DELUXE KAARAN IMPORTS P. LTD, MUMBAI v. DCIT CEN CIR 2, MUMBAI

ITA 2820/MUM/2010 | 2007-2008
Pronouncement Date: 29-07-2011 | Result: Allowed

Appeal Details

RSA Number 282019914 RSA 2010
Assessee PAN AAACD4116E
Bench Mumbai
Appeal Number ITA 2820/MUM/2010
Duration Of Justice 1 year(s) 3 month(s) 19 day(s)
Appellant DELUXE KAARAN IMPORTS P. LTD, MUMBAI
Respondent DCIT CEN CIR 2, MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 29-07-2011
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted D
Tribunal Order Date 29-07-2011
Date Of Final Hearing 07-06-2011
Next Hearing Date 07-06-2011
Assessment Year 2007-2008
Appeal Filed On 09-04-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH D MUMBAI BEFORE SHRI PRAMOD KUMAR (AM) AND SMT. ASHA VIJAYARAGHAVAN (JM) ITA NOS. 2820 2821 & 2822/MUM/2010 ASSESSMENT YEARS- 2005-06 TO 2007-08 M/S. DELUXE KAARAN IMPORTS PVT. LTD. 321 SIDDHIVINAYAK HSG. SOC. 1 ST FLOOR HINGWALA LANE PANTNAGAR GHATKOPAR (E) MUMBAI-400 075 PAN-AAACD 4116E VS. THE DCIT CENTRAL CIRCLE-2 MUMBAI (APPELLANT) (RESPONDENT) ITA NOS. 2796 2797 & 2798/MUM/2010 ASSESSMENT YEARS- 2005-06 TO 2007-08 THE DCIT CENTRAL CIRCLE-2 MUMBAI VS. M/S. DELUXE KAARAN IMPORTS PVT. LTD. 321 SIDDHIVINAYAK HSG. SOC. 1 ST FLOOR HINGWALA LANE PANTNAGAR GHATKOPAR (E) MUMBAI-400 075 (APPELLANT) (RESPONDENT) A SSESSEE BY: SHRI VIJAY MEHTA DEPARTMENT BY: SHRI PAVAN VED DATE OF HEARING : 7.6.2011 DATE OF PRONOUNCEMENT 29 TH JULY 2011 O R D E R PER ASHA VIJAYARAGHAVAN (JM) THIS SET OF CROSS APPEALS CONSISTING OF 3 APPEALS F ILED BY THE ASSESSEE AND THREE APPEALS FILED BY THE REVENUE ARE DIRECTED AGA INST THE ORDERS PASSED BY THE DELUXE KAARAN IMPORTS 2 LD. CIT(A)- FOR THE ASSESSMENT YEARS 2005-06 TO 200 7-08. AS THE ISSUE INVOLVED IN ALL THE THREE YEARS ARE COMMON IN BOTH THE ASSES SEES AND THE DEPARTMENTAL APPEALS THEY ARE DISPOSED OFF BY THIS COMMON ORDER . 2. THE ASSESSING OFFICER DETERMINED 6% ON HIGH SEA SALES AS UNDISCLOSED INCOME OF THE ASSESSEE AND THE LD. CIT(A) DIRECTED THAT 0.30% OF THE HIGH SEA SALES MAY BE TAKEN AS UNDISCLOSED INCOME. AGGRIEVED BOTH THE ASSESSEE AND THE REVENUE ARE ON APPEAL. 3. THE ASSESSEE IS IN THE BUSINESS OF DEALERS AND D ISTRIBUTORS OF PLASTIC GRANULES CHEMICALS AND BALL BEARINGS. IT IS PART O F GROUP OF COMPANIES ENGAGED IN THE SIMILAR LINE OF BUSINESS. THERE WAS A SEARCH IN THE CASE OF THE GROUP COMPANIES ON 23.8.2006. IN THE COURSE OF SEARCH IT WAS FOUND THAT THE ASSESSEE HAD IMPORTED PLASTIC GRANULES AND EFFECTED HIGH SEA SALES OF THE SAME. THESE SALES WERE MAINLY TO INTERMEDIARY AND FICTITIOUS CO NCERNS. IN THE COURSE OF SEARCH IT WAS FOUND THAT THE ASSESSEE WAS MAKING HIGH SEA SALES OF IMPORTED GOODS TO THE THIRD PARTIES ONLY IN PAPER. BUT THE GOODS WERE BROUGHT IN BY THE ASSESSEE WHO WAS SELLING THE SAME IN OPEN MARKET ON CASH BAS IS FOR HIGHER PROFITS. IN RESPONSE TO A NOTICE U/S 153A THE ASSESSEE FILED A RETURN OF INCOME OFFERING TOTAL INCOME OF RS. 38 66 390/-. HOWEVER THE DIRECT OR OF THE COMPANY MR. MINESH D. SHAH IN A STATEMENT GIVEN U/S 131 ON 4.9. 