Income Tax – Bogus purchases – Upward adjustment – Appellant/assessee is engaged in trading of edible oils, guar seed and other products – Assessee has claimed to have made purchases with its associates enterprises – After detailed examination, Transfer Pricing Officer (TPO) found transaction to be bogus and proposed upward adjustment – AO completed assessment by incorporating adjustment proposed by TPO – Dispute Resolution Panel (DRP) affirmed action of AO – Whether DRP has erred in confirming addition made by AO on account of bogus purchases – HELD – During year under consideration, assessee has claimed to have made transaction of high seas purchase and sale of commodities – Date of purchase as per invoice copy submitted by assessee was different from date of purchases as per invoice copy of third party – Since dates as mentioned by assessee in invoice did not match with date of purchase of original buyer, same could not be treated as high seas purchase, as same was bogus purchase shown by assessee – AO, TPO as well as DRP have dealt with issue in detail and thereafter, they have given a clear cut finding that transactions are bogus – Upon carefully considering orders of lower authorities, it is evident that all issues raised by assessee have been answered elaborately and these orders do not need any interference – Appeal dismissed.

 

2023-VIL-1241-ITAT-MUM

 

IN THE INCOME TAX APPELLATE TRIBUNAL

“K” BENCH, MUMBAI

 

ITA no.1453/Mum. / 2017

(Assessment Year: 2013-14)

 

Date of Hearing: 06.11.2019

Date of Order: 07.01.2020

 

M/s IMPERIAL MARK TRADE

 

Vs

 

DY. CIT, C.C.-7(2)

 

Assessee by: None

Revenue by: Shri. Anand Mohan

 

BENCH

SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER

SHRI PAWAN SINGH, JUDICIAL MEMBER

 

ORDER

 

PER: SHAMIM YAHYA

 

This is an appeal by the assessee against the order of the Assessing Officer dated 29/03/2016 u/s.143(3) r.w.s. 144C(1) of the Income Tax Act, 1961 pursuant to the direction of the Dispute Resolution Panel dated 23/12/2016.

 

2. The grounds of appeal read as under: -

 

“Being aggrieved by the order of DCIT, Central Circle - 7(2), Mumbai ('learned Assessing Officer') issued under section 143(3) read with section 144C(13) of the Income-tax Act, 1961 ('Act'), this appeal petition is submitted on the following grounds which it is prayed may be considered independently without prejudice to one another;

 

1.0) Jurisdiction exercised by the learned Transfer Pricing Officer is bad in law

 

On the facts and circumstances of the case and in law the Hon'ble DRP-1, Mumbai ('DRP') erred in confirming the determination of the Arm's Length Price ('ALP') at NIL by the learned Transfer Pricing Officer ('TPO'J in his order under section 92CA by treating the specified domestic transactions ('SDT'J as bogus and sham transactions. The reference made to the learned TPO by the learned Assessing Officer under section 92CA is merely for the purpose of verification and determination of the ALP of the SDT and therefore, the learned TPO exceeded his jurisdiction by characterizing the SDT as bogus transactions without undertaking any benchmarking / functional analysis of the same.

 

Therefore, the transfer pricing adjustments aggregating to Rs.245,45,18,050 confirmed by Hon'ble DRP is bad in law and needs to be deleted.

 

2.0) Disallowance / transfer pricing adjustment of high seas purchases of Crude Palm Oil amounting to Rs. 1,22,70,68,280

 

2.1) On the facts and circumstances of the case and in law, the Hon'ble DRP erred in rejecting the objection raised by the Appellant that the date of entering into contract for purchase of crude palm oil and the actual date of import mentioned in the tax invoice were interchanged by the learned TPO based on which the purchases were held to be non-genuine and sham transactions.

