ITAT Fires The BOFORS Gun
THE quality of the Bofors guns were never in doubt, but the butts of the guns have been hitting the Congress party with routine regularity. The latest salvo came from the Income Tax Appellate Tribunal. In an elaborate order delivered on the last day of 2010, running into nearly 30,000 words, the ITAT emphatically held that WN Chadha received the Bofors Commission and that it was taxable. When Bofors fires, there is no space for anything else. Today’s DDT is entirely on Bofors and the ITAT Order.
Let us have a recap on the Bofors issue as the ITAT saw it.
In 1987, a scam in purchase of equipments, known as the Bofors Scam was unearthed, indicating that in respect of the gun deal between M/s. Bofors, a Swedish company dealing in arms and ammunition and the Government of India, illegal commission / kickbacks were paid by Bofors violating specific policies on which the deal was signed by the Govt. of India. This expose resulted in an uproar across the whole of India and led to the setting up of a Joint Parliamentary Committee (JPC) and investigations by CBI, FERA etc., including the Income Tax department.
The Indian Defence purchase policy, till 1984, allowed foreign bidders to have their Indian agents. However, they were required to furnish details of their Indian agents, if any, to the Government in a prescribed proforma. Subsequently, the Govt. of India, made a uniform policy, prescribing that “agents were not to be allowed in Indian purchases. If any bidder had maintained one, the amount so payable to agent by the supplier, was to be reduced from the quoted deal”. The revised policy was to ensure that the deal was on a principal to principal basis, to avoid undesirable consequences which may arise out of such arrangement to save the cost to the budget and thus to the public exchequer.
Bofors of Sweden, in its declaration dated May 19, 1984, had informed that - W.N. Chadha of M/s. Anatronic General Corporation, C-4, Main Market, Vasant Vihar, New Delhi 110057, was their agent, and that, apart from W.N. Chadha, Hersh W. Chadha, Marketing Director of M/s. Anatronic General Corporation, Brig. B.B. Bhatnagar (retired) and Brig. A.L. Verma (retired) were designated: (a) to liaise with the Government of India for the contract; (b) to liaise with the Indian Authorities.
Consequent to the changed purchase policy, the Department, asked M/s. Bofors on May 3, 1985, to dispense with the services of its declared agent and comply with such Indian policy requirements. Bofors did not respond immediately and as late as on March 10, 1986 informed that, Bofors “do not have any Representative/Agent especially employed in India for this project”. However, for administrative services, such as hotel bookings, transportation, forwarding of letters, telexes, etc., they were using a local firm, Anatronic General Corporation.
On March 24, 1986, a contract was entered into between the Govt. of India and M/s. Bofors, after approval by the then Prime Minister, who was also the Defence Minister, for supplying four hundred FH 77-B gun systems along with vehicles, ammunition and other accessories, at a total cost of SEK 8,410,660,984 [equivalent approximately to Rs.1437.72 crores - without reducing any agent representation]. An advance of 20% was paid to Bofors on May 2 1986.
On 16-4-1987, a Swedish radio came out with a sensational announcement 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 Radio added that the agents had helped Bofors in getting the contract by dubious means with the help of local contacts and support within the Indian Military Authorities, the Bureaucracy and politicians. The illicit payments to the agents and others were said to have been made by transactions in secret bank accounts in Switzerland.
ALL HELL BROKE LOOSE
Investigations revealed that one Mr. Quattrochhi had contacted Myles Tweedale Scott, Director of M/s. AE Services Limited, sometime before 7-8-1985, and was instrumental in bringing about the agreement between M/s. AE Services Limited and M/s. Bofors. Mr. Quattrocchi remained in India from 28-2-1965 to 29-7-1993, except for a brief interval from 4-3-1966 to 12-6-1968. He was a Certified Chartered Accountant by profession, working with M/s. Snamprogetti, an Italian multinational company (MNC) providing the services of designing, engineering, management of construction and the training of personnel in the sector of oil refineries, gas processing, petrochemicals, fertilizers and pipelines. Neither Snamprogetti, nor Mr. Quattrocchi had any experience of guns, gun-systems or any related equipments.
It emerged that after payment of Rs.29615.00 lakhs, equivalent to 20% of the contract value, to Bofors on May 2, 1986 by the Govt. of India, Bofors remitted a sum of SEK 50,463,966.00 (equivalent to USD 7,343,941.98), on September 03, 1986, to A/c No. 18051-53 of M/s. A.E. Services Limited at Nordfinanz Bank, Zurich. This Account of M/s. A.E. Services Limited C/o Mayo Associates SA, Geneva, had been opened only a fortnight earlier, on August 20, 1986, by Myles Tweedale Stott as its Director. This amount of SEK. 50,463,966.00 works out to be exactly 3% of the amount of advance paid by the Govt. of India to Bofors and was, thus, perfectly in accordance with the terms set out in the A.E. Services Ltd. – Bofors Agreement dated November 15, 1985.
Investigations revealed that Mr. W.N. Chadha and Mr. Quattrocchi had been transferring the funds received from Bofors frequently from one account to another and from one jurisdiction to another to avoid detection and to obliterate the trial of the money.