NSIL EXPORTS LTD, MUMBAI V. DCIT RG 3(2), MUMBAI

ITA 3052/MUM/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 75622 (ITAT-MUMBAI)
• Duration Of Justice: 9 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-02-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 09-01-2014
• Assessment Year: 2003-2004
• Appeal Filed On: 22-04-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: P DANIEL
• Keywords: Reopening of assessment; Business income; Business expenditure; Corroborative evidences; Commercial expediency
• Section: 143(3); 80HHC; 234B; 37(1); 147; 148; 37; 10

Judgement Text

, ,, , , ,, , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, MUMBAI , ! ! ! ! '# , '$ ' '' ' % % % % BEFORE SRI VIJAY PAL RAO, JM AND SHRI RAJENDRA, AM ./ I.T.A. NO. 3050/MUM/2013 ( & ' & ' & ' & ' (' (' (' (' / ASSESSMENT YEAR: 2001-02 ) ./ I.T.A. NO. 3051/MUM/2013 ( & ' & ' & ' & ' (' (' (' (' / ASSESSMENT YEAR: 2002-03 ) ./ I.T.A. NO. 3052/MUM/2013 ( & ' & ' & ' & ' (' (' (' (' / ASSESSMENT YEAR: 2003-04 ) NSIL EXPORTS LTD. 621, TULSIANI CHAMBERS, NARIMAN POINT, MUMBAI & & & & / VS. THE DY. COMMISSIONER OF INCOME TAX, RANGE-3(2), MUMBAI ) '$ ./ PAN : AAACN5529J ( )* / ASSESSEE ) .. ( +,)* / RESPONDENT ) )* - . ' / ASSESSEE BY : SHRI P. DANIEL +,)* - . ' / RESPONDENT BY : SHRI RAVI PRAKASH & - /$ / DATE OF HEARING : 09/01/2014 01( - /$ / DATE OF PRONOUNCEMENT : 21/ 02/2014 '2 / O R D E R PER VIJAY PAL RAO, JM: THESE THREE APPEALS BY THE ASSESSEE ARE DIRECTED AG AINST THREE SEPARATE ORDERS OF THE CIT(A) ALL DATED 07/03/2013 FOR THE A.Y. 2001-02 TO 2003-04 RESPECTIVELY. THE ASSESSEE HAS RAISED C OMMON GROUNDS IN THESE APPEALS, THEREFORE FOR THE SAKE OF CONVENIENC E WE HAVE HEARD THESE 2 ITA NO.3050 TO 3052/MUM/2013 NSIL EXPORTS LTD. THREE APPEALS TOGETHER AND DISPOSED OF BY THIS COMP OSITE ORDERS. THE GROUNDS RAISED FOR THE A.Y. 2001-02 ARE AS UNDER:- 1 . THAT ON THE FACTS AND THE IN CIRCUMSTANCES OF THE C ASE THE CONFIRMING THE REOPENING OF ASSESSMENT U/S 147 OF THE ACT, BY CIT( A) IS QUITE ILLEGAL. 2. THAT THE CONFIRMING THE DISALLOWANCE OF INLAND T RANSPORTATION EXPENSES RS.8600080/- BY CIT(A) IS QUITE ILLEGAL. 3. THAT THE LD. CIT(A) NOT CONSIDERED THE PROPER FA CTS OF THE CASE. 4. THAT THE ENHANCEMENT OF COMMISSION EXPENSES RS.7 063867/- BY CIT(A) IS QUITE ILLEGAL. 5. THAT THUS THE ORDER SO PASSED BY CIT(A) IS QUITE ILLEGAL, ARBITRARY, UNWARRANTED, UNJUSTIFIED AND BAD IN LAW. 6. THAT THE CONFIRMING OF CHARGING OF INTEREST U/S 234B AND 234C IS QUITE ILLEGAL. 7. THAT THE PAYMENT OF INLAND TRANSPORTATION EXPENS ES AND COMMISSION TO GOREIGN PARTIES AS PER GUIDELINES ISSUED BY RBI. 8. THAT THE APPELLANT FURTHER CREAVES, LEAVE TO ADD , TO ALTER AND/OR TO AMEND ANY OF THE AFORESAID GROUNDS OF APPEAL AS AND WHEN NECESSARY. 2. THOUGH THE ASSESSEE HAS RAISED THE ISSUE OF VALI DITY OF REOPENING OF ASSESSMENT IN GROUND NO.1 HOWEVER WE FIRST TAKE UP THE GROUND NO.2 TO 5 REGARDING DISALLOWANCE ON TRANSPORT AND COMMISSION EXPENSES. 3. THE BRIEF FACTS EMERGING FROM RECORD FOR THE A.Y . 2001-02 IS THAT INITIALLY THE ASSESSMENT WAS COMPLETED U/S 143(3) R .W.S 147 OF THE INCOME-TAX ACT ON 20/02/2003. SUBSEQUENTLY, THE AO RECEIVED INFORMATION FROM DY. SECRETARY (INVESTIGATION), CBD T, NEW DELHI VIDE LETTER DATED 24/05/2006 THAT THE ASSESSEES NAME AP PEARS IN THE REPORT OF THE VOLKER COMMITTEE APPOINTED BY THE UNITED NAT IONS SECURITY COUNCIL TO INVESTIGATE THE ADMINISTRATION AND MANAG EMENT OF OIL-FOR-FOOD PROGRAMME IN IRAQ. AS PER THE SAID REPORT, IT WAS ALLEGED THAT THE ASSESSEE HAD PAID ILLICIT OIL CHARGES TO SADDAM HUS SAIN REGIME ON HUMANITARIAN GOODS CONTRACT THROUGH A VARIETY OF DE VICES. AS PER THE REPORT, THE ASSESSEE COMPANY HAD MADE SUBSTANTIAL P AYMENT TO SADDAM HUSSAIN REGIME IN CONTRAVENTION OF THE PROVISIONS O F THE STATUTE. THE AO OBSERVED THAT SUCH PAYMENTS BY VIRTUE OF EXPLANATIO N-1 TO SECTION 37 ARE NOT ADMISSIBLE FOR DEDUCTION IF AT ALL THEY ARE DEB ITED TO PROFIT & LOSS ACCOUNT. ACCORDINGLY, THE ASSESSMENT WAS AGAIN REO PENED BY ISSUING A 3 ITA NO.3050 TO 3052/MUM/2013 NSIL EXPORTS LTD. NOTICE U/S 148 ON 26/09/2006. IN RESPONSE TO THE N OTICE U/S 148, THE ASSESSEE FILED ITS RETURN ON 18/10/2001 DECLARING T OTAL INCOME AT RS.43,12,370/- AS IT WAS DECLARED IN THE ORIGINAL R ETURN OF INCOME FILED ON DATED 01/10/2002. IN THE REASSESSMENT THE AO DISAL LOWED THE INLAND TRANSPORTATION CHARGES FOR ALL THREE YEARS. THE AS SESSEE HAS CHALLENGED THE ACTION OF THE AO BEFORE THE CIT(A) INCLUDING TH E VALIDITY OF REOPENING U/S 148. THE CIT(A) REJECTED OBJECTION OF THE ASSE SSEE AGAINST THE VALIDITY OF REOPENING. AS REGARDS, THE ADDITION ON ACCOUNT OF DISALLOWANCE OF INLAND TRANSPORTATION FEE, THE CIT(A) NOT ONLY CONF IRM THE SAID DISALLOWANCE BUT ALSO ENHANCE THE ASSESSMENT BY DIS ALLOWING THE COMMISSION/AFTER SALE SERVICE FEE PAID TO THE PARTI ES WHO RENDERED THE SERVICES FOR PROCUREMENT OF ORDER, APPROVAL OF CONT RACTS FROM UNITED NATIONS, DELIVERY OF GOODS AND RECOVERY OF PAYMENTS FROM PARTIES. 