Bofors is 20th century India's defining political corruption scandal. In magnitude, the $50 million payoff — an aggregate of illegitimate and supposedly prohibited ‘commissions,' calculated on a percentage basis, paid into secret Swiss bank accounts during 1986-87 for winning a howitzer contract with India — by the Swedish arms manufacturing company pales in comparison with the corruption scandals of today. Over a quarter of a century, Bofors has had its ups and downs, its ebb and flow, in the public mind. But its unravelling greatly raised public consciousness, enabling politically minded Indians to gain a sharper perspective on how various institutions perform in relation to corruption. With the executive branch resorting to flagrant cover-up and obstruction of justice, Parliament, the Central Bureau of Investigation, and the judiciary failed to do the right thing by the people of India. The Comptroller and Auditor General of India, a dependable but underestimated custodian of the public interest, blew the whistle on some suspicious financial aspects of the defence deal. But it was the press, and specifically The Hindu, that unearthed and documented the actual corruption involved in the decision to award the howitzer contract to Bofors, the bribes disguised as ‘commissions,' and the secret agreements and communication that enabled the payoffs into Swiss bank accounts. Had proper action been taken in time, under the law of the land, against those who received the payoffs and those in positions of power who set up and facilitated the scam, India might have been spared the spate of corruption scandals that torments it a quarter century later.
Unlike other corruption scandals, Bofors has refused to go away as a national issue — because the deep-seated political, moral, and systemic issues it raised won't go away. The CBI may, in deference to its political masters, be pushing for closure of the criminal case against Italian wheeler-dealer Ottavio Quattrocchi, whose only connection with howitzers was his proximity to those who could make crucial decisions on their acquisition. The CBI's rationalisation, among other things, is that the alleged offence is 23 years old; the co-accused are either dead or have proceedings against them quashed; the Delhi High Court has knocked out the corruption underpinning of the case; and in any case the attempts to secure the Italian businessman's presence in India have failed. It is typical of Bofors that at a time its funeral rites are being readied, it has risen from the bier thanks to a totally unexpected intervention. This time the intervener is the Income Tax Appellate Tribunal.
The 98-page Order (the text is at www.thehindu.com) of ITAT's Delhi Bench ‘B' in an appeals case featuring Hersh W. Chadha, son and legal heir of Bofors agent W.N. Chadha, arrives at damning conclusions based on a lucid review of the facts of the larger case. The key finding in the Order (page 92): “There is enough material on record to hold that the payments were indeed made by Bofors to Svenska, AE Services and Moresco through the above foreign bank accounts, in connection with the defence deal with the Government of India … Therefore the assessee is liable to pay income tax as determined by the AO [Assessment Officer] in this behalf.” The Bofors-Chadha contention that the payments were ‘winding up costs' and not illegitimate ‘commissions' is shown up to be totally false, nothing but a cover up story. In fact, challenging or attempting to block proper disclosure of relevant details by the Swiss government to the Indian judicial system can result in an adverse inference being drawn against the assessees. In the process of fact verification, the ITAT Bench examines the material and circumstances that stand against Mr. Quattrocchi and A.E. Services Limited, the front set up weeks before the contract was signed to receive three per cent of the howitzer contract value for no legitimate services rendered. The Bench also finds fault with the IT Department for failing to take action against A.E. Services Limited and against Mr. Quattrocchi. It affirms that since the defence contract was executed in India, all the entities that received the payments “are amenable to [the] jurisdiction of [the] Indian Income Tax Department.” It holds that Bofors should have deducted withholding tax from payments made to Win Chadha, to A.E. Services Limited, and to Mr. Quattrochchi, and that failure to hold Bofors to account is “a serious issue.” Inaction in such matters goes against the rule of law and can foster the notion that “India is a soft state and one can meddle with its tax laws with impunity.”
Finally, the ITAT Order presents interesting insights into what constitutes admissible evidence in such cases. Criminal law relies on the Indian Evidence Act and the Rules of Evidence. Income tax liability, on the other hand, is “ascertained on the basis of the material available on record, the surrounding circumstances, human conduct and preponderance of probabilities.” Thus on Bofors, the documents and other material available from the Swedish National Audit Bureau's report, the Joint Parliamentary Committee, the CBI's charge sheet, and The Hindu (in the form of photo copies of the documents and other material published) can be taken on board, with due safeguards, in the assessment of tax liability. There is a compelling parallel between this approach and the ways of sound investigative journalism. Just as income tax professionals have drawn resourcefully from the press, investigative journalists can learn usefully from the method and fact verification disciplines employed in this case by the income tax assessment officer and the ITAT Bench. For the powerful in India, as the law scholar Upendra Baxi once noted, there may be immunity from prosecution at the bar of law but there is no immunity from prosecution at the bar of public opinion.