TaxTMI 
TaxTMI 
2021 (9) TMI 1120
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.... of the additions pertaining to over invoicing of purchases 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 ....
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....iddhi Punil Shah employee of the company?" The appellant prays that the order of Commissioner 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 treat....
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....sactions. The AO stated that the purchase transactions were made through two offshore entities for the 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 for....
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....w sulphur Indonesian steam coal (non coking) in bulk at the same rate of US$ 18.750 per MT billed for a total amount 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 be....
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....o the invoices raised on us is really an eye-opener to us. I deeply feel that we have been cheated by the supplier, who has been a close friend of us since past 10 years. Sir, I would 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 taxa....
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....chem FZC is on FOB basis whereas the invoices raised M/s Global Petrochem FZC to appellant is on CFR basis. Thus freight and UAE entity margin has to be added. Shri Kunal Parekh: had made the estimate of over invoicing based on adding 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 furth....
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.... AMOUNT AMOUNT SALES/TURN OVER 21025,20,413 30698,33,562 44623,19,502 57922,84,664 126196,40,298 156121,26,208 219728,81,954 PURCHASES 17967,89,328 29047,64,502 41093,33,345 58386,65,199 103115,49,563 144083,76,386 203087,66,684 GROSS PROFIT/LOSS 2633,99,487 3574,13,591 4491,94,824 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 %....
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....nd production centres. Argus produces price assessments and analysis of international energy and other commodity markets, and offers bespoke consulting services and industry-leading conferences. Companies in 140 countries around the world use Argus data to index physical trade and as benchmarks in financial derivative markets as well as for analysis and planning purposes. Argus was founded in 1970 and is a privately held UK-registered company. It is owned by employee shareholders and global growth equity firm General Atlantic. The 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 th....
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.... officer as indicating that the appellant had control over Global Petrochem FZC. It is noted that the entries in such data pertained to period FY 11-12. The impugned purchases of the appellant are for AY 2013-14 onwards and not for the period to which the bank statements/ ledger pertains. As regards the stationary and stamps found in the course of search, referred to in the assessment order, it is noted that in the course of search proceedings, at the residential premise address 101, Adarsh Harmony Apartment, Adarsh Dughdhalaya Compound, Malad West, Mumbai - 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....
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....in as indicated by the quantification done by the assessing would be available when bids are received through tendering process. vi) There is no evidence of any cash/profits coming back to appellant or its entities from alleged over invoicing of import. No evidence to suggest this was recovered in the search action. vii) Copy of notice issued to supplier and its reply is filed by appellant to show that effort to recover money was unsuccessful since legally valid evidence was not available. The most important factor, which tilts the case in favour, of the appellant, and is the reason for my view, is that the 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....
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....lso referred to the admission of the assessee that this amount would be offered to tax after the same is received from the Dubai based entities. The Ld. D.R. also argued that assessee has not made any offer to recover the amount and it was just an excuse to circumvent the action by the department. The Ld. D.R. also referred to the bank statement and ledger of Dubai based entities found in the computer of an employee of the assessee which revealed that these Dubai based entities are closely associated with the assessee group and are working together to evade taxes in India. The Ld. D.R. also submitted that there were exchange of whatsapp between 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....
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....nal coal prices and therefore it showed that there were no over invoicing of imports. The Ld. A.R. also referred to the gross profit returned by the assessee in the books of accounts for the year under consideration and submitted that it has offered a reasonable profit even more profit on sale of coal purchased from the Dubai entities then sale of coal purchased from other entities which is the substantiation of the fact that there were no over invoicing of imports. The Ld. A.R. also highlighted the fact that the most of the sale has been made to government organizations through tender processes which itself showed that price of purchases is 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 t....
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.... Dubai entities to be comparable with international prices as published by Argus an international organization in para 20.4.8. Besides, we note that most of the purchases made from UAE entities have been supplied to government organizations such as M/s. Bharat Oman Refinery Ltd. through a competitive bidding. The assessee would not have been granted the contract on the prices of coal which were over invoiced. The Ld. CIT(A) also noted that in the exchange of information from UAE it was revealed that the Dubai based entities have offered a very meager income of 6% to 7%. The Ld. CIT(A) also recorded a finding that the AO has extrapolated the over 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....
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....ges at the direction of either Mr. Kunal Parekh or Mr. Sourabh Parekh and had nothing to do with the issuing of over invoicing. This was replied by Mrs. Riddhi Punil Shah by way of answer to question No.43 to 52 which is reproduced by the AO at page No.19 & 20. The search team while recording the statement of Mr. Kunal Parekh on 14.11.2014 asked him about the changes in the invoice made by Mrs. Riddhi Punil Shah to US$ 57 as against the agreed price of US$ 31 per metric ton and explained the difference. However, Mr. Kunal Parekh could not justify the change in the invoice value and accordingly he offered the difference of US$ 8,44,467.56 equivalent 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 t....
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....ant, the buyer dated 10.12.2012 was for steam coal of Indonesian origin. The specification of coal was Gross Calorific Value 5100-5200 KCAL / Kg on Air Dried Basis. The FOB price was $31 per MT. There is an addendum of nol dated 18.12.2012. In this addendum specification of coal was changed to Gross Calorific Value 5600 KCAL/Kg. The FOB rate was fixed @ $42.40/MT. Freight was $14.60 per MT. The invoice dated 31.12.2012 is for 77556 MT @ CFR rate of $57 per MT. Bill of Lading is dated 6.1.2013. Certificate of Sampling of Inspection Agency dated 9.1.2013 states that the Gross Calorific Value was 5682 KCAL/Kg on Air Dried Basis. Thus the difference in FOB price is $11.40 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 ente....