4. BEFORE US, THE LD. AR FOR THE ASSESSEE HAS SUBMI TTED THAT THE PAYMENT IN QUESTION WAS MADE PURELY FOR THE PURPOSE OF PROCURING EXPORT ORDER, REALIZATION OF EXPORT PROCEED AND PAYMENT UN DER CONSIDERATION IS FULLY ALLOWABLE UNDER THE PROVISIONS OF INCOME-TAX ACT. HE HAS REFERRED THE CONTRACT BETWEEN THE ASSESSEE AND THE MINISTRY OF AGRICULTURE, STATE COMPANY FOR AGRICULTURE SUPPLIES BAGDAD IRAQ AND SU BMITTED THAT AS PER THE ARTICLE 4 OF THE SAID AGREEMENT BETWEEN THE ASS ESSEE AND THE IRAQ GOVERNMENT WHICH HAS BEEN DULY APPROVED BY THE GOVE RNMENT OF INDIA AS WELL AS THE UN AUTHORITY THAT THE ASSESSEE WAS UNDE R OBLIGATION TO SHIP SOYA BEAN MEAL AND OTHER AGRICULTURE PRODUCE BY VES SEL TO THE IRAQI PORT AND THEN BY TRUCKS TO BAGDAD. THUS, THE INLAND TRA NSPORTATION OF GOODS SUPPLIED BY THE ASSESSEE WAS RESPONSIBILITY ON THE PART OF THE ASSESSEE. THE EXPENDITURE OF INLAND TRANSPORTATION IS AS PER THE TERMS OF THE CONTRACT BETWEEN THE PARTIES UNDER WHICH THE ASSESS EE HAS SUPPLIED THE GOODS IN QUESTION TO IRAQ. THE LD. COUNSEL HAS THE N REFERRED THE INVOICE IN RESPECT OF THE GOODS EXPORTED AND SUBMITTED THAT THE GOODS WERE SHIPPED THROUGH M.V. DUBAI SUCCESS FROM KANDLA PORT , INDIA, TO UM- QASER PORT AND THEREAFTER THE FINAL DESTINATION CIF BAGHDAD, IRAQ. THE 4 ITA NO.3050 TO 3052/MUM/2013 NSIL EXPORTS LTD. LD. COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT THE ASSESSEE HAS FURNISHED THE DETAILS OF THE INLAND TRANSPORTATION CHARGES ALONGWITH THE SUPPORTING EVIDENCE. HE HAS POINTED OUT THAT THE T RANSPORTATION CHARGES WERE NOT MADE THROUGH IRAQI BANK AS ALLEGED BY THE VOLKER COMMITTEE REPORT. THE ASSESSEE EXPORTED EACH CONSIGNMENT AFT ER TAKING NECESSARY APPROVALS FROM THE UNITED NATIONS AS WELL AS INDIAN AUTHORITIES AND REPRESENTATIVE OF INDIA IN UNITED NATIONS NEWYORK. THE GOODS ARE SUPPLIED STRICTLY AS PER THE TERMS AND CONDITIONS O F THE CONTRACT WHICH HAS BEEN APPROVED BY THE UNITED NATIONS THEREFORE, THERE IS NO QUESTION OF ILLICIT PAYMENT AS REGARDS THE TRANSPORTATION CH ARGES FOR DELIVERY OF GOODS. HE HAS FURTHER CONTENDED THAT THE COMMISSIO N PAYMENT MADE TO THE PARTIES WHO RENDERED THE SERVICES FOR PROCUREME NT OF ORDER, APPROVAL OF CONTRACT, FROM UNITED NATIONS, DELIVERY OF GOODS , AND RECOVERY OF PAYMENT FROM PARTIES. ALL THESE PAYMENTS WERE MADE BY INDIAN BANKS AS PER THE GUIDELINES ISSUED BY THE RBI. THE ASSESSEE FURNISHED THE SUPPORTING EVIDENCE TO SHOW THAT THE FEE/COMMISSION EXPENSES WERE PAID STRICTLY AS PER THE RULES AND GUIDELINES ISSUED BY THE RBI. HE HAS FURTHER SUBMITTED THAT THE PAYMENT IS QUITE REASONABLE KEEP ING IN VIEW OF THE QUANTUM OF BUSINESS. ALL THE EXPENSES INCURRED BY T HE ASSESSEE ARE DULY SUPPORTED BY THE EVIDENCE AND PAYMENT WAS THROUGH B ANKING CHANNELS AFTER RECEIVING DEBIT NOTE/BILLS RAISED BY THE FORE IGN PARTIES WHO HAS RENDERED SERVICES . THUS, SUCH EXPENSES ARE ALLOWA BLE U/S 37(1) OF THE INCOME-TAX ACT. THE LD. COUNSEL HAS FURTHER SUBMIT TED THAT THE AUTHORITIES BELOW HAVE NOT POINTED OUT AS UNDER WHI CH LAW THESE PAYMENTS ARE PROHIBITED AND THEREFORE THE SAME CANN OT BE TERMED AS PAYMENT IN FRACTION OF LAW AS PER THE TERM OF EXPLA NATION TO SECTION 37(1). THE LD. COUNSEL HAS REFERRED THE VARIOUS COMMERCIAL INVOICES RAISED BY THE ASSESSEE IN SUPPORT OF HIS CONTENTION AND SUBMI TTED THAT THE INLAND TRANSPORTATION IS THE RESPONSIBILITY OF THE ASSESSE E TO PERFORM AS PER THE CONTRACT BETWEEN THE PARTIES AND THEREFORE THE SAID EXPENDITURE IS STRICTLY AS PER THE TERMS OF THE CONTRACT. EVEN, OTHERWISE, THE SAID EXPENDITURE IS 5 ITA NO.3050 TO 3052/MUM/2013 NSIL EXPORTS LTD. NECESSARY FOR THE BUSINESS OF THE ASSESSEE FOR EXPO RT OF GOODS AND THE DISALLOWANCE OF THE SAME WITHOUT ANY CONTRARY FINDI NG AND SOLELY ON THE BASIS OF REPORT OF THE VOLKER COMMITTEE IS NOT JUST IFIED. HE HAS REFERRED THE DETAILS OF THE COMMISSION PAID BY THE ASSESSEE TO THE PARTIES AT PAGE NO. 230 OF THE PAPER BOOK AND SUBMITTED THAT ALL TH ESE PAYMENTS WERE MADE TO THE PARTIES ONE AT AMMAN AND OTHER AT SINGA PORE THROUGH IDBI BANK. THE PAYMENT HAS NOT BEEN REMITTED IN THE BAN K ACCOUNT OF THE PARTIES. THEREFORE, THERE IS NO QUESTION OF MAKING THE PAYMENT ILLEGALLY TO THE IRAQI AUTHORITIES. THE LD. COUNSEL HAS REFERRE D THE REMAND REPORT AND SUBMITTED THAT THE ASSESSING OFFICER HAS RECORDED I N THE REMAND REPORT THAT THE ASSESSEE HAS FILED ALL THE RELEVANT EVIDEN CE AND DETAILS. HOWEVER, THE CLAIM OF THE ASSESSEE WAS DENIED ONLY ON THE GR OUND THAT THE ASSESSEE HAS NOT PRODUCE THE EVIDENCE TO PROVE THAT THE SERV ICES RENDERED WERE NECESSARY FOR WHICH THE