TMI Blog2016 (12) TMI 1347X X X X Extracts X X X X X X X X Extracts X X X X ..... essment year 2004-05. However, the assessment year under consideration is 2002-03, therefore, no disallowance can be made for such interest payment. As an abundant caution, we direct the AO to verify if the interest payment has been added in the cost of construction, no depreciation is to be allowed thereon. We direct accordingly. In the result appeal of the assessee for the assessment year 2003-04 is allowed whereas appeal of the assessee for the assessment year 2002-03 is allowed in part, in terms indicated hereinabove. - ITA No. 1723/Mum/2009, ITA No. 1564/Mum/2011 - - - Dated:- 21-12-2016 - Shri R. C. Sharma, AM And Shri Pawan Singh, JM Assessee by : Shri P. J. Pardiwala with Shri Nitesh Joshi Revenue by : Ms. Vidisha Kalra ORDER Per R. C. Sharma ( A. M) These are the appeals filed by the assessee against the order of CIT(A) for the assessment year 2002-2003 2003-04 in the matter of order passed u/s. 143(3) r.w.s.147 of the IT Act. 2. In ITA No.1723/Mum/2009 for the A.Y.2003-04, following grounds have been taken by assessee. 1.0. The Assessing Officer erred in issuing notice u/s 148 and assuming jurisdiction u/s 147 of the Act merely due to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owing and learned Commissioner (Appeals) erred in confirming the disallowance of commission of ₹ 22,41,794/- paid for export of goods under the Oil for Food Programme. 3.0 The Assessing Officer erred in disallowing and the learned Commissioner (Appeals) erred in confirming the disallowance of interest paid of ₹ 74,25,000/- on borrowed funds, utilized for construction of buildings and residential quarters. 4. Rival contentions have been heard and record perused. 5. For the assessment year 2003-04, assessment was reopened on the plea that assessee has paid commission in connection with the export transaction and the Central Board of Direct Taxes directed to make inquiries about the transactions entered into by the Indian companies with Iraq under the Oil for Food Programme of United Nations. It is also informed that the assessee company is one of the entities who has entered into transaction with Iraq under Oil for Food Programme . Accordingly, inquiries have been made with the assessee company calling information u/s.133(6) of the I.T Act, 1961. 6. The AO held that the assessee company has entered into transactions with Iraq under Oil for Food Progr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o apparent from note 9 of the accounts that the assessee had following foreign exchange earnings in the relevant assessment years:- AY Foreign Exh. Earnings 2002-03 9,10,88,263 2003-04 85,50,829 2004-05 14,92,798 From the above it is apparent that the assessee company made illegal payment in the shape of ASSF and Inland Transportation Fee , contract fee etc by inflating the cost of goods supplied to the Government of Iraq and accordingly by reasons of doing so by the assessee , income attributable to the extent of illegal commission incurred has escaped assessment within the meaning of section 147 of the Act and this gives me reasons to believe that income chargeable to tax has escaped assessment 6. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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 inv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r 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. 36. 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. 8. 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. 10. In the assessment year 2002-03, assessment was reopened on 26/10/2006 u/s.147 on the reasoning of payment of commission in respect of transactions entered with Iraq under Oil for Food Programme . 11. However, AO further mentioned that fresh proceedings u/s.147 was initiated on 30/03/2007 on the plea that assessee company has debited an am ..... X X X X Extracts X X X X X X X X Extracts X X X X
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