BATLIBOI INTERNATIONAL LTD, MUMBAI V. ADDL CIT CIR 2(1), MUMBAI

ITA 64/MUM/2010

• Counselvise Citation: 6419914 RSA 2010
• Duration Of Justice: 1 year(s) 3 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-04-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 15-03-2011
• Assessment Year: 2002-2003
• Appeal Filed On: 05-01-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SU RENDRA KUMAR
• Assessee Lawyers: V MOHAN
• Keywords: Principle of natural justice; Reason to believe
• Section: 143(3); 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH B MUMBAI BEFORE SHRI BEFORE SHRI BEFORE SHRI BEFORE SHRI R.S. SYAL R.S. SYAL R.S. SYAL R.S. SYAL (AM) AND SMT. ASHA VIJAYARAGHAVAN (JM) (AM) AND SMT. ASHA VIJAYARAGHAVAN (JM) (AM) AND SMT. ASHA VIJAYARAGHAVAN (JM) (AM) AND SMT. ASHA VIJAYARAGHAVAN (JM) ITA NO. 64 /MUM/2010 ASSESSMENT YEAR- 2002-03 A N D ITA NO. 65 /MUM/2010 ASSESSMENT YEAR- 2004-05 M/S. BATLIBOI INTERNATIONAL LTD., 15, J.N. HEREDIA MARG, BALLARD ESTATE, MUMBAI-400 001 PAN-AAACB 4407F VS. THE ADDL CIT, CIR 2(1), MUMBAI (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI V. MOHAN RESPONDENT BY: SHRI SURENDRA KUMAR O R D E R O R D E R O R D E R O R D E R PER ASHA VIJAYARAGHAVAN (JM) PER ASHA VIJAYARAGHAVAN (JM) PER ASHA VIJAYARAGHAVAN (JM) PER ASHA VIJAYARAGHAVAN (JM) THESE TWO APPEALS ARE PREFERRED BY THE ASSESSEE ARE DIREC TED AGAINST THE ORDERS DATED 18.11.2009 PASSED BY THE LD. CIT(A)-4 FOR THE ASSESSMENT YEARS 2002-03 & 2004-05. SINCE ISSUES ARE COMMO N IN THESE APPEALS, THESE WERE HEARD TOGETHER AND ARE BEIN G DISPOSED OF THROUGH THIS CONSOLIDATED ORDER. 2. THE ASSESSEE IS A COMPANY ENGAGED IN THE BUSINESS OF EX PORT TRADING, ASSESSMENTS FOR THE A.Y 2002-03 AND 2004-05 WER E ORIGINALLY COMPLETED UNDER SEC 143(1) OF THE ACT. SUBSEQUENTLY, THE ASSESSMENTS WERE REOPENED ON THE BASIS OF THE INFORMATION RECEIVED FROM THE CENTRAL BOARD OF DIRECT TAXES VIDE THEIR L ETTER BEARING F./NO. 414/117/2005-IT(INV -1) DATED 18.11.2005 REGARDING ILLICIT PAYMENTS ITA NOS. 64 & 65/M/2010 2 MADE BY VARIOUS SUPPLIES TO THE GOVERNMENT OF IRAQ AS E LABORATELY REPORTED IN THE VOLCKER COMMITTEE REPORT WHICH CHRO NICLES IN DETAIL THE MANIPULATION OF OIL FOR FOOD PROGRAMME BY SADDA M HUSSAIN REGIME IN IRAQ AND PROVIDES EXAMPLES OF OIL BUYERS AND AGRIC ULTURAL GOODS SELLERS MANY OF WHOM PAID DIRECTLY OR INDIRECTLY THRO UGH VARIETY OF DEVICES; SAID INFORMATION PROVIDED NAMES OF PARTIES WHO MADE SUCH ILLICIT PAYMENTS AND ASSESSEES NAME ALSO FINDS PLACE IN TH E SAID LIST. 3. ON THE BASIS OF THE FOREGOING, AO DISALLOWED OUT OF OVERSEAS COMMISSION