2006 AND U/S 132(4) ON 6.10.2006 DECLARED UNDISCLOSED INCOME OF RS. 3 CROR ES FOR THE GROUP COMPANIES ON ACCOUNT OF DISCREPANCIES IN THE ACCOUNTS. THE AS SESSEE IN THE LETTER DT 12.12.2008 HAD STATED THAT OUT OF THE OFFERED AMOUN T OF RS. 3 CRORES AFTER DEDUCTING THE PAYMENT TO ITS DIRECTORS AND THEIR RE LATIVES OF RS. 2.54 CRORES OFFERED THE BALANCE RS. 46 10 000/- FOR THE AY 2006 -07. 4. IN ORDER TO VERIFY THE GENUINENESS OF THE HIGH S EA SALES THE AO SENT A SPECIFIC QUESTIONNAIRE DATED 17.11.2008 AS UNDER: DELUXE KAARAN IMPORTS 3 IT IS SEEN FROM THE RECORDS THAT YOU HAD TRANSACTI ONS WITH THE FOLLOWING PARTIES. CHETAN M SHAH PROPRIETOR M/S M M PLASTIC CHETAN V. THAKKAR PROPRIETOR M/S VIIVA OVERSEAS THE EAST INDIA TRADING CO. PROPRIETOR CHETAN V. THA KKAR SHYAM CORPORATION PROPRIETOR SOMIL M. PARIKH SHIVAM OVERSEAS PROPRIETOR HEETESH J. PANCHMATIA GAURI ENTERPRISES PROPRIETOR HEETESH J. PANCHAMATI A YASH ENTERPRISES PROPRIETOR JEEIENDRA J. TANNA VATSAL TRADING COMPANY PROPRIETOR RADHAKRISHNAN EKTA OIL CHEM PROPRIETOR BHADRESH C. MASRANI SONIYA SALES CORPORATION PROPRIETOR BHADRESH MASRA NI PFZ CORPORATION PROP HEETESH J. PANCHMATI SIDDHI VINAYAK CORPORATION PROPRIETOR CHETAN V. TH AKKAR GIVE COMPLETE DETAIL VIZ. ANY TRANSACTION (SALE/ PURCHASE/COMMISSION/ INTEREST) OR LOAN FROM THE ABOVE PARTIES AND PERSON YEAR WISE FOR ALL THE YEARS UNDER CONSIDERATION IF THERE IS ANY LOAN PROVIDE CONFIRMATION ESTABLISHING THE IDENTITY CAPACITY AND GENUINENESS OF THE LOAN. FROM INQUIRES CONDUCTED BY DEPARTMENT ONLY TWO CON CERNS OUT OF THE 12 MENTIONED ABOVE COULD BE FOUND AT THE GIVEN ADDRESS . EVEN IN THE TWO CASES I.E. M/S M.M. PLASTIC AND M/S SHYAM PLASTIC THE PR OPRIETORS OF THESE FIRM STATED IN THEIR SWORN STATEMENT THAT NO SALES HAVE BEEN EFFECTED BY M/S DELUX KAARAN IMPORTS P. LTD TO THEM AND THAT THEY A RE ENGAGED IN ONLY PROVIDING ACCOMMODATION ENTRY FOR SOME SMALL COMMIS SION . FURTHER FROM THE INVESTIGATION IT ALSO CAME OUT THAT THESE ENTIT IES DID NOT HAVE ANY INFRASTRUCTURE LIKE REGULAR OFFICE GODOWN ETC FOR STORAGE OF GOODS CLAIMED TO BE PURCHASED BY THEM. MOREOVER CERTAIN BLANK LETTE R HEADS AND BLANK CHEQUE (SOME WITH DATE AND AMOUNT AND SOME WITHOUT DATE AND AMOUNT) OF ALMOST ALL THE ABOVE CONCERNS WERE ALSO FOUND AT TH E OFFICE OF M/S DELUX KAARAN IMPORTS P. LTD. IN VIEW OF ABOVE WHY IT SHOULD NOT BE CONSTRUED THA T YOU HAVE MADE CASH SALES TO THIRD PARTY AND A PART OF CASH SO GENERATE D IS PLOUGHED BACK AS SALE PROCEEDS IN THE BOOKSOF M/S DELUX KAARAN IMPORTS P. LTD. THROUGH ONE OR MORE OF ABOVE CONCERNS AND ACCORDINGLY WHY ADDITION ON YOUR HANDS ON THIS ACCOUNT SHOULD NOT BE MADE JUSTIFY. 5. THE AR OF THE ASSESSEE SUBMITTED VIDE LETTER DA TED 5.12.2008 AS UNDER: WE ENCLOSED HEREWITH THE SALE CONFIRMATION OF THE F OLLOWING PARTIES DELUXE KAARAN IMPORTS 4 CHETAN M. SHAH PROPRIETOR M/S M.M. PLASTIC CHETAN V. THAKKAR PROPRIETOR M/S VIVS OVERSEAS THE EAST INDIA TRADING CO. PROPRIETOR CHETAN V. THA KKAR SHIVAN OVERSEAS PROPRIETOR HITASH J. PANCHAMATIA YASH ENTERPRISES PROPRIETOR JITENDRA J. TANNA EKTA OIL CHEM PROPRIETOR BHADRESH C. MASRANI PFZ- CORPORATION PROP. HEETESH J. PANCHMATIA SIDDHI VINAYAK