COMMISSION EXPENSES HAS BEE N PAID. THE LD. COUNSEL HAS FURTHER SUBMITTED THAT AN IDENTICAL ISS UE HAS BEEN CONSIDERED AND DECIDED BY KOLKATA BENCH OF THIS TRI BUNAL IN A NUMBER OF CASES INCLUDING THE DECISION IN THE CASE OF TIL LT D. VS. ACIT [2007] 16 SOT 33 (KOL), IN THE CASE OF DCIT VS. THE ANANDA BA G TEA CO. LTD. AS WELL AS THE DECISION IN THE CASE OF DCIT VS. RAJRANI EXP ORTS PVT. LTD. ARE RENDERED IN FAVOUR OF THE ASSESSEE ON THIS POINT. THE LD. COUNSEL HAS THEN SUBMITTED THAT THE DECISION OF KOLKATA BENCH O F THIS TRIBUNAL IN THE CASE OF CIT VS. RAJRANI EXPORTS LTD. HAS BEEN AFFIR MED BY THE HONBLE KOLKATA HIGH COURT REPORTED IN 262 CTR (CAL.) 1992. ON THE OTHER HAND, THE LD. DR HAS HEAVILY RELIED UPON THE IMPUGNED ORD ER OF CIT(A) AND SUBMITTED THAT THE ASSESSEE HAS FAILED TO PROVE THA T ANY SERVICES WERE RENDERED BY THE PARTIES TO WHOM THE PAYMENT WAS MAD E AND THEREFORE THE CLAIM OF THE ASSESSEE WAS RIGHTLY DISALLOWED. HE H AS FURTHER SUBMITTED THAT THE PAYMENTS MADE BY THE ASSESSEE ARE IN THE N ATURE OF ILLICIT PAYMENT TO THE SADDAM HUSSAIN REGIME IN IRAQ UNDER THE PRETEXT OF THESE CHARGES AS POINTED OUT BY THE VOLKER COMMITTEE APPO INTED BY THE UN SECURITY COUNCIL. 6 ITA NO.3050 TO 3052/MUM/2013 NSIL EXPORTS LTD. 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS RELEVANT MATERIAL ON RECORD; THERE IS NO DENIAL OF THE FACT THAT THE ASSESSEE HAS SUPPLIED THE GOODS UNDER THE AGREEMENT WHICH HAS BE EN APPROVED BY THE UN AS WELL AS BY THE INDIAN AUTHORITIES. THE PAYM ENT OF INLAND TRANSPORT EXPENSES AS EXPLAINED BY THE ASSESSEE IS TOWARDS TH E TRANSPORTATION OF THE EXPORT GOODS FROM THE PORT TO THE DESTINATION. WE FIND THAT AS PER THE TERMS OF THE CONTRACT, THE OBLIGATION OF THE TRANSP ORTATION OF THE GOODS FROM PORTS TO THE DESTINATION IS ON THE PART OF THE ASSESSEE. THEREFORE, THE ASSESSEE HAD TO ARRANGE THE TRANSPORTATION OF THE G OODS FROM TO PORT TO THE DESTINATION. IT IS PERTINENT TO NOTE THAT WHEN THE PAYMENT OF TRANSPORTATION IS AS PER THE TERMS OF THE AGREEMENT THEN IT CANNOT BE TREATED AS BOGUS OR ILLEGAL PAYMENT. ASSESSEE HAS BROUGHT ON RECORD THE RELEVANT MATERIAL, DETAIL AND EVIDENCE TO SHOW THAT THESE PAYMENTS WERE MADE TO THE IDENTIFIED PARTIES THROUGH BANKING CHAN NEL AND AFTER APPROVAL OF THE RBI AND THEREFORE THERE IS NO CONTR ARY MATERIAL ON RECORD TO SHOW THAT THE ASSESSEE HAD MADE ILLICIT PAYMENT TO SADDAM HUSSAIN REGIME. THE DETAILS OF PARTIES, BANK ACCOUNTS WHER EIN THE PAYMENTS OF INLAND TRANSPORTATION CHARGES WERE MADE HAVE BEEN B ROUGHT ON RECORD AND PRODUCE BY THE ASSESSEE. THERE IS NOTHING ON R ECORD TO SHOW THAT THESE PAYMENTS WERE BARRED IN TERMS OF EXPLANATION TO SECTION 37(1) OF THE INCOME-TAX ACT. SIMILARLY THE ASSESSEE HAS AL SO PRODUCED THE DETAILS, ADDRESSES AND BANK ACCOUNTS OF THE PARTIES TO WHOM THE COMMISSION EXPENSES WERE PAID. THERE IS NO DENIAL OF THE FACT THAT THE ASSESSEE EXPORTED THE GOODS ON THE BASIS OF THE ORDERS PROCU RED THROUGH AGENTS AND ALL ARE OTHER ARRANGEMENTS WERE MADE BY THESE P ARTIES TO WHOM THE COMMISSION WAS PAID. THE ASSESSEE DID NOT TAKE ANY ASSISTANCE OR SERVICE OTHER THAN THE PARTIES TO WHOM PAYMENTS WER E MADE. THE SERVICES OF PROCURING OF ORDERS AND TAKING OTHER APPROVAL AR E NECESSITY OF THE EXPORT BUSINESS OF THE ASSESSEE THEN IT CANNOT BE S AID THAT THERE WAS NO SERVICE RENDERED BY THESE PARTIES. KEEPING IN VIEW THE SITUATION PREVAILING IN IRAQ AT THAT POINT OF TIME IT WAS OTHERWISE INEV ITABLE FOR ANY EXPORTER TO 7 ITA NO.3050 TO 3052/MUM/2013 NSIL EXPORTS LTD. TAKE THE SERVICES OF SUCH PARTIES WHO COULD DO ALL THE NEEDFUL ACTS OF APPROVAL OF CONTRACT AND DELIVERY OF GOODS AND OPEN THE LETTER OF CREDIT IN FAVOUR OF THE ASSESSEE COMPANY. FURTHER THE REALIZA TION OF EXPORT PROCEEDS AS WELL AS CORRESPONDENCE AND COMMUNICATIO N IN THE EXPORT ACTIVITY WAS ALSO REQUIRED TO BE PERFORMED BY SOMEB ODY WHO COULD HAVE EXCESS IN IRAQ. THE ASSESSEE PRODUCED THE EXPORT C ONTRACT, INVOICES AND ALL APPROVAL FOR THE PURPOSE OF EXPORT OF THE GOODS IN QUESTION TO IRAQ UNDER THE SUPERVISION AND APPROVAL OF THE GOVERNMEN T OF INDIA AND UN. THEREFORE, UNTIL AND UNLESS IT IS OTHERWISE PROVED THAT THE PAYMENT WAS AN ILLICIT PAYMENT TO THE SADDAM HUSSAIN REGIME AND NOT TO THE PARTIES IT CANNOT BE CONCLUDED THAT THE SAID PAYMENTS ARE NOT MADE FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE. THE EXPLANATION TO SEC TION 37 CANNOT BE INVOKED MERELY ON THE BASIS OF SOME DOUBT ABOUT EXP ENDITURE WHETHER MADE INFRACTION OF LAW. THERE SHOULD BE A DIRECT A ND COGENT EVIDENCE TO SHOW THAT THE PAYMENT MADE BY THE ASSESSEE IS CONTR ARY TO LAW. THE AUTHORITIES BELOW FAILED TO BRING ANYTHING ON RECOR D TO ESTABLISH THAT THE PAYMENTS IN QUESTION WERE ILLEGALLY MADE BY THE ASS ESSEE TO THE IRAQI AUTHORITIES. ON THE CONTRARY, THE ASSESSEE HAS PRO DUCED THE EVIDENCE OF PAYMENT TO THE AGENT WHO IS NOT CONNECTED TO THE IR AQI AUTHORITIES. THEREFORE, IN THE ABSENCE OF SPECIFIC FINDING THAT THE PAYMENTS WERE MADE TO THE IRAQI AUTHORITIES, IT CANNOT BE HELD AS ILLE GAL PAYMENT INFRACTION OF LAW. EVEN IF THE ASSESSEE FAIL TO PROVE BEYOND DOU BT THAT THE PAYMENTS IN QUESTION ARE INCONSONANCE TO THE SERVICE RENDERED B Y THE AGENT THE SAME CANNOT BE HELD AS ILLEGAL IN THE ABSENCE OF ANY EVI DENCE TO PROVE THAT THE ASSESSEE INTENDED TO PAY THE AMOUNT ILLEGALLY THROU GH AGENT. 