IT assessment of Bofors kickbacks

Summary of ITAT order - on 31 December 2010 (in relation to Bofors kickbacks)

Harsh W. Chadha Vs. DDIT (ITA 3088 to 3098 & 3107/D/05)

Historical perspective:
On 16-4-1987, over a year after the contract with AB Bofors was executed by Govt. of India for supply of defense equipment, a Radio Broadcasting channel “Dagens Eko” of the Swedish Radio, came out with a sensitive news item. It unfolded that Bofors had violated the Swedish Law by managing to obtain this Gun Supply contract from the Govt. of India, amongst other things, due to the fact that local agents had been paid large amounts in “bribes”.

The entire nation was shocked and it continued to be discussed in the media. The integrity of Mr. clean- late Mr. Rajiv Gandhi, the then PM who also held the defense portfolio- was at stake. The Govt. of India- GOI- made a formal request to the Government of Sweden for an investigation into the allegations on 21-4-1987.

The Swedish Government accepted the request of the Govt. of India and ordered an enquiry by its organization, the Swedish National Audit Bureau (SNAB). The SNAB submitted its report to the Swedish Government on June 01, 1987, which was forwarded on June 04, 1987 to the Govt. of India. SNAB report, inter alia, made the following disclosures:- “that an agreement exists between AB Bofors and ---------(omitted) concerning the settlement of commission subsequently to the FH-77 deal, and; that considerable amounts have been paid subsequently to, among others, AB Bofors' previous agent in India”.

SNAB thus confirmed that these payments to the tune of SEK 170- 250 million were indeed made by Bofors in connection with this Defense contract to its previous agent in India, but the names of the recipients were not mentioned.

V. P. Singh succeeded Rajiv Gandhi as the defense minister after the scam broke out and ruffled quite a few feathers by his proactive investigation of the scam. He was promptly dismissed from the ministry. On 17-July-1987 he announced his resignation from Congress.

12.08.1987 : A JPC was set up to investigate the Bofors scam

28.08.1987 : JPC – led by a Congress leader and stuffed mostly with Congress members- submitted its report and gave a clean chit to all accused including Shri W N Chadha.

IMHO the above – gross failure in discharging its responsibility by a JPC- makes a mockery of justice delivery system and parliamentary democracy.

However the cases in the civil courts are still continuing and making noises now and then.

ITAT has again stirred the Pandora’s Box!
Very recently- on 31 December 2010- the ITAT held that there is enough evidence to lead to the conclusion that the appellant Sh. W.N. Chadha, was recipient of Rs. 52,60,34,469/- as commission, through its front company namely M/s Svenska Inc.Panama. and hence upheld the Income tax AO’s decision to add the above amount with the returned income of the assessee for AYs 1987-88 and 1988-89.

Notional Interest earned on the shortfall reported:
However addition of notional INTEREST – as an additional income- on the above impugned amount, with the returned income was not allowed. ITAT held that the AO could not substantiate his claim regarding adding notional interests @ 5%, as similar material to indicate that the assessee either made any investment or earned any interest could not be given.

Interest u/s 234:
However the above relief regarding non-addition of interest is not to be confused with interest chargeable u/s 234B and 234C. These interests would be chargeable, as these are consequential in nature.

WHAT IS THE SNAB REPORT?
The SNAB Report is an official document, prepared by the Swedish Govt. at the request of Govt. of India. It was submitted through the Indian Ambassador to Sweden by official channel. Its functions are broadly similar to comptroller & Auditor General of India. The JPC has accepted it as an official document. Material made available by this channel is obtained by due process of law. The report has been furnished by the Swedish Govt. through diplomatic channels at the request of the Indian Govt. Both the countries are sovereign nations and it is wholly inappropriate on the part of asssessee to insist for originals. When the SNAB Report is reproduced in the JPC proceedings which are public documents, the SNAB report also becomes a public document. The assessee, while appearing before the JPC, neither demanded the originals nor doubted the authenticity of its contents.

The SNAB report has further quoted that “President of M/s AB Bofors Per Ove Morberg, stated that the principal beneficiary is an Indian, who has been an agent for Bofors for ten to fifteen years”. There is nothing available to suggest that the President of Bofors, while making this disclosure to the Audit Organization of his own country, would tell a lie. We are unable to comprehend a situation where Mr. Morberg whose work was to protect the interest of Bofors in India, would make a statement incriminating an Indian, if such an Indian was not involved. In the entire record, except the name of Mr Chadha, the name of no other Indian occurs and the SNAB report refers only to the old Indian agent of Bofors.

HOWEVER the fact that the SNAB omitted the names- names were not disclosed on the pretext of secrecy- became the main stay of the accused. Big surprise, knowing very well that AB Bofors would not cooperate; they- Bofors- harped upon the same rationale, that names could not be disclosed on the pretext of secrecy- AB Bofors was asked to reveal the names. AB Bofors declined to do so. What is more, JPC gave all accused clean chits, notwithstanding the fact that other corroborating evidences reasonably filled in the gaps.

After 23 years, ITAT differed from the findings of the JPC and they rubbished the assessee’s contention that the SNAB report is only a press statement and does not have evidentiary value. They held: “In our view, it is not available to the assessee to question SNAB report in income tax proceedings.

What would happen in the High Court?
Tribunal proceedings are quasi judicial in nature so they can admit “evidence”, which may consist of materials which would be wholly inadmissible in a court of law.

A compliant bench would go with the JPC findings:
The JPC has already created sufficient room for some doubt. Unfortunately no longer the judiciary is completely clean and it has come out in the open that the integrity of the judiciary has been breached. With all due respect, it can be surmised that, as it could be done with a JPC, a bench of the highest court also can be compromised!

GOI should engage the Swiss govt:
Very recently USA forced the Swiss authorities to reveal the names of tax offenders of their country who had stashed their ill gotten money in Switzerland. Swiss authorities have also showed increased concern for international money laundering and if appropriately engaged would cooperate. Besides the secrecy laws permit revelations after a certain period.

Wikileakes:
They claim that they have the list of names. Would it not be appropriate to open an alternate channel with them and after receiving the names seeking confirmation from the Swiss authorities?

If we do nothing then:
Efflux of time and complying politicians have already made the case weak. So, unless GOI receives further clarifications regarding the names of the beneficiaries, from the Swiss government, it appears the case would be decided in favor of the accused assessee. It would make no difference to Mr. W N Chadda – the accused- as he is no more alive. However, that would be sad news for a common man. In that case, even the gains made illegally can not be recovered from his legal heirs.


Source: http://www.hindu.com/nic/itat_order_on_bofor.pdf