PAID BY THE ASSESSEE FOLLOWING AMOUNTS PAID TO M/S DOME INTERNATIONAL, ABU DHABI, UAE. RS 5,36,440 FOR THE ASST. YEAR 2002-03 RS 13,79,475 FOR THE ASST. YEAR 2004-05 4. THE A.O. HAS STATED THAT THE NAME OF THE ASSESSEE APP EARS AT SERIAL NO.25 OF THE ANNEXURE TO THE REPORT AND REFLE CTED UNDER THE HEAD CONTRACTS WHERE THE AMOUNTS REPORT IS BASED ENTIR ELY ON ACTUAL DATA AND HAS ALSO SET OUT EXTRACTS FROM THE VOLCKER COMMITTEES REPORT WITH REGARD TO SOURCE OF EVIDENCES AS REFERRED TO IN PAGE 535, QUANTIFICATION OF ILLICIT PAYMENTS OF AFTER SALES SERV ICE FEES REFERRED TO IN PAGE 536 AND ACTUAL AND PROJECTED ILLICIT PAYMEN T ON CONTRACTS FOR HUMANITARIAN GOODS, SUMMARY BY SUPPLIERS REFERRED TO I N PAGE 538. 5. REFERRING TO THESE EXTRACTS FROM THE REPORT, THE A O CONCLUDED IN THE ASSESSMENT THAT IT CAN BE SEEN THAT THE KICKBACKS IN THE FORM OF COMMISSION PAID BY THE ASSESSEE TO DOME INTERNATIONAL, UA E, WHO WERE RESPONSIBLE FOR FOLLOWING UP THE EXPORT ORDERS, I S NOTHING BUT ILLEGAL PAYMENTS MADE AS DEFINED IN THE VOLCKER COMMI TTEE REPORT AND IS BEING DISALLOWED AND ADDED BACK TO THE ASSESSEES INCOM E. ACCORDINGLY, COMMISSION PAYMENT OF RS 536,440/- FOR A. Y 2002-03 AND RS 13,79,475 FOR AY 2004-05 WAS DISALLOWED. ITA NOS. 64 & 65/M/2010 3 6. ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LD. CIT(A) AND SUBMITTED AS FOLLOWS: 1. THE AO DID NOT FURNISH TO THE ASSESSEE COPIES OF MATERIAL RELIED UPON IN THE COURSE OF THE ASSESSMENT PROCEEDINGS BEFORE MAKING THE DISALLOWANCES IN THE ASSESSMENT. 2. THE DISALLOWANCE OF RS 5,36,440/- FOR AY 2002-03 AND RS 13,79,475/- FOR AY 2004-05 REPRESENTS PAYMENT OF COM MISSION TO M/S DOME INTERNATIONAL, HAVING THEIR OFFICE IN A1 MASOOD TOWER, OFFICE NO. 1301, A1 HAMDAN STREET, POST BOX NO.6921,ABU DHABI, U,A.E. WHOM THE ASSESSEE HAD APPOIN TED AS THEIR AGENTS IN THE EARLIER YEARS TO GET OVERSEAS ORDE RS. COMMISSION ON SALES PAID TO DOME INTERNATIONAL ARE PUR SUANT TO THE AGREEMENT ENTERED WITH THEM REMITTANCE OF COMMI SSION TO THEM ARE MADE THROUGH FOREIGN REMITTANCE AND IN COM PLIANCE WITH THE REGULATIONS STIPULATED IN THIS BEHALF BY THE RBI. 3. THAT COPIES OF AGREEMENT WITH M/S DOME INTERNATIO NAL THEIR INVOICES FOR SERVICES RENDERED COPIES OF THE REMITTANCE S MADE TO THEM AND EVIDENCE IN SUPPORT OF SUBMISSION THAT THEI R ASSOCIATION WITH THE ASSESSEE WAS FOR SEVERAL YEARS WERE SUBMITTED DURING THE COURSE OF THE PROCEEDINGS BEFORE AO AND CIT(A). 