AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2021 (9) TMI 1120
X X X X Extracts X X X X
X X X X Extracts X X X X
....hases and bogus expenses of Rs. 11,88,27,650/- and Rs. 1,56,86,000/-respectively, by questioning the genuineness of the three invoices viz. M/s Sandy Resources Pte. Ltd. Singapore, inspite of the fact that the same was shown to the partner of the assessee firm Mr. Kunal Parkeh at the time of recording the statement u/s 132(4) of the Act who in turn has not raised any objection regarding the genuineness of above invoice?" ii "Whether on the facts and in the circumstances of the case and in law, the Id. CIT(A) has erred in allowing the appeal of the assessee in respect of the addition pertaining to over invoicing of purchase and bogus expenses of Rs. 11,88,27,650/- and Rs. 1,56,86,000/-respectively, by ignoring the fact that the statement u/s 132(4) of the Act, of the Director of the assessee company Mr. Kunal Parkeh was recorded on oath and acknowledged as true and correct to the best of their knowledge & believe, and that the said statement was given by him voluntarily, without any force, threat, coercion, any inducement, promise or any other undue influence?" iii "Whether on the facts and in the circumstances of the case and in law, the Id. CIT(A) has erred in allowing the app....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sioner of Income Tax (Appeal) on the above ground be set aside and that the Jt. CIT(OSD) be restored. The appellant craves, leave to amend or alter any grounds or add a new ground, which may be necessary. Last date for filing second appeal is O2.06.2O19. However, the appeal should be filed immediately." 3. The issue raised in ground No.1, 2 & 3 is against the order of Ld. CIT(A) deleting the addition on account of over invoicing of purchases of Rs. 11,88,27,650/- and bogus expenses of Rs. 1,56,86,000/-. 4. The facts in brief are that the assessee filed the original return of income on 30.11.2013 declaring total income of Rs. 59,59,19,632/-. The assessee is engaged in the import of coal and sale thereof in the domestic market besides trading in petroleum products. A search and seizure action under section 132(1) of the Act was conducted on the assessee group on 11.11.2014 and notice under section 153A of the Act was issued on 21.01.2016 which was duly served upon the assessee. The assessee complied with the notice by submitting that the return filed on 13.02.2016 may kindly be treated as return filed in compliance to notice under section 153A of the Act. Thereafter, the statutory ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he purpose of over invoicing though the consignments of coal from foreign based supplier were directly dispatched to the ports in India but the bills were being routed through the offshore entities located in Dubai. In response thereto Shri Kunal Parekh (vice president, imports) stated that purchase of coal through brokers/traders is unavoidable due to non availability of sufficient cash to meet the purchase value as the miners required advance payment as against the intermediary traders who provide 90 to 180 days of credit facility. Shri Kunal Parekh (vice president, imports) also stated that in the past the coal was procured directly from the miner namely Oorja Resources, Indonesia which resulted in huge loss mainly due to the fact that miner took advantage of his inadequate experience and thus justified the purchases through brokers. The AO also noted that bank statement and ledger of Dubai entities were found in the computer of an employee of the assessee which indicated that Dubai entities were closely associated with the assessee group and stationery and stamp pertaining to foreign entities were also found in the car at the residence of Mrs. Riddhi Shah. In the FT & TR enquir....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... of US $ 1,241,775.00. Furthermore, I am also showing you a similar other proforma invoice bearing No.SR-13-03 dated 7th June, 2013 of the same company, Sandy Resources Pte Ltd, Singapore raised in the name of again M/s. Global Petrochem (FZC), UAE for a shipment of 41,615 MTS of low sulphur Indonesian steam coal (non coking) in bulk @ US$ 18.75 per MT FOB Indonesia for a total billed amount of US $ 789,375.00. Likewise, I am also showing you similar other instances of invoice bills of Sandy Resources Pte Ltd raised in the name of Global Petrochem (FZC), UAE at the same rate for the same low sulphur Indonesian steal coal (non coking). You are requested to go through the same and confirm the contents thereof. Ans. Sir, I confirm having seen the above commercial/proforma invoices as Shown to me. However, I am deeply shocked to know if the prices quoted in these proforma invoices were showing the correct prices charged against the respective consignments by the miners. If the information brought to my notice by your goodselfis true, I am feeling acute paid of being cheated. Q.23 Now, I am showing you the corresponding commercial invoices raised by Global Petrochem (FZC), UAE on GO....