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2014 (6) TMI 496 - ITAT MUMBAIDisallowance on transport and commission expenses – illicit payment to the Saddam Hussain regime - Held that:- The obligation of the transportation of the goods from ports to the destination is on the part of the assessee - the assessee had to arrange the transportation of the goods from to port to the destination - when the payment of transportation is as per the terms of the agreement then it cannot be treated as bogus or illegal payment - the payments were barred in terms of Explanation to Section 37(1) of the Income-tax Act - 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 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 record to establish that the payments in question were illegally made by the assessee to the Iraqi Authorities. On the contrary, the assessee has produced the evidence of payment to the agent who is not connected to the Iraqi Authorities. Therefore, in the absence of specific finding that the payments were made to the Iraqi Authorities, it cannot be held as illegal payment infraction of law. Even if the assessee fail to prove beyond doubt that the payments in question are inconsonance to the service rendered by the agent the same cannot be held as illegal in the absence of any evidence to prove that the assessee intended to pay the amount illegally through agent. Relying upon TIL Ltd. Versus Assistant Commissioner of Income-tax, Circle-1, Kolkata [2007 (3) TMI 404 - ITAT KOLKATA] - the payments were made purely for the purpose of procuring export orders to Iraq and also for after sale services perform by agent in Iraq and therefore was an allowable expenditure - the payment made to Dalala & Company as commission, included any part of illicit payment termed as kickback in the Volcker Committee Report, on which basis, the payment made to Dalala & Company has been disallowed. The revenue authorities have not been able to pin the assessee on illicit payment made to Dalala, which also is stamped with approval from the RBI, a very heavy burden is cast on the revenue authorities to prove that the payment was made with an illicit intent, which in the end, the revenue authorities were unable to shift - the payments made by the assessee as commission are fully deductible as the said expenditure was incurred by the assessee for the purpose of its business and does not fall under the category of an expenditure incurred for any purpose which is an offence or which is prohibited in law in terms of Explanation to section 37(1) – Decided in favour of Assessee.
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