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

PER VIMAL KUMAR, JUDICIAL MEMBER:

“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 3 concealed his income and accordingly, penalty proceedings u/s 271(1)(c) are being initiated separately. (Addition of Rs.2,38,36,834/-)”

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, 5 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 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.”