9911796707
TMI Blog2016 (10) TMI 1298X X X X Extracts X X X X X X X X Extracts X X X X ..... iled by Kirloskar Brothers Ltd. are against separate orders of CIT(A)-I, Pune, both dated 26.02.2010 relating to assessment years 200203 & 2003-04 against respective orders passed under sections 143(3) r.w.s. 147 and 143(3) r.w.s. 147 & 263 of the Act. 2. All the appeals filed by related assessee on similar issue were heard together and are being disposed of by this consolidated order for the sake of convenience. However, first we proceed to refer to the facts and issues in ITA No.1170/PN/2011 in order to adjudicate the issues. ITA Nos.1170/PN/2011 & 1171/PN/2011 Assessment Years 2001-02 & 2002-03 Kirloskar Oil Engines Limited 3. The grounds of appeal raised by the assessee in ITA No.1170/PN/2011 & 1171/PN/2011 are identical which read as under:- 1. The learned CIT (A) erred in facts and in law in holding that the reopening of assessment was valid. He failed to appreciate the contentions and arguments advanced by the assessee. 2. The learned CIT (A) erred in facts and in law in upholding the validity of the assessment order without appreciating that the assessment order has been passed without affording adequate opportunity to the assessee especially without supplying copies ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anagement of Oil-for-Food Programme in Iraq. The assessee's name also appeared in the report as supplier party in the list of suppliers who allegedly paid illicit payments of contract for humanitarian goods. Since the assessee had not made disclosure of any such payments in the return of income filed / or during the assessment proceedings under section 143(3) of the Act, the Assessing Officer recorded reasons for reopening the assessment under section 147 of the Act and after taking due approval from the Commissioner of Income, Pune issued notice under section 148 of the Act. The assessee in reply requested that the return of income filed under section 139(1) of the Act on 25.10.2002 be treated as filed in response to notice under section 148 of the Act. Further, reasons recorded for reopening the assessment were also supplied to the assessee on its request vide letter dated 21.10.2008. 5. The assessee submitted detailed explanation vide letter dated 07.12.2008 in response to the reasons recorded for reopening the assessment. The assessee noted from the reasons recorded for assessment that the assessment was reopened for the following reasons:- "1) Name of the Kirloskar Oil Engi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ickbacks in the form of after sales services, the assessee strongly denied the allegation that any kickbacks were paid in the form of After Sales Services Fees (ASSF) to anybody. It also stated that the allegations were without any evidence. The assessee explained that they had appointed Kirloskar Middle East FZE (in short 'KME') as a distributor for promoting their exports to Middle East Countries. The copy of agreement was filed before the Assessing Officer. As per the terms of Contract, the assessee was to pay maximum 12.5% of FOB value of the order as commission. The commission was paid in consideration of generation of business for procuring orders from territory assigned, for after sales services and it was also agreed that the payments must be realized within 165 days from the date of Bill of Lading / Airway bill. The assessee thus, explained that after sales service cost was responsibility of Kirloskar Middle East FZE and they had not incurred any expenditure on this account. As regards kickbacks at around 10% of the contract value, the assessee pointed out that no details were provided by the Assessing Officer in the reasons recorded for reopening the assessment as to how ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... says no specific information was available for Inland Transportation Fees and in any case, these were projected and were not Inland Transportation Fees. It was reiterated that no Inland Transportation Fees of any manner was paid by the assessee either in the past or till the present. The next contention of the assessee was that the said Table referred to ASSF of USD 161056 on water pumps. The assessee alleged that the documents and the basis on which this was arrived at, was not made available and thus, the same could not be rebutted. Further, reference was made to the report which names several banks. In this regard, it was pointed out that the information was not fully confirmed by bank but also it was based on banks with whom they had never in the past or even in the present had any dealings with. The authenticity of the said entries was denied and the assessee asked for copies of requisite documents and also right to cross-examination. The assessee further reiterated that they had been paying commission @ 12.5% to its sister concern for the export business in Middle East and the said commission of 12.5% was in respect of all exports to various countries and Middle East and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... list. The Assessing Officer further was of the view that where VCR detailed documents corresponding modus operandi and also analyzing the entire scheme for food for oil, the said report had global ramifications. He also acknowledged that the action was taken in many countries on entities involved in the report on the basis of conclusion of report. Since the findings of report had not been challenged as such, as per the Assessing Officer, VCR had evidentiary value. As per the Assessing Officer, if the report was not factually accurate, it was open for the companies concerned to initiate legal action against UNSC and Mr. Volcker and no action was taken by the assessee company. Since the committee had sent notices to the impugned companies, but according to the information available, none of the Indian firms responded thereto and veracity of VCR stands established and could be relied upon as evidence. 10. The Assessing Officer thus, was of the view that the assessee company had entered into contract with IG for supply of humanitarian goods. As per VCR, the assessee was one of the companies which had paid humanitarian kickbacks to the IG. Further, kickbacks paid by the companies conc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... explained expenditure when the said expenditure was debited to the Profit & Loss Account. The assessee further objected to the reliance on VCR and also stated that adequate opportunity was not given. The CIT(A) referred to the VCR, according to which, the suppliers / contractors for oil for food programme in Iraq were found to be indulging in illegal payment of kick backs for the contracts and the assessee's name appeared in the report in Annexure-1, Table 8. Though the assessee denied any payment of kick backs to IG, with reference to the contract for supply of pumps, etc., under the oil for food programme of UN, the CIT(A) noted that as a result of invasion of Kuwait by Iraq, sanctions were imposed on Iraq regime. However, due to worsening economic and humanitarian conditions in Iraq, UNSC had approved oil for food programme on 14.05.1995, according to which the petroleum products were to be imported from Iraq, but no money was to be paid directly against that, instead the amount was to be received in ESCROW account established by UN Secretary General. However, for investigation into the allegation of kickbacks being paid to IG, Volcker Committee was established by the UN, which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y as such. Furthermore, it was pointed out that nowhere does the Evidence Act or any principle of Evidence laws indicate that reports available in the public domain are presumed to be true without requiring any proof of the same. Referring to various other sections of Indian Evidence Act, the contention of assessee before the CIT(A) was that even assuming for the sake of arguments that VCR was a public document, the same does not mean that it could be automatically relied on. Accordingly, the Assessing Officer's bald assertion on page 8 of impugned order was claimed to be incorrect. It was stressed by the assessee before the CIT(A) that even the contents of public document are subject to tests of relevance and admissibility and the usual principles of appreciation of evidence continues to apply. Reliance was placed on the decision in Berlia's case, AIR 1983 Bom 1 for the proposition that 'X' is a public document does not mean that no evidence is needed for proving the truth of what 'X' states. The Hon'ble Bombay High Court in the said case had held that the public document