4. THE ASSESSEE COULD HAVE MADE FURTHER ARGUMENTS IF MA TERIALS RELIED ON BY THE AO.,WERE FURNISHED TO IT. 5. THE EXPORT SALE WAS ON COST INSURANCE PACKING (CIP) BASIS AND THAT BASED ON THE AUDITED ACCOUNTS PLACED ON RECORD IN THE PROCEEDINGS THERE IS NO EVIDENCE FOR HAVING REMITTED AFTER SALES SERVICES FEE TO THE GOVERNMENT OF IRAQ, AS EVIDENCED BY THE BOOKS OF ACCOUNT AND THE DETAILS FURNISHED BEFORE TH E AUTHORITIES. 6. THERE WAS NO CORRESPONDENCE OR COMMUNICATION OF WHATSO EVER NATURE WITH ANY AUTHORITY INVESTIGATING ON THIS SUBJEC T. 7. THE LD. CIT(A) AFTER RECORDING THE DETAILED SUBMI SSIONS MADE BY THE ASSESSEE HELD THAT A COPY OF THE COMMISSIONS REPORT BASED ON WHICH ASSESSMENT WAS MADE WAS AVAILABLE ON THE WEB SITE AN D FOR THE ITA NOS. 64 & 65/M/2010 4 SAME REASONS, CONTAINED IN THE ASSESSMENT ORDER, CONFIRMED THE DISALLOWANCE. 8. THE LD. CIT(A) HELD AS FOLLOWS: I HAVE DULY CONSIDERED THE SUBMISSIONS OF THE AR. HOWEVER I DO NOT AGREE WITH THE SUBMISSIONS OF THE AR THAT THE ASSESSEE HAS BEEN DENIED THE OPPORTUNITY TO KNOW THE REA SONS FOR REOPENING THE ASSESSMENT, IN FACT VOLCKER COMMITTEE REPORT IS A PUBLIC DOCUMENT AVAILABLE ON INTERNET. IT IS NO W WELL KNOWN THAT VOLCKER COMMITTEE WAS REQUIRED TO INQUIRE INTO THE ALLEGED KICKBACKS PAID BY THE SUPPLIERS TO IRAQ. VOLCKER COMMI TTEE REPORT DOCUMENTED ALL THE PAYMENTS MADE BY SUPPLIERS T O IRAQ IN IRAQI BANKS IN THE ACCOUNTS OF SADDAM HUSSAINS REGI ME IN THE NAME OF AFTER SALES SERVICE AND INLAND TRANSPORTATION. SINCE THE UNITED NATIONS AUTHORIZED THE SALE OF OIL FOR FOOD PR OGRAMME THE SADDAM HUSSAIN REGIME COLLECTED KICKBACKS FROM SUPPLIE RS TO IRAQ UNDER THE HEAD INLAND TRANSPORTATION AND AFTER SALES SERVICES. SINCE THESE PAYMENTS ARE ILLEGAL PAYMENTS TH EY CANNOT BE ALLOWED AS DEDUCTION IN INCOME TAX. VOLCKE R COMMITTEE HAS DOCUMENTED THESE PAYMENTS AFTER VERIFYIN G THE BANK RECORDS OF IRAQ THAT THESE PAYMENTS HAVE REALLY B EEN PAID AND DOCUMENTED THEM IN THEIR REPORT. ASSESSEES NAME APP EARS AT SR.NO. 25 OF THE ANNEXURE TO THE REPORT. HENCE T HE AO IS JUSTIFIED IN REOPENING THE ASSESSMENT AND DISALLOWING THE KICKBACKS PAID BY THE ASSESSEE THROUGH HIS AGENTS. THIS GRO UND OF APPEAL IS DISMISSED. I DO NOT AGREE WITH THE SUBMISSIONS OF THE AR. VOLCK ER COMMITTEE HAS DOCUMENTED THE PAYMENTS OF KICKBACK FRO M BANK RECORDS OF IRAQ GOVERNMENT AND NOTED THAT THE SUPPLI ERS TO IRAQ HAD TO PAY KICKBACK IN THE NAME OF AFTER SALES SERVICE AND INLAND TRANSPORTATION AT 10% OF THE SUPPLIES. THE ASSESSEES NAM E APPEARED AT SR.NO.25 OF THE ANNEXURE TO VOLCKER COM MITTEE REPORT. THEREFORE IT IS PROVED THAT THE ASSESSEE HAS PA ID KICKBACK TO SADDAM HUSSAIN REGIME IN THE NAME OF AFTE R SALES SERVICES AND INLAND TRANSPORTATION THROUGH HIS AGENT. IT