 

2.2) Hon'ble DRP erred in confirming that the purchase of crude palm oil was in the nature of bogus purchase merely based on the observation of learned TPO in relation to the dates of purchases, ignoring the submission and following documentary evidences produced by the Appellant before the learned TPO in support of the genuineness of the SDT:

 

a) Copies of contract of purchases

b) Copies of tax invoices

c) Copies of bill of lading

d) Confirmations from the parties to whom the goods so imported were subsequently sold on high seas basis

e) Quantitative analysis and reconciliation of purchase and sales

f) One-to-one nexus of purchases vis-a-vis sales Therefore, the transfer pricing adjustment on purchase of crude palm oil amounting to Rs.1,22,70,68,280 confirmed by Hon'ble DRP is bad in law and needs to be deleted.

 

3.0) Disallowance / transfer pricing adjustment of purchase of quar gum (split) amounting to Rs. 1,00,82,50,230

 

3.1) On the facts and circumstances of the case and in law, the Hon'ble DRP erred in dismissing the objection raised by the Appellant that the learned TPO has treated the date of entering into contract for purchase of guar gum i.e. 1 March 2013 as the actual date of purchase instead of the date of delivery and purchase as mentioned in the tax invoice i.e. 31 March 2013 based on which the purchases were held to be non- genuine and sham transactions.

 

3.2) Hon'ble DRP erred in confirming that the purchase of guar gum was in the nature of bogus purchase merely based on the observation of learned TPO in relation to the dates of purchases, ignoring the submissions and following documentary evidences produced by the Appellant in support of the genuineness of the SDT;

 

a) Copies of tax invoices of buyer (appellant) as well as the seller i.e. Stride Multitrade Pvt Ltd

 

b) Copy of acknowledged intimations to the Godown in relation to transfer of goods by the buyer (Appellant) as well as the seller (Stride Multitrade Pvt Ltd)

 

c) Quantitative analysis and reconciliation of purchase and sales

 

Therefore, the transfer pricing adjustment on purchase of guar split (gum) amounting to Rs. 1,00,82,50,230 confirmed by Hon'ble DRP is bad in law and needs to be deleted.

 

4.0) Disallowance / transfer pricing adjustment of sales return of quar seeds amounting to Rs. 21,91,99,540

 

On the facts and circumstances of the case and in law, the learned Assessing Officer erred in making protective addition of the sales returns amounting to Rs. 21,91,99,540 by stating that the learned TPO has not verified the details of sales return upon reference made to him even after specific direction issued by the Hon'ble DRP. Accordingly, the transfer pricing adjustment of sales return of guar seeds amounting to Rs. 21,91,99,540 is bad in law and needs to be deleted.

 

5.0) Disallowance of loss on high sea sales of crude palm oil amounting to Rs. 8.82,90,741/-

 

5.1) On the facts and circumstances of the case and in law, the Hon'ble DRP erred in confirming the disallowance of the alleged loss on high seas sales of Rs. 8,82,90,741 made by the learned Assessing Officer ignoring the submissions of the Appellant that the figures considered by the learned Assessing Officer does not pertain to the Appellant's case and ignoring the fact that the Appellant has actually earned profit of Rs 13,05,01,658 from the high seas of crude palm oil.

 

5.2) Hon'ble DRP erred in confirming the observations made by the learned Assessing Officer ignoring the several documentary evidences produced in support of the high seas transactions by the Appellant.

 

Therefore, the addition of alleged loss on high sea sales of crude palm oil amounting to Rs. 8,82,90,741 is bad in law and needs to be deleted.

 

6.0) The appellant company craves leave to add, to amend, alter / delete and / or modify the above grounds of appeal on or before the final hearing.

 

3. Brief facts are that assessee was incorporated in 1999. The assessee company is mainly engaged in trading of edible oils, gaurgum, guarseed and other products. It undertakes the activities by way of physical trading as well as on commodity exchange. In the case of physical trading it either directly purchases and sells goods or sells the goods after processing which is done by others on job work basis.

