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Income Tax Appellate Tribunal, “D” BENCH, CHENNAI
Before: SHRI N.R.S. GANESAN & SHRI A. MOHAN ALANKAMONY
आदेश /O R D E R
PER N.R.S. GANESAN, JUDICIAL MEMBER:
This appeal of the Revenue is directed against the order of the Commissioner of Income Tax (Appeals)-II, Chennai, dated 05.06.2014 and pertains to assessment year 2003-04.
Shri A.B. Kohli, the Ld. Departmental Representative, submitted that the assessee has paid kickbacks for supplying material to Iraq under “Food for Oil Programme”. According to the Ld. D.R., during the year under consideration, the assessee has made export to various parties under “”Food for Oil Programme”.
The United Nations nominated a committee called “Volker Committee” to enquire into the irregularities in “Food for Oil Programme”. The assessee is also found to be one of the companies paid kickbacks to Iraqi Government and its agents. The Assessing Officer disallowed the claim of the assessee on the basis of the Volker Committee’s report, under Section 37 of the Income- tax Act, 1961 (in short 'the Act'). On a query from the Bench whether the Assessing Officer made any independent enquiry apart from Volker Committee report, the Ld. D.R. very fairly submitted that the Assessing Officer has not made any independent enquiry other than placing reliance on the report of the Volker Committee.
On the contrary, Shri D. Anand, the Ld.counsel for the assessee, submitted that the assessee has paid commission outside India for the services rendered outside India. It is not kickbacks to any Government or governmental agency. The Assessing Officer without making any enquiry, came to a conclusion that the assessee has paid kickbacks. The CIT(Appeals), after considering the report of Volker Committee, found that two types of kickbacks were found in exporting goods to Iraq under “Food for Oil Programme”. One is Inland Transportation Fee and the another is After Sales Services Fee. The CIT(Appeals) found that the payment of commission made by the assessee is in line with the other exporters paid under the very same scheme. The Ld.counsel further submitted that the payment of commission cannot be equated to kickbacks or bribe. Even the Volker Committee has not used the word “bribe”. It was used “kickbacks” in the transaction.
The Ld.counsel for the assessee further submitted that an identical issue came before the Calcutta High Court in CIT v.
Rajarani Exports (P.) Ltd. (2014) 361 ITR 152. The CIT(Appeals), after placing reliance on the Calcutta High Court’s decision and Kolkatta Bench’s decision in TIL Ltd. v. ACIT (16 SOT 33) and the decision of Mumbai Bench of this Tribunal in NSIL Exports Ltd. v.
DCIT (2014) 63 SOT 43, found that no illegality can be attributed to the assessee’s payment of commission outside India. Accordingly, the CIT(Appeals) deleted the addition.
We have considered the rival submissions on either side and perused the relevant material on record. Admittedly, the assessee has made payment in the course of export made to Iraq. The assessee claims that the payment was in the nature of commission.
However, the Revenue claims the same as kickbacks to the authorities of Iraqi Government and its agents. The Assessing Officer has not made any individual enquiry with regard to the nature of payment made by the assessee. The Assessing Officer simply placed reliance on the report of Volker Committee. In fact, the Volker Committee was nominated by United Nations for making enquiry with regard to alleged irregularities. The assessee, being businessman, was necessarily required to pay certain commission for availing the service outside the country. Whether it is kickback or not has to be independently enquired by the Assessing Officer.
Of course, report of the Volker Committee may be one of the relevant factors for placing reliance by the Assessing Officer.
However, the Assessing Officer cannot place reliance exclusively on the report of the Volker Committee for arriving at the conclusion that the assessee has made payment towards kickbacks. Income-tax Act, being a special enactment and the Assessing Officer was entrusted with the power to make enquiry with regard to the nature of business and the expenditure said to be incurred by the assessee, in addition to the report of Volker Committee, the Assessing Officer has to necessarily examine the material available on record apart from enquiries and should come to an independent conclusion. This Tribunal is of the considered opinion that the Assessing Officer, being a quasi-judicial authority under the provisions of Income-tax Act, has to come to an independent conclusion without being influenced by the conclusion reached by any of the authority either in our country or outside the country. The primary function of the judicial authority in India is to adjudicate the matter independently without being influenced by any of the external factors. In this case, the Assessing Officer has not made any enquiry at all other than simply placing reliance on the report of the Volker Committee.
We have carefully gone through the judgment of Calcutta High Court in Rajarani Exports (P.) Ltd. (supra). In the case before Calcutta High Court, an identical payment was made while exporting goods to Iraq. The Assessing Officer made addition on the basis of Volker Committee’s report. The Tribunal found that the assessee in fact availed the service in exporting the goods.
Therefore, there was a commercial expediency in making the payment. Accordingly, the Kolkatta Bench of this Tribunal found that the disallowance under Section 37 of the Act, on the basis of the Volker Committee’s report, is not sustainable. The Calcutta High Court found that the findings of the CIT(Appeals) and the Tribunal are correct and accordingly, confirmed the order of the Kolkatta Bench. In this case also, an identical situation exists and the assessee has paid commission for availing service outside India. In the absence of independent enquiry conducted by the Assessing Officer, this Tribunal is of the considered opinion that the CIT(Appeals) has rightly deleted the addition. Accordingly, the same is confirmed.
In the result, the appeal of the Revenue is dismissed.
Order pronounced on 11th September, 2015 at Chennai.