IS NOT CORRECT TO SAY THAT THE ASSESSEE HAS NOT PAID ANY AMOUNT BY WAY OF AFTER SALES SERVICES OR INLAND TRANSPORTATION WHEN T HE VOLCKER COMMITTEE HAS REPORTED THE PAYMENT OF KICKBACK. VOLC KER COMMITTEE WAS APPOINTED BY THE U.N.O. AND ITS REPORT IS A PUBLIC DOCUMENT WHICH CAN BE ACCESSED ON INTERNET. THERE WAS NO NEED FOR THE VOLCKER COMMITTEE TO HAVE CORRESPONDENCE WIT H THE ASSESSEE FOR REPORTING THE FACTS OF MISUSE OF OIL FOR FOOD ITA NOS. 64 & 65/M/2010 5 PROGRAMME. SUFFICE IT TO SAY THAT ASSESSEES NAME DID APP EAR AT SR.NO. 25 OF ANNEXURE TO VOLCKER COMMITTEE REPORT W HICH MEANS KICKBACK WAS PAID DIRECTLY OR INDIRECTLY BY THE ASSESSEE TO IRAQI AUTHORITIES, WHICH CANNOT BE ALLOWED UNDER INCOME TA X ACT. THE ARGUMENT THAT THE DETAILS OF BANK STATEMENT IN WHICH THE KICKBACK WAS PAID WAS NOT SHARED WITH THE ASSESSEE CANNO T BE CONCEDED WHEN THE GOVERNMENT OF INDIA HAS ACCEPTED T HE VOLCKER COMMITTEE REPORT IN SO FAR AS FACT FINDING IS CONCERNED . HENCE, THE ADDITION MADE BY THE AO IS REQUIRED TO BE SUSTAINED AND APPEAL ON THESE GROUNDS IS DISMISSED. 9. AGGRIEVED, ASSESSEE IS IN APPEAL BEFORE US AND HAS RAI SED THE FOLLOWING GROUNDS: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE LEAR NED CIT(A) ERRED IN NOT CANCELLING THE ASSESSMENT ORDER PA SSED UNDER SEC. 143(3) READ WITH SECTION 147. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE LEAR NED CIT(A) ERRED IN NOT APPRECIATING THE FACT THAT PRIN CIPLES OF NATURAL JUSTICE WERE NOT ADHERED TO IN MAKING THE DI SALLOWANCE OF COMMISSION PAYMENT OF RS 5,36,440/- 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE LEAR NED CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE OF COMMI SSION OF RS 536,440/- 10. THE LD. COUNSEL FOR THE ASSESSEE SHRI V. MOHAN SUBMIT TED A DETAILED PAPER BOOK THAT CONTAINED RELEVANT EXTRACT S FROM THE VOLCKER COMMITTEE REPORT RELIED ON BY AO AND REFERRED TO IN ASSESSMENT ORDER. FURTHER CONTRACTS AND INVOICES RELATING TO EXPORT SAL ES MADE TO IRAQ IN THE PREVIOUS YEARS, RELEVANT TO AY 2002-03 AND 2004-0 5 A WRITE UP ON M/S DOME INTERNATIONAL, TO WHOM COMMISSIONS PAID IN TH ESE YEARS, AGENCY AGREEMENT BANK CERTIFICATES EVIDENCING REMITT ANCE OF COMMISSION, AUDITED ACCOUNTS FOR THE YEAR ENDED 31 ST MARCH 2002 AND 31 ST MARCH 2004, WERE ALSO SUBMITTED . ITA NOS. 64 & 65/M/2010 6 11. THE LD. COUNSEL ALSO SUBMITTED THAT THE RELEVANT P AGES OF THE SAID COMMITTEES REPORT REFERRED TO IN THE ASSESSMENT ORD ER, NAMELY PAGE NOS. 535,536,538, TABLE 7 ARE IN PAGES NO.1.13 O F THE PAPER BOOK. 12. THE ASSESSMENT ORDER REFERRED TO ASSESSEES NAME AS APPEA RING AT SERIAL NO.25, BUT THE TABLE AS EXTRACTED FROM THE WEBSITE DOES NOT SHOW ANY SERIAL NUMBER. 