 

4. During the year, the assessee has entered into following specified transactions with its associates enterprises which is as follows:

 

 

5. During the year, the assessee has claimed to have made purchases with the aforesaid companies. The details of the same were called for by the TPO. It was stated that as regards purchase of crude palm oil all the purchases high seas purchases and assessee has not taken any physical delivery of the goods but before landing of consignment it has sold the goods by agreement of sale to Impetus Marktrade, WOPL, RSIL and Frame Impex under high sea sale, after movement of goods from the territorial border of exporter but before arrival of goods into the territorial border of India i.e. before the ship reached the Indian shores.

 

6. After detailed examination, the Transfer Pricing officer found transaction to be bogus. The Transfer Pricing Officer noted that the assessee had made high seas purchases from the following: -

 

Empire Multi trade – Rs.60,91,80,233/-

Kuldeep Overseas – Rs.55,75,91,557/-

Aishwarya Mark Trade India – Rs.6,02,96,490/-

 

7. In the purchases made from all the above parties, the TPO has observed that the date of purchase as per the invoice copy submitted by the assessee was different from the date of purchases as per the invoice copy of the third party. The TPO has also observed that the assessee had shown an earlier date of purchase in its invoice copy as against the date of the original buyer which is much after the date of the purchases shown by the assessee. Since the dates as mentioned by the assessee in the invoice did not match with the date of purchase of the original buyer, the same could not be treated as high seas purchase as the same was bogus purchase shown by the assessee.

 

8. With regard to purchase of guar split, the TPO has observed that the assessee had written a letter to the warehouse on 4/3/2013 informing the warehouse about the sale of guar split which was purchased by the assessee from Stride Multi-trade Limited as per the letter dated 1/3/2013 to the warehouse owner, however, the purchase was booked by the assessee on 31/03/2013. Therefore, considering the difference in the date of letter issued to the warehouse and the date of purchase as taken by the assessee, the said purchase was treated as bogus transaction entered into by the assessee.

 

9. With regard to the purchase of guar seed, the TPO has commented that the assessee itself has agreed to the non-genuineness of the purchase transaction hence, the same was treated as bogus transaction entered into by the assessee.

 

The TPO finally concluded as under:-

 

In view of the above discussion the total adjustments made to the international transactions reported by the assessee for assessment year 2012 -2013 stands as below:

 

Sr. No.	Particulars	Amount in Rs	ALP
1.	Purchase of Crude Palm Oil from Empire Multitrade P. Ltd.	60,91,80,233	NIL
2.	Purchase of Crude Palm Oil from Kuldeep Overseas P. Ltd.	55,75,91,557	NIL
3.	Purchase of Crude Palm Oil from Aishwarya Mark Trade India P. Ltd.	6,02,96,490	NIL
4.	Purchase of Guar Seed Stride Multitrade P. Ltd	21,91,99,540	NIL
5.	Purchase of Guar Gum Split from Stride Multitrade P. Ltd.	100,82,50,230	NIL
	Total	245,45,18,050	NIL

 

10. Upon assessee's objection, the DRP referred to several case laws on the issue of bogus transactions. Thereafter, it affirmed the TPO's action by observing as under: -

 

“1.2.21 We have gone through the submission of the assessee and the order of the TPO. The objection of the assessee that it was outside the jurisdiction of the TPO to verify the genuineness of the transaction is not accepted because when AO transfers a case to the Transfer Pricing Officer it becomes the obligation of the TPO to verify if the transactions are genuine and then determine the ALP. Hence, the TPO has rightly verified the genuineness of the transaction. Accordingly the said ground of the assessee is dismissed.

 

1.2.22 As regards High Seas purchases made by the assessee, we agree with the observation of the TPO that the date of purchase as per the invoice of the assessee and as per the invoice of the final buyer cannot vary and there cannot be a difference in the dates of invoices. Moreover, we find that all the parties to the so called 'High Seas Sales' are from Ruchi Soya Group and the transactions have been arranged in order to create a facade and to hoodwink the Revenue. All the case laws cited supra are applicable on all fours to the facts of this case, Hence, the addition of Rs. 122,70,68,280/-made by the TPO on account of High seas purchases of palm oil is confirmed and the objection of the assessee is rejected.