do not establish "even prima facie" the correctness of contents. In the alternate, the assessee pointed out th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n, Iraq, Egypt, Saudi Arabia, as also Iraq. On all these orders commission had been paid @ 12.5% of the orders value. Similarly, commission @ 12.5% was paid on supplies to IG. It was further pointed out that over and above 12.5%, no extra commission was paid to sales effected to IG. The assessee stressed that the fact of such commission payment was already on record and under such circumstances, no adverse inference could be drawn from the commission paid to KME. The assessee stressed that they had neither debited ASSF to Profit & Loss Account under any head of expenditure nor claimed the same as expenditure. The assessee denied the observations in VCR report in toto and also objected to working of figure of USD 161506. The CIT(A) noted the background of constitution and functioning of VCR appointed by UNSC to look into the irregularities and allegation of kickbacks paid under oil for food programme of UN in its humanitarian aid scheme. As per VCR, kickbacks were paid under the head 'Inland Transportation Fees and also 10% kickbacks on humanitarian contract was paid under the head 'ASSF'. In assessee's case, addition was made for unexplained expenditure @ 10% on total value of cont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see was that copy of report, based on which the impugned additions were made was not made available by the Assessing Officer was addressed by the CIT(A), who was of the view that this contention had no merit, since the said VCR was available in public domain on website. Secondly, where the assessee had made detailed submissions on various aspects of the matter including Table 8, which was Annexure to the main VCR, then it could not be said that the assessee had not read and understood the entire report along with its Annexure. The contention of assessee that the copy of report was not made available by the Assessing Officer was held to be of no consequence. 15. The next objection raised by the assessee was against the application of section 69C of the Act for unexplained expenditure. The assessee claimed that when the alleged expenditure had been debited to Profit & Loss Account, source of such expenditure stood explained automatically. The CIT(A) held the said contention was not correct and contrary to assessee's explanations dated 10.06.2011 and 29.06.2011, in which it had been explained that nothing had been debited and claimed as expenditure in the Profit & Loss Account, relat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... relied upon by the Assessing Officer in spite of specific request made in this behalf. The assessee is aggrieved by the order of CIT(A) in upholding the addition of Rs. 1.47 crores under section 69C of the Act solely relying on the observations of VCR, which is based on surmises and conjecture and guess work. The assessee is further aggrieved by the order of CIT(A) in upholding the addition under section 69C of the Act without appreciating the concept of unexplained expenditure envisaged under section 69C of the Act. The onus of proof of such expenditure actually incurred was on the Department and merely because the name of assessee appeared in the list mentioned in VCR, as per the assessee was not sufficient to discharge the burden cast upon the Revenue, especially when VCR was itself based on guess work. 19. The learned Authorized Representative for the assessee in respect of the issue of disallowance under section 69C of the Act, first referred to the order of Assessing Officer. He further pointed out that the basis for aforesaid addition in the hands of assessee is the VCR. The learned Authorized Representative for the assessee further drew our attention to the contract entere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on account of ASSF and no addition on account of Inland Transportation Fees was made. He pointed out that in assessment year 2001-02, the addition was to the extent to Rs. 1.47 crores and in assessment year 2002-03, it was to the extent of Rs. 90,70,637/-, whereas the amount of ASSF written in the document was USD 161056 equaled to Rs. 85 lakhs. 21. On the next date of hearing when the matter continued, the learned Authorized Representative for the assessee opened his arguments with the provisions of section 69C of the Act, under which he pointed out that heavy burden lies on the Department to establish that the assessee had incurred the said expenditure which was treated as unexplained and added in the hands of assessee. He further stated that the Department's case was that since the assessee's name was in VCR, then the assessee must have paid the kickbacks. He referred to various portions of VCR to point out that the said report was based on presumptions as concrete data was not available. 22. The next contention raised by the assessee was with regard to the claim of Assessing Officer that the same was in public domain and had evidentiary value. In this regard, he pointed out t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... backs and where they have failed, then no addition can be made in the hands of assessee. Another aspect of the said addition was the denial of opportunity to cross-examine which was not provided by the Assessing Officer or CIT(A). In this regard, reliance was placed on the ratio laid down by different Benches of Tribunal in Narayan Dass Singhi Vs. ITO (2004) 87 TTJ (Jd) 615, ITO Vs. Suman Saini (2012) 33 CCH 638 and Bhimraj Rajpurohit Vs. ITO (2006) 105 TTJ 899. He submitted that the provisions of section 69C of the Act were not attracted at all. 24. The learned Departmental Representative for the Revenue furnished a flow chart of payment of kickbacks to IG, which is placed on record. The learned Departmental Representative for the Revenue pointed out that the assessee was supplier of goods and the contract was inclusive of Inland Transportation Fees and / or ASSF but the payment of commission to the related party was shown under the head 'Remuneration and Commission' which was on account of ASSF and follow up of payments. He stressed that the marketing concern of assessee i.e. KME was the intermediatory to route the funds which in turn were paid to the front concerns of IG, which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ement of March, 2001 and April, 2003. 25. Coming to the next aspect i.e. evidence of Inland Transportation, the learned Departmental Representative for the Revenue pointed out that there was no such evidences by sister concern in respect of Inland Transportation fees. It was pointed out that no such evidence has been filed by the sister concern and it has not been established whether sister concern had requisite infrastructure for Inland Transportation and also for providing after sales service. Where the assessee has failed to demonstrate the existence of technical staff, if any, of sister concern, the claim of assessee cannot be admitted. The learned Departmental Representative for the Revenue further pointed out that earlier kickbacks were paid in the form of Inland Transportation services and later it was in the form of after sales services charges. Though the assessee says that UN had approved the contract of assessee but UN sanctions as per Annexure-1 only talks of export of items and it does not talk of Inland Transportation or after sales service charges, whereas before the VCR, the assessee does not appear or even do not take any action against VCR, but now before the Inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he orders of Tribunal in the case of Kirloskar Pneumatic Co. Ltd. in ITA No.425/PN/1995 and in the case of Kirloskar Oil Engine Ltd. in ITA Nos.429/PN/1997 and 606/PN/1999, wherein vide orders dated 24.03.2006 and 23.03.2006 respectively, the Tribunal had disallowed the commission payments. Summing up the learned Departmental Representative for the Revenue pointed out that (a) assessee was not truthful in its claim and (b) the assessee's claim was by way of circumstantial evidence, which was shown to be not correct. He stressed that in the present set of facts what is apparent is not correct. Where KME was assessee's own concern and in the absence of any evidence filed on services given by KME, freight might have been paid by the assessee but what about Inland Transport and what about ASSF charges; in the absence of any evidence of same, the Assessing Officer was constrained to make the addition under section 69C of the Act as the assessee failed to justify the source of payments, which admittedly had been paid for the expenses incurred. He further referred to the order of CIT(A) in respect of alternate plea of no deduction of tax at source. 