6. AN IDENTICAL ISSUE HAVE BEEN CONSIDERED BY THIS TRIBUNAL IN VARIOUS CASES AS RELIED UPON BY THE ASSESSEE. IN THE CASE O F TIL PVTL LTD. (SUPRA), THE KOLKATA BENCH OF THIS TRIBUNAL DECIDED AN IDENT ICAL ISSUE REGARDING THE SERVICE CHARGES/COMMISSION PAID FOR EXPORTS TO IRAQ WAS DISALLOWED BY THE DEPARTMENT ON THE BASIS OF VOLKER COMMITTEE REPORT. THE TRIBUNAL HAS HELD THAT THE PAYMENTS WERE MADE PURELY FOR THE PURPOSE OF 8 ITA NO.3050 TO 3052/MUM/2013 NSIL EXPORTS LTD. PROCURING EXPORT ORDERS TO IRAQ AND ALSO FOR AFTER SALE SERVICES PERFORM BY AGENT IN IRAQ AND THEREFORE WAS AN ALLOWABLE EXPEND ITURE. SIMILAR VIEW HAS BEEN TAKEN BY THE KOLKATA BENCH IN CASE OF ANAN DA BAG TEA CO. LTD. (SUPRA). WE FURTHER NOTE THAT IN CASE OF DCIT VS. RAJRANI EXPORTS PVT. LTD KOLKATA BENCH OF THIS TRIBUNAL (SUPRA) CONSIDER ED THE DECISION IN CASE OF TIL PVT. LTD. (SUPRA) AND ALSO EXAMINED OF ALL T HE RELEVANT FACTS AND CONDITIONS PREVAILING DURING THE SAID PERIOD IN WHI CH THE EXPORTS WERE MADE TO IRAQ UNDER THE UN PROGRAM CALLED AS OIL-FOR -FOOD PROGRAM. THE TRIBUNAL, AFTER CONSIDERING THE VOLKER COMMITTEE RE PORT AS WELL AS THE OIL-FOR-FOOD PROGRAM CONCLUDED IN PARA 13 TO 20 AS UNDER:- IT WOULD THUS SEEM THAT, EVEN AS PER VOLKER COMMITT EE REPORT, THE SERVICES WERE INDEED RENDERED FOR THE COMMISSIO N PAYMENTS PAID BY THE EXPORTERS UNDER THE OFFP, BUT THE SERVI CES WERE RENDERED BY THE IRAQI REGIME ITSELF, RATHER THAN TH E COMMISSION AGENT TO WHOM COMMISSION PAYMENT WAS MADE, AND THE CHARGE S FOR THESE SERVICES WERE QUITE DISPROPORTIONATELY HIGH VIS--V IS THE LOCAL COSTS. NONE OF THE ABOVE REASONS, EVEN IF BE VALID AND COR RECT, AFFECT THE DEDUCTIBILITY OF COMMISSION PAYMENTS IN THE HAN DS OF THE ASSESSEE. THE ASSESSEE HAS MADE PAYMENT FOR COMMISSION AND HA S BEEN RENDERED SERVICES IN CONSIDERATION OF THE SAME. AS A MATTER OF FACT, IT IS NOT EVEN THE REVENUES CASE THAT NO SERVICES HAVE BEEN RENDERED AT ALL. THE FACT THAT SERVICES HAVE BEEN RENDERED BY A PARTY OTHER THAN THE AGENT TO WHOM COMMISSION IS PA ID IS WHOLLY IMMATERIAL SO FAR AS DEDUCTIBILITY IN THE HANDS OF THE ASSESSEE IS CONCERNED. AS FOR THE POSITION THAT THE PAYMENT WAS HIGHLY EXC ESSIVE VIS- -VIS THE LOCAL COSTS, EVEN IF THAT BE SO, THAT ASP ECT OF THE MATTER DOES NOT AFFECT THE DEDUCTIBILITY IN THE HANDS OF THE AS SESSEE EITHER. THE ASSESSEE IS CONCERNED WITH COMMERCIAL EXPEDIENCY OF THE SAID PAYMENT AND NOT WITH WHAT ARE THE ACTUAL COSTS INCU RRED IN RENDERING THE SERVICES FOR WHICH THE PAYMENT IS MAD E. AS WE HAVE SEEN EARLIER IN THIS ORDER, FROM THE EXTRACTS OF TH E VOLKER COMMITTEE REPORT ITSELF, IT WAS ABSOLUTELY NECESSARY FOR THE ASSESSEE TO MAKE THE IMPUGNED PAYMENTS AND, IN ANY EVEN, THE COMMERC IAL EXPEDIENCY OF THESE PAYMENTS HAS NOT EVEN BEEN CALL ED INTO QUESTION BY THE ASSESSING OFFICER. THE CASE OF THE REVENUE IS CONFINED TO INVOKING THE EXPLANATION TO SECTION 37(1). THE OBJECTIONS TO THE SAID COMMISSION PAYMENTS DO N OT, THEREFORE, ARE NOT THEREFORE SUSTAINABLE IN LAW, SO FAR AS DEDUCTIBILITY UNDER SECTION 37(1) IS CONCERNED. A LOT OF EMPHASIS HAS BEEN PLACED BY THE COMMISSION ER OF INCOME-TAX (APPEALS) ON THIS TRIBUNALS DECISION IN THE CASE OF TIL 9 ITA NO.3050 TO 3052/MUM/2013 NSIL EXPORTS LTD. LTD. [2007] 16 SOT 33 (KOL). HOWEVER, AS WE HAVE DECIDED THE MATTER ON MERITS AND ON THE FIRST PRINCIPLES, WE SE E NO NEED TO DEAL WITH THE SAID JUDICIAL PRECEDENT. OUR REASONING CO ULD BE DIFFERENT THAN THE REASONING ADOPTED BY THE COMMISSIONER OF I NCOME- TAX(APPEALS) AND THAT ADOPTED BY THE COORDINATE BEN CH IN TILS CASE(SUPRA), BUT THEN OUR CONCLUSION IS THE SAME AS ARRIVED AT BY THE COMMISSIONER OF INCOME-TAX (APPEALS) AND BY THE COO RDINATE BENCH. IT IS THIS ASPECT OF THE MATTER WHICH IS MATERIAL F OR THE PRESENT PURPOSES. IN VIEW OF THE ABOVE DISCUSSIONS, AS ALSO BEARING I N MIND THE ENTIRELY OF THE CASE, WE APPROVE THE CONCLUSIONS AR RIVED AT BY THE COMMISSIONER OF INCOME-TAX (APPEALS) AND DECLINE TO INTERFERE IN THE MATTER. AS WE PART WITH THE MATTER, WE MUST MAKE IT CLEAR T HAT OUR REFERENCES TO THE VOLKER COMMITTEE REPORT WERE ONLY WITH A VIEW TO ANALYSE AS TO WHETHER EVEN IF EVERYTHING STATED IN THE VOLKER COMMITTEE REPOST IS TAKEN AS CORRECT AND THIS REPOR T IS TAKEN AS