INCOME TAX OFFICER, WARD-51(1), NEW DELHI V. AKSHAY AGGARWAL, NEW DELHI

ITA 2866/DEL/2023

AI Insights

The case involves an appeal by the Income Tax Officer against the order of the CIT(A) which partly allowed the appeal of the assessee, Akshay Aggarwal. The primary contention was regarding the additions made by the Assessing Officer (AO) under Section 69C of the Income Tax Act, 1961, related to unaccounted import purchases and unexplained expenditures. The AO had made substantial additions to the assessee's income for the assessment year 2015-16, which were contested. The CIT(A) reduced the profit estimation on undisclosed imports from 12% to 2% and deleted the addition of unexplained investments, which the Revenue challenged in the Tribunal.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 398286 (ITAT-DELHI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-06-2025
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2015-2016
• Laws Referred To: Income-Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MUNEESH RAJANI
• Assessee Lawyers: ABHISHEK GUPTA
• Keywords: Transfer pricing; International transaction; Unexplained expenditure; Unexplained investment
• Section: 143(3); 142(1); 271(1)(c); 69C

Judgement Text

" INCOME TAX APPELLATE TRIBUNAL DELHI BENCH “A”: NEW DELHI BEFORE SHRI VIMAL KUMAR, JUDICIAL MEMBER AND SHRI BRAJESH KUMAR SINGH, ACCOUNTANT MEMBER ITA No. 2866/DEL/2023 Assessment Year: 2015-16 Income Tax Officer, Circle-51(1), New Delhi Vs. Akshay Aggarwal, 2895/44, Basement Area, Arya Samaj Road, Beadonpura, Karol Bagh, Delhi PIN: 1100 05 PAN No. ADLPA3935E (Appellant) (Respondent) O R D E R PER VIMAL KUMAR, JUDICIAL MEMBER: The appeal filed by the appellant/revenue is against order dated 04.08.2023 of Learned Commissioner of Income-Tax (Appeals)/National Faceless Appeal Centre (NFAC), New Delhi (hereafter referred to as “Ld. CIT(A)”) under Section 250 of the Income-Tax Act,1961 (hereinafter referred to as “the Act”) arising out of assessment order dated 28.12.2017 under Section 143(3) of the Act by the Income Tax Officer, Ward 51(5), New Delhi (hereinafter referred to as “the AO”) for assessment year 2015-16. Assessee by: Shri Abhishek Gupta, CA Department by: Shri Muneesh Rajani, Sr. DR Date of Hearing: 20.03.2025 Date of pronouncement: 04.06.2025 ITA No.2866/Del/2023 2 2. Brief facts of case are that assessee filed return of income showing income of Rs.13,71,520/- for assessment year 2015-16 on 04.11.2015. The case was selected for limited scrutiny through CASS. Notice under Section 143(2) dated 19.09.2016 was issued by the ITO, Ward-1, Hissar. Through email dated 23.09.2016, assessee requested for transfer of case to ITO, Ward-51(5), New Delhi. The case was transferred by the Office of ITO, Ward-1, Hissar as per territorial jurisdiction and order under Section 127 of the Pr. CIT, Hissar on 07.11.2017. Notice under Section 142(1) of the Act was issued to assessee. Ms. Priyanka Singhal, CA and Learned Authorized Representative of the assessee attended the proceedings. On completion of assessment proceedings, Ld. AO vide order dated 28.12.2017 made additions of Rs.2,10,85,592/- and Rs.2,38,36,834/-. Against order dated 28.12.2017, assessee preferred appeal before the Ld.CIT(A) which was partly allowed vide order dated 04.08.2023. 3. Being aggrieved, appellant/revenue preferred present appeal. 4. Learned Authorized Representative for the Revenue submitted that Ld.CIT(A) has erred in deleting the additions of Rs.2,38,36,834/- made by Assessing Officer under Section 69C of the Act. Ld. CIT(A) erred in deleting the additions of Rs.1,81,86,600/- (out of Rs.2,10,85,942/- made by Ld. AO on account of unaccounted purchases. Ld. CIT(A) erred in ignoring the relevant and circumstantial evidence regarding unaccounted import purchases and ITA No.2866/Del/2023 3 considered it as an absence of documentary evidence of return of goods on account of defective with no sale value etc. 5. Learned Authorized Representative for the appellant/assessee relied on the order of Ld. CIT(A) . 