13. TABLE 7 REFERRED TO IN THE ASSESSMENT ORDER IS IN PA GE 12 OF THE PAPER BOOK AND CONTAINS THE ASSESSEES NAME WITH THE FOL LOWING INFORMATION. CONTRACT FEES VALUE 354958 US D CONTRACT DISBURSEMENTS 142465 USD LEVIED ASSF 344 96 USD PAID ASSF 1 4823 USD 14. IT WAS FURTHER POINTED OUT BY THE COUNSEL THAT AT TABLE 7, AGAINST THE AMOUNTS MENTIONED AS LEVIED ASSF AND PAID ASSF, THERE APPEARS AN ASTERIX MARK THAT IS EXPLAINED BY WAY OF A FOOTNOTE AS FOLLOWS: REPRESENTS CONTRACTS WHERE THE AMOUNTS IMPORTED IS BASED ON ENTIRELY ON ACTUAL DATA. 15. IT WAS ALSO POINTED OUT THAT IN TABLE 7 AND IN 8 OF THIS REPORT THE AMOUNT PAID AS ASSF IS ONLY USD 14823. 16. THE LD. COUNSEL SUBMITTED THAT IT IS NOT KNOWN AS T O HOW THE AO STATES THAT ASSESSEES NAME IS STATED TO BE AT SERIAL NO.25. ASSESSEE IS UNABLE TO MAKE ANY COMMENTS AS PARTICULARS ARE NOT MADE AVAILABLE TO IT. FURTHER EXTRACTS OF THE REPORT IN P APER BOOK PAGES 1 TO 13 WOULD SHOW THAT THE INVOICED VALUE, CONTRACT VAL UE DO NOT TALLY WITH AMOUNTS AND DETAILS AS PER AUDITED ACCOUNTS. FURTHER I T CAN BE SEEN ITA NOS. 64 & 65/M/2010 7 FROM PAGE 8 OF THE PAPER BOOK THAT AFTER SALES SERVIC E FEE REFERS TO AMOUNT ACTUALLY PAID BY EXPORTERS. THE ASSESSEE DENIES HA VING MADE SUCH REMITTANCES AS EVIDENCED BY ITS BOOKS OF ACCOUNTS A ND THIS HAS BEEN RECORDED BY THE CIT (A) AT PAGE 5 OF THE CIT ( A) ORDER FOR BOTH THE YEARS. 17. FURTHER IT WAS ALSO SUBMITTED THAT APART FROM THE FACT THAT THE VOLCKER COMMITTEE REPORT RECORDS PAYMENT OF AFTER SAL ES SERVICE OF USD 14,823 ONLY THE DISALLOWANCE HAS BEEN MADE IN RESP ECT OF RS 5,36,440 AND RS. 13,79,475 RESPECTIVELY FOR THE AFORE SAID YEARS AND APART FROM THE FACT THAT THERE IS NO EVIDENCE AVAILA BLE THAT THE ASSESSEE REMITTED THESE AMOUNTS AS KICKBACKS. FOREIGN REMI TTANCES ARE MANDATORILY REQUIRED TO BE GIVEN IN AUDITED ACC OUNTS WHICH IS AVAILABLE AT PAGES 70,74,77,95,99 AND 101 OF THE PAP ER BOOK WHICH HAS NO REFERENCE TO THIS AMOUNT . THEREFORE ON FACTS D ISALLOWANCE OF COMMISSION OF RS 5,36,440 FOR AY 2002-03 AND RS 13,79, 475/- FOR AY 2004-05 WAS NOT WARRANTED. 18. THE LD. DR RELIED ON THE AOS ORDER IN SUPPORT OF HIS SUBMISSION AND FURTHER RELIED ON THE CO-ORDINATE BENCH DECISION IN ITA NOS. 7284,7285 AND 7286/M/2007 AS ALSO M.A NOS. 736 TO 738/ M/2009 IN SUPPORT OF THEIR SUBMISSIONS. 