CORPORATION PROPRIETOR CHETAN V. THA KKAR PLEASE BE INFORMED THAT EARLIER WE HAVE ALREADY PRO VIDED ALL SALES CONFIRMATION TO YOU OF OUR CLIENTS WHO HAVE DONE THE TRANSACTION OF SALE ONLY THERE IS NO LOAN COMMISSION OR INTEREST BUSINESS WITH THE SAID PARTI ES. WE WOULD HEREBY LIKE TO CLARIFY THAT OUR CLIENT DON T HAVE DIRECT CONTACT WITH ANY OF ABOVE PARTIES AS OUR CLIENT WERE DOING BUSINESS THROUGH THE BROKERS LIKE MR. SANJAY AGARWAL AND MR. PREMAL DOSHI. SO FAR THE M.M . PLASTICS & SHYAM PLASTIC IS CONCERN OUR CLIENT HAVE NEVER BEEN GET IN TOUCH WIT H THEM. OUR CLIENT HAVE DONE THE DEAL THROUGH BROKER MR. PREMAL DOSHI AS PER O UR NORMAL PRACTICE OUR CLIENT USED TO ASKED FOR THE LETTERHEAD AND POST DATED CHE QUES AT THE TIME OF FINALIZING THE HIGH SEAS DEAL TO AVOID UNNECESSARY DISPUTE AND DELAY DURING AND AFTER CLEARANCE OF IMPORT CONSIGNMENTS AND AS MUTUALLY AG REED OUR CLIENT DEPOSIT THE CHEQUES WHICH WERE LYING WITH THEM IN THEIR ACCOUNT . AS WE HAVE STATED THAT OUR CLIENT HAVE NOT DONE ANY BUSINESS WITH SHYAM PLASTICS. THEY HAVE JUST ISSUED CHEQUES ON BEHAL F OF M.M. PLASTICS HENCE GIVING STATEMENT OF ACCOMMODATION ENTRY BY HIM DOES NOT AR ISE AT ALL . MOREOVER IT WAS LEARNT FROM PREMAL DOSHI JUST ON THE NEXT DAY A FTER THE STATEMENT OF PROPRIETOR OF PLASTICS AND SHYAM PLASTICS THAT THEY HAVE BEATEN BY THE DEPARTMENT OFFICIALS AND FORCED THEM TO GIVE THE ST ATEMENT AS PER THEIR WISHES. WE WOULD LIKE TO FURTHER STATE THAT ALL THE PARTIES LISTED ABOVE ARE REGISTERED WITH THE FOLLOWING AUTHORITIES. 1. INCOME TAX 2. SALES TAX 3. CENTRAL SALES TAX 4. JT. DIRECTOR GENERAL OF FOREIGN TRADE AT THE TIME OF FINALIZING THE DEAL OUR CLIENT HAD EXECUTED HIGH SEAS SALE AGREEMENT ON APPROPRIATE STAMP PAPER. THE ABOVE MEN TIONED PARTIES HAVE SUBMITTED TO OUR CLIENT THE XEROX COPY OF PAN CARD IEC CODE CERTIFICATE & CENTRAL SALES TAX CERTIFICATE AND BANK SIGNATURE VE RIFICATION CERTIFICATE . WE WOULD LIKE TO FURTHER STATE THAT THE RESPECTIVE HIG H SEAS SALE AGREEMENT WITH THE ABOVE MENTIONED PARTIES WERE REGISTERED WITH THE CU STOM HOUSE AUTHORITIES. WE WOULD LIKE TO FURTHER STATE THAT OUR CLIENT HAD REC EIVED THE PAYMENT FROM THE RESPECTIVE PARTIES BANK ACCOUNT ONLY. THIS WAS THE NORMAL DEAL THROUGH BROKER. IN OUR FIELD MAJORITY TRANSACTIONS ARE THROUGH BROK ERS. DELUXE KAARAN IMPORTS 5 WE REQUEST YOU TO CONSIDER OUR ABOVE SUBMISSION AND NOT TO DO ANY ADDITION ON ACCOUNT OF HIGH SEAS SALES TO ABOVE PARTIES. 6. THE ABOVE SUBMISSION OF THE ASSESSEE WAS NOT ACC EPTABLE TO THE AO AS THE ASSESSEE COULD NOT JUSTIFY ITS STAND THAT THE A BOVE CAPTIONED PARTIES TO WHOM HIGH SEA SALES WERE MADE WERE GENUINE PARTIES. 7. THE AO OBSERVED AS FOLLOWS: DESPITE OF SO MANY OPPORTUNITIES GIVEN THE ASSESSEE NEITHER PRODUCED THE ABOVE PARTIES NOR SUBMITTED ANY FURTHE R DETAIL VIZ. THEIR NEW ADDRESS ETC ON THE BASIS OF WHICH FURTHER INQUIRY C OULD HAVE BEEN DONE. THE ASSESSEE HAS FAILED TO DISCHARGE HIS ONUS WITH REGARD TO THE IDENTITY OF THE CAPTIONED DUMMY/FICTITIOUS CONCERNS. THE ABO VE STATED CONFIRMATION AS MENTIONED BY ASSESSEE IN HIS REPLY IS ACTUALLY NOT THE CONFIRMATION BUT THE COPY OF ACCOUNT OF ABOVE 12 CO NCERNS IN THE BOOKS OF ASSESSEE COMPANY IF THE ASSESSEE COULD GET THE CONF IRMATION THEN IT COULD ALSO VERY WELL PRODUCE THESE PARTIES OR AT LEAST PR OVIDE SOME INFORMATION LIKE THEIR LATEST ADDRESS ETC FROM WHICH THE REVENU E DEPARTMENT COULD HAVE MADE NECESSARY VERIFICATION. THE ASSESSEE HAS NOT DISCHARGED ITS ONUS WITH REGARD TO ESTABLISHING THE GENUINENESS OF THE SALES MADE TO FICTITIOUS CONCERNS. 