 

1.2.23 As regards purchases of Guar Split by the assessee it is observed by the panel that the letters issued to the warehouse owners is much before the purchase date of the goods by the assessee i.e. if the purchases Itself are done on 31/03/2013 then how could the supplier intimate the warehouse on 01/03/2013 about the future purchases. Hence, the order of the TPO on addition of Rs. 100,82,50,230/- treating the purchase of guar split as bogus purchases is confirmed and the objection of the assessee is rejected. An attempt was made to furnish certain additional evidence in the form of purported acknowledgement copies of letters submitted to the godown by Stride Multi trade and by the company. However, no reasons have been given as to why these could not be produced before the AO. In fact, no application adverting to DRP Rules for adducing evidence has been submitted. We find these documents to be self serving. As the transactions have been held as bogus, we turn down the request and dismiss the assessee's request.

 

1.2.24 As regards Purchases of guar seeds by the assessee it is observed that the assessee has by mistake shown the purchase of guar seeds instead of showing the same as sales return and even the TPO has mentioned In detail about the reason for addition. Hence, the AO is directed to verify if the assessee has by mistake shown purchases instead of sales return and also verify if the corresponding sales were genuinely booked by the assessee in its books of accounts and if the facts of the assessee are correct, the AO is directed to rectify the order accordingly.”

 

Disallowance of loss of rupees Rs.8,82,90,741/-

 

11. On this issue the assessing officer observed that on perusal of the details of purchase and sale submitted by the assessee, it was noted that during the year under consideration the assessee has made transaction of high seas purchase and sale of commodities. The total sale and purchases of such high seas transactions during the year is tabulated below:

 

 

12. After examining the issue, the Assessing Officer found transaction to be bogus. The AO's finding in this regard are summarised as under: -

 

· It was observed from the details provided by the assessee that In certain cases the assessee had imported goods on high seas basis which were actually purchases of Ruchi Soya Industries Limited.

 

· In High Seas Sales, the agreement should be entered on a stamp paper after dispatch from the port of origin and before delivery at the port of destination, the bill of lading should be endorsed in the name of the new buyer. The endorsement should mention that the goods are being transferred on high seas basis and the amount of goods should also be mentioned. The AO has observed that the assessee has not produced before the AO any of these documents as mentioned.

 

· Search Operations were carried out on M/s Ruchi Soya Industries Limited and during the course of search incriminating documents pertaining to the assessee were found fn the premises of Ruchi Soya Industries Limited. During the course of search the statement of director of the assessee company was recorded and the director in his statement had stated that he was also an employee of Ruchi Soya Industries Limited.

 

· The assessee company had neither imported the goods nor cleared the goods. Both importing and clearing of the goods were done by M/s Ruchi Soya Industries Limited.

 

· The actual High Seas sales were done by Ruchi Soya Industries Limited and the assessee company was merely an intermediary company where the purchases were shown and also the sale was shown on the same day itself at a much lower price.

 

· Hence, the assessee company had shown the transaction in the books of accounts without actually executing any documents / taking delivery of the goods etc.

 

13. Upon assessee's objection the DRP upheld the assessing officer's action by observing as under: -

 

“2.2.3 We have gone through the assessment order, The AO has mentioned in detail the entire transaction of High Seas Sate & Purchase executed by the assessee and it is also seen that the AO has taken efforts to carry out the investigation through the details available on record of M/s Ruchi Soya Industries to come to a final conclusion. We concur with the findings given by him on the basis of data emanating four records. Hence, the disallowance of Loss on account of High seas Purchase and sale by the AO is upheld and the objection filed by the assessee is rejected.”.