19. THE LD. COUNSEL FOR THE ASSESSEE IN HIS REJOINDER SUBM ITTED THAT THE DECISION RELIED ON BY THE DR WAS DISTINGUISHABLE ON SEVERAL COUNTS AS FOLLOWS: (1) THE APPELLANT IN THAT CASE WAS FURNISHED WITH COPI ES OF THE MATERIAL RELIED UPON BY THE AO FOR MAKING THE DISALL OWANCE. (2) AS CAN BE SEEN FROM THE ORDER AT PAGE 7.1. PAGE 7 T HE ASSESSEE DID NOT DENY PAYMENT OF AFTER SALES SERVICE. FUR THER THE ASSESSEE RECEIVED AN EXCESS AMOUNT EQUIVALENT TO AS SF ITA NOS. 64 & 65/M/2010 8 WHICH WAS ILLEGAL AND WHICH WAS PASSED ON TO THE IRAQI GOVERNMENT BY WAY OF INFLATED OIL BILL. (3) THE DISALLOWANCES WAS CONFIRMED. (4) FURTHER IN THE M.A. IT WAS POINTED OUT IN THE ORDER AT PARA 5 PAGE 6, THAT ASSESSEE NEITHER BEFORE THE LOWER AUTHORI TIES NOR BEFORE THE TRIUBUNAL SPECIFICALLY DENIED THE PAYMENT OF ASSF AND THEREFORE ASSESSEES M.A ALSO STOOD REJECTED. 20. THE LD. COUNSEL THEREFORE PLEADED THAT THE PRESEN T CASE IS TO BE DISTINGUISHED FROM M/S. CIPLA LTD. AND NO DISALLOWANCE IS TO BE MADE. 21. THE LD. DR ON THE OTHER HAND SUBMITTED THAT THE CASE WAS IDENTICAL TO M/S. CIPLA LTD., WHEREIN THE TRIBUNAL H AS CONCLUDED AS FOLLOWS: WE HAVE PERUSED THE RECORDS AND CONSIDERED THE RIVAL CONTENTIONS CAREFULLY. THE DISPUTE IS REGARDING ALLOWABILITY OF ILLEGAL AND UNAUTHORIZED PAYMENTS MA DE BY THE ASSESSEE AS ASSF IN CONNECTION WITH SUPPLY OF GOODS UNDER OIL FOR FOOD PROGRAMME SPONSORED BY UN ON HUMANITARIAN CONSIDERATIONS. THE UN HAD APPOINTED A HIGH POWERED COMMITTEE HEADED BY MR. VOLCKER TO LOOK INT O THE ALLEGED UNAUTHORIZED AND ILLEGAL PAYMENT TO THE IRA QI GOVERNMENT DURING THE IMPLEMENTATION OF OIL FOR FOO D PROGRAMME. AFTER SCRUTINIZING THE VARIOUS AUTHENTIC DOCUMENTS IN THE GOVERNMENT AND FROM THE BANKING INSTITUTIONS, THE COMMITTEE CONCLUDED THAT THE OIL BI LLS WERE INFLATED THROUGH THE MEDIUM OF ASSF WHICH HAD BEEN RECOVERED BY THE COMPANIES THROUGH THE ESCROW ACCOUNT MAINTAINED FOR OIL TRANSACTIONS UNDER THE PROGRAMME. THUS THE EXPENDITURE ON ACCOUNT OF ASSF WHICH THE COMPANY HAD GOT RECOVERED THROUGH THE ESCROW ACCOUNT S WAS ILLEGAL AND NOT AUTHORIZED BY UN AS THE CORRESPON DING MONEY HAD BEEN PAID TO THE GOVERNMENT OF IRAQ THROU GH INFLATION OF OIL BILLS. THE COMMITTEE HAD GIVEN THE COMPLETE DETAILS OF THE TRANSACTIONS ENTERED INTO BY THE ASSESSEE GIVING THE OC NO., DESCRIPTION OF GOODS, CONTRACT AMO UNT AS WELL AS THE PAYMENT MADE BY ASSESSEE AS ASSF. ITA NOS. 64 & 65/M/2010 9 THE ASSESSEE HAS NOT DENIED THE TRANSACTIONS ENTERED INTO EXCEPT THE OC NO. 1002237 BUT EVEN IN RESPECT OF THAT OC NO. THE ASSESSEE HAS NOT SPECIFICALLY DENIED PAYMENT OF ASSF. THE ASSESSEE RECEIVED EXCESS AMOUNT EQUIVALENT TO THE ASSF WHICH WAS ILLEGAL AND WHICH WAS PASSED ON TO THE IRAQI GOVERNMENT BY WAY OF INFLAT ED OIL BILL. THEREFORE THE