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Income Tax Appellate Tribunal, F Bench, Mumbai
Before: Shri Jason P. Boaz & Shri Sandeep Gosain
These appeals by the assessee are directed against the orders of the CIT(A)-XXVII, Mumbai dated 30.12.2008 for A.Y. 2003-04 and dated 29.08.2008 for A.Y. 2005-06. Since common issue is involved, the appeals were heard together and are being disposed off by way of this common order for the sake of convenience.
The facts of the case, briefly, are as under: - 2.1 The assessee is a company engaged mainly in the business of trading in export of electrical goods and appliances. For A.Y. 2003-04, the assessee filed its return of income on 27.11.2003 declaring total income of `90,14,086/-. The return was processed under section 143(1) of the Income Tax Act, 1961 (in short 'the Act') and the case was taken up for scrutiny. The assessment was completed under section 143(3) of the Act vide order dated 28.02.2006 wherein the total income was determined at `97,42,780/-. Proceedings for reassessment were initiated under section 147 of the Act and after recording reasons for belief in respect 2 & 1753/Mum/2008 M/s. Bajaj International P. Ltd. of the assessee’s income which had escaped assessment on account of illegal payments of commission to the Iraqi government under the ‘Oil for Food Programme’, the Assessing Officer (AO) issued notice under section 148 of the Act dated 10.11.2006. The assessment was completed under section 143(3) r.w.s. 147 of the Act vide order dated 31.10.2007 wherein the income of the assessee was determined at `99,76,169/- in view of, inter alia, the disallowance of `2,33,389/- which the AO held to be illegal commission paid by the assessee to the Government of Iraq. On appeal, the learned CIT(A)-XXVII, Mumbai vide the impugned order dated 30.12.2008 allowed the assessee partial relief. For A.Y. 2005-06, the assessee filed its return of income on 31.10.2005 declaring income of `83,84,740/-. The case was taken up for scrutiny and the assessment was completed under section 143(3) of the Act vide order dated 31.10.2007, wherein the income of the assessee was determined at `1,21,29,337/-, in view of the disallowance of `37,44,597/- which the AO held to be illegal commission paid by the assessee to the Government of Iraq. On appeal, the learned CIT(A) dismissed the assessee’s appeal vide the impugned order dated 29.08.2008.
Aggrieved by the orders of the CIT(A)-XXVII, Mumbai dated 30.12.2008 for A.Y. 2003-04 and dated 29.08.2008 for A.Y. 2005-06, the assessee has preferred these appeals raising identical grounds on merits. The grounds are extracted hereunder: - 3.1 Assessment Year - 2003-04 “1. On the facts and in the circumstances of the case and in law, the Commissioner of Income-tax (Appeals) erred in upholding the action of the Deputy Commissioner of Income-tax in re-opening the assessment under section 148.
2. On the facts and in the circumstances of the case and in law, the Commissioner of Income-tax (Appeals) erred in upholding the action of the Deputy Commissioner of Income-tax in disallowing an amount of Rs.2,33,389/- out of commission paid in respect of exports made to Iraq.” 3.2 Assessment Year - 2005-06 1. On the facts and in the circumstances of the case and in law, the Commissioner of Income-tax (Appeals) erred in upholding the action of the Deputy Commissioner of Income-tax in disallowing an 3 & 1753/Mum/2008 M/s. Bajaj International P. Ltd. amount of Rs.37,44,597/- out of commission paid in respect of exports made to Iraq.”
Ground No. 2 (A.Y. 2003-04) and ground No. 1 (A.Y. 2005-06) – Disallowance of Commission paid in respect of exports to Iraq 4.1 In these common grounds the assessee assails the orders of the learned CIT(A) in upholding the AO’s disallowance of `2,33,389/- and `37,44,597/- for assessment year’s 2003-04 and 2005-06 respectively out of commission paid in respect of exports made to Iraq. At the outset of the hearing before us, the learned A.R. of the assessee submitted that this issue has been dealt with and held in favour of the assessee and against the Revenue by a Coordinate Bench of the Tribunal in the case of Metro Exporters Pvt. Ltd. in ITA No. 2026/Mum/2008 for A.Y. 2002-03 vide order dated 08.06.2016, following the decision of the Hon'ble Calcutta High Court in the case of CIT vs. Rajrani Exporters Pvt. Ltd. (AIT 2013-75- High Court) and Coordinate Bench decisions in the case of NSIL Exports Ltd. vs. DCIT (2014) 44 taxmann.com 246 and Air Pac Exports vs. ACIT 152 ITD 634 (Mumbai ITAT). It was prayed that in view of the above, the assessee’s appeal be allowed on this point. 4.2 Per contra, the learned D.R. for Revenue placed strong reliance on the orders of the authorities below. 4.3.1 We have heard the rival contentions and perused and carefully considered the material on record, including the judicial pronouncements cited. The facts of the matter as emanate from the record are that in both these concerned assessment years 2003-04 and 2005-06, the assessee company exported goods to Iraq under the UNO ‘Oil for Food Scheme’ and in this connection had paid commission to its agent M/s. Winter International Ltd., Jordan for providing services to them and realization of export proceeds such as: - (a) Informing the assessee company about new tenders which are issued in Iraq; (b) Arranging documents required for submission of tender application; (c) Application made for tenders; (d) Tender participation in Iraq; (e) Procurement of orders; 4 & 1753/Mum/2008 M/s. Bajaj International P. Ltd. (f) Obtaining LC on behalf of the assessee company; (g) Obtaining payment through Bank against LC 4.3.2 The authorities below, citing the Volcker Committee Report which reported that illicit kickbacks and surcharges were paid by more than 2000 companies to the Iraqi government in