27. The learned Authorized Representati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ms and conditions. Coming to the stand of learned Departmental Representative for the Revenue, it was pointed out that contract for rendering services was not between KME and Iraq but the alleged contract was between the assessee and Iraq. 29. The learned Authorized Representative for the assessee referring to contentions of learned Departmental Representative for the Revenue, in rejoinder, pointed out that in the case of assessee, commission was paid to KME normally after receipt of export receipts. However, VCR in this regard had found that the said commission was paid earlier. 30. Coming to the alleged payment of ASSF, the learned Authorized Representative for the assessee in rejoinder further pointed out that VCR only talks of payment of one year i.e. assessment year 2002-03 and does not say actually paid. He further stated that the basis for allegation was some incomplete financial data which was not confronted to the assessee and hence, the same cannot be relied on. He stressed that in the absence of any evidence on record that the assessee has made the aforesaid payments, the provisions of section 69C of the Act could not be applied. He further stressed that it may b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessment order without appreciating that the assessment order has been passed without affording adequate opportunity to the assessee especially without supplying copies of the documents listed in the Volker report on which reliance has been placed by the AO and without affording opportunity to the assessee of rebutting the evidence relied upon by the AO in spite of specific request made in this behalf. He ought to have appreciated that the order violates principles of natural justice. 3. The learned CIT(A) erred on facts and in law in upholding additions of Rs. 6,21,44,550/- u/s 69C of the Act made by Assessing Officer by solely relying on the observations in the Volcker report, which report itself is based on surmises, conjectures and guesswork. 4. The learned CIT(A) erred in facts and in law in not appreciating the scheme and requirements of section 69C and the concept of 'unexplained expenditure' envisaged under section 69C. He failed to appreciate that the onus of proving such expenditure is actually incurred is on the department and the mere fact that the assesses name appears in the list mentioned in the Volcker report is not sufficient to discharge this burde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssing Officer was that in respect of phase 6 and 7 contracts, there was no mention of after sales service fees and inland transportation fees, which in turn, shows that, no after sales services fees and inland transportation fees were alleged to have been paid. It was further contended by the assessee that VCR itself contains that these were projected after sales service fees and not actual after sales service fees. The assessee's argument about non-mention of any amount under the head 'Inland Transportation Fees' and under the head 'ASSF' were considered but since contract executed by the assessee was one of the tainted contracts detected by VCR, though the amount was mentioned in total, there was remark with symbol which indicated that inland transportation fees were required to be paid by the assessee but specific information was not available and the same applied to payment of ASSF also. The assessee further contended that the said table talks of figure of paid after sales service of USD 3,34,144 which works to Rs. 1.63 crores. The first objection of assessee was that there was no basis for said figure and nothing has been made available. However, the Assessing Officer denied t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Therefore, the same needs to be treated as income of the assessee as unexplained expenditure under section 69C of the Act. The contention of assessee that commission and freight paid by it had been debited to the Profit & Loss Account and the transaction did not involve any illegal payment of any kind which requires to be disallowed was found to be unacceptable. The Assessing Officer held that subsequent payment of freight by the assessee and debiting the same to the Profit & Loss Account was not material as kickbacks were paid before the goods actually reached Iraq. The actual expenditure incurred by the assessee was also not of much relevance as ITF provided in the contract far exceeded the actual transportation cost, which was done in order to permit the contractors to recover the kickbacks paid by them. Therefore, 10% of contract value was added as income of the assessee under section 69C of the Act, resulting in addition of Rs. 6,21,44,550/-. 35. The CIT(A) upheld the order of Assessing Officer, in view of the name of assessee appearing in VCR in Annexure at table 8 where specific amount of ASSF payment amounting to USD 3,34,144 was mentioned in the table, which relates to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ayments i.e. commission payments under section 195 of the Act. He further referred to the payments made by the assessee filed before the Assessing Officer dated 11.12.2009 placed at pages 2 and 3 of the Paper Book, in which the assessee explained that the contracts which they had entered into were on CIF basis and as such the reply was that the contracts were inclusive of inland transportation charges in response to the query raised by the Assessing Officer. It was further stated and affirmed that the assessee had not paid and not incurred any expenditure of freight and after sales service except for transportation by road to Bombay and by sea from Bombay to the specified destinations in Iraq in terms of the contract. The learned Departmental Representative for the Revenue referred to the submissions of assessee that when no expenditure was incurred, no addition could be made. However, the contention of Assessing Officer that Rs. 7.66 crores needs to be added. Referring to the Annual Report filed by the assessee for the year ending 31.03.2003, part of which was placed at pages 4 to 8, the learned Departmental Representative for the Revenue pointed out that the declaration was made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the assessee had entered into contract which was inclusive of ITF and ASSF, wherein the payment of commission, etc. was made by the assessee but was shown under the head 'Erection and commissioning' by the supplier. The said payment was made to front concern of IG who were based in Iraq, Jordan and Syria, who in turn, retained 1% and balance was passed on to the IG. The learned Departmental Representative for the Revenue further stated that the Assessing Officer in assessment proceedings was mislead where the assessee said that no expenses were incurred, however, the assessee had booked the expenses under the head 'Erection and Commissioning expenses' which was payment to foreign agent. However, the assessee during the course of assessment proceedings claimed that no payment was made to foreign agent, hence there is no liability to TDS although the assessee had made payment to foreign agent and as per the chart at page 32 of the Paper Book, the payments were made even before foreign exchange against sale was realized, which in turn, establishes the case of Revenue of paying kickbacks. Our attention was drawn to the order of Assessing Officer at page 13, wherein it clearly stat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Rs. 89,40,596/- made by the "Assessing Officer" on the basis of "Volcker Commission Report". He failed to appreciate the issue in proper perspective. b) The learned Commissioner of Income tax (Appeals) erred in law & on facts in not setting aside the issue on the ground that no proper opportunity to examine and rebut the information on which the addition is based, was given to the "Assessee", neither any copy of the papers mentioned in the "Volcker Commission Report", nor any opportunity to cross examine concerned person was provided to assessee despite express request by the assessee in this regard. The learned Commissioner of Income tax (Appeals) grossly erred in holding that the principles of natural justice have not been violated in the instant case. c) In particular the Learned CIT (Appeal) erred in facts and in Law in observing that- I) That the assessee has not made payment by way of "Inland Transport Fees" to M/s. Al Azar Trading Company for Transportation charges. II) That the sums mentioned in the "Volcker Report" represents actual payment - "The CIT (Appeals) failed to understand and appreciate the contention, submissions & arguments made by the Assessee in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich was against the claim of deduction under section 80IA of the Act which was covered in favour of assessee by the order of Tribunal. 