8. THE AO FURTHER HELD AS FOLLOWS: AS REGARDS THE OTHER 10 PARTIES TO WHOM THE SALES/H IGH SEA SALES ARE CLAIMED TO HAVE BEEN MADE NONE OF THESE PARTIES WERE AVAILABLE AT THE ADDRESS (BOTH RESIDENTIAL ADDRESS OF THE PROPRI ETORS AS WELL AS THE BUSINESS ADDRESS) GIVEN BY THEM TO THE BANK WHILE O PENING THE BANK ACCOUNT. IN ALL THE 12 CASES CHEQUES HAVE BEEN ISSU ED TO M/S DELUXE KAARAN IMPORTS PVT. LTD AND ITS RELATED ENTITIES AF TER DEPOSITING EQUIVALENT AMOUNT OF CASH JUST BEFORE ISSUE OF CHEQUES TO M/S DELUXE KAARAN IMPORTS P. LTD. IN SOME CASE THE CASH IS INTRODUCED IN ONE OF THE TWELVE ACCOUNTS FROM WHERE THE CHEQUE IS ISSUED TO ANOTHER ENTITY (ONE OF THE TWELVE ENTITLES) AND THEN FINALLY A CHEQUE IS ISSUE D TO M/S DELUXE KAARAN IMPORTS P. LTD A DETAILED ANALYSIS OF ALL THESE ACC OUNTS TOGETHER REVEALS THAT INVARIABLY ALL THE PAYMENTS RECEIVED BY THE M/ S DELUXE KAARAN IMPORTS P. LTD AND ITS RELATED ENTITIES HAVE ITS OR IGIN AS CASH INTRODUCED IN ONE OF THE BANK OF ACCOUNT OF THESE 12 ENTITIES. NO NE OF THESE 12 ENTITIES AND OR THESE PROPRIETORS HAVE CAPACITY TO MAKE SUCH HUGE PURCHASES. THEY DO NOT HAVE ANY INFRASTRUCTURE LIKE REGULAR OF FICE GODOWN ETC FOR STORAGE OF THE GOODS CLAIMED TO BE PURCHASED BY THE M. IN FACT AS REPORTED EARLIER THAT NONE OF THESE PERSONS ENTITIE S COULD BE TRACED EXCEPT FOR TWO WHO HAVE DENIED HAVING MADE ANY REAL SALE T RANSACTIONS. DELUXE KAARAN IMPORTS 6 AMONG THE SEIZED MATERIAL ANNEXURE A-7 PAGES 19-2 1 AND ANNEXURE A-12 PAGES 30-34A THE BLANK LETTER HEADS AND BLANK SIGNED CHEQUES (WITHOUT DATE AND AMOUNT AND SOME CHEQUES W ITH AMOUNT AND DATE) OF ALMOST ALL OF THESE DUMMY SALES PARTIES WE RE FOUND FROM THE OFFICE OF M/S DELUXE KAARAN IMPORTS P. LTD. THE DIR ECTOR OF M/S DELUXE KAARAN IMPORTS P. LTD HAS NOT BEEN ABLE TO EXPLAIN AS TO WHY AND HOW THESE BLANK SIGNED CHEQUES/LETTER HEADS WERE LYING IN THE OFFICE OF M/S DELUXE KAARAN IMPORTS P. LTD. THIS FACT CLEARLY EST ABLISHES THAT ALL THESE FIRMS ARE DUMMY CONCERNS AND ALL THE OPERATIONS (HI GH SEA SALES AND OTHER SALES) MADE BY M/S DELUXE KAARAN IMPORTS P. L TD ARE ONLY ON PAPER. . THE AO THEREFORE INFERRED THAT THAT M/S DELUXE K AARAN IMPORTS P. LTD HAS MADE CASH SALES TO THIRD PARTIES (ACTUAL US ER OF GOODS) AND A PART OF THE CASH SO GENERATED IS PLOUGHED BACK AS SALE P ROCEEDS IN THE BOOKS OF M/S DELUXE KAARAN IMPORTS P. LTD THROUGH ONE OR MORE OF THESE FICTITIOUS ENTITIES. THE FACT THAT THE GOODS HAVE B EEN SOLD ACTUALLY TO THE ULTIMATE USER AND THAT THESE FICTITIOUS CONCERNS AR E ONLY CONDUCT FOR LEGALIZING CASH SALES IS CLEAR FROM THE ANALYSIS OF THE CONTENTS OF ANNEXURE A1 SEIZED DURING THE COURSE OF