Bribes gradually becoming legal for the Indian taxman

Slowly, silently, the ethical norm that bribery should be illegal is giving way to the pragmatic idea that if you can’t avoid it, try and look the other way or even seek to gain from it. Last year, the Income Tax Appellate Tribunal ruled that four Jharkhand Mukti Morcha MPs, who took cash bribes from the Congress to save PV Narasimha Rao’s government in a 1993 confidence vote, need not pay taxes on their ill-gotten money.. As Firstpost noted at that time, “what the ITAT has done is buy the fiction that the money received by JMM members for voting with the government was in the nature of a ‘political donation.’ Since political donations are tax-free, the crores paid out by the Congress are thus tax-free.” Now, another ITAT bench has ruled that bribes paid abroad for contracts secured can be deducted as costs incurred by a company. Yet, the ITAT justified its decision by holding that there was no material to suggest the taxpayer company, Rajarani Exports, was aware that the payment it made would end up as kickbacks.” In short, if a company has plausible deniability on illegal acts, it can claim a tax benefit on money that may finally have gone to pay a bribe. ITAT took a lenient view of Rajarani’s indirect bribery, though it is a moot point whether companies willingly pay commissions without knowing what the money is intended for are all that innocent. The explanatory memorandum to the budget says this provision is being made because even though section 68 of the Income Tax Act allows unexplained money to be taxed, the courts have said that the onus of proof to show the money should be taxed need not be entirely with the assessee.