43. Coming to the facts of the case vis-à-vis ground of appeal No.2 i.e. payment made on account of inland transportation fees in assessment year 2002-03 and ASSF in assessment year 2003-04. The assessment proceedings were reopened under section 147 of the Act. The Assessing Officer noted that in assessment year 2002-03, the assessee had paid sum of Rs. 89,40,596/- to Azar Trading Company, Dubai on account of ITF. In the reasons recorded for reopening the assessment, the Assessing Officer pointed out that the assessee was supplying Portable Centrifugal Pumps to Ministry of Irrigation, Government of Iraq. Reference was made to VCR and the payments of ITF and ASSF and the assessment for both the years under appeal were reopened under section 147 of the Act. Though the assessee had raised ground of appeal against reopening of assessment, but during the course of hearing, the said ground of appeal was not pressed and the same is dismissed as not pressed. 44. During the course of assessment proceedings, the Assessing Officer show caused the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rogramme administered by UN as humanitarian measure. The sale proceeds were received by the assessee against LC opened by UN favouring the assessee. The Assessing Officer also acknowledged that it was accepted fact that the assessee did not receive any oil coupons. However, since there was allegation of kickbacks being received by IG by misuse of programme and where UN appointed commission, who in turn, gave VCR which detailed the manipulations of the programme by the then Iraq regime and provided examples of oil buyers and humanitarian goods sellers, illegal oil charges or kickbacks through variety of devices. The kickbacks were paid by inflated contract values. However, the Assessing Officer observed that in the case of assessee, kickbacks were given as brokerage and remuneration through Azhar Trading Company. The Assessing Officer further observed that just because the remittances were through official channels after taking statutory approvals does not mean that the payments were legitimate. Further, reference was made to the Explanation under section 37(1) of the Act, wherein it is provided that any expenditure incurred by any assessee for any purpose, which is an offence, whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -vis illicit payments from the suppliers of humanitarian goods is depicted under para 2.3.6 at page 15 of the appellate order. The CIT(A) thus, observed that the entire modus operandi, as chronicled in VCR clearly showed that kickbacks were paid to IG by way of ITF and ASSF after manipulating the contract amounts for such contracts. Such illicit payments or kickbacks were not authorized under Oil for Food Programme and was in contravention of Resolution of Security Council of UN, which was the authority under the United Nations Charter to impose economic sanctions wherever necessary, to maintain and restore international peace and security. The CIT(A) then referred to sum of Rs. 87,61,920/- paid to M/s. Al Azhar Trading Co. and Rs. 1,78,676/- to KME from July, 2001 to September, 2001 by way of remittances from Bank of India, Pune towards alleged inland transportation fees and services rendered. The contention of assessee before the CIT(A) in this regard was that in the main body of VCR, there was no direct or indirect reference to or mention of the name of assessee and amounts were paid for legitimate business expenses. This contention of the assessee was rejected by CIT(A) since i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee had failed to furnish any invoices for the alleged transportation services for liaison work. Another feature noted by the CIT(A) was that as per the said letter of KME dated 02.01.2002, the amount was payable as per the agreement of March, 2001 and April, 2003 @ 12.5% of the contract value for the services rendered by Al Azhar Trading Co. and KME. The scanned letter is reproduced at page 18 of the appellate order and the CIT(A) has strongly referred to the said letter which is dated 02.01.2002, but which makes reference to agreement of March, 2001 and April 2003. The CIT(A) thus, concluded by holding that it was not clear as to how the subsequent date agreement April, 2003 was referred in letter dated 02.01.2002, which clearly shows that the said letter was antedated and evidence was created to justify the payment to alleged services. The CIT(A) in this regard observed that the letter itself clearly establishes that the amount paid was only for kickbacks to IG and not actual transportation fees or service charges. Another aspect noted by the CIT(A) was that the impugned payments were directly made to Al Azhar Trading Co. and the assessee had not furnished any evidence to show th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 661 barred such financial transactions and where the payments involved were made for purpose which was not permitted under the UN Resolution or which was prohibited under the UN Charter and International Law, were covered within ambit of Explanation to section 37(1) of the Act. Reference was made to the ratio laid down by the Hon'ble Supreme Court in the case of Maddi Venkataraman & Co. (P) Ltd. reported in 229 ITR 534 (SC), wherein it was held that the payments tainted with illegality could not be claimed as deduction under the Act. Thereafter, the CIT(A) referred to the decision of Calcutta Bench of Tribunal in TIL Ltd. Vs. ACIT (supra) relied upon by the assessee, wherein the finding of Tribunal was that neither the Assessing Officer nor Commissioner had access to VCR and it was also not known whether the name of assessee was mentioned in the report and in that context, the Tribunal took a view that the commission paid could not be disallowed on the basis of VCR. The CIT(A) thus, held that whereas in the case of assessee, it was not in dispute that the name of assessee does figure in the Annexure to VCR, wherein the payment made by assessee to IG by way of ITF and ASSF was clear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... certain payments were made to Al Azhar Trading Co. during the year and debited in the accounts of company and has pointed out that earlier it was not known what services were rendered by the said Dubai entity and KME and where the assessee also failed to substantiate its claim that the expenditure was incurred towards services rendered by the agents, the said expenditure was held to be not allowable. Reference was made to the order of Tribunal in the case of Kirloskar Pneumatic Co. Ltd. (supra), wherein similar disallowance for payment of commission was made, since the assessee had failed to discharge the onus of showing as to what services rendered by the agents for which the payments were made. Further, reference was made to other sister concerns of assessee, wherein commission payments were disallowed for want of discharge of onus to prove that the payee had rendered services to the assessee, which necessitated the payments. The CIT(A) thus, held that even where there was an agreement between the parties and the payments were made but it was still open to the Assessing Officer to consider the relevant facts and details for determination whether the commission said to have been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... there was no merit in the contention of assessee that its name appears only in the table and not in the main report being of no relevance. From the details filed by the assessee, the CIT(A) observed that the same also indicated that the amount was actually paid towards alleged ASSF to a company in Jordan and though the amounts were debited under the head 'Brokerage and Remuneration' in the Profit & Loss Account, reference was made to one of the payments advice notes issued to Bank of India, Pune for payment towards the said charges. The copy of said advice dated 26.11.2002 is scanned and reproduced at page 17 of the appellate order. The CIT(A) observed that the advice note issued by the assessee to the banks provided beyond doubt that the amount was paid as per the understanding with Iraqi authorities and the same had to be paid to Iraqi authorities being 10% of invoice value, which was nothing but illicit