PAYMENT IN THE FORM OF ASS F WHICH WAS DULY RECORDED AND CLAIMED BY THE ASSESSEE AS EXPENDITURE COULD NOT BE ALLOWED BEING ILLEGAL AND UNAUTHORIZED BY UN IN VIEW OF THE VOLCKER COMMITTEE REPORT. IT IS NOT CORRECT THAT THE FINDING OF THE V OLCKER COMMITTEE REPORT HAD NOT BEEN CONFRONTED TO THE ASSESSE E. THE ASSESSEE HAD BEEN CONFRONTED WITH THE FINDING AND I N FACT THE ASSESSEE ITSELF HAS REFERRED TO CERTAIN PORTION S FROM THE VOLCKER COMMITTEE REPORT. THE ASSESSEE HAS CLAIMED THAT THERE IS NO EVIDENCE REGARDING PAYMENT OF KICKBACK AND THAT THE ASSESSEE HAD NOT CLAIMED ANY EXPENDITURE ON THIS ACCOUNT. THERE CANNOT BE ANY D IRECT EVIDENCE AS THE PAYMENT HAD NOT BEEN MADE DIRECTLY B Y THE ASSESSEE. THE PAYMENT WAS INBUILT IN THE SYSTEM DEVISED BY THE IRAQI GOVERNMENT. THE ILLEGAL PAYMEN TS WERE IN THE FORM OF INFLATED OIL BILLS WHICH WERE RE COVERED BY THE SUPPLIERS OF GOODS IN THE FORM OF ASSF. THIS HA S BEEN ESTABLISHED BY THE VOLCKER COMMITTEE FROM AUTHEN TIC DOCUMENTS OBTAINED FROM GOVERNMENT AND BANKS. THE ASSESSEE HAS NOT DENIED THAT IT HAD MADE ASSF PAYMENTS AND CLAIMED THE SAME AS EXPENDITURE. IT HAS BEEN ARGU ED THAT THE ASSESSEE HAD NEITHER AUTHORIZED NOR KNEW ABOUT THE ILLICIT PAYMENT, WHICH WAS ALSO MENTIONED IN THE REPORT. THE REPORT HAS ONLY MENTIONED THAT THE ASSESSEE MAY NOT HAVE NECESSARILY AUTHORIZED OR KNOWN THE ILLICIT PAYM ENT. IN THIS CASE, CIT(A) AFTER EXAMINATION OF THE AGENCY AGREEMENT HAS GIVEN A FINDING THAT THE ASSESSEE HAD DIRECTLY ENTERED INTO AND EXECUTED THE CONTRACT. T HIS FINDING HAS NOT BEEN CONTROVERTED BEFORE US. THEREFO RE IT CANNOT BE SAID THAT THE ASSESSEE WAS NOT AWARE OF THE ARRANGEMENT. IN ANY CASE, WHETHER THE ASSESSEE WAS AWARE ABOUT IT OR NOT, CLAIM OF EXPENDITURE WHICH I S NOT ALLOWABLE, CANNOT BE ALLOWED AS DEDUCTION. THE ASSF EXPENDITURE WAS AN INFLATED AND NON GENUINE EXPENDIT URE INCORPORATED INTO THE AGREEMENT FOR FACILITATING IL LEGAL PAYMENT. THE SAME WAS RECOVERED FROM UN AND PASSED ON TO IRAQI GOVERNMENT THROUGH INFLATED OIL BILLS. SUCH EXPENDITURE WHICH WAS INFLATED AND NOT GENUINE CANNO T BE ALLOWED AS DEDUCTION. THE CLAIM OF SUCH EXPENDITURE WHICH WAS TO FACILITATE ILLEGAL PAYMENT CAN ALSO BE NOT ALL OWED IN ITA NOS. 64 & 65/M/2010 10 VIEW OF THE EXPLANATION TO SEC. 37(1) AS PER WHICH EXPENDITURE INCURRED FOR ANY PURPOSE WHICH IS AN OFFE NCE OR WHICH IS PROHIBITED BY LAW CANNOT BE ALLOWED AS DEDUCTION. WE THEREFORE SEE NO INFIRMITY IN THE ORD ERS OF CIT(A) CONFIRMING THE DISALLOWANCES AND THE SAME ARE ACCORDINGLY UPHELD. 