pursuance of the ‘Oil for Food Programme’, in various nomenclatures like inland transportation fee, loading fee, commission, etc., held that the commissions paid by the assessee to its agent Winter International Ltd. were actually nothing but illicit payments to the Iraqi Government. In our considered view, based on the facts on record, we find that the commission payments made by the assessee to its agent M/s. Winter International Ltd., Jordan were for services that have been rendered by its agent to the assessee in consideration of the same. It is not Revenue’s case that no services have been rendered to the assessee by the agent. Further, nothing has been brought on record by Revenue to show that the transactions relating to the payment of commission by the assessee are either non genuine or are excessive or unreasonable. The Volcker Committee Report, cited by Revenue, had discussed about the utilization of money by the recipient of the commission in paying of such commission so received to the Government of Iraq illicitly, which was objected to by the Volcker Committee. From a casual perusal of the details on record and in the orders of the authorities below it has not been proved that the assessee company was involved in illicit payments of commission to the Iraqi Government. Therefore it cannot be concluded that commission payments were not made for the purpose of assessee’s business. Explanation to section 37 of the Act cannot be invoked merely on the basis of an unestablished doubt that expenditure incurred could be for infraction of law. 4.3.3 On similar facts as in the case on hand, the Coordinate Bench of the Tribunal in the case of Metro Exports P. Ltd. in ITA No. 2026/Mum/2008 dated 08.06.2016, following the decisions of the Hon'ble Calcutta High Court in the case of CIT vs. Rajrani Exports (AIT 2013-75-High Court) and other Coordinate Benches in the case of NSIL Exports Ltd. (2014) 44 5 & 1753/Mum/2008 M/s. Bajaj International P. Ltd. taxmann.com 246 and Air Pac Exports Ltd. (152 ITD 634) has decided this issue in favour of the assessee holding as under at paras 7 and 8 thereof, as under: - “7. Ground No.5 raised in the present appeal is in respect of commission of export to Iraq. AR of assessee argued that this ground of appeal is also covered in favour of assessee by the order Hon’ble Calcutta High Court in CIT vs. Rajrani Export (AIT 2013-75- High Court) and Co-ordinate Bench of ITAT, Mumbai in NSIL Exports Ltd. vs. DCIT [2014] 44.taxman.com. 246, and Air Pac Exports Vs. ACIT (152 ITD 634), Mumbai. On the other hand, ld. DR for the revenue argued that this ground of appeal is covered against the assessee by the order of ITAT Mumbai vide ITA No. 7285 to 7286/M/2007 in case titled as M/s Cipla Ltd. Vs. DCIT. We have considered the rival contention of AR as well as DR of the parties and gone through the order passed by the Hon’ble Calcutta High Court and various Tribunals on the issue of payment of commission to Government of Iraq. The Hon’ble Calcutta High Court while dealing with the Grounds of appeal raised by Revenue held as under: “The commission on export activity had been fully disclosed in all correspondences and an activity 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 are non-genuine or are 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 is involved nor Government of India is involved.” Further, the Co-ordinate Bench of ITAT in NSIL Export Ltd. Vs. DCIT [2014] 44.taxmann.com 246- Mum while dealing with similar Ground of appeal held as under: “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 6 & 1753/Mum/2008 M/s. Bajaj International P. Ltd. 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 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.” Similar view was taken by Co-ordinate Bench of Mumbai Tribunal in Air Pac Exports V/s ACIT [152 ITD 634]-Mum in ITA No. 2981 to 2983/M/2012 for AY-2001-02 to 2002-03 vide order dated 11.06.2014. We have also gone through the order of Co-ordinate Bench of this Tribunal in M/s Cipla Ltd. Vs. DCIT vide order dated 27.09.2009, relied by Ld. DR for Revenue, wherein this Tribunal has taken a contrary view. We have noticed that the order passed in M/s Cipla Ltd. was differentiated by coordinate bench of this Tribunal in NSIL Exports Ltd. (supra) holding that, Cipla was involved in illicit payment made to Iraq Government as per Volker Committee Report holding as under: “35. It is seen that the revenue authorities as well as the DR placed heavy reliance on the decision of Cipla Ltd. vs. ACIT, ITA No. 7284 to 7286/Mum/2007, wherein the coordinate Bench at Mumbai, came to the conclusion that, Cipla was involved in illicit payment made to Iraq Government, as per Volcker Report. It has been held by the coordinate Bench in Para 7.1 that the assessee has not denied payment of ASSF. In para 3 of the order, the order mentions about the payments towards ASSF and on which basis, the cases were reopened.
However, in the instant case, the facts are different. The dispute is with regard to payment made to Dalala & Company, from where, the alleged illicit payment may have been paid. In such a situation, when the facts themselves are at variance, the decision of Cipla (supra) cannot be relied upon. This argument of the department has to be rejected.”
Hence, keeping in view the above discussion and the legal position, and keeping in view the order of Calcutta High Court (supra), this Ground of appeal is covered in favour of assessee. Hence, this Ground of appeal is allowed in favour of assessee.” 4.3.4 In the factual matrix of the case as discussed from paras 4.1 to4.3.3 of this order (supra) and respectfully following the decisions of the Hon'ble High Court of Calcutta in the case of CIT vs. Rajrani Export (supra) and of the Coordinate Bench in the case of Metro Exports P. Ltd. (supra) and NSIL