The Income-Tax Appellate Tribunal has held that the Indian agent of Swedish arms manufacturer A.B. Bofors, the late Win Chadha, and Italian businessman Ottavio Quattrocchi had received at least three per cent commission from the arms company in the `1,437-crore Bofors gun deal and directed the tax authorities to investigate the matter afresh to asses the income of Chadha during the relevant period.

Dismissing the appeal of Wishveshwar Nath Chadha’s son, Mr Harsh Chadha, against an earlier order of the income-tax commissioner rejecting the first appeal of the Chadhas on the issue, the ITAT said Chadha was liable to pay tax on the commission received from Bofors.
The tribunal directed the tax authorities to “reopen” the case accordingly to include the income generated by the Chadhas through commission from Bofors for reassessment as their income during the relevant period.
“We have no hesitation to hold that assessee (Chadha) received the commission as added by Assessing Officer (AO) as his income for the years 1987-88 and 1988-89,” the tribunal order said while directing the tax authorities to take “appropriate” action in the matter under the law.
Pulling up the government for its alleged lax approach in pursuing the case, the tribunal said, “In our view, to enforce the rule of law, these steps were desirable to bring all relevant income-tax violations to a logical end by the I-T department (sic). Inaction in this regard may lead to non-existent undesirable and detrimental notation (sic) that India is a soft state and one can meddle with its tax laws with impunity.”
The income-tax commissioner had upheld the order of the income-tax department’s AO stating that Win Chadha had “omitted” the Bofors commission from assessment during 1987-88 and 1988-89.
The I-T commissioner had assessed their income in a long-drawn assessment process for the period of six years, from 1987-88 to 1993-94, and then from 1995-96 to 1999-2000, while parallel proceedings of the CBI before the special court were on, the tribunal recorded.
After the death of Win Chadha, his son Harsh Chadha had contested the case as his legal heir in the appeal which had been pending before the tribunal since 2005 before being disposed of by an order passed by it on December 31 and made public on Monday.
The tribunal has given details of how Chadha’s company, AE Services, had entered into an agreement with Mr Quattrocchi’s firm Svenska to represent him to clinch the Bofors deal after the Indian government had banned middlemen and agents in all defence deals to be signed after 1984.
While referring to the nature of the case that had come before it for a decision, the tribunal recorded the arguments of the I-T department, which said “the investigation revealed that an amount of SEK 242.62 million was paid by AB Bofors, as commission, to Quattrocchi and Win Chadha through AE Services and Svenska, in contravention of the policy of the government of India not to allow middlemen/agents in the deal”.
The I-T department added: “No commission was to be paid in connection with the contract. If any such stipulation is this regard did exist, the commission amount should have been reduced from the contract price. Thus the government of India had to pay an excess amount, about SEK 242.62 million, which was passed on by Bofors to its agents Win Chadha and Quattrocchi against the express terms of the contract.”
The department had stated that as per its investigation “Chadha and Quattrocchi had been transferring the funds received form Bofors frequently from one account to another, and from one jurisdiction to another, to avoid detection and to obliterate the money trail,” the tribunal recorded in its order.
An advance payment of SEK 1,682,132,196.80 (`296.15 crore), equivalent to 20 per cent of the contract value, was disbursed by the government to Bofors on May 2, 1986, the tribunal said. The balance 60 per cent of the contract amount, equivalent to SEK 6,728,528,787.60, was paid to Bofors from August 1986 to 1990, from time to time, against deliveries of Bofors guns and commission was paid on these transactions, the tribunal added.
The I-T department had relied upon the report of the National Audit Bureau of Sweden, an official agency, and the “Svenska agreement” with AB Bofors as the main “clinching” evidence in the case, besides taking into account the CBI investigation report and other documents produced in different court proceedings.