SEARCH OPERATIONS IN THE OFFICE OF M/S DELUXE KAARAN IMPORTS P. LTD ON 6.10.2006. THESE P APERS/ DOCUMENTS SEIZED AND MARKED AS ANNEXURE A1 SHOWS HOW HIGH SEA SALES ARE EFFECTED I.E FIRST HIGH SEA SALES IN FROM M/S DELUX E KAARAN IMPORTS P. LTD TO ONE OF THE INTERMEDIARY FICTITIOUS CONCERNS (ONE OF THE TWELVE CONCERNS) AND THE NEXT TO HIGH SEA SALE IS SHOWN FROM THESE I NTERMEDIARY TO THE ACTUAL USER. INTERESTINGLY ALL THE ORIGINAL DOCUME NTS OF BOTH THE ABOVE MENTIONED HIGH SEA SALES ARE FOUND IN THE OFFICE OF M/S DELUXE KAARAN IMPORTS P. LTD THE DIRECTORS OF M/S DELUXE KAARAN I MPORTS P. LTD. HAS NOT BEEN ABLE TO OFFER ANY SATISFACTORY REPLY TO TH E EVIDENCES OF THESE DOCUMENTS FOUND IN THEIR OFFICE. THE FACT THAT M/S DELUXE KAARAN IMPORTS P. LTD. HA S SHOWN A SMALL PORTION OF PROFIT ON SALES MADE ONLY TO THESE FICTI TIOUS CONCERNS IS CLEAR FROM THE ANALYSIS OF ANNEXURE-A-! OF PANCHANAMA DAT ED 6.10.2006 REFERRED ABOVE. IT IS NOTICED THAT ON AN AVERAGE TH E GROSS PROFIT @ 2% IS SHOWN BY M/S DELUXE KAARAN IMPORTS P. LTD. ON SALE S INCLUDING HIGH SEA SALES TO THESE FICTITIOUS CONCERNS. THIS CAN BE UN DERSTOOD FROM THE ANALYSIS OF THE SEIZED MATERIAL CONTAINED IN ANNEXU RE A1 TO PANCHANAMA DATED 6.10.2006. FURTHER THE SALES ARE ACTUALLY MA DE TO FINAL USER IN CASH AND THE SAME CASH IS PLOUGHED BACK TO M/S DELUXE KA ARAN IMPORTS P. LTD THROUGH THESE FICTITIOUS INTERMEDIARIES. THE GROSS PROFIT OF THESE CASH SALES TO FINAL USER IS ABOUT 8%. CONSIDERING THE GP RATES ALREADY DECLARED BY M/S DELUXE KAARAN IMPORTS P. LTD IN THEIR RETURNS ( IN RESPECT OF HIGH SEA SALES TO THESE FICTITIOUS CONCERNS) THE INCOME ATT RIBUTABLE TO THE CASH DELUXE KAARAN IMPORTS 7 SALES WOULD THEREFORE WORK OUT TO ABOUT 6% OF THE A MOUNT PLOUGHED BACK THROUGH THESE INTERMEDIARIES. NO FURTHER EXPENSES COULD BE ALLOWABLE TO M/S DELUXE KAARAN IMPORTS P. LTD. IN RESPECT OF I NCOME AT 6% GROSS PROFIT RATIO AS THERE ARE NO ADDITIONAL EXPENSES (B Y WAY OF FIXED AND VARIABLE COSTS) HAS BEEN INCURRED AND THE SALES TO THESE FICTITIOUS ENTITIES ARE MERELY AS A RESULT OF CASH DEPOSITED IN THEIR A CCOUNTS AND SUBSEQUENT ISSUE OF CHEQUES TO M/S DELUXE KAARAN IMPORTS P. LT D. THIS WAS ALSO CONFRONTED TO ASSESSEE SPECIFICALLY VIDE ORDER SHEE T ENTRY DATED 10.12.2008 .NO SATISFACTORY EXPLANATION WAS ADVANCE D IN THIS REGARD. IN VIEW OF DETAILED DISCUSSION ABOVE THE UNACCOUNT ED INCOME FOR THE YEAR UNDER CONSIDERATION EARNED BY WAY OF CASH SALES IS ESTIMATED AT RS 45 00 900 (6% OF RS 750 15 000) AND THE SAME WAS ADDED TO THE INCOME OF THE ASSESSEE. 9. ON APPEAL BEFORE THE LD. CIT(A) THE ASSESSEE SU BMITTED VIDE THEIR SUBMISSIONS DATED 25.1.20101 AS UNDER: WE WOULD LIKE TO STATE THAT THE ABOVEMENTIONED PA RTIES ARE GENUINE AND ARE REGISTERED WITH VARIOUS AUTHORITIES INCLUDING I NCOME-TAX SALES TAX AND DGFT. THESE PARTIES ARE HOLDING INCOME TAX P.A .NO. IMPORTER EXPORTER CODE NO. (IEC) ISSUED BY DGFT AND SALES TAX REGISTRATION NUMBERS AND THE SAME HAVE ALREADY BEEN SUBMITTED TO THE AO AND KEPT ON RECORD EARLIER. FURTHER THE APPELLANT HAS ENTERE D INTO HIGH SEA SALE AGREEMENT WITH THE ABOVEMENTIONED