AN ADMISSIBLE EVIDENCE, WILL THE DEDUCTIBILITY OF EXPE NSES IN THE HANDS OF THE ASSESSEE WILL BE HIT BY THE EXPLANATION TO S ECTION 37(1). HOWEVER, TO WHAT EXTENT THIS REPORT CAN BE RELIED U PON IN INCOME-TAX PROCEEDINGS IS STILL AN OPEN QUESTION. WE LEAVE IT AT THAT. 7. THIS DECISION OF THE TRIBUNAL IN CASE OF RAJRANI EXPORTS PVT. LTD. HAS BEEN UPHELD BY THE HONBLE KOLKATA HIGH COURT I N THE DECISION REPORTED IN 262 CTR KOL (1992) IN PARA 5 AND 6 AS U NDER: - 5. AGGRIEVED BY THE ORDER OF THE CIT(A), THE REVENUE P REFERRED AN APPEAL BEFORE THE TRIBUNAL. THE TRIBUNAL DISMISSED THE APPEAL HOLDING, INTER ALIA, THE ASSESSEE HAS MADE PAYMENT FOR COMMISSION AND HAS BEEN RENDERING SERVICES IN CONSIDERATION OF THE SAME. AS A MATTER OF FACT, IT IS NOT EVEN REVENUES CASE THAT NO SERVICES HAVE BEEN RENDERED AT ALL. THE FACT THAT SERVICES HAVE BEEN RENDERED BY A PARTY OTHER THAN THE AGENT TO WHOM COMMISSION IS PA ID IS WHOLLY IMMATERIAL SO FAR AS DEDUCTIBILITY IN THE HANDS OF THE ASSESSEE IS CONCERNED. AS FOR THE POSITION THAT THE PAYMENT WAS HIGHLY EXC ESSIVE VIS--VIS THE LOCAL COSTS, EVEN IF THAT BE SO, THAT ASPECT OF THE MATTER DOES NOT AFFECT THE DEDUCTIBILITY IN THE HANDS OF THE ASSESS EE EITHER. THE ASSESSEE IS CONCERNED WITH COMMERCIAL EXPEDIENCY OF THE SAID PAYMENT AND NOT WITH WHAT ARE THE ACTUAL COSTS INCU RRED IN RENDERING THE SERVICES FOR WHICH THE PAYMENT IS MAD E. AS WE HAVE SEEN EARLIER IN THIS ORDER, FROM THE EXTRACTS OF TH E VOLKER COMMITTEE REPORT ITSELF, IT WAS ABSOLUTELY NECESSARY FOR THE ASSESSEE TO MAKE THE IMPUGNED PAYMENTS AND, IN ANY EVENT, THE COMMER CIAL EXPEDIENCY OF THESE PAYMENTS HAS NOT EVEN BEEN CALL ED INTO QUESTION BY THE AO. THE CASE OF THE REVENUE IS CONFINED TO INVOKING THE EXPLANATION TO SECTION 37(1). 10 ITA NO.3050 TO 3052/MUM/2013 NSIL EXPORTS LTD. THE OBJECTIONS TO THE SAID COMMISSION PAYMENTS ARE, THEREFORE, NOT SUSTAINABLE IN LAW, SO FAR AS DEDUCTIBILITY UNDER S ECTION 37(1) IS CONCERNED. 6. THE DEPARTMENT HAS COME UP IN APPEAL. MRS. SMIT A DAS DE, LEARNED ADVOCATE APPEARING IN SUPPORT OF THE APPEAL , COULD NOT SATISFY US AS TO WHY WERE THE FINDINGS INDICATED AB OVE AS RECORDED BY THE CIT(A) AND THE TRIBUNAL INCORRECT EITHER ON FACT OR IN LAW. THERE IS, AS SUCH, NO REASON WHY THE APPEAL SHOULD BE ENTERTAINED. 8. THE LD. AR HAS ALSO RELIED UPON THE DECISION OF THIS TRIBUNAL IN CASE OF AJANTA PHARMA LTD. DATED 26.07.2013 IN ITA NOS.1489/MUM/2009, 1490/MUM/2009, 1491/MUM/2009, 14 92/ MUM /2009, 7888/MUM/2011, 7889/MUM/2011, 7890/MUM/2011, 7891/MUM/2011. WE NOTE THAT THE TRIBUNAL AFTER CONS IDERING IN DETAIL THE ENTIRE PROCESS OF EXPORT TO IRAQ UNDER OIL FOR FOOD PROGRAM HAS HELD IN PARA 28 TO 44 AS UNDER:- 28. WE HAVE HEARD THE ARGUMENTS OF BOTH THE CONTEST ING PARTIES AND DETAILS PERUSED IN THE ORDERS AND THE PAPERS APPEND ED, ALONG WITH THE COPY OF VOLCKER COMMITTEE REPORT. THE PREAMBLE OF THE REPORT READS, SUMMARY OF REPORT TODAY, THE INDEPENDENT INQUIRY COMMITTEE (THE COMM ITTEE) ISSUES ITS FIFTH AND FINAL SUBSTANTIVE REPORT CONCERNING THE UNITED NATIONS OI L-FOR-FOOD PROGRAMME (THE PROGRAMME). THIS REPORT ILLUSTRATES THE MANNER IN WHICH IRAQ MANIPULATED THE PROGRAMME TO DISPENSE CONTRACTS ON THE BASIS OF POL ITICAL PREFERENCE AND TO DERIVE ILLICIT PAYMENTS FROM COMPANIES THAT OBTAINE D OIL AND HUMANITARIAN GOODS CONTRACTS. TODAYS REPORT COMPLEMENTS THE COMMITTEE S RECENT REPORT ADDRESSING THE ADEQUACY OF THE PROGRAMMES MANAGEME NT BY THE UNITED NATION. THE WORDING OF THE PREAMBLE ITSELF SAYS, ILLUSTRAT ES, WHICH MEANS THAT THE REPORT HAS BEEN PREPARED TAKING INTO ACCOUNT REPORT S FROM VARIOUS FORA AND IS NOT DEFINITE, IN EVERY ASPECT AND NATURE. AS PER THE PROGRAMME, IRAQ WAS FREE TO CHOOSE ITS BUYERS, SO LONG AS OIL WAS SOLD AT THE PRICES DETERMINED, AS FAIR MARKET PRICE, BY THE UN AND THO SE PROCEEDS DEPOSITED IN THE UN CONTROLLED ESCROW ACCOUNT, AS ALLOWED BY THE SECURITY COUNCIL. 29. THE ILLICIT PAYMENTS, AS DEMANDED BY THE GOVERN MENT OF IRAQ STARTED, AS SURCHARGES BETWEEN 10 TO THIRTY CENTS AND LATER ON, THE IRAQ GOVERNMENT ATTEMPTED TO IMPOSE 50 CENTS SURCHARGE, WHICH CREAT ED A CRISIS SITUATION, WHEREIN FOUR COMPANIES WERE IDENTIFIED, I.E. BAYOIL SUPPLY & TRADING LIMITED (BAYOIL), THE TAURUS GROUP (TARUS), GLENCOR E INTERNATIONAL AG (GLENCORE) AND VITOL GROUP (VITOL), WHO HAD A GREAT ER ROLE TO PLAY IN OIL FOR FOOD PROGRAMME. AS THE BUBBLE CREATED BY THE IR AQ GOVERNMENT BURST, THE SURCHARGE METHOD WAS DISCONTINUED BY THEM IN AU TUMN OF 2002. 