EXIM TRADE LINKS (I) P. LTD,MUMBAI vs. ACIT 6(2), MUMBAI

6. (2), Mumbai, ["the A.O."] whereby the A.O. passed the order u/s. 143 (3) r.w.s. 147 of the Income-tax Act, 1961 ("the Act") without giving sufficient, proper and adequate opportunity of being heard to the Appellant.

The brief facts of the case are that the assessee filed its return of income on 28.10.2002 declaring total income of Rs.65,71,260/-. The AO received an information from the CBDT on the basis of Volcker Committee appointed by the United Nations that the assessee company made illegal payment in the shape of ASFF(after sales service fee) of 177593US$ equivalent to Rs. 86,64,762/-and ITF (inland transportation Fee) OF 84100 US$ equivalent to Rs. 41,03,239/-. As matter of fact the assessee had not incurred and paid any ASFF at all whereas paid transportation charges overseas Rs. 14,26,604/- in Jordan but not inland transportation fee as informed to AO by the CBDT. The AO after recording reasons u/s 148(2) of the Act issued notice u/s 148 on 04.08.2006. Accordingly the AO framed the assessment u/s 143(3)/147 of the Act by making two additions namely ASSF Rs. 86,64,762/- and Inland Transportation charges Rs. 14,29,604/- which was upheld by the CIT(A) by holding that the AO was justified in making the additions by disallowing inland transportation charges and ASSF as these amount were actually paid to Iraqi authorities either directly or through an agent for procuring the contract in Iraq and further held that Volkar Committee report could not doubted otherwise the committee would not have reported the payments.

At the outset, the ld AR for the assessee submitted that the ground no 1 is in support of ground no 2 and 3.The first issue raised by the AR is that the proceedings initiated u/s 147 r.w.s. 148 of the Act were bad in law because the reasons as recorded u/s 148(2) for issuing notice was based on incorrect facts and in consequence the whole proceedings became invalid as the very foundation of initiation was wrong. He drew our attention to para 2 of the assessment order. The assessment was re- opened on two reasons namely that the assessee paid 177593US$ as ASSF(after sales service fee) and inland transportation fee 84100US$ to the Iraqi Government under Oil for Food Programme. It was argued that the assessee had never paid any ASSF to the Iraqi government and not charged to the profit and loss account . Secondly inland transportation fee 84100US$ were never paid and incurred and it was just a suspicion of the AO whereas the assessee has incurred, paid and charged Rs. 14,29,604/- as transportation charges overseas which were paid in Jordan and not inland transportation fee. The ld counsel submitted before us that since the very basis of initiating the reassessment proceedings was on wrong as on the incorrect facts and the information supplied by the CBDT were used to re-open the assessment without application of mind by the AO mechanically and therefore requested that consequent order of assessment was also bad in law. Besides the AR argued that the reasons were not supplied and whatever objections the assessee filed against the re-opening proceeding were not disposed off. On merit the ld counsel submitted before us that no ASFF was charged to profit and loss account and therefore no question of disallowance and the transportation charges were incurred out of genuine business needs and were paid in Jordan not to the govt. of Iraq. Ultimately the ld counsel submitted that the re-opening was not covered by the proviso to section 147 and thus case of the assessee was wrongly re-opened.

Per contra the ld DR relied on the orders of authorities below.

We have considered the rival submissions and perused the materials on records and orders of authorities below. We find that the CBDT on the basis of Volckar committee report sent a memorandum to the AO intimating the list of companies involved in the paying kickbacks to Iraqi Government during supplies made under ”Oil for Food Programme and the AO recorded reasons u/s 148(2) of the Act for re-opening the assessment which are extracted below:- “As per office memorandum of CBDT F.No.414/117/2005-IT(Inv) dated 18.11.2005, the assessee company had executed two contracts with government of Iraq under the Oil for Food Programme.In the process of executing the contract , kickbacks in the form of inland transportation fee and after sales services fee were paid by the company. ASSF which were generally 10% kickback requirement on humanitarian contract was provided in the contract as a basis to inflate the prices. The list of Indian companies received alongwith the aforesaid memorandum of CBDT provide following information wherein illegal payments were made to the government of Iraq by inflating the cost of goods supplied as per the contract.

As is seen from the above reasons recorded by the AO that same were recorded on the basis of CBDT Memorandum that some companies including assessee were involved in giving kickbacks to Iraqi Government in the supplies made by these companies in Oil for Food Programme. We note that the AO had mechanically recorded the reasons on the basis of CBDT information without even verifying the fact whether the assessee charged such expenses in the profit and loss account as stated in the memorandum . The ld AR argued that no ASFF was incurred and charged to the profit and loss account and also no inland transportation of 84100US$ were incurred and charged to the profit and loss account but Rs. 14,29,604/- were incurred and charged to the profit and loss account as transportation charges overseas paid to ALIA Jordan in Jordan for which proper bills, vouchers and bank advice are available. We are of the considered view that in the light of the facts as stated above the re-opening of assessment cannot be justified by the AO by just mechanically recording the reasons without any application of mind. We therefore annul and quash the re- assessment proceedings and also the consequent order of assessment passed u/s 143(3) /147 of the Act by allowing the appeal of the assessee on technical ground and even on merit the escapement of income can not attributed to the assessee and therefore the re-opening the assessment under proviso is also wrong and liable to be annulled. The AO is directed accordingly.