PARTIES AND THE SAME HAVE BEEN REGISTERED WITH CUSTOM HOUSE AUTHORITIES AND ALL PA YMENTS RECEIVED FROM THE SAID PARTIES ARE OTHERWISE THAN BY WAY OF CASH . WE WOULD ALSO LIKE TO STATE THAT THE APPELLANT WAS DOING BUSINESS WITH AL L THE ABOVE MENTIONED PARTIES THROUGH BROKERS AND DID NOT HAVE DIRECT CON TACT WITH THEM. FURTHER IN THE CASE OF SHRI HEETESH PANCHAMATIA WE WOULD LIKE TO STATE THAT THE SAID INDIVIDUAL HAD EXPIRED ON 22.5.2007 A ND HENCE HE COULD NOT BE PRODUCED IN PERSON BEFORE THE AO. COPY OF DEATH CERTIFICATE IS ENCLOSED HEREWITH AND MARKED AS EXHIBIT A. THE SAME HAS AL READY BEEN KEPT ON RECORD EARLIER. IN THE GIVEN CIRCUMSTANCES ONLY ON THE BASIS OF STATEMENTS OF 2 INDIVIDUALS WHO APPEARED BEFORE THE AO ENTIRE SALES TO THESE PARTIES HAVE BEEN CONSIDERED AS BOGUS. WITHOUT PREJUDICE TO WHAT IS STATED ABOVE PRE SUMING BUT NOT ADMITTING AND CONSIDERING THE WORST CASE SCENARIO E VEN IF THE ABOVEMENTIONED PARTIES ARE CONSIDERED TO BE FICTITI OUS THE ADDITION MADE BY THE AO ON ACCOUNT OF ESTIMATED GROSS PROFIT @ 6% ON AMOUNT OF CHEQUES RECEIVED BY THE APPELLANT FROM THESE PARTIE S IS VERY HIGH AND NOT DELUXE KAARAN IMPORTS 8 JUSTIFIED . FURTHER THE AO HAS ARRIVED AT THE GROSS PROFIT RATE OF 6% ON THE BASIS OF CERTAIN SEIZED MATERIAL CONTAINED IN ANNEX URE A1 TO PANCHANAMA DATED 6.10.2006 WHICH CONTAINED DETAILS OF SALES MA DE BY THE ALLEGED FICTITIOUS CONCERNS TO THIRD PARTIES FOR F.Y.2006-0 7 ONLY. 10. THE AR OF THE APPELLANT FURTHER SUBMITTED AS UNDER: WE WOULD LIKE TO STATE THAT FIRSTLY WE FAIL TO UND ERSTAND THE BASIS ON WHICH THE AO HAS ARRIVED AT THE GROSS PROFIT RATIO OF 8%. FURTHER WHILE ARRIVING AT SUCH GROSS PROFIT RATIO OF 8% THE AO HA S CONSIDERED ONLY 9 INSTANCES OF HIGH SEA SALES MADE BY THE APPELLANT W HICH FORMS PART OF THE SEIZED MATERIAL. OUT OF THE SAID 9 INSTANCES THE T RANSACTIONS COVERED BY SR. NO. 1 7 2 WERE EX BOND TRANSACTIONS AND THE PUR CHASER HAD INCURRED EXPENSES ON BONDING EX BONDING LOADING AND UNLOADIN G AND EVEN THEN THE PROFIT MARGIN IS HIGH AND THE SAME CANNOT BE RELIED UPON TO ARRIVE AT THE AVERAGE MARGIN. THE TRANSACTION COVERED BY SR. NO. 3 SEEMS TO BE ERRONEOUS AS IT SHOWS GROSS PROFIT OF 92.24% WHICH IS BEYOND IMAGINATION. FURTHER THE TRANSACTIONS COVERED BY TH ESE 9 INSTANCES PERTAIN TO FINANCIAL YEAR 2006-07 AND HENCE THE RESULT SHOW N BY THESE INSTANCES CANNOT BE GROSSLY APPLIED TO THE YEAR UNDER CONSIDE RATION; FURTHER THE RESULT SHOWN BY THESE 9 INSTANCES CANNOT BE APPLIED TO ALL THE TRANSACTIONS ENTERED INTO WITH THE SAID PARTIES. AT BEST EVEN IF ADDITION HAS TO BE MADE IT CAN BE MADE ONLY IN RESPECT OF THE 9 INSTA NCES FOUND DURING THE COURSE OF SEARCH. HENCE THE ADDITION MADE BY THE A O IS ARBITRARY IN NATURE AND IS BASED ON CONJECTURES AND SURMISES. RELIANCE IS PLACED ON THE FOLLOWING DECISIONS: N.R. PAPER AND BOARD LTD AND OTHERS VS. DCIT 234 ITR 733(GUJ) CIT M/S ASHIM KRISHNA MONDAL 270 ITR 160(CAL) CIT VS RAVIKANT JAIN 250 ITR 141 (DEL.) FURTHER WE WOULD LIKE TO STATE THAT IN CASE OF HIG H SEA SALES THE VOLUMES ARE HIGH AND MARGINS ARE VERY LOW AS COMPAR ED TO LOCAL SALES SINCE