payment by way of kickbacks. The second feature noted by the CIT(A) was that the same was paid at a fixed percentage i.e. 10% of the contract amount and not on the basis of actual expenditure, if any. As per VCR also, such payments were paid outside the contract of agreement wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s with Iraq as per details furnished by the assessee; thirdly, as per copies of first letter of appointment of KME as distributor furnished by the assessee, territory covered does not include Iraq and only in the distributorship agreement dated 03.04.2003 entered into with KME, the name of Iraq was included as one of the territories. The CIT(A) held that just because there was increase in sales with other countries, it could not be said that the payment in question was justified and the expenditure was incurred for services rendered by KME. The CIT(A) as in assessment year 2002-03, then deliberated on the issue of allowability of deduction under section 37 of the Act and held that the same is devoid of merit and Explanation to section 37(1) of the Act is clearly attracted. Reference was made to UN Charter and sanctions imposed and the ratio laid down by the Hon'ble Supreme Court in the case of Maddi Venkataraman & Co. (P) Ltd. (supra) and the decision of Calcutta Bench of Tribunal in TIL Ltd. Vs. ACIT (supra) and it was held that the Assessing Officer was justified in making the disallowance of such payments under the provisions of Explanation to section 37(1) of the Act. 52. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onfronting the said aspect to the assessee. He further stressed that there was no requirement to deduct TDS in this regard. Our attention was drawn to the CBDT Circular, copy of which is placed on record. He further stated that the CIT(A) had applied ratio laid down in M/s. Sumo International Pvt. Ltd. Vs. DCIT (supra), which was later decision. However, at the relevant point of time, Circular had prevailed. Thereafter, the learned Authorized Representative for the assessee referred to the VCR at pages 300 and 302. In the said report that there was no mention of Al Azhar Trading Co. and it was neither main nor secondary company considered by the VCR. However, he admitted that the name of other concern Alia is mentioned at page 302 of VCR. With respect to Al Azhar Trading Co., the learned Authorized Representative for the assessee pointed out that the said company was established in 1986 in Dubai and which was having wide interest and such established company would not indulge in such activities. He further stressed that it was not a tainted company and the payment made to them could not be said to be tainted. With regard to assessment in assessment year 2003-04, the learned Authori ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssed that where in initial agreement, there was no mention of territory, then it is to be presumed that the said area was involved at a later date. Our attention was drawn to the copy of agreement of April, 2003 which is placed at pages 55 to 58 of Paper Book and also the submissions made by the assessee, copy of which is placed at page 2 of the Paper Book, which reference to Agreement of April, 2003. Whereas the submissions made by the assessee, copy of which is placed at pages 6 to 11 talks of payment to authority. The learned Departmental Representative for the Revenue pointed out that the reliance placed on DCIT Vs. Rajrani Exports Pvt. Ltd. (supra) by the learned Authorized Representative for the assessee was that the Department has to establish its case. However, in the present case, the facts were established by the Assessing Officer and hence, the said ratio is not applicable to the present facts. In any case, KME was the sister concern and hence, was clearly aware of what is happening. He stressed that it was the duty of assessee to demonstrate that certain services were rendered which were not illegal but here in the present case, the assessee has failed to give evidence ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xpenditure of payment of kickbacks. The facts and arguments of assessee have been elaborately referred to by us in the paras hereinabove. For the sake of brevity, the relevant facts for deciding the present issue raised are that the assessee had made certain supplies to Iraq, for several years. As a result of invasion of Kuwait by Iraq, certain sanctions were imposed on the Iraqi regime. However, because of worsening economic and humanitarian conditions in Iraq, UNSC had approved Oil for Food Prograame on 14.05.1995. Under the said programme, against the import of petroleum products from Iraq, no money was to be paid directly to the Iraqi regime but the same was to be deposited in ESCROW account established by UN Secretary General. There were allegations of payments of kickbacks to the IG and for verifying the same, Volcker Committee was constituted by the UN. As per the report prepared by Volcker Committee, it was alleged that the payments were made by different entities purchasing petroleum products from Iraq, in the form of Inland Transportation Fees and After Sales Services. Since the said payments were not authorized under the programme and also because of the fact that Inland ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... raq of the relevant Security Council resolutions, including notably resolution 687 (1991) of 3 April 1991". Agreement: Although established in April 1995, the implementation of the programme started only in December 1996, after the signing of the Memorandum of Understanding (MOU) between the United Nations and the Government of Iraq on 20 May 1996 (S/1996/356). The first Iraqi oil under the Oil-for-Food Programme was exported in December 1996 and the first shipments of food arrived in March 1997. Funding: Until 20 March 2003, when war intervened and oil exports under the programme ended, the Oil-for-Food Programme was funded exclusively from the proceeds of Iraqi oil exports, authorised by the Security Council. In the initial stages of the programme, Iraq was permitted to sell $2 billion worth of oil every six months, with two-thirds of that amount to be used to meet Iraq's humanitarian needs. In 1998, the limit on the level of Iraqi oil exports under the programme was raised to $5.26 billion every six months, again with two-thirds of the oil proceeds earmarked to meet the humanitarian needs of the Iraqi people. In December 1999, the ceiling on Iraqi oil exports under the pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the programme; and an assessment of the implementation of the new set of procedures for the processing and review of contracts for humanitarian supplies. The new procedures were introduced under Security Council resolution 1409 (2002), based on the Goods Review List (GRL). It is the first such assessment since the adoption of that resolution. Oil-for-Food Plus: The Programme, as outlined in the latest report of the SecretaryGeneral, was expanded by the Security Council beyond its initial emphasis on food and medicines to include infrastructure rehabilitation and 24 sectors: food, foodhandling, health, nutrition, electricity, agriculture and irrigation, education, transport and telecommunications, water and sanitation, housing, settlement rehabilitation (internally displaced persons - IDPs), mine action, special allocation for especially vulnerable groups, and oil industry spare parts and equipment. The Government of Iraq introduced the following 10 new sectors in June 2002: construction, industry, labour and social affairs, Board of Youth and Sports, information, culture, religious affairs, justice, finance, and Central Bank of Iraq. Pre-War and Post-War Developments (2003): On ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n its "phasedown" prior to closure on 21 November 2003, the Office of the Iraq Programme, in coordination with UN agencies and programmes, the Coalition Provisional Authority (CPA) and Iraqi authorities, has continued to identify and ship approved and funded priority items in a pipeline of humanitarian goods and supplies valued at some $10 billion. As of 4 November 2003, consultations between the Coalition Provisional Authority, Iraqi experts and the United Nations, had resulted in the prioritization of 3,168 contracts valued at more than $8.5 billion. (Updated 4 November 2003). 