED THAT THE ISSUE STANDS COVERED BY THE AFORECITED DECISION. 9. WE HAVE CONSIDERED THE RIVAL SUBMISSION AND PERUSED THE RECORD. AS RIGHTLY POINTED OUT BY THE LEARNED COUNSEL FOR THE ASSESSEE THE UNITED NATIONS SANCTION WAS WITH REFERENCE TO PAYMENT MAD E TO IRAQ GOVERNMENT BY SUPPLIERS AND NOT THE PAYMENT MADE TO INTERMEDIA RIES. THE COMMISSION PAID BY THE ASSESSEE ARE DULY APPROVED BY THE RESER VE BANK OF INDIA AND THE PAYMENTS WERE MADE TO A THIRD PARTY. THE VOLKER COMMISSION REPORT HAD DISCUSSED ABOUT THE UTILISATION OF MONEY BY THE RECIPIENT OF THE COMMISSION RECEIVED AS COMMISSION WITH THE GOVERNME NT AND PARTING OF SUCH COMMISSION WITH THE GOVERNMENT OF IRAQ WHEREAS IN THE INSTANT CASE THERE IS NO FINDING AT ALL BY THE TAX AUTHORITIES T HAT THE THIRD PARTY HAD RENDERED ANY SERVICES AND THE COMMISSION PAID TO TH E THIRD PARTY WAS DIVERTED TO THE GOVERNMENT OF IRAQ. UNDER THESE CIR CUMSTANCES WE ARE OF THE VIEW THAT THE ISSUE STANDS SQUARELY COVERED BY THE DECISION OF THE TRIBUNAL CITED SUPRA AND HENCE WE HOLD THAT THE DIS ALLOWANCE MADE BY THE AO IS NOT IN ACCORDANCE WITH LAW. WE DIRECT THE AO ACCORDINGLY. SINCE THE ADDITION MADE BY THE AO IS DELETED, THE ASSESSEE HA S NOT PRESSED THE GROUNDS CONCERNING VALIDITY OF REOPENING OF ASSESSM ENT. THEREFORE THE OTHER GROUNDS ARE NOT ADJUDICATED UPON. 10. IN THE RESULT, THE APPEALS FILED BY THE ASSESSEE AR E TREATED AS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 11 TH JUNE, 2014. SD/- SD/- (RAJENDRA) (D. MANMOHAN) ACCOUNTANT MEMBER VICE PRESIDENT MUMBAI, DATED: 11 TH JUNE, 2014 ITA NO. 2981 TO 2983/MUM/2012 M/S. AIR PAC EXPORTS 5 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) 31, MUMBAI 4. THE CIT 20, MUMBAI CITY 5. THE DR, A BENCH, ITAT, MUMBAI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI N.P.