IT IS THE BUYERS RESPONSIBILITY TO CLEAR THE GOODS FROM PORT PAY CUSTOMS DUTY ARRANGE FOR TRANSPORTATION INSURANCE ETC. HENCE THE SELLER HAS A LIMITED ROLE TO PLAY. FURTHER THE TIME SPAN BETWEEN IMPORT AND SALE WORKING CAPITAL AND RISK INVOLVED IS ALSO MINIMUM A ND SO ARE THE MARGINS FURTHER IN CASE OF PLASTIC RAW MATERIALS THE FLUC TUATIONS IN PRICES ARE VERY HIGH AND THIS ALSO AFFECTS THE PROFIT MARGIN. FOR YOUR HONOURS READY REFERENCE WE ENCLOSE HER EWITH A STATEMENT OF GROSS PROFIT EARNED BY THE APPELLANT IN ALL THE YEA RS ON SALES MADE TO THE INTERMEDIATE CONCERNS AND SALES MADE TO OTHER PARTI ES (COPY ENCLOSED AND DELUXE KAARAN IMPORTS 9 MARKED AS EXHIBIT B) THE STATEMENT REVEALS THAT EV EN IN CASES OF SALES MADE BY THE APPELLANT DIRECTLY TO THIRD PARTIES WHE RE INTERMEDIATE PARTIES ARE NOT INVOLVED THE AVERAGE PROFIT MARGIN EARNED IN 2.27%). 11. THE LD. CIT(A) PARTLY ALLOWED THE CLAIM OF THE ASSESSEE AS UNDER: I HAVE PERUSED THE SUBMISSIONS MADE BY THE APPELLA NT. IT IS SEEN THAT THE STATEMENTS OF TWO INDIVIDUALS HAVE BEEN RE CORDED. THUS IT IS SEEN THAT THE AO HAS BASED HER CONCLUSIONS ONLY ON THE S TATEMENT OF THESE TWO PARTIES. BESIDES THERE ARE ONLY NINE INSTANCES OF F URTHER SALES IN THE COURSE OF HIGH SEA SALES WHICH HAVE BEEN FOUND IN THE SEIZ ED MATERIAL AND THE AO HAS APPLIED THE SAID RATIO TO THE TOTAL TRANSACT IONS OF THE APPELLANT WITH THESE PARTIES. IN OTHER WORDS THE AO HAS BASED HER CONCLUSIONS DRAWN FROM TOTAL SALES OF AROUND RS 6 CRORES AND APPLIED THE SAME TO TOTAL SALES OF RS 52.30 CRORES MADE OVER A PERIOD OF SIX YEARS. THUS I FIND THAT WHAT IS FOUND IN ONE YEAR FOR CERTAIN TRANSACTIONS CANNO T BE APPLIED TO ALL THE SIX YEARS AND AGAIN ON ALL THE TRANSACTIONS. BESIDE S THERE IS ALSO FORCE IN THE SUBMISSIONS OF THE APPELLANT THAT THE FIRST THR EE TRANSACTIONS CITED BY THE AO ARE INCORRECT AS THEY GIVE ABNORMAL RESULTS. IT IS ALSO SEEN THAT THE APPELLANT HAS EARNED GROSS PROFIT OF AROUND 2% IN T HEIR TRANSACTIONS WITH OTHER PARTIES OTHER THAN THE ALLEGED FICTITIOUS PAR TIES. IN SUCH CIRCUMSTANCES. IT IS TOO MUCH TO ASSUME THAT THE AP PELLANT HAS EARNED A PROFIT RANGING 9% TO 92%. IN VIEW OF ABOVE AND LOOKING AT THE TOTALLY OF THE FACTS AND CIRCUMSTANCES I HOLD THAT THE G.P. OF 6% APPLIED BY THE A.O. IS I LLOGICAL AND UNREASONABLE AND CONSIDERING THE VOLUME OF THE TRANSACTIONS IN S UCH TRADE AND ALSO THE FLUCTUATION IN PRICES IN THE ITEMS DEALT IN BY THE APPELLANT AN ADDITION OF 0.30% WOULD BE REASONABLE CONSIDERING ALL THE FACTS AND THE CIRCUMSTANCES AND ALSO THE STATEMENT RECORDED DURIN G THE COURSE OF ASSESSMENT PROCEEDINGS. 12. AGGRIEVED BOTH THE ASSESSEE AND THE REVENUE AR E ON APPEAL BEFORE US. THE ASSESSEE HAS QUESTIONED THE ORDER OF THE LD. CI T(A) DETERMINING THE UNDISCLOSED INCOME AT 0.30% AND THE REVENUE IS ON A PPEAL AGAINST THE LD. CIT(A) REDUCING THE UNDISCLOSED INCOME FROM 6% TO 0 .30%. THE ASSESSEE HAS ALSO FILED A CALCULATION WITHOUT PREJUDICE TO THEI R OTHER CLAIM THAT ADDITION CAN BE MADE ONLY ON THE BASIS OF THE 9 SAMPLES TAKEN BY THE AO. IF THIS IS TAKEN AND COMPARED TO THE PROFITS ALREADY OFFERED