 

14. Against the above assessee is in appeal before the ITAT. We have heard the learned departmental representative. It is noted that assessee has been seeking adjournment on one pretext or another for several occasions. Accordingly this appeal has been heard ex parte.

 

15. Upon careful consideration we find that there is an unequivocal finding in detail that the transactions claimed by the assessee are bogus. The Assessing Officer, the Transfer Pricing Officer as well as the Dispute Resolution Panel have dealt with the issue in detail and thereafter, they have given a clear cut finding that the transactions are bogus. Upon carefully considering the orders of authorities below, we find that all the issues raised by the assessee have been answered elaborately and these orders do not need any interference on our part. In this regard, we would also like to refer to the decision of ITAT referred by the learned that Departmental representative on a similar bogus transaction involving the same party i.e. Ruchi industries in the case of M/s. Marshal Multitrade Pvt. Ltd., in ITA No. 3758/Mum/2018 dated 19/07/2019 wherein the ITAT has concluded as under: -

 

“14. We have heard both the counsel perused the records, we find that assessee company during the year has engaged in high sea purchase and sale transaction on 16 different occasions on back-to-back basis. The origins of the goods where the same and ultimate destination was same that is Ruchi Soya limited. The transactions were entered into in a short period of 2 months. Except for 2 transactions where small profit of Rs. 6,280/- was booked, losses of Rs. 241842096/- were booked. All these transactions are entirely non-- delivery based. The contracts for the high sea sales were entered mid of September 2012 to October 2012. The contracts were not registered. In these circumstances it was amply clear that the transactions were dubious in nature and required proper explanation. The fact that the transactions were unusual the ultimate consignee was Ruchi Soya Ltd. was glaring. The assessing officer has asked the assessee to give details of its sister concern's. But the assessee never gave the details. The detail of sister concern would certainly shed light on the parties with whom the transactions have been entered as to whether they are at arm's length with each or not. The unusual loss hence obviously needed explanation. The assessing officer asked the assessee to explain the reason for the unusual loss. The assessee never gave any explanation. The assessing officer without any application of mind and without bringing on record the reply or the result of any further enquiry laconically passed the summary assessment order allowing the huge loss

 

15. In these circumstances the Learned counsel of the assessee's contention that assessee has provided all the necessary details and the assessing officer has applied his mind is clearly not sustainable. The case laws referred by the Ld counsel of the assessee are not applicable on the facts of the case. In our considered opinion on the facts of this case the decision of honourable Supreme Court in the case of Deniel Merchants P. Ltd. and Anther (supra) is fully applicable. In the said case honourable apex court has expounded that "In all these cases, we find that the Commissioner of Income Tax had passed an order under Section 263 of the Income Tax Act, 1961 with the observations that the Assessing Officer did not make any proper inquiry while making the assessment and accepting the explanation of the assessee(s) insofar as receipt of share application money is concerned. On that basis the Commissioner of Income Tax had, after setting aside the order of the Assessing Officer, simply directed the Assessing Officer to carry thorough and detailed inquiry. It is this order which is upheld by the High Court. We see no reason to interfere with the order of the High Court. The Special Leave Petitions are dismissed". 16. We find that the above case law is fully applicable on the facts of this case. Rather in the present case before us the assessee has not given the explanation for the unusual loss despite inquiry. It has also not given details of sister concern. This is vital in view of the dubious nature of layered transaction. Hence in the background of the aforesaid discussion and precedent in our considered opinion there is no infirmity in the order of learned CIT. hence, we uphold the same.

 

The order applies mutatis mutandis to both the appeals.”

 

16. Upon careful consideration of the issue involved we are of the considered opinion that the orders of authorities below do not need any interference on our part. Accordingly, we uphold the same.

 

17. In the result, this appeal by the assessee stands dismissed.

 

Order pronounced in the Open Court on 07/01/2020

 

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