6. From examination of record, in light of aforesaid rival submission, it is crystal clear that Ld. AO in para nos.13 and 14 observed as under: “13. In view of above, it is clear that the assessec has not shown the 13 imports, as mentioned above, out of the total 14 imports made by him, in his books of accounts for AY 2015-16. Therefore, the profit on unaccounted 13 import purchases of Rs.15,46,30,243/- [including unaccounted import Invoices of Rs.14,49,67,118/- and unaccounted custom duty paid Rs.96,63,125/-] has not been taxed. Further, from the submissions made by the AR of the assessee, it has been noticed that the assessee has shown one import purchases of Rs.50,52,662/-and Local purchases of Rs.9,04,93,463/- in his books of accounts. Therefore, it is also clear that the stock of the abovesaid 13 undisclosed imports and its corresponding sales has also not been shown in the books of accounts of the assessee. Keeping in view the above, a justified gross profit (GP) of 12% on sales of aforesaid unaccounted 13 import purchases of Rs. 15,46,30,243/-, which comes to Rs.2,10,85,942/- is being estimated and the same is being added back to his total income for the AY 2015-16. The assessee has concealed his income and accordingly, penalty proceedings w/s 271(1)(c) are being initiated separately. (Addition of Rs.2,10,85,942/-) 14. Further, as the abovesaid 13 imports out of the total 14 abovesaid imports has not been shown by the assessee in his books of accounts for AY 2015-16, the sources of these imports are also not explained. However, as these imports have been made in different transactions on various dates, therefore, the source of PEAK import invoice i.e. Rs.2,20,41,675/- and custom duty of Rs.17,95,159/- paid on 08.07.2014 for Bill of Entry (BE) No. 6054511 is being considered as unexplained expenditure within the meaning of Section 69C of the Income-tax Act, 1961 and total of these i.e. Rs.2,38,36,834/- is being added back to the total income of the assessee for the AY 2015-16. The assessee has ITA No.2866/Del/2023 4 concealed his income and accordingly, penalty proceedings u/s 271(1)(c) are being initiated separately. (Addition of Rs.2,38,36,834/-)” 7. Discussion, reason and decision by the Ld. CIT(A) are as under: “I have fully considered the grounds of appeal no.4 and no.5, order of the AO and the submission of the appellant. The AO in the course of assessment proceeding has conducted inquiry from the three custom house agent (CHAs) namely Ms. S3 Cargo Mumbai, Ms. ICS Cargo Delhi and Ms. Commercial Clearing agencies Pvt. Ltd. Mumbai and gathered certain documents such as PAN, IEC document, Copies of bill of loadings, commercial invoices, packing list, bill of entries, receipt of cargo charges etc. Further he has also downloaded the documents and details from the ICE gate website regarding the import purchases of the appellant. On the basis of the enquires conducted from the custom house agents(CHAs) and the verification made from the ICE gate website he has reached to the conclusion that the appellant assessee has made a total of 14 imports purchases amounting to Rs15,05,38,118/- and has paid custom duty of Rs.1,00,14,613/- on these Imports during the FY 2014-15. The details of these imports have been given in the assessment order of the AO. Out of these 14 import purchases the AO has found that the appellant assessee has disclosed only one purchase of Rs.50,52,662/- from Ms. Luck(HK) Ltd. Hong Kong in his books of account. The balance 13 purchases amounting to Rs. 14,49,67,118/- on which custom duty of Rs. 96,63,125/- have been paid is not disclosed by the appellant in his books of accounts. Therefore the AO estimated the gross profit @12% on the sale of these undisclosed import purchases and made an addition of Rs.2, 10,85,942/-. The appellant assessee in the assessment proceeding as well as in this appellate proceeding has denied to have made any such import. The appellant in his submission has stated that he has not done any such imports from those parties. Further regarding the veracity of details and documents gathered from the custom houses and ICE gate website he has stated that this is the general practice in this business that the custom house agents (CHAs) having access to the relevant documents such as PAN, IEC code, and other details of the importer misuses these details and they makes the import and sales thereof without the knowledge of the concerned importer under whose code the import is being made. These custom house agents import and make high sea sales where in payment to supplier as well as to the custom duty is taken care by the prospective ITA No.2866/Del/2023 5 buyer without having a hint to the IEC code holder. The appellant has argued that the AO has failed to figure out any of these import payments from his bank accounts. The appellant assessee has also stated in his submission that the details of all the bank accounts maintained