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ould like to request you to provide photocopies of all these crucial documents on the basis of which I will converse with Mr.AnkitTandon on the matter and get the extra amount remitted back so that the lawful income can be ploughed back in the books of account of Gandhar group. Sir, as per his oral assurance from time to time, we were under the impression that he is charging margin at max US $ 2 per MT, therefore, in one or other way, your search & seizure action has been quite helpful for the future growth of business of the company. Sir, let me estimate the extra income, which would have been available with us if Mr^AnkitTandon had not misrepresented the facts taking advantage of our inexperience and good old relations. I would like to assure you on the basis of the documentary evidences provided by you, we will be able to get back the extra amount from the Dubai based entities controlled Mr.AnkitTandon, if need be by taking shelter of legal action, and the respective amount will be duty offered for taxation and we undertake to pay the taxes thereon accordingly. Sir, I need some time to make a reasonable estimate of additional amount taken in the guise of purchase value of cargo ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ing transport and suppliers margin @ $14 and $ 2 per MT respectively to the FOB rate of $ 18.75 in the invoice of M/s Sandy Resources Pte. Ltd. which was compared with the invoices of M/s Global Petrochem FZC and M/s Glaxo International FZE to the appellant company. The exchange rate has been considered as Rs. 62 per $. He arrived at such estimate at Rs. 98,53,75,297. It is noted that the assessing officer has made the computation somewhat differently. In the statement recorded estimate was made based on purchases by the appellant company and also purchases by M/s Gandhar Coal and Mines have been considered from the two UAE entities. One of the invoice falls in AY 2015-16. Hence additions have been made for AY 2013-14, AY 2014-15 and AY 2015-16 in case of appellant company and for AY 2014-15 in case of M/s Gandhar Coal and Mines. The assessing officer has in addition to the estimate furnished at the time of the recording of statement in search, made further disallowance of $ 2 per MT which was the margin of the two UAE entity considered in the estimate by Shri Kunal Parekh The assessing officer has disallowed this margin also. An effort was made to reconcile the estimate prepared a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....824 5253,68,292 13738,45,601 15886,32,123 25971,49,664 NET PROFIT/LOSS 1137,57,405 2161,12,007 1709,42,800 2291,82,899 6060,95,593 4696,00,304 3215,75,763 GP RATIO 12.53 11.64 10.07 9.07 10.89 10.18 11.82 NP RATIO 5.41 7.04 3.83 3.96 4.80 3.01 1.46 This shows that reasonable profits are shown by the appellant company. 20.4.7. The trading in coal for AY 2013-14 to AY 2015-16 is tabulated below. Rs/crores AY 2013- 14 2014-15 2015-16 TOTAL Sale 543.67 768.35 1379.89 2691.91 Purchases 423.66 719.56 1296.46 2439.68 It is noted that there are both imports and local purchases of coal made by the appellant. The import of coal from the two UAE entities as a % of total coal purchases of the appellant are 8% in AY 2013-14, 32% in AY 2014-15 and 4 % in AY 2015-16. There is a lot of variation in rate of purchase computed as Rs/ MT. However the rate per MT in respect of imports from the two UAE entities are within the normal range of all the purchases. For e.g. the average rate of purchase comes to Rs. 2375/MT for import from Global Petrochem FZC in AY 2013-14. The purchase price ranges from Rs. 1042 to Rs. 5....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he evidence filed by appellant to show that import prices are reasonable as compared with Argus data is credible and the assessing officer has ignored it without any basis. 