BY THE ASSE SSEE THE ADDITION CAN ONLY BE RS. 91.51 LAKHS FOR ALL THE THREE YEARS (RS. 4.83 L AKHS FOR A.Y 2005-06 RS. 64.60 DELUXE KAARAN IMPORTS 10 LAKHS FOR A.Y 2006-07 AND RS. 22.09 LAKHS FOR A.Y 2 007-08). FURTHER THE AMOUNT ALREADY DECLARED BY THE ASSESSEE FOR AY 2006-07 MAY BE GIVEN CREDIT TO. 13. WE HEARD BOTH THE SIDES. THE PROBLEM IN DECIDIN G THE ISSUE IS THE LACK OF MATERIAL AND FACTS CONCERNING THESE SO CALLED FICTI TIOUS TRANSACTIONS TO ENABLE US TO COME TO ANY CONCLUSION. THE AO ANALYSED 9 TRANS ACTIONS AND ARRIVED AT AN ESTIMATED PROFIT IN RESPECT OF ALL THE TRANSACTIONS . THE LD. CIT(A) AFTER HOLDING THAT THE ADDITIONAL PERCENTAGE OF 6% AS UNDISCLOSED INCOME IS ILLOGICAL AND UNREASONABLE GETS THE NUMBER OF 0.30% OUT OF THE B LUE TO BE THE ADDITIONAL UNDISCLOSED PROFIT. WE DO NOT SEE HOW THE CIT(A) AR RIVED AT THIS MAGICAL FIGURE OF 0.30% AS THE PERCENTAGE OF UNDISCLOSED INCOME B ASED ON THE SAME MATERIAL BEFORE THE AO. WE THEREFORE DEEM IT FIT TO REMIT THE MATTER TO THE FILES OF THE CIT(A) TO RECONSIDER THE ISSUE. 14. IN THE RESULT THE APPEALS BY THE ASSESSEE AND T HE REVENUE IS DEEMED TO BE ALLOWED FOR STATISTICAL PURPOSES. 15. THE SAME IS THE POSITION FOR A.Y 2006-07 AND 20 07-08 ALSO. IN EACH OF THESE YEARS THE AO MADE AN ADDITION OF 6% OF THE HI GH SEAS SALES AS UNACCOUNTED INCOME WHICH HAS BEEN REDUCED TO 0.30% BY THE CIT(A). BOTH THE ASSESSEE AND THE REVENUE IS ON APPEAL BEFORE US. FO R THE REASONS STATED IN THE ASSESSEE/ REVENUES APPEALS FOR A.Y 2005-06 ALL THE APPEALS OF BOTH THE ASSESSEE AND REVENUE FOR BOTH THE YEARS ARE SET ASIDE TO THE FILES OF THE LD. CIT(A) FOR CONSIDERATION DE NOVO AFTER GIVING REASONABLE OPPOR TUNITY AND TO ARRIVE AT A REASONED ORDER. THE AMOUNT ALREADY OFFERED BY THE A SSESSEE ON THIS ACCOUNT IN THEIR RETURN OF INCOME SHALL BE GIVEN CREDIT TO WHI LE DETERMINING THE ADDITIONAL INCOME IF ANY TO BE ADDED 16. IN THE RESULT THE APPEALS IN ITA NOS. 2820 TO 2 822/M/10 BY THE ASSESSEE AND ITA NOS.2796 TO 2798/M/10 BY TH E REVENUE FOR THE A.YRS DELUXE KAARAN IMPORTS 11 2005-06 2006-07 AND 2007-08 RESPECTIVELY ARE TREAT ED AS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON THIS 29 TH DAY OF JULY 2011 SD/- SD/- (PRAMOD KUMAR) (ASHA VIJAYARAGHAVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI DATED 29 TH JULY 2011 RJ COPY TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT-CONCERNED 4. THE CIT(A)-CONCERNED 5. THE DR D BENCH TRUE COPY BY ORDER ASSTT. REGISTRAR I.T.A.T MUMBAI DELUXE KAARAN IMPORTS 12 DATE INITIALS 1 DRAFT DICTATED ON: 25.7.2011 SR. PS/PS 2. DRAFT PLACED BEFORE AUTHOR: 2 6 .0 7 .2011 ______ SR. PS/PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER: _________ ______ JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER: _________ ______ JM/AM 5. APPROVED DRAFT COMES TO THE SR. PS/PS: _________ ______ SR. PS/PS 6. KEPT FOR PRONOUNCEMENT ON: _________ ______ SR. PS/PS 7. FILE SENT TO THE BENCH CLERK: _________ ______ SR. PS/PS 8. 9. DATE ON WHICH FILE GOES TO THE HEAD CLERK: DATE ON WHICH FILE GOES TO AR _________ ______ 10. DATE OF DISPATCH OF ORDER: _________ ______