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TMI Blog2014 (6) TMI 496X X X X Extracts X X X X X X X X Extracts X X X X ..... ts 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 infraction of law. Even if the assessee fail to prove beyond doubt that the payments in question are inconsonance to the service rendered by the agent the same cannot be held as illegal in the absence of any evidence to prove that the assessee intended to pay the amount illegally through agent. Relying upon TIL Ltd. Versus Assistant Commissioner of Income-tax, Circle-1, Kolkata [2007 (3) TMI 404 - ITAT KOLKATA] - the payments were made purely for the purpose of procuring export orders to Iraq and also for after sale services perform by agent in Iraq and therefore was an allowable expenditure - the payment made to Dalala & Company as commission, included any part of illicit payment termed as kickback in the Volcker Committee Report, on which basis, the payment made to Dalala & Company has been disallowed. The revenue authorities have not been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 investigate the administration and management 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 Hussain regime on humanitarian goods contract through a variety of devices. As per the report, the assessee company had made substantial payment to Saddam Hussain regime in contravention of the provisions of the statute. The AO observed that such payments by virtue of Explanation-1 to Section 37 are not admissible for deduction if at all they are debited to Profit Loss Account. Accordingly, the assessment was again reopened by issuing a notice u/s 148 on 26/09/2006. In response to the notice u/s 148, the assessee filed its return on 18/10/2001 decl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 procurement 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 keeping in view of the quantum of business. All the expenses incurred by the assessee are duly supported by the evidence and payment was through banking channels after receiving debit note/bills raised by the foreign parties who has rendered services . Thus, such expenses are allowable u/s 37(1) of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at 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 record; there is no denial of the fact that the assessee has supplied the goods under the agreement which has been approved by the UN as well as by the Indian Authorities. The payment of inland transport expenses as explained by the assessee is towards the 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 transportation 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 goods 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 illeg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 infraction of law. Even if the assessee fail to prove beyond doubt that the payments in question are inconsonance to the service rendered by the agent the same cannot be held as illegal in the absence of any evidence to prove that the assessee intended to pay the amount illegally through agent. 6. An identical issue have been considered by this Tribunal in various cases as relied upon by the assessee. In the case of TIL Pvtl Ltd. (supra), the Kolkata Bench of this Tribunal decided an identical 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 procurin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions 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 could be different than the reasoning adopted by the Commissioner of Incometax( Appeals) and that adopted by the coordinate Bench in TIL s case(supra), but then our conclusion is the same as arrived at by the Commissioner of Income-tax (Appeals) and by the coordinate Bench. It is this aspect of the matter which is material for the present purposes. In view of the above discussions, as also bearing in mind the entirely of the case, we approve the conclusions arrived 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 that our references to the Volker Committee report were only with a view to analyse as to whether even if everything stated in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 copy of Volcker Committee Report. The preamble of the Report reads, SUMMARY OF REPORT Today, the Independent Inquiry Committee ( the Committee ) issues its fifth and final substantive report concerning the United Nations Oil-for-Food Programme ( the Programme ). This Report illustrates the manner in which Iraq manipulated the Programme to dispense contracts on the basis of political preference and to derive illicit payments from companies that obtained oil and humanitarian goods contracts. Today s Report complements the Committee s recent report addressing the adequacy of the Programme s management by the United Nation. The wording of the preamble itself says, illustrates , which means that the report has been prepared taking in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rnment. 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 countries who became party to oil for food programme. The issue precipitates to whether Dalala made any payment to Iraq Government on behalf of the assessee company, patently, as per the evidence, examined by the revenue authorities, assessee company did not make any payments on its own. The only conclusion that could be drawn are: (a) Dalala Company paid from within its payment to Iraq Government (b) assessee paid to Dalala Company through some other channel, some payment which would be over and above the commission 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 assessee from within its remuneration for its services and in s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xpenditure 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 whether commission paid to Dalala Co. could be said to be prohibited by law. Here, we must refer to the submissions made by the assessee, where the assessee offered all submissions 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 the 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 assessee to Dalala, which were routed through the RBI with their consent and approval. 40. As mentioned earlier, the case in hand is different fro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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. Aggrieved by the order of the CIT(A), the Revenue preferred an appeal before the Tribunal. The Tribunal had dismissed the appeal and held that the assessee had made payment for commission and had been rendered services in consideration of the same. As a matter of fact, it was not even revenue s case that no services had been rendered at all. The fact that services had been rendered by a party other than 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 payment was highly excessive 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 assessee either. The assessee was conce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sioner 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 constitution 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 pending while allowing such benefit to the same class of assessee whose assessment have already been concluded: it is also invalid for the reason that its retrospective operation takes away the benefit from one class of assessee impugned assessment is quashed to the extent that the operation 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 export turnover is more than Rs.10 crores . 12. We have heard the ld. AR as well ld. DR and considered the relevant material on record. At the outset we note that this issue is covered by the decision of the Hon ble Supreme Court in case of Topman Export vs. CIT in 342 ITR 49 (SC). 13. Acc ..... X X X X Extracts X X X X X X X X Extracts X X X X
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