11 ITA NO.3050 TO 3052/MUM/2013 NSIL EXPORTS LTD. 30. THIS WAS THE GENERAL MODUS OPERANDI UNDERTAKEN BY THE IRAQ GOVERNMENT. UNDER THE PROGRAMME FOR SUPPLY OF HUMAN ITARIAN GOODS, THE IRAQ GOVERNMENT INSTITUTED A BROADER POLICY TO IMPOSE GENERALLY TEN PER CENT KICKBACK, WHICH WAS INCLUDED IN THE INVOIC E. THE SUPPLIERS WOULD THEN RECEIVE THE PAYMENTS AS INVOICED THROUGH ESCRO W PAYMENT SYSTEM, PUT IN PLACE BY THE UN. BY DOING THIS, THE IRAQ GOV ERNMENT WAS ABLE TO CAMOUFLAGE THE ACTUAL PAYMENT ALONG WITH ASSF WITHO UT NAMING IT. 31. IN THIS BACKGROUND, WE HAVE TO ASCERTAIN THAT T HE PAYMENT MADE TO DALALA & COMPANY AS COMMISSION, INCLUDED ANY PART OF ILLIC IT PAYMENT TERMED AS KICKBACK IN THE VOLCKER COMMITTEE REPORT, ON WHI CH BASIS, THE PAYMENT MADE TO DALALA & COMPANY HAS BEEN DISALLOWE D. 32. WHEN WE REVERT OUR ATTENTION TOWARDS THE MODUS OPERANDI , AS MENTIONED IN THE VOLCKER REPORT, WE FIND THAT ON HUMANITARIAN PRODUCTS, THE IMPOSE OF SURCHARGE WAS 10 PER CENT ON THE INVOICE PRICE A ND TERMED AS ASSF, WHICH INFLATED THE PRICE (PAGE 5 OF REPORT) ON THE INVOICE, AGAINST WHICH THE SUPPLIERS WERE PAID THROUGH THE UN MONITORED ES CROW ACCOUNT. THIS CLEARLY SHOWS THAT IN SO FAR AS THE VOLCKER REPORT WAS CONCERNED, IT SPECIFIED SUPPLIERS AND IRAQ GOVERNMENT. IN SO FAR AS THE ASSESSEE IS CONCERNED, THE MADE THE SUPPLIES THROUGH DALALA, WH O DEALT WITH THE GOVERNMENT OF IRAQ, AND TO WHOM THE COMMISSION WAS PAID. THERE IS NO EVIDENCE OF ANY ILLICIT PAYMENT TO DALALA & COMPANY OR EVEN DALALA MAKING ANY ILLICIT PAYMENT TO IRAQ GOVERNMENT. 33. WE, THEREFORE, FIND THAT THE FACTS BEING RELIED UPON BY THE REVENUE AUTHORITIES ARE IN ABSOLUTE VARIANCE WITH FACTS COM ING OUT OF THE VOLCKER REPORT. REVERTING OUR ATTENTION TO THE FACTUM OF PA YMENT MADE TO DALALA & COMPANY. IT IS NOT IN DISPUTE THAT DALALA WAS PAI D ITS COMMISSION ONLY AND THAT NOTHING MORE THEN WHAT HAS BEEN ALLOWED AN D ROUTED THROUGH THE RBI WAS PAID, AS PER THE UN AND UNSC GUIDELINES , ISSUED TO THE MEMBER COUNTRIES WHO BECAME PARTY TO OIL FOR FOOD P ROGRAMME. THE ISSUE PRECIPITATES TO WHETHER DALALA MADE ANY PAYME NT TO IRAQ GOVERNMENT ON BEHALF OF THE ASSESSEE COMPANY, PATEN TLY, AS PER THE EVIDENCE, EXAMINED BY THE REVENUE AUTHORITIES, ASSE SSEE COMPANY DID NOT MAKE ANY PAYMENTS ON ITS OWN. THE ONLY CONCLUSION T HAT COULD BE DRAWN ARE: (A) DALALA & COMPANY PAID FROM WITHIN ITS PAYMENT T O IRAQ GOVERNMENT & (B) ASSESSEE PAID TO DALALA & COMPANY THROUGH SOME OTHER CHANNEL, SOME PAYMENT WHICH WOULD BE OVER AND ABOVE THE COMM ISSION PAID ALLOWED AND AUTHORIZED BY THE RBI. 34. IT IS APPARENT, THAT DALALA WOULD NOT AND COULD NOT HAVE MADE ANY PAYMENTS TO IRAQ GOVERNMENT ON BEHALF OF THE ASSESS EE FROM WITHIN ITS REMUNERATION FOR ITS SERVICES AND IN SO FAR AS (B) IS CONCERNED, THE BURDEN LAY ON THE DEPARTMENT TO PROVE THAT THE ASSESSEE MA DE SOME PAYMENT THROUGH SOME OTHER CHANNEL. THIS HAS NOT BEEN DONE BY THE REVENUE AUTHORITIES. THE REVENUE AUTHORITIES, ALSO CHOSE NO T TO SUMMON DALALA TO ASCERTAIN ITS RELATION WITH IRAQ GOVERNMENT AND WHE THER COMMISSION 12 ITA NO.3050 TO 3052/MUM/2013 NSIL EXPORTS LTD. AMOUNT RECEIVED BY DALALA FROM THE ASSESSEE WAS USE D FOR MAKING THE ALLEGED ILLICIT PAYMENTS. 35. IT IS SEEN THAT THE REVENUE AUTHORITIES AS WELL AS THE DR PLACED HEAVY RELIANCE ON THE DECISION OF CIPLA LTD. VS ACIT, ITA NO. 7284 TO 7286/MUM/2007, WHEREIN THE COORDINATE BENCH AT MUMB AI, CAME TO THE CONCLUSION THAT, CIPLA WAS INVOLVED IN ILLICIT PAYM ENT MADE TO IRAQ GOVERNMENT, AS PER VOLCKER REPORT. IT HAS BEEN HELD BY THE COORDINATE BENCH IN PARA 7.1 THAT THE ASSESSEE HAS NOT DENIED PAYMENT OF ASSF. IN PARA 3 OF THE ORDER, THE ORDER MENTIONS ABOUT THE P AYMENTS TOWARDS ASSF AND ON WHICH BASIS, THE CASES WERE REOPENED. 36. HOWEVER, IN THE INSTANT CASE, THE FACTS ARE DIF FERENT. THE DISPUTE IS WITH REGARD TO PAYMENT MADE TO DALALA & COMPANY, FROM WH ERE, THE ALLEGED ILLICIT PAYMENT MAY HAVE BEEN PAID. IN SUCH A SITUATION, WHEN THE FACT S THEMSELVES ARE AT VARIANCE, THE DECISION OF CIPLA (SUPRA) CANNOT BE RELIED UPON. THIS ARGUMENT OF THE DEPARTMENT HAS TO BE REJ ECTED. 37. WE CANNOT IGNORE THE DECISION OF THE COORDINATE BENCH AT KOLKATA, IN THE CASE OF DCIT VS RAJARANI EXPORTS PVT. LTD., ITA NO. 1402/KOL/2011, WHEREIN THE KOLKATA BENCH, WERE SEIZED WITH THE ISS UE ON SIMILAR FACTS. IN FACT, THE COMMISSION PAYMENT WAS MADE BY THE ASSESS EE TO ALIA TRANSPORTATION AND GENERAL TRADING COMPANY, WHOSE N AME FIGURED PROMINENTLY IN THE VOLCKER REPORT, AS IRAQI FRONT C OMPANIES AND AS PER THE CONCLUSIONS DRAWN ALIA WAS SERVING THE ASSESSEE ON A WAFER THIN MARGIN, BECAUSE TEN PER CENT WAS TO BE PAID TO IRAQ I GOVT., WHICH MEANT THAT ACTUALLY NO SERVICE WAS RENDERED BY ALIA TO RA JARANI. 