59. Further, the observations of Tribunal with regard to VCR were as under:- "6. To the extent relevant for our purposes, the FFOP worked like this. The Iraqi Government was allowed to export oil but the sale proceeds were to be deposited in an escrow account, and these sale proceeds were to be partly, though substantially, used for importing goods, on humanitarian grounds, for Iraq people. The goods so allowed to be imported were foodstuff, medicines and other necessities for day to day life of ordinary people. The manner in which program worked came up for sharp criticism for its functioning, and there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... touch the issue in appeal before us. There were also findings to the effect that Iraqi regime used several front companies, which entered into agreements with the exporters and collected amounts for 'after sales service', 'inland transportation fees', 'commission' etc, and the amounts so collected by these front companies were passed on as kickbacks to Iraqi regime. This is the area which concerns the issue in this appeal before us, as the disallowance before us pertains to the commission payment by the assessee , in the form of 'inland transportation fees' and 'after sales service', to a company by the name of Alia Transportation and General Trading Co. Interestingly, this company, i.e. Alia Transportation and General Trading Co., finds a prominent mention in the final report issued by the IIC. According to the IIC report, which is popularly known as Volker Committee Report, Alia was a key player in the irregularities relating to Oil for Food Program administered by the United Nations. Volker Committee report ( www.iic-offp.org) describes Alia as one of the 'Iraqi Front Companies' and states, at page 309, as follows: ".............. VII: IRAQI FRONT COMPANIES Three of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the fees paid by Alia to ISCWT were used for the true costs of transport, Alia's general manager stated: "There were no actual costs. The driver got maybe $10. This was a payment to the Government of Iraq." Alia's general manager was unaware whether the actual costs for transport had any bearing on the transportation fee charged and collected by Alia. Following the conclusion of contract negotiations between an Iraqi purchasing body and a supplier, ISCWT contacted Alia by fax, letter, or telephone and informed Alia of the amount that was to be received from the supplier. On some occasions, ISCWT contacted the supplier directly to advise the supplier that it should send payment to Alia or sent the same invoice to the supplier that it sent to Alia. On other occasions, Alia sent invoices to suppliers indicating the amounts levied by ISCWT. Representatives of ISCWT came to Alia's office every month to inspect the company's records, and ISCWT also sent an employee to work at Alia. Suppliers paid their fees in various foreign currencies (not Iraqi dinars) to Alia's accounts at Jordan National Bank and the Egyptian Arab Land Bank. Upon receipt of the funds, Alia informed ISCWT of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of dollars in illicit fees paid by suppliers to the Iraqi regime. Alia further made illicit payments totaling $1,336,972 in connection with its own contracts under the Programme." 60. The case of Revenue in the case of DCIT Vs. Rajrani Exports Pvt. Ltd. (supra) was that since reasonable material by way of VCR, which indicated that no services were actually rendered by Alia, which in turn acted as conduit for the Iraqi regime, where lesser margin was retained by Alia and the balance amount was transferred to Iraqi regime as illegal kickbacks, the said amounts were not allowable as deduction under section 37(1) of the Act, in view of Explanation to section 37(1) of the Act. On the opposite, the case of assessee was that the first issue raised by the assessee was that the assessee had not been supplied with the copy of VCR and hence, there was violation of principles of natural justice, equity and fair play. The Tribunal in DCIT Vs. Rajrani Exports Pvt. Ltd. (supra) did not accept the plea of assessee since the VCR was freely available on internet, was fully in public domain and anyone could access it. The Tribunal further clarified the same by holding that Having said that, we mus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ited by law. What the recipient of this payment does is hardly important from this perspective. The illegality has supervened at the stage at which the Alia has paid the money to Iraqi regime in violation of UN sanctions against Iraq, but that that is the stage at which assessee has no control over the matter. It is not even a finding by the Volker Committee that the exporters making payments for the 'inland transportation fees' or 'after sales service' always knew that the monies will be used for the purposes of kickbacks to the Iraqi regime. As a matter of fact, these manoeuvrings were designed by the Iraqi regime and the front companies were set up by the Iraqi regime. The exporters had no role in devising these innovative mechanism to raise them monies. The Volker Committee itself acknowledges the fact that "these payments to the Iraqi regime were disguised by various subterfuges and were not reported to the United Nations by Iraq or to the participating contractors... (like the assessee before us) let alone approve by the United Nations as permissible payments from escrow account." When it is not even the case made out in the Volker Committee report that the participating expo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt that contractors pay inland transportation fees. Iraq dubbed its more general kickback requirement as an "after-sales-service" fee. After-sales-service provisions often were incorporated into contracts as a way to inflate prices and permit contractors to recover from the United Nations escrow account amounts they had paid secretly to Iraq in the form of kickbacks. Contractors paid these kickbacks before their goods were permitted to enter Iraq. For ease of reference, this form of kickback is referred to throughout as an after-sales-service fee-even though Iraq often collected a ten percent fee without labeling it an "aftersales-service" fee or without inserting an after-sales-service provision in the applicable contract. Many companies freely went along with Iraq's demands. Others made payments to third parties or agents while disregarding the likely purpose of these payments, or perhaps unwittingly. Indeed, the Committee calculates that more than 2,200 companies worldwide paid kickbacks to Iraq in the form of inland transportation fees, after-sales-service fees, or both." 63. The findings of Tribunal thereafter, are as under:- "11. As a matter of fact, this Volker Committe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a willing party to the illegal kickbacks, the onus is on the Assessing Officer to demonstrate so because an assessee cannot be asked to prove a negative i.e. that he is not a willing party to the illegal kickbacks. There must be some material to indicate that the assessee was aware that the payments by the assessee were to be used as kickbacks; a mere suspicion to that effect cannot suffice. 12. It is also important to bear in mind that the fact that the services were indeed rendered to the assessee. The fact that services were actually rendered to the exporters supplying goods under Oil for Food Program, in consideration for these payments is evident from the Volker Committee report itself. The services were rendered to the exporters but these services were rendered by the Iraqi regime and the money was passed by the front companies to the Iraqi regime. Even the Volker Committee report, which constitutes foundation of the impugned disallowances, has made following observations in support of this proposition: In fact, all transportation services for which Alia received payment from humanitarian suppliers were provided by employees of the Government of Iraq. Transport of goods ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a party other than the agent to whom commission is paid is wholly immaterial so far as deductibility in the hands of the assessee is concerned. 64. The Tribunal also considered another objection of the Revenue that the payments made in this regard were excessive vis-à-vis cost of transaction and the Tribunal further held as under:- "16. As for the position that the payment was highly excessive vis-à-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 event, 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). 