AI Drafter 
TaxTMI 
TaxTMI 
2014 (6) TMI 496
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.... the case. 4. That the enhancement of commission expenses Rs.7063867/- 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 expenses 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 validity 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), CBDT, New Delhi vide letter dated 24/05/2006 that the assessee's name appears in the report of the Volker Committee appointed by the United Nations Security Council to inves....
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....d transportation is as per the terms of the contract between the parties under which the assessee has supplied the goods in question to Iraq. The ld. Counsel has then 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 UMQASER Port and thereafter the final destination CIF Baghdad, Iraq. The 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 transportation charges were not made through Iraqi Bank as alleged by the Volker Committee report. The assessee exported each consignment after 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 of the contract which has been approved by the United Nations therefore, there is no question of illicit payment as regards the transportation charges for delivery of goods. He has further contended that the commission payment made to the parties who rendered the services for p....
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....ted that an identical issue has been considered and decided by Kolkata Bench of this Tribunal in a number of cases including the decision in the case of TIL Ltd. Vs. ACIT [2007] 16 SOT 33 (Kol), in the case of DCIT Vs. The Ananda Bag Tea Co. Ltd. as well as the decision in the case of DCIT Vs. Rajrani Exports Pvt. Ltd. are rendered in favour of the assessee on this point. The ld. Counsel has then submitted that the decision of Kolkata Bench of this Tribunal in the case of CIT Vs. Rajrani Exports Ltd. has been affirmed by the Hon'ble Kolkata High Court reported in 262 CTR (Cal.) 1992. On the other hand, the ld. DR has heavily relied upon the impugned order of CIT(A) and submitted that the assessee has failed to prove that any services were rendered by the parties to whom the payment was made and therefore the claim of the assessee was rightly disallowed. He has further submitted that the payments made by the assessee are in the nature of illicit payment to the Saddam Hussain regime in Iraq under the pretext of these charges as pointed out by the Volker Committee appointed by the UN Security Council. 5. We have considered the rival submissions as well as relevant material on recor....
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....vity was also required to be performed by somebody who could have excess in Iraq. The assessee produced the export contract, invoices and all approval for the purpose of export of the goods in question to Iraq under the supervision and approval of the Government 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 Section 37 cannot be invoked merely on the basis of some doubt about expenditure whether made infraction of law. There should be a direct and cogent evidence to show that the payment made by the assessee is contrary to law. The Authorities below failed to bring anything on record to establish that the payments in question were illegally made by the assessee to the Iraqi Authorities. On the contrary, the assessee has produced the evidence of payment to the agent who is not connected to the Iraqi Authorities. Therefore, in the absence of specific finding that the payments were made to the Iraqi Authorities, it cannot be held as illegal payment infr....
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....as highly excessive visà- vis the local costs, even if that be so, that aspect of the matter does not affect the deductibility in the hands of the assessee either. The assessee is concerned with commercial expediency of the said payment and not with what are the actual costs incurred in rendering the services for which the payment is made. As we have seen earlier in this order, from the extracts of the Volker Committee report itself, it was absolutely necessary for the assessee to make the impugned payments and, in any even, the commercial expediency of these payments has not even been called 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 not, 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 Commissioner of Income-tax (Appeals) on this Tribunal's decision in the case of TIL Ltd. [2007] 16 SOT 33 (Kol). However, as we have decided the matter on merits and on the first principles, we see no need to deal with the said judicial precedent. Our reasoning ....
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....nt, the commercial expediency of these payments has not even been called into question by the AO. The case of the Revenue is confined to invoking the Explanation to section 37(1). The objections to the said commission payments are, therefore, not sustainable in law, so far as deductibility under section 37(1) is concerned". 6. The Department has come up in appeal. Mrs. Smita Das De, learned advocate appearing in support of the appeal, could not satisfy us as to why were the findings indicated above 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, 1492/ Mum /2009, 7888/Mum/2011, 7889/Mum/2011, 7890/Mum/2011, 7891/Mum/2011. We note that the Tribunal after considering 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 contesting parties and details perused in the orders and the papers appended, along with the c....
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....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 and termed as ASSF, which inflated the price (Page 5 of Report) on the invoice, against which the suppliers were paid through the UN monitored escrow 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, who 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 coming out of the Volcker Report. Reverting our attention to the factum of payment made to Dalala & Company. It is not in dispute that Dalala was paid its commission only and that nothing more then what has been allowed and routed through the RBI was paid, as per the UN and UNSC guidelines, issued to the member countri....
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....ly in the Volcker Report, as Iraqi Front Companies 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 Iraqi Govt., which meant that actually no service was rendered by Alia to Rajarani. 38. The Coordinate Bench at Kolkata then embarked on 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, as non deductible in computation of business income, unless these payments 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 hit by any disabling provisions under the Act. For this, therefore, we take a quick look at the scheme of the Act from this perspective to deal with the aspect of the matter. Section 37(c) of the Act provides that "any expenditure ...". It follows that any payment, which is prohibited by law, in not an admissible deduction under the scheme of the Act. That takes us to the question....
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....nate Bench of ITAT, Kolkata. The Hon'ble 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 activity 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 Government of India and UN. The payment of commission was for business consideration and there was apparently no illegality in making payment of commission. Besides this, nothing has brought on record to show that the transactions relating to payment of commission were non-genuine or were excessive and unreasonable. The Volker Commission report had discussed about the utilization of money by the recipient of the commission in parting some of the fund so received as commission with the Government of Iraq and such parting of commission with the Government of Iraq was objected to by the Volker Commission report which was a pact between the Iraq Government and the UN wherein, as it appears, neither the appellant company was involved nor Government of India was involved. Aggriev....