by the appellant including the current account no. 20082320000026 were given to the AO at the time of assessment. And he failed to point out any discrepancy in those accounts. Even he did not find any entry in those bank accounts for the payments against the alleged 13 import bills and the payments of custom duty on those imports. Now it is a matter of fact and record that 13 import purchases of Rs.14,49,67,118/- have been made through the IEC code 0508052452 of the appellant assessee. Even the appellant is not denying the genuineness of those purchases on his IEC code. It is also a fact that the payments to the suppliers, to the custom duty and to the custom house agents (for service charges) have not been found made from current accounts no. 20082320000026 of HDFC Bank maintained in the name of the appellant assessee or any other accounts maintained by the assessee. It is also important to mention that the AO has failed to make any enquiry regarding the sources of payments to the suppliers, payments of custom duty and to the custom house agents for their services. Nowadays almost all the import purchases are made through the mode of Letter of Credit(LC). A LC is an instrument issued by the Bank of Importer to the Bank of Exporter for the payment of imports. As per this arrangement the bank of the importer on the request of the customer (importer) agrees to make payment to a beneficiary(supplier) on receipt of documents from the beneficiary as per the terms stipulated in a letter of credit. This arrangement of payment to the foreign suppliers by the importers in the international transaction has been extensively discussed and acknowledged by the AO in his assessment order. The AO while discussing the import process in India as per the guidelines of the DGFT has stated in the para 7 of the assessment order has stated that to import goods in India, the assessee has to obtain an import/export code no. from the DGFT which can be obtained by the assessee after obtaining PAN and opening a Bank account. Before placing an order, the importer has to apply through his bank to the Exchange Control Department of RBI for release of requisite foreign exchange. Thereafter, the importer may either the order directly or through a Custom House Agent (CHA) and after getting the confirmation from the supplier, the importer requests his bank to issue a Letter of Credit in favour of the supplier. The importer appoints clearing agent to clear the goods from the customs which is a specialized job. Then, the importer receives the shipment advice from the supplier which states the date on which the goods are loaded on ship. The importer's bank receives the. documents from the exporter's bank which include bill of exchange, ITA No.2866/Del/2023 6 bill of lading, certificate of origin, commercial Invoice, packing list and other relevant documents. Thereafter, the clearing agent obtains the delivery order from the shipping company after making payment of freight. Then the agent approaches to the customs house and presents the documents and the custom officer endorses the Bill of Entry forms. The importer then pays customs duty and the agent gets cleared goods. The clearing agent then transports the goods at the address of the importer and the importer makes the necessary payment to the clearing agent for his various expenses and fees. Now the moot question arises here is that if the appellant assessee had made those 13 imports then his bank must have issued the LC in favour of the suppliers. And once the payments were made those amounts would have been debited from the bank accounts of the appellant which can be easily verified by the AO. Further the AO could have made enquiry from the RBI which have issued foreign exchange for the import and from the HDFC bank which was linked with the IEC code of appellant to bring the case at its logical conclusion. The non payments of import purchases clearly shows that although the imports have been made on the IEC code of the appellant but the payments have been made to the suppliers by other persons. This is a practice in some cases of imports where imports of goods are made on credit and same are sold to the customers or other parties even before the actual delivery of the good. This practice is called high sea sale. High sea sales is a legal trade practice where the original Importer of goods sells the goods to another person before the goods pass through the custom clearance. In this case also as the facts