17. The objections to the said commission payments donot, therefore, are not ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... agent vide Agreement which was executed on 01.04.1997, under which it was expressly agreed between the parties that the said sister concern would be distributor of various Kirloskar Diesel Engines, Pump sets, spare parts and auto components manufactured by the assessee and the territory to be covered for the said transaction were various countries of Middle East including Iraq. As per the terms of contract, KME was appointed as distributor for promoting exports to Middle East countries. This agreement was entered on 01.04.1997 and the maximum commission that could be paid to them under the terms of Contract was 12.5% of value of the order. The assessee claims that during assessment year 2001-02, it had effected sales to various Middle East countries such as Morocco, Oman, Iran, Egypt, Saudi Arabia, as also Iraq. On all these orders, commission was paid @ upto 12.5% of the order value. Similarly, commission @ 12.5% was also paid on supplies to IG. The assessee has placed the details of commission paid at pages 130 to 132 of the Paper Book, wherein KME was mostly paid commission @ 12.5%. No extra commission was paid for sales effected to the IG. Another aspect to be kept in mind is t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oning of figure in Table 8 of Annexure to the VCR, which does not relate to the value of exports undertaken by the assessee during the year. In any case, the heading of Table 8 is actual and projected illicit payments on contract which establishes the case of assessee that complete details were not available before the VCR and to come to finding of payment of kickbacks and in the absence of same, no adverse view could be taken. We find merit in the said plea of the assessee since against the name of assessee in VCR, the figure of USD 161056 is mentioned is equivalent to about Rs. 85 lakhs. On the other hand, the Assessing Officer had made addition to the extent of Rs. 1.47 crores in assessment year 200102 and about Rs. 90 lakhs in assessment year 2002-03. Another aspect of the said payment of commission to KME is that the same has been allowed in entirety by the Assessing Officer. However, the Assessing Officer was of the view that since under the Oil for Food Programme, the IG was taking kickbacks in the form of ASSF, then such expenditure had been incurred by the assessee and since the same was not debited to Profit & Loss Account, the same constitutes unexplained expenditure and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ses and such payments end up being used as illegal kickbacks, then they do not fall in the category of Explanation to section 37(1) of the Act. Such is the proposition which was laid down by the Kolkata Bench of Tribunal which has been upheld by the Hon'ble Calcutta High Court in DCIT Vs. Rajrani Exports Pvt. Ltd. (supra). Applying the said principles to the facts of the present case, the first aspect of the issue is that, no disallowance has been made under section 37(1) or Explanation to section 37(1) of the Act in the hands of assessee. The Assessing Officer presumed that in view of the circumstances, the assessee had incurred the expenditure of kickbacks and disallowed under section 69C of the Act. The Assessing Officer has not invoked the provisions of section 37(1) of the Act or Explanation to section 37(1) of the Act with regard to the commission payment being made to KME but has made the disallowance under section 69C of the Act. The learned Authorized Representative for the assessee has placed reliance on series of decisions in this regard and applying the same, there is no basis for making the said disallowance under section 69C of the Act. It is settled law that for invo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10% of the contract value on account of kickbacks. The assessee had made exports of higher value than the alleged amount of commission written against the name of assessee. 72. The learned Departmental Representative for the Revenue had stressed that the onus was upon the assessee to establish that it had not paid any additional charges for inland transportation fees and payments made to KME were not in the nature of kickbacks for IG. The learned Departmental Representative for the Revenue in the written submissions has enlarged the scope of assessment made in the case of assessee. The assessee has time and again stressed that as per the terms of contract, it had supplied the goods at Baghdad for which, it had separately paid for transport through sea and on account of inland transfer of goods within Iraq, no addition has been made by the Assessing Officer on this account of ITF. With regard to services of ASSF, the assessee has explained that the said services had to be provided by its agent and in such circumstances, there is no necessity to establish whether any services were actually rendered by the assessee with regard to ASSF. The facts and issue raised in the case of Kirlo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessing Officer had made addition under section 69C of the Act on presumptions, which we have already dealt with in paras hereinabove. 73. The learned Departmental Representative for the Revenue had placed reliance on the orders of Tribunal in the case of sister concern of assessee and also in the case of assessee, wherein the claim of assessee of commission payments was not allowed. We have gone through the said decisions of Pune Bench of Tribunal and the facts and issue before the Tribunal in the said cases Kirloskar Pneumatic Co. Ltd. in ITA No.425/PN/1995 and in the case of Kirloskar Oil Engine Ltd. in ITA Nos.429/PN/1997 and 606/PN/1999, vide orders dated 24.03.2006 and 23.03.2006 are at variance and the said proposition is not applicable. Another strong reliance placed upon by the learned Departmental Representative for the Revenue was on Cipla Ltd. (supra), wherein issue of payment of ASSF charges was decided against the assessee. In the facts of the said case, the assessee had admitted to the said payment and hence, the disallowance. The facts are at variance to the facts before us and hence, the said ratio is not applicable. 74. Another point which was referred to by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has explained the basis of Tables 7 and 8, which reads as under: "Table 7 presents only those suppliers that had contracts for which there is evidence of collection of illicit after sales service fees and / or Inland transportation fees by the former Government of Iraq. For each supplier, the table presents a summary total of only contracts executed by the supplier for which direct or indirect evidence of participation was found. The table also quantifies, where possible, the aggregate dollar amount of the solicitation and payment. The table also provides the nature of any response from each company to the committee's letter of notice." "Table-8 expands on the information provided in table-7, listing the supplier each individual contract for which a kickback payment was made and providing an estimate of the amounts imposed and paid. The amounts are based on either actual or projected data. The table identifies type of evidence relied upon and indicates whether the amounts are based on actual data or were projected by the committee.---" Table-8 references 'Projected' etc. Following references are appearing in the table-8 AY 2000-01 - Reference "+" & "8" AY 2002-03 - Ref ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eal No.1 raised by the assessee is against reopening of assessment, which was not pressed and hence, the same is dismissed. The grounds of appeal raised by the assessee are thus, partly allowed. 80. The facts and issue in ITA No.1171 /PN/2011 i.e. in the case of Kirloskar Oil Engines Ltd. itself relating to assessment year 2002-03 are identical to the facts and in issue in ITA No.1170/PN/2011 and following the same parity of reasoning, we allow the grounds of appeal No.2 to 4 raised by the assessee in ITA No.1171/PN/2011. The ground of appeal No.1 raised by the assessee is against reopening of assessment, which was not pressed and hence, the same is dismissed. The grounds of appeal raised by the assessee are thus, partly allowed. 81. The facts and issue in ITA Nos.1524/PN/2011 to 1526/PN/2011 relating to assessment years 2002-03 to 2004-05 in the case of Mather & Platt Pumps Ltd. are identical to the facts and issue in ITA No.1170/PN/2011 and our decisio n in ITA No.1170/PN/2011 shall apply mutatis mutandis to ITA Nos.1524/PN/2011 to 1526/PN/2011. 