Section 69C additions deleted as 2% profit accepted on undisclosed imports, Rs. 2.38 crore addition removed

ITAT Delhi upheld the deletion of additions under section 69C relating to unaccounted purchases. The tribunal accepted the assessee's estimation of 2% profit from undisclosed imports instead of 12%, noting payments were made directly by the buyers to suppliers. Consequently, the addition of unexplained investments amounting to Rs. 2,38,36,824 was rightly deleted by CIT(A). The appeal was dismissed for lack of merit.

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ISSUES:

Whether additions under Section 69C of the Income-Tax Act, 1961, for unexplained expenditure on undisclosed import purchases are justified.Whether the Assessing Officer's estimation of gross profit at 12% on undisclosed import purchases is reasonable and sustainable.Whether addition of unexplained investment amount on import purchases already subjected to profit addition is permissible.Whether the practice of "high sea sale" affects the taxability and attribution of profits and unexplained expenditure in import transactions.

RULINGS / HOLDINGS:

The addition of Rs. 2,38,36,834/- under Section 69C for unexplained expenditure on 13 undisclosed imports was deleted, as the payments to suppliers were not made from the assessee's bank accounts, indicating a "high sea sale" arrangement where the buyer of goods made payments directly.The Assessing Officer's gross profit estimation at 12% on undisclosed import purchases was found excessive and arbitrary; the profit addition was rightly restricted to 2% based on the assessee's historical profit data and business circumstances.Once profit on undisclosed import transactions is estimated and added to total income, no separate addition for unexplained investment on the same transactions is warranted; thus, the addition under Section 69C was rightly deleted.The concept of "high sea sale" was recognized as a legal trade practice where goods are sold before customs clearance, and in such cases, the profit on sale before clearance is taxable in the hands of the importer, but unexplained investment addition is not justified if payments are made by other parties.

RATIONALE:

The Court applied statutory provisions of the Income-Tax Act, 1961, particularly Sections 69C (unexplained expenditure) and 250 (appeal powers), along with principles of income concealment and profit estimation.The Court relied on the procedural facts that the Assessing Officer failed to verify payment sources through bank accounts and RBI foreign exchange records, undermining the basis for unexplained expenditure addition.The reasoning acknowledged established business practices such as issuance of Letters of Credit and "high sea sale," emphasizing that payments made by third parties negate the presumption of unexplained investment by the assessee.The Court endorsed a realistic and reasonable approach to profit estimation, requiring the Assessing Officer to consider the assessee's historical profit margins and business context rather than applying an arbitrary percentage.No dissent or doctrinal shift was noted; the decision followed established principles requiring proof of concealment and realistic computation of income additions.

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