38. THE COORDINATE BENCH AT KOLKATA THEN EMBARKED O N THE SITUATION THAT MERELY BECAUSE THIS REPORT STATES THAT THE AMOUNTS PAID TO ALIA WERE ACTUALLY KICKBACKS TO IRAQI REGIME, THAT FACT PER SE WOULD NOT RENDER THE EXPENDITURE SO INCURRED, IF OTHERWISE DEDUCTIBLE, A S NON DEDUCTIBLE IN COMPUTATION OF BUSINESS INCOME, UNLESS THESE PAYMEN TS ARE HIT BY SOME OTHER DISABILITY PROVISIONS OF THE IT ACT. WHAT IS TO BE EXAMINED FIRST, IS WHETHER THE AMOUNTS SO PAID ARE DEDUCTIBLE BUSINESS EXPENDITURE IN THE FIRST PLACE, AND IF SO, WHETHER THESE AMOUNTS ARE H IT BY ANY DISABLING PROVISIONS UNDER THE ACT. FOR THIS, THEREFORE, WE T AKE A QUICK LOOK AT THE SCHEME OF THE ACT FROM THIS PERSPECTIVE TO DEAL WIT H THE ASPECT OF THE MATTER. SECTION 37(C) OF THE ACT PROVIDES THAT ANY EXPENDITURE . IT FOLLOWS THAT ANY PAYMENT, WHICH IS PROHIBITED BY LA W, IN NOT AN ADMISSIBLE DEDUCTION UNDER THE SCHEME OF THE ACT. T HAT TAKES US TO THE QUESTION WHETHER COMMISSION PAID TO DALALA & CO. CO ULD BE SAID TO BE PROHIBITED BY LAW. HERE, WE MUST REFER TO THE SUBMI SSIONS MADE BY THE ASSESSEE, WHERE THE ASSESSEE OFFERED ALL SUBMISSION S AND EVEN DALALA AGVE THE CERTIFICATE DATED 20.10.2007, AGREEING TO SATISFY ANY AUTHORITY TO AUTHENTICATE THE PAYMENTS RECEIVED BY THEM FROM THE ASSESSEE. 39. WE HAVE TO BEAR IN MIND THAT WHAT CAME WITHIN T HE UN SANCTION WAS THE PAYMENTS MADE TO IRAQ GOVERNMENT BY THE SUPPLIERS, NOT THE PAYMENT, MADE TO THE INTERMEDIARY, WHICH IN THE INSTANT CASE WAS DALALA. WE HAVE TO EXAMINE THE LEGALITY OF PAYMENT MADE BY THE ASSE SSEE TO DALALA, WHICH WERE ROUTED THROUGH THE RBI WITH THEIR CONSENT AND APPROVAL. 13 ITA NO.3050 TO 3052/MUM/2013 NSIL EXPORTS LTD. 40. AS MENTIONED EARLIER, THE CASE IN HAND IS DIFFE RENT FROM THE CASE RELIED UPON BY THE REVENUE AUTHORITIES, I.E. OF CIPLA, WHE RE CIPLA ACCEPTED ILLICIT PAYMENT MADE TO IRAQ GOVERNMENT. IN ANY CASE, THE R EVENUE AUTHORITIES HAVE NOT MADE OUT ANY CASE WHICH COULD LEAD TO AN INFERENCE THAT THE ASSESSEE , IN THE INSTANT CASE, INDULGED IN ANY ILLICIT/ILLE GAL PAYMENT. MAKING A BALD STATEMENT, BASED ON A COMPILED REFERE NCE REPORT, CANNOT PRECIPITATE INTO AN INFERENCE. EVEN FOR THE SAKE OF ARGUMENT THAT THE COMMISSION PAID TO DALALA HAVE REACHED IRAQ REGIME THEN WE HAVE TO NEGATE TWO NEGATIVE STATEMENTS/CIRCUMSTANCES: A) WOULD DALALA SURVIVE ON A WAFER THIN MARGIN OR E VEN WITHOUT A SINGLE CENT IN HIS ACCOUNT, BECAUSE, IT IS NOT THE CASE OF THE REVENUE AUTHORITIES THAT THE ASSESSEE PAID SOMETHIN G OR ANYTHING IN EXCESS OF 10% OF INVOICE RAISED FOR THE AID SUPP LIED TO IRAQ THROUGH UNSC AND UN, AND B) HOW THE ASSESSEE GOT INVOLVED IN SUCH A PAYMENT, BECAUSE THE ASSESSEE WAS WORKING WITH DALALA AND IF AT ALL ANY ILLICIT PAYMENT HAS BEEN MADE, IT WAS MADE BY DALALA. 41. IN THESE CIRCUMSTANCES AND STRICTLY GOING BY TH E FACTS OF THE CASE, WE HAVE TO CONSIDER THE PAYMENT OF COMMISSION PAID TO DALAL A, WHETHER, AT ALL, THIS PAYMENT WAS ILLEGAL OR ILLICIT. THE VERY FACT THAT THE REVENUE AUTHORITIES HAVE NOT BEEN ABLE TO PIN THE ASSESSEE ON ILLICIT PAYMENT MADE TO DALALA, WHICH ALSO IS STAMPED WITH APPROVAL FROM THE RBI, A VERY HEAVY BURDEN IS CAST ON THE REVENUE AUTHORITIES TO PROVE THAT THE PAYMENT WAS MADE WITH AN ILLICIT INTENT, WHICH IN THE END, THE REVENUE AUTHORITIES WERE UNABLE TO SHIFT. HONBLE CALCUTTA HIGH COURT, IN THE CASE OF RAJARANI (SUPRA), HAVE UPHELD THE ORDER OF THE COORDINATE BENCH OF I TAT, KOLKATA. THE HONBLE CALCUTTA HIGH COURT, HAS HELD, ASSESSEE IS A PRIVATE LIMITED COMPANY. AGAINST THE ORDER OF THE AO, ON APPEAL, CIT(A) HAD HELD THAT THE COMMISSION ON EXPORT ACTIV ITY HAD BEEN FULLY DISCLOSED IN ALL CORRESPONDENCES AND ACTIVITIES IN RELATION TO EXPORT, THE COMMISSION WAS PAID THROUGH BANKING CHANNEL OF RBI APPROVAL AND IT WAS PAID PURSUANT TO AN AGREEMENT APPROVED BY GOVER NMENT OF INDIA AND UN. THE PAYMENT OF COMMISSION WAS FOR BUSINESS CONSIDERATION AND THERE WAS APPARENTLY NO ILLEGALITY IN MAKING PA YMENT OF COMMISSION. BESIDES THIS, NOTHING HAS BROUGHT ON RE CORD TO SHOW THAT THE TRANSACTIONS RELATING TO PAYMENT OF COMMISSION WERE NON-GENUINE OR WERE EXCESSIVE AND UNREASONABLE. THE VOLKER COMMISS ION REPORT HAD DISCUSSED ABOUT THE UTILIZATION OF MONEY BY THE REC IPIENT OF THE COMMISSION IN PARTING SOME OF THE FUND SO RECEIVED AS COMMISSION WITH THE GOVERNMENT OF IRAQ AND SUCH PARTING OF COMMISSI ON WITH THE GOVERNMENT OF IRAQ WAS OBJECTED TO BY THE VOLKER CO MMISSION REPORT WHICH WAS A PACT BETWEEN THE IRAQ GOVERNMENT AND TH E UN WHEREIN, AS IT APPEARS, NEITHER THE APPELLANT COMPANY WAS INVOL VED NOR GOVERNMENT OF INDIA WAS INVOLVED. AGGRIEVED BY THE ORDER OF THE CIT(A), THE REVENUE P REFERRED AN APPEAL BEFORE THE TRIBUNAL. THE TRIBUNAL HAD DISMISSED THE APPEAL AND HELD THAT THE ASSESSEE HAD MADE PAYMENT FOR COMMISSION AND HAD BE EN RENDERED SERVICES IN CONSIDERATION OF THE SAME. AS A MATTER OF FACT, IT WAS NOT EVEN REVENUES CASE THAT NO SERVICES HAD BEEN RENDE RED AT ALL. THE FACT THAT SERVICES HAD BEEN RENDERED BY A PARTY OTHER TH AN THE AGENT TO WHOM COMMISSION WAS PAID WAS WHOLLY IMMATERIAL SO FAR AS DEDUCTIBILITY IN THE HANDS OF THE ASSESSEE WAS