20.4.9 The imports from M/s Global Petrochem FZC and M/s Glaxo International FZE has been supplied to Bharat Oman Refineries Ltd. The Bharat Oman Refineries Limited (BORL) is the company that owns and operates Bina Refinery, located at Bina in the Sagar district of the state of Madhya Pradesh. Built as a joint venture between India's Bharat Petroleum Corporation (BPCL) and Oman's Oman Oil Company, the 6 MTPA refinery was commissioned in May 2011. The documents filed in the assessment proceedings showed that the appellant company qualified to supply coal to BORL based on open tenders. The coal has been accepted by BORL for which certificate was furnished in the assessment proceedings. The appellant had also furnished working to show that its supply to BORL was profitable. For AY 2013-14 the Gross Profit on sale of coal imports from M/s Global Petrochem FZC and M/s Glaxo International FZE was 26.75 % as compared with 19.49 % on other imports of coal. It is improbable that customers would allow and bidder....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... - 64 of Mrs. Riddhi Punil Shah and Shri Punil Shah, a bag was found placed at boot of their car bearing No.MH-02-CL-3509 parked at the said premises. When questioned, in response, she replied that the same might be left out bag belonged to one Mr. Mihir Panchal who came to Mumbai 15/20 days back from the date of search action. Mr. Mihir Panchal runs M/s D Sons Traders DMCC. It is noted that the over invoicing alleged in the assessment order is not in respect of M/s D Sons Traders DMCC. 20.4.13. The assessing officer had requested for and obtained information from UAE under Exchange of Information procedure. Though he has mentioned that the information showed the dubious credentials of M/s Global Petrochem FZC and M/s Glaxo International FZE, he has not given any specific detail other than to say that M/s Glaxo International FZE is owned by one Arpit Tandon and not Ankit Tandon. This alone cannot be construed as indicating dubious credentials. Further the appellant has contended that there is no evidence that it was controlling these entities or had received any payments from these entities to show that alleged over invoicing proceeds were received by it. The information received....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he invoices considered to be evidence of purchases by M/s Global Petrochem FZC from M/s Sandy Resources Pte. Ltd. Singapore is unauthenticated and there is no evidence that the appellant received any money resulting from alleged over invoicing of purchases. Thus even if it were considered that the appellant had links with the two I suppliers M/s Global Petrochem FZC and M/s Glaxo International FZE, the over invoicing remains unproved and there is no evidence of the appellant earning out of such alleged over invoicing. Of course, the appellant has produced ample evidence and made out a case that its price of purchases from the two UAE entities are comparable with other imports and is at market rates, and that it has earned good profits on such imports. 20.4.16. It is therefore held that the allegation that there is over invoicing of import of coal from M/s Global Petrochem FZC and M/s Glaxo International FZE is not proved. Since it is held that the over invoicing is not proved, the disallowance made in respect of margin of $2 per MT is also deleted. Further, the contention of the appellant that debit/credit notes in respect of purchases should be considered instead of the original....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ween employee of the assessee Mrs. Riddhi Shah and Shri Kunal Parekh (vice president, imports) regarding the changes in specification of coal. The Ld. D.R. also referred to the stationery and stamps pertaining to these foreign entities found from the residence of Mrs. Riddhi Shah. The Ld. D.R. submitted that keeping all these facts as brought out by search during assessment proceedings, the arrangement is nothing but shifting the profit from India to Dubai and therefore was rightly added by the AO. The Ld. D.R. vehemently assailed the order of Ld. CIT(A) ignoring all these facts and prayed before the bench for the reversal of the same and restoring the order of the AO. 7. On the other hand, the Ld. A.R. relied heavily on the order of Ld. CIT(A) by referring to the order of Ld. CIT(A) wherein it has been clearly mentioned that in the statement of Shri Kunal Parekh (vice president, imports) nowhere any admission has been made qua the over invoicing of imports. The Ld. A.R. submitted that when Shri Kunal Parekh (vice president, imports) was confronted with the invoices during the search by the search team and he expressed his shock and felt cheated by the Dubai based middlemen/broker....
