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The Finance Ministry intends to examine tax returns filed by the 125 Indian companies, which have been named in the Volcker report on kickbacks to the erstwhile Saddam Hussein regime for the UN-administered Oil-for-Food programme.
According to ministry officials, the revenue department will examine if the companies understated profits for evading income tax by showing payments made to the Iraqi regime as business expenses.
"We will examine the returns of the companies to see if they have evaded tax. If we find any evidence, we will seek an investigation," a ministry official told Business Standard.
According to the Volcker report, payments made by the Indian companies to the Saddam Hussein regime add up to almost Rs 100 crore.
The names of several top Indian companies, including Reliance Industries, Kirloskar Brothers, Godrej & Boyce Manufacturing Company Ltd, Ranbaxy, Cipla, Wockhardt, Tata International, Thermax and Indo-Asian Fusegear, are mentioned in Paul Volcker's report.
Public sector companies like State Trading Corporation, Rites Ltd and Balmer Lawrie & Co, too, have been named by Volcker in his report.
Officials said Sunday's probe into the affairs of Hamdaan Exports by the Enforcement Directorate and the Income Tax department was one such move against companies mentioned in the report. The company is being questioned for violations under the Prevention of Money Laundering Act and the Foreign Exchange Management Act.
"Under the law, the Income Tax Department can seek details on sources of funds for the past six years. A company can also be examined for any violation of the Foreign Exchange Regulation Act, which was valid until 2001," an official said.
According to officials, Section 37 of the Income Tax Act allows companies to deduct any expenditure that is not in the nature of capital expenditure or personal expenses and used for the purpose of business or profession, while computing income chargeable to tax. However, if any expenditure is found to be prohibited by law or is an offence, the deduction is not allowed.
Tax experts said that if a company had been found to understate its income or profit in order to save on income tax, the government can issue a notice under section 148 of the Income Tax Act.
"The company would be required to file a fresh return for the concerned period," a tax expert said, adding that while companies were allowed to pay commissions, the same would be an offence if the commission was not allowed as per the laws of the country where it was paid.
The Volcker report said Indian companies had paid the Saddam Hussein government after-sales service fees and inland transport fees under the oil-for-food programme, which were outside of the UN-Iraq Escrow account.
Some companies like Hamdaan Exports also paid a surcharge on oil, which was also outside of the Escrow account.
Complete Coverage: The Volcker Report