82. In order to adjudicate the issue raised by the assessee in the appeals of M/s. Kirloskar Brothers Ltd., the assessee claims that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich it was executed. The assessee further claimed that this agreement was renewed but the copies of the next renewal are not available. On pages 55 to 58 of the Paper Book, the assessee has placed on record the distribution agreement on which date 03.04.2003 is mentioned. The agreement is termed as distributorship agreement, under which the assessee is pleased to appoint distributor for the distribution and servicing of products. However, the name of distributor is missing at the start of agreement. Thereafter, the list of territory is mentioned, wherein Iraq is also included. Similarly as in other agreements referred, the products covered are mentioned and prices and invoicing terms mentioning the same terms for shipment and remittances are also mentioned. The term of pre and after sales services and warranty administration are also incorporated. The next clause of payment of commission @ 12% to KME for the exports in countries listed in the territory area, under the clause validity, it is mentioned that this agreement will come into force on the date it is signed and will be valid till 31.03.2005. Thereafter, it is signed by the respective persons for the assessee and KME. 84. O ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 124576 approx. KME talks of the services rendered by Al Azhar Trading Co. and by them, in executing and follow up of the orders and talks about the balance payment of USD 3697 and early remittance of the amount was asked for. In the said letter, the amount payable to Al Azhar Trading Co. for liaisoning services was asked to be paid to them as per details of bank account given in the said letter itself. The copy of the said letter is placed at page 62 of the Paper Book. Page 63 of the Paper Book is debit advice dated 01.02.2002, under which the commission remitted through EEFC account to Al Azhar of 1861920 and to KME of 178676 is mentioned. Thereafter, there is a letter by the assessee addressed to the Bank of India dated 14.01.2002, wherein the assessee talks of the remittance of GBP of 124576 to Al Azhar on account of commission to be paid from EEFC account. The copy of the said letter is placed at page 64 of the Paper Book along with details of exports made to Ministry of Agriculture for payment of commission totaling GBP of 124576, which is placed at page 65 of the Paper Book. All these documents are filed by the assessee in its Paper Book. From the above said evidence, it is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee claims that the payments to Alia were made against the transportation cost and hence, the same are to be allowed as deduction. One more aspect to be considered is the invoice raised by the assessee, copies of which are filed by the assessee during the course of hearing of the present appeal, under which it is clearly mentioned that Port of loading is Mumbai, Port of dispatch is Umm Qaser and final destination is Baghdad. The terms of delivery and payments are CIF, Baghdad. Similar are the terms for four invoices relating to assessment year 2001-02, which are placed at pages 11 to 14 of the Paper Book. At this juncture, it may be kept in mind that while arguing the appeal in the case of Kirloskar Oil Engines Ltd., the learned Authorized Representative for the assessee time and again had pointed that it had not paid any ITF since the terms of delivery were CIF, Baghdad. In other words, the goods had to be delivered to Baghdad. However, in the case of M/s. Kirloskar Brothers Ltd., the assessee claims that the amount has been paid to Al Azhar Trading Co. for rendering services for execution and follow up of the contract. With regard to Alia, the claim of assessee is that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reement dated 03.04.2003, the territory of Iraq is mentioned. The assessee has not filed any evidence in this regard. The second evidence which has been filed by the assessee is the letter dated 02.01.2002 i.e. communication by KME to the assessee to release the payment to Al Azhar for liaisoning services carried on by the said concern. In the said letter, there is reference to agreement of March, 2001 and April, 2003. Two points have to be kept in mind are that the renewal letter was dated 31.03.2001, undoubtedly that could be referred to in the letter dated 02.01.2002. The said renewal of agreement of March, 2001 was valid up to 31.03.2003. First of all, how can KME on 02.01.2002 be aware that the second agreement would be executed in April, 2003 which is coming to end by 31.03.2003. The said agreement referred to by the assessee is dated 03.04.2003. However, the same is mentioned in a letter which was signed on January, 2002. The said letter refers to March, 2001 and April, 2003 agreements, wherein March, 2001 was only an extension letter and April, 2003 was an agreement perse. Another point to be kept in mind is that for the period April, 2001 to March, 2002, the payment has be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee to Al Azhar for alleged services and to Alia for transportation services and balance to KME are not supported by proper evidence and in the absence of assessee having not discharged its onus in this regard, the said expenditure is not allowable as business expenditure in the hands of assessee under section 37(1) of the Act. Admittedly, the said expenditure has been incurred for payment of kickbacks to the IG and the same is hit by Explanation to section 37(1) of the Act. The VCR in Annexure to the report under Table 8 has reported the exact value of exports made by the assessee in respective years and the payments to the alleged front companies. On the other hand, in the case of Kirloskar Oil Engines Ltd., the VCR talked of part of exports value undertaken by the assessee, as against which the assessee had made higher exports to Iraq. Our decision in the case of Kirloskar Oil Engines Ltd. would not apply to the facts of assessee in Kirloskar Brothers Ltd. as two stands on different facts. In Kirloskar Oil Engines Ltd., the assessee therein had made the payments to its distributor who was appointed in 1997 to look after its exports in the Middle East Countries which included ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Hon'ble Supreme Court in the case of Maddi Venkataraman & Co. (P) Ltd. (supra). We find no merit in the said issue raised by the learned Authorized Representative for the assessee since the ratio laid down by the Hon'ble Supreme Court is the law of land and it prevails at all times. Another aspect of the issue is the disallowance upheld by the CIT(A) for non deduction of tax at source. The said issue now becomes academic since we have already upheld the order of CIT(A) in respect of disallowance under Explanation to section 37(1) of the Act. The assessee has time and again stressed that the name of Al Azhar was not mentioned in VCR but the onus was upon the assessee to establish that Al Azhar Trading Co. had provided the services to the assessee, which warranted the said payment to it and its allowability in the hands of assessee. The complete case of assessee in this regard is the distributorship agreement with KME, under which the said payment was made. We have already decided the said issue, wherein the said payment was to be made as per the letter of KME to the assessee dated 02.01.2002, which refers to the agreement of March, 2001 and April, 2003, which we have already hel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of business. Applying the said ratio to the facts of the present case, onus was upon the assessee to establish that the said persons had rendered services which necessitated the payment of commission to the said concern. Further, VCR in this regard reported that the persons making supplies to Iraq were indulging in payment of kickbacks stands established against the assessee and applying the said ratio, we uphold the disallowance made in the case of assessee relating to assessment years 2002-03 and 2003-04. The ground of appeal No.2 raised by the assessee is dismissed. The ground of appeal No.1 raised by the assessee against reopening of assessment has not pressed and hence, the same is dismissed. 91. The grounds of appeal No.1 and 2 raised by the assessee in assessment year 2003-04 are identical to the grounds of appeal No.1 and 2 raised in assessment year 2002-03. The assessee has not pressed ground of appeal No.1 against reopening of assessment and the same is dismissed. The issue in ground of appeal No.2 is identical and following the same parity of reasoning, we dismiss the ground of appeal No.2 raised by the assessee. In assessment year 2003-04, the assessee has raised groun ..... X X X X Extracts X X X X X X X X Extracts X X X X
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