X X X X Extracts X X X X
X X X X Extracts X X X X
....competitive and comparable. Further, the Ld. A.R. submitted that exchange of information from UAE revealed that profit offered by Dubai entities was meager ranging from 6% to 7% which clearly contradicted and demolished the stand of the AO. Besides there was no document or any report which showed that assessee exercised control over the Dubai entities. It is also stated that there was no proof that profit/cash received back from Dubai entities were found in the search operation. The Ld. A.R. also submitted that invoices obtained by the search team were unauthenticated and therefore lacked credence. The Ld. A.R. also submitted that the entire purchases have been extrapolated on the basis of a few invoices beside highlighting the fact that there was no invoice relating to M/s. Glaxo International FZC. The Ld. A.R. also submitted that the commission charged by Dubai entities for the actual services rendered was genuine and therefore its disallowance is unjustified and without any basis. Finally, the Ld A.R. prayed that the addition as made by the AO on account of over invoicing and the allegation of bogus commission were without any basis and rightly deleted by the ld CIT(A).Therefore....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r invoicing on the entire purchases on the presumption and surmises which is incorrect and can not be allowed by giving a finding to this effect in para 20.4.11. We also note that the observations of the AO that stationery and ledger accounts of the Dubai based entities were found with the assessee's employees which were duly replied and also noted by Ld. CIT(A) while deleting the addition that same were for the purpose of reconciling the accounts with the overseas entities. The Ld. CIT(A) also noted that the documents found with the assessee were pertaining to F.Y. 2011-12 and not for the year under consideration. As regards the stationery and stamps found during the course of search the Ld. CIT(A) gave a finding that the said material belonged to Mr. Mihir Panchal who runs M/s. D Sons Traders DMCC in Dubai who had recently visited India and was not supplier of any coal to the assessee. We also note that the Ld. CIT(A) discussed and noted that assessee has made effort to recover the amount from Dubai entities but for the want of evidences no recovery could be made. Similarly, a finding is given that no cash or no other evidences of having received the margin from Dubai entities ba....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t to Rs. 4,63,19,046/- in terms of Indian currency at the exchange rate of Rs. 54.85 per US$ and offered the same as additional income. However, in the return filed the assessee did not offer the same for taxation and consequently AO issued show cause notice to the assessee calling upon as to why the same should not be added to the income of the assessee on account of modification of invoice price from 31 US$ + FOB freight charges as agreed by agreement dated 10.12.2012 to US$ 57 inclusive of rate. Finally, the AO made the addition to the income of the assessee by rejecting the reply of the assessee that Mr. Kunal Parekh, director of the assessee company during the course of search proceedings has forgotten as to why the correction in the invoices were carried out and wrongly offered the same as additional income. However, as a matter of fact, the invoice is required to be corrected due to change of quality of material as per addendum made with the supplier PT Almoudi Natural Resources Tradmin. 11. In the appellate proceedings, the Ld. CIT(A) allowed the appeal of the assessee by observing and holding as under: "20.4.18. In the assessment proceedings the appellant did explain th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....40 per MT. There appears to be a minor error in computation of over invoicing computed by the assessing officer if this figure is considered. Details for other agreements with this party was called. When asked for, the appellant has also furnished other similar instances where similar agreement with this party was entered and later revised through addendum entered with it. An agreement dated 12.10.2012 was for 165000 MT of coal with GCV Air Dried Basis of 5100-5200 KCAL / Kg for FOB price $30.75 /MT. An Addendum was entered dated 28.10.2012 for rate being revised to CFR $41.65 per MT. Similarly another agreement dated 20.7.2012 was for 120000 MT of coal with GCV Air Dried Basis of 5100-5200 KCAL / Kg for FOB price $32.75 /MT. An Addendum was entered dated 23.7.2012 for some clauses of the contract being modified. This does suggest that Addendums was a normal practice in such contracts. Thus the appellant has given an explanation for the revision which is based on change in specification of coal required and which was supplied. It can be believed that a specific instance of purchase may not have been recollected by Shri Kunal Parekh when he was asked regarding this in the course of ....