22. WE HEARD BOTH THE PARTIES. WITH RESPECT TO THE FI RST GROUND THE ASSESSMENT WAS RE-OPENED BY ISSUE OF NOTICE U/S. 148 DT. 18 .11.2006. THE ASSESSING OFFICER HAS COMMUNICATED THE REASONS FOR R EOPENING THE ASSESSMENT TO THE ASSESSEE WHICH IS AS UNDER: AS PER THE INFORMATION REPORTED IN VOLCKER COMMITT EE REPORT HIGHLIGHTING THE DETAILS FOR OIL FOR FOOD PRO GRAMME BY SADDAM HUSSAIN, IRAQ, SUPPLIERS TO IRAQ HAD MADE PAYMENTS IN THE NAME OF OVERSEAS COMMISSION, WHICH REPRESENTED KICKBACKS PAID TO THE IRAQ GOVERNMENT. DURING THE P.Y. RELEVANT TO A.Y. 2002-03 YOU HAD PA ID OVERSEAS COMMISSION OF `. 13/12/01 & 9/7/02). SINCE TH ESE EXPENSES CLAIMED BY YOU REPRESENT KICKBACKS THE SAME IS NOT ALLOWABLE EXPENSES AS PER PROVISIONS OF I.T. ACT, 19 61 AND HENCE I HAVE REASON TO BELIEVE THAT YOUR INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT. 23. HENCE WE ARE OF THE OPINION THAT THE REOPENING IS VALID AND UPHOLD THE SAME. 24. WE HAVE GONE THROUGH THE RECORDS AND PERUSED THE RELEVANT MATERIAL. SIMILAR ISSUE HAS BEEN DECIDED BY THE CO OR DINATE BENCH IN M/S. CIPLA LTD. IN ITA NOS. 7284 TO 7286/M/07. HOWEV ER, IT WAS POINTED OUT THAT IN TABLE 7 & 8 OF THE REPORT THE AMOUNT P AID AS ASSF IS ONLY USD 14823. EVEN THE VOLCKER COMMITTEE REPORT SHOWS AN AMOUNT OF USD 14823 AS ASSF REMITTED. 25. IN THESE CIRCUMSTANCES WE REMIT THE ISSUE TO THE ASS ESSING OFFICER TO VERIFY THE EXACT AMOUNT OF ASSF REMITTAN CE AND DECIDE THE ITA NOS. 64 & 65/M/2010 11 MATTER IN LIGHT OF THE DECISION OF THE CO ORDINATE B ENCH IN M/S. CIPLA LTD. VS ACIT IN ITA NOS. 7284 TO 7286/M/07. 26. IN THE RESULT, BOTH THE APPEALS FILED BY THE ASSESSEE ARE PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON THIS 27 TH DAY OF APRIL, 2011 SD/- SD/- (R.S. SYAL) (ASHA VIJAYARAGHAVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED 27 TH APRIL, 2011 RJ COPY TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT-CONCERNED 4. THE CIT(A)-CONCERNED 5. THE DR B BENCH TRUE COPY BY ORDER ASSTT. REGISTRAR, I.T.A.T, MUMBAI ITA NOS. 64 & 65/M/2010 12 DATE INITIALS 1 DRAFT DICTATED ON: 21. .0 4. 2011 SR. PS/PS 2. DRAFT PLACED BEFORE AUTHOR: 25 .0 4 .2011 ______ SR. PS/PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER: _________ ______ JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER: _________ ______ JM/AM 5. APPROVED DRAFT COMES TO THE SR. PS/PS: _________ ______ SR. PS/PS 6. KEPT FOR PRONOUNCEMENT ON: _________ ______ SR. PS/PS 7. FILE SENT TO THE BENCH CLERK: _________ ______ SR. PS/PS 8. 9. DATE ON WHICH FILE GOES TO THE HEAD CLERK: DATE ON WHICH FILE GOES TO AR _________ ______ 10. DATE OF DISPATCH OF ORDER: _________ ______