and circumstances shows it appears that high sea sale has happened because although the import has been made in the name of the appellant but the payments to the suppliers, to the custom duty and to the custom house agents has not been found made from the bank accounts of the assessee. This clearly shows that the payments have been made by other parties. Therefore it is case of high sea sale where the profit on the sale of the goods before the custom clearance has to be taxed in the hands of the appellant. : The AO has estimated the profit on this undisclosed purchase @12% of the total import made. But the AO has not given any reason as to how he has arrived at the figure of 12% profit on the undisclosed import purchase of the appellant. Whereas the appellant in his submission has given the data of gross profit and net profit for AY 2012-13 to AY 2015- 16 to show that the AO estimation of net profit is excessive and unreasonable. As per the data given by the appellant he has earned net profit @0.71% in AY 2012-13, @0.47% in AY2013-14, @1% In 2014-15 ITA No.2866/Del/2023 7 and @1.05% in 2015-16. So the AO could have estimated the profit from the undisclosed import keeping in mind the range in which the business of the assessee earns profit. Further even it is considered that the appellant has made these transactions in opaque manner without recording the purchases and sales in the books of account and have also escaped certain indirect expenses. Further the case laws cited by appellant in his submission also suggest that while making the estimation of profit the AO is required to adopt a realistic and reasonable approach. While doing so he should keep in mind the profit ratio of last three AYs and other prevailing business circumstances. Therefore keeping in view of the above he should have estimated a realistic figure ranging from 1.5% to 2% of the undisclosed import transactions of Rs. 14,49,67,118/-Further the AO should not have added the amount of custom duty payment in the value of import bill while making estimation of profit. Therefore the estimation of profit from the undisclosed import is restricted to 2% of Rs. 14,49,67,118/-. So the addition on profit from unaccounted purchase is restricted to Rs. 28,99,342/- and hence the assessee gets relief of Rs. 1,81,86,600/-. x x x x x x I I have carefully considered the Grounds no.4, no.5 and no.6, order of the AO and submission of the appellant. The AO has made addition of Rs.2,38,63,834/- as unexplained expenditure made by the assessee on those 13 import not disclosed books of account. The appellant in his submission as discussed above has stated that once the net profit from the un disclosed transaction is estimated and added to the total income, the court have held that no further addition of unexplained investment can be made in such cases. However in this case it has already been held that the payments to the suppliers has not been found made from the bank accounts of the assessee therefore the assessee is not found to have made undisclosed investment in the undisclosed import purchase. As the facts and circumstances shows it's a case of high sea sale where imports have been made on credit on the IEC code of the importer and the goods have been sold before the custom clearance. The payments to those suppliers have been made by the buyer of the goods directly. Therefore the AO should not have made separate addition of unexplained investments of Rs.2,38,36,824/- in this case. Hence the addition of Rs.2,38,36,824/- is deleted.” 8. From complete reading of the discussion, reasons and findings recorded by Ld.CIT(A) in light of grounds of appeal, it is evident that as per data of ITA No.2866/Del/2023 8 assessee, the estimation of profit from undisclosed import is rightly restricted to 2% instead of 12%, of Rs. 14,49,67,118/-. The payments to the suppliers have been made by the buyer of the goods directly. So, the addition of unexplained investments of Rs.2,38,36,824/- deserved deletion. Therefore, grounds of appeal being devoid of merit are rejected. We see no reason to interfere with the process of reasoning and findings of Ld.CIT(A). 9. In the result, the appeal of Revenue is dismissed. Order pronounced in the open court on 04 /06/2025. Sd/- Sd/- (BRAJESH KUMAR SINGH) (VIMAL KUMAR) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated: 04/06/2025 Mohan Lal Copy forwarded to - 1. Applicant 2. Respondent 3. CIT 4. CIT (A) 5. DR:ITAT ASSISTANT REGISTRAR ITAT, New Delhi "