CONCERNED. AS FOR THE POSITION THAT THE 14 ITA NO.3050 TO 3052/MUM/2013 NSIL EXPORTS LTD. PAYMENT WAS HIGHLY EXCESSIVE VIS--VIS THE LOCAL CO STS, EVEN IF THAT BE SO THAT ASPECT OF THE MATTER DOES NOT AFFECT THE DE DUCTIBILITY IN THE HANDS OF THE ASSESSEE EITHER. THE ASSESSEE WAS CONCERNED WITH COMMERCIAL EXPEDIENCY OF THE SAID PAYMENT AND NOT WITH WHAT WE RE THE ACTUAL COSTS INCURRED IN RENDERING THE SERVICES FOR WHICH THE PA YMENT WAS MADE. AS WE HAD SEEN EARLIER IN THIS ORDER, FROM THE EXTRACT S OF THE VOLKER COMMITTEE REPORT SELF, IT WAS ABSOLUTELY NECESSARY FOR THE ASSESSEE TO MAKE THE IMPUGNED PAYMENTS AND, IR ANY EVENT, THE C OMMERCIAL EXPEDIENCY OF THESE PAYMENTS HAD NOT EVEN BEEN CALL ED INTO QUESTION BY THE AO. THE OBJECTIONS TO THE SAID COMMISSION PAYME NTS WERE, THEREFORE, NOT SUSTAINABLE IN LAW, SO FAR AS DEDUCT IBILITY UNDER SECTION 37(1)(SIC) WAS CONCERNED. 42. TAKING INTO CONSIDERATION THE ABOVE OBSERVATION S, WE ARE OF THE CONSIDERED OPINION THAT THE PAYMENT MADE TO DALALA & CO. BY THE ASSESSEE AS A COMMISSION PAYMENT, IS FULLY DEDUCTIB LE AND DOES NOT GET THE COLOUR OF ANY EXPENDITURE INCURRED BY AN ASSESSEE FOR ANY PU RPOSE WHICH IS AN OFFENCE OR WHICH IS PROHIBITED IN LAW . 43. WE HAVE PLACED RELIANCE ON THE DECISION OF DCIT VS RAJARANI EXPORTS PVT. LTD. IN ITA NO. 1402/KOL/2011, THIS ORDER HAS SINCE BEEN APPROVED BY THE HONBLE CALCUTTA HIGH COURT, REPORTED IN 201 3-TIOL-361-HC- KDL-DT, IN ITA NO. 49/2013. 44. IN THESE, CIRCUMSTANCES, WE SET ASIDE THE ORDER OF THE CIT(A) ON THIS FACTUAL ISSUE AND DIRECT THE AO TO ALLOW THE EXPEND ITURE OF COMMISSION PAID TO DALALA, AS CLAIMED. 9. IT IS CLEAR FROM THE ABOVE ORDER THAT THE TRIBUN AL HAS CONSIDERED ALL THE DECISIONS ON THE THIS POINT AND FINALLY ARRIVAL TO THE CONCLUSION THAT THE PAYMENTS MADE BY THE ASSESSEE AS COMMISSION ARE FULLY DEDUCTIBLE AS THE SAID EXPENDITURE WAS INCURRED BY THE ASSESSEE F OR THE PURPOSE OF ITS BUSINESS AND DOES NOT FALL UNDER THE CATEGORY OF AN EXPENDITURE INCURRED FOR ANY PURPOSE WHICH IS AN OFFENCE OR WHICH IS PRO HIBITED IN LAW IN TERMS OF EXPLANATION TO SECTION 37(1). RESPECTFULLY FOLLO WING THE DECISION OF HONBLE KOLKATA HIGH COURT AS WELL AS THE DECISION OF THE COORDINATE BENCHES OF THIS TRIBUNAL, WE DECIDE THESE GROUNDS I N FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. 10. GROUND NO. 1 REGARDING THE VALIDITY OF REOPENIN G SINCE THE ISSUE ON MERIT HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE TH EREFORE, WE DO NOT PURPOSE OF DECIDE THE GROUND NO. 1 BEING ACADEMIC I N NATURE. 11. THE ASSESSEE HAS ALSO RAISED COMMON ADDITIONAL GROUND WHICH READS AS UNDER:- 15 ITA NO.3050 TO 3052/MUM/2013 NSIL EXPORTS LTD. THAT UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE THE ORDER OF THE DEPUTY COMMISSIONER OF INCOME-TAX-3(2) MUMBAI DATED 23/11/ 2007 THE CLAIM OF DEDUCTION U/S 80HHC ON ACCOUNT OF DEPB BY AMENDMENT OF SECTION 80HHC (3) INSERTION OF CERTAIN CONSTITUTION IN THE THIRD AND FOURTH PROVISOS THERETO WITH RETROSPECTIVE AFFECT BY TAXATION LAWS (SECOND AMENDMENT) ACT, 2005 IS VIOLATIVE OF ACT 14 OF THE CONSTITUTIO N AS IT DENIES THE BENEFIT OF DEDUCTION U/S 80HHC TO THE CLASS OF ASSESSEE HAVING EXPORT TURNOVER OF MORE THAN RS.10 CRORE WHOSE ASSESSMENT WAS STILL PE NDING WHILE ALLOWING SUCH BENEFIT TO THE SAME CLASS OF ASSESSEE WHOSE AS SESSMENT HAVE ALREADY BEEN CONCLUDED: IT IS ALSO INVALID FOR THE REASON T HAT ITS RETROSPECTIVE OPERATION TAKES AWAY THE BENEFIT FROM ONE CLASS OF ASSESSEE IMPUGNED ASSESSMENT IS QUASHED TO THE EXTENT THAT THE OPERAT ION OF SECTION COULD BE GIVEN EFFECT FROM THE DATE OF AMENDMENT AND NOT IN RESPECT OF EARLIER ASSESSMENT YEARS IN THE CASE OF ASSESSEE WHOSE EXPO RT TURNOVER IS MORE THAN RS.10 CRORES. 12. WE HAVE HEARD THE LD. AR AS WELL LD. DR AND CON SIDERED THE RELEVANT MATERIAL ON RECORD. AT THE OUTSET WE NOTE THAT THIS ISSUE IS COVERED BY THE DECISION OF THE HONBLE SUPREME COURT IN CASE OF TO PMAN EXPORT VS. CIT IN 342 ITR 49 (SC). 13. ACCORDINGLY WE DIRECT THE AO TO ALLOW THE DEDUC TION U/S 80HHC ON ACCOUNT OF DEPB IN TERMS OF THE DECISION OF HONBLE SUPREME COURT IN CASE OF TOPMAN EXPORT ( SUPRA ). 14. IN THE RESULT, APPEALS OF THE ASSESSEE ARE PART LY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 21 /02/2014 . '2 - 01( $ ' 3& 21/02/2014 , 1 - 4 SD/- ( RAJENDRA ) SD/- ( VIJAY PAL RAO) '$ / ACCOUNTANT MEMBER / JUDICIAL MEMBER MUMBAI; 3& /DATED : 21 /02/ 2014 F{X~{T? P.S. '2 - +/5 6'(/ / COPY OF THE ORDER FORWARDED TO : (1) & '7/ / THE ASSESSEE; (2) / THE REVENUE; 16 ITA NO.3050 TO 3052/MUM/2013 NSIL EXPORTS LTD. (3) 8 ( ) / THE CIT(A); (4) 8 / THE CIT, MUMBAI CITY CONCERNED; (5) 94 +/& , , / THE DR, ITAT, MUMBAI; (6) 4:' ; / GUARD FILE. ,/ +/ / TRUE COPY '2& / BY ORDER < / = / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI