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Judgment
PERANUBHAV SHARMA, JUDICIAL MEMBER:
This appeal preferred by the assessee against the order dated 15.10.2025 of Ld. National Faceless Appeal Centre (NFAC) Delhi (hereinafter referred to as the First Appellate Authority or ‘the ld. FAA’ for short) in DIN & Order No: ITBA/NFAC/S/250/2025-26/1081766874(1) arising out of the assessment order dated 18.12.2017 u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) passed by ACIT, Circle 52(1) New Delhi, for AY: 2015-16.
Heard and perused the record. Assessee is a partnership firm and holds a 131.825 MHZ radio frequency license issued by department of Telecommunication for using the 131.825 MHz radio frequency spectrum for providing air-to-ground VHF datalink services from data link ground stations located in India. The assessee’s return of income was picked up for limited scrutiny and during the assessment proceedings the AO examined the issue of mismatch in import duty and custom duty payment. Ld. AO after examining the issue has concluded that the Import- Export Code (IEC) of the assesse was used to make the imports and the assessee’s claim that the same were made without its knowledge was found to be not sustainable. Ld. AO concluded that assesse had made purchases against which import duty has been paid during the relevant year and the same has never been booked in the financials of assesse, hence, the same were considered to be out of books/bogus purchases and a total invoice value of Rs.84,63,000/- against the import purchases made by the assesse were added back to the income of the assesse under the head business and profession as per Section 69A of the Act and for completeness we reproduce the findings of ld. CIT(A) in para 5.1 to 5.4:
“5.1.The Critical Failure to Discharge Onus of Proof ():5.1.1. The crux of the matter lies in the fundamental legal principle of the (burden of proof) in income tax proceedings. When the AO brings forth specific evidence or information, such as the use of a key statutory identifier like the Import-Export Code (IEC), that points towards financial transactions leading to taxable income, the onus shifts squarely to the assessee to prove the negative that these transactions were either genuine and already accounted for, or, as claimed here, entirely non-genuine and outside the firm's control.
5.1.2.The Appellant's defense, resting on the claim that its IEC code was used "without our knowledge and authorization in grossly illegal and wrongful manner," represents a dramatic and commercially implausible admission of a complete, systemic failure of internal control. For a professional firm, the IEC code is a key asset and regulatory liability. The argument that it was fraudulently utilized for substantial import/clearance transactions without detection or immediate legal action (beyond an ex post facto legal notice) is inherently unconvincing and fails the test of commercial probability and common sense.
5.1.3.A mere declaration of unauthorized use, accompanied by a unilaterally issued legal notice to a third party (Blue Dart), does not meet the standard of conclusive, contemporaneous proof required to refute the AO's findings. To successfully challenge the addition, the Appellant was required to furnish clear evidence of immediate, proactive legal action taken during the assessment year, such as the lodging of a formal criminal complaint with the police or customs authorities, an immediate public notification, and a verifiable reconciliation of its own books showing no financial benefit or loss arising from the purported fraud. The absence of such decisive, real-time action strongly suggests that the claim of "unauthorized use" is a contrived defense strategy rather than a factual account of a genuine business compromise.
5.2.Inadequacy of Documents and Legal Position:5.2.1. The submission of a Certificate and an Agreement with ARIN India Private Limited is also insufficient. If the Appellant argues the transactions were unauthorized, then any agreement presented must conclusively prove that the entire financial and logistical liability for the disputed imports rested with ARING, and that M/s Bird Consultancy Services merely provided an unrelated service, thus disconnecting the income from the IEC usage. The AO's finding that the "relationship between the goods delivered at the ARINC premises and the financial records of the Appellant firm was not reconciled" remains unaddressed by the Appellant's submissions.
5.2.2.The transactions, by their very nature of using the Appellant's IEC, legally attach to the Appellant until conclusive evidence proves otherwise. The legal notice, which attempts to shift the burden onto M/s Blue Dart Express Limited to provide statutory documents, is an administrative action in a commercial dispute, not an income tax defense. The Income Tax Act dictates that the financial entries and consequences arising from the utilization of a firm's legal identity must be explained by the firm itself. The Revenue is not bound to wait for the outcome of potential civil or criminal proceedings between the Appellant and a third-party logistics provider.
5.2.3.The Hon'ble Supreme Court, in SumatiDayal vs. CIT [1995] 214 ITR 801 (SC), emphasized that where the explanation offered by the assessee is implausible or contrary to human probabilities and common sense, the tax authorities are justified in rejecting it, notwithstanding the documents furnished. The present case, involving a professional consultancy firm claiming it was oblivious to the substantial unauthorized use of its legally binding IEC code for import activities, falls squarely within this doctrine of human probability.
5.3. Confirmation of the Assessment and Decision:
5.3.1.The entire edifice of the Appellant's defense lacks coherence and commercial credibility. The failure to offer a clear, logical, and fully documented explanation that segregates the contested financial additions from the firm's genuine income, coupled with the commercially suspect claim of unauthorized IE usage, leaves the Assessing Officer's initial adverse inference unchallenged on merit.
5.3.2.The AO was well within his jurisdiction to conclude that the failure to discharge the onus of proving the source and nature of the transactions warranted the addition. Therefore, based on the principle of and the highly improbable nature of the Appellant's defense, the Assessing Officer's action in treating the amounts associated with the unverifiable transactions as unexplained income is upheld.
5.4. Conclusion:
5.4.3.The Appellant has completely failed to meet the required standard of evidence to challenge the findings of the Assessment Order. The substantial additions made by the Assessing Officer are found to be logical, coherent, and justified given the facts presented and the Appellant's deficient explanation. The appeal is therefore rejected and the Assessment Order dated is confirmed on all grounds.”
The assesse is in appeal and has raised following grounds:
“1.That on facts and in law the order dated 15th October 2025 passed by the Commissioner of Income Tax (Appeals) {hereinafter referred to as the "CIT(A)"} and order dated 18th December 2017 passed by the Assessing Officer {hereinafter referred to as the "AO"} are bad in law and void ab initio.
2.That on facts and in law the CIT(A) has erred in upholding addition of Rs.84,63,000/- made by the AO under section 69A of the Act.
3.That on facts and in law the AO and CIT(A) have erred in holding / upholding that:
(a)Appellant was the buyer of imported goods
(b)M/s Trans Global Logistics acted as a clearing agent for the appellant
(c)Delivery of imported goods was given to the appellant
(d)Appellant had made payment for imported goods which has not been recorded in its books of account.
(e)appellant had a malafide intention of tax avoidance.
4.That on facts and in law the CIT(A) has erred in not appreciating that M/s Trans Global Logistics had conveyed misleading information to the tax department in reply to notices issued u/s 133(6) of the Income Tax Act, 1961.
5.That on facts and in law the CIT(A) has erred in passing the impugned order without objectively considering the written pleadings on record.
6.That on facts and in law the CIT(A) has erred in misrepresenting the findings of assessment order in para 3.2 of the impugned order.
That the appellant craves for leave to add, amend, modify or alter the grounds of appeal.”
We have given considered thought to the submissions which were primarily relying the respective cases as coming up from the assessment order and the order of ld. CIT(A). We find that the ld. CIT(A) has sustained the addition primarily on the basis of failure of assesse to discharge the onus of proof to establish that IEC of assesse was not used by assesse and there was inadequacy of documents in regard to the assertion of assesse that IEC was used by ARNIC.
In this context, we find from the paper book that assesse had filed a letter dated 28.11.2017 available ate page No. 31-32 of the paper book given by ARINC in the form of certificate and the certificate is issued by Director of ARINC India Pvt. Ltd., in which it has been explained that ARINC had entered into an agreement for the provision of ground station services and logistical support on 17.07.2017 with the assesse and this agreement was deemed to be come into force and to apply retrospectively from 27.08.2010. As per the agreement assesse is responsible for providing certain station services and logistical support in respect of radio ground stations which are owned and operated by ARINC. Assessee’s responsibility including the provisions of assistance for customs clearance formalities in respect of the import the equipment into India. It was certified by ARINC in this communication dated 28.11.2017 that in 2014 ARINC required to import certain ground station equipment into India to replace defective parts in existing equipment and the assesse’s assistance was thus, sought for product import and accordingly were arranged by way of shipment to be delivered on delivered duty paid basis into India and the custom duty were paid by ARINC in respect of these shipments as follows:
| i. | Doc No. 5209120/16/04/2024 | Rs.3,25,173/- |
| ii. | Doc No. 5209541/16/04/2024 | Rs.3,25,173/- |
| iii. | Doc No. 5209562/16/04/2014 | Rs.3,25,173/- |
| iv. | Doc No. 5209564/16/04/2024 | Rs.3,25,173/- |
| Rs.13,00,692/- |
Now, the case of ld. AO is that Indian Overseas Bank had informed ld. AO that assesse has paid its custom duty through net banking of M/s Trans Global Logistics maintaining its current account in the Adanbakkam branch in Chennai. We find that AO has then communicated with M/s Trans Global Logistics by issuing a notice u/s 133(6) of the Act and a reply dated 07.11.2017 of received, which is reproduced in the assessment order and based upon the same the conclusions were drawn.
Now, before us ld. Counsel has submitted a paper book and the documents as reflected shows that communications from ARINC were on record before AO and ld. CIT(A). The content of letter dated 28.11.2017 available page page No. 31 of the paper book has been considered above and further there is a letter dated 05.12.2017 at page No. 54 of the paper book wherein ARINC has further confirmed that Bird Consultancy Services did not make payment of the customs duty for such shipment and the title of such equipment belongs to ARINC and not Bird.
Our attention is also drawn to a legal notice issued by assesse dated 11.01.2018 copy of which is available at page No. 56-58 of the paper book wherein assesse has called upon M/s Trans Global Logistics and its partner alleging that the said persons shared incorrect information with ld. Tax authorities and the shipment of goods were on Delivery Duty Paid (DDP) basis with all payments were made by ARINC, USA and that ARINC, USA appointed M/s Polaris Worldwide Logistics, USA as their Freight Forwarding Agent to deliver the goods to M/s Bird Consultancy Services and that M/s Polaris Worldwide Logistics, USA appointed M/s Worldwide Logistics India Pvt. Ltd. to do the services in India and M/s Worldwide Logistics India Pvt. Ltd. in turn appointed them to do the clearance and delivery of the goods to Bird Consultancy Services is wholly false, misconceived and misconstrued because assessee never ordered or purchased such goods from seller stated therein said letter nor assessee ever provided these perosns any requisite authorization, approval, declaration to act as Customs House & Clearance Agent for clearing said goods from Airports or Seaports.
In the aforesaid context, as we consider information given by Trans Global Logistics vide letter dated 07.11.2017 which has been reproduced by AO we find that in the brief facts of the consignment, it is mentioned that seller of goods is ARINC Inc. USA, seller’s USA freight forwarding agent is Polaris Worldwide Logistics, USA, Indian Freight forwarding Agent: is Worldwide Logistics India Pvt. Ltd., India Customs clearance agent: is Trans Global Logistics, buyer of goods is Birds Consultancy Services. Delhi. Thus facts which have been narrated by assesse in the legal notice also find there in this response dated 07.11.2017 of Trans Global Logistics. In fact, Trans Global Logistics in para 4 of this response had mentioned that they had made payments on behalf of the seller of the goods which happens to be ARINC Inc. USA. It was specifically mentioned that they have not raised any invoice nor received any payment from M/s Bird Consultancy Services for this consignment and they have not done any transaction other than the above in AY: 2015-16 with Bird Consultancy.
In the light of aforesaid we are of the considered view that these documentary evidences of the assesse have not been duly appreciated leading to an erroneous conclusion that out of books/bogus purchases of Rs.84,63,000/- were made by the assesse for making an addition u/s 69A of the Act. We are of the considered view that as for the purpose of invoking Section 69A acquisition of some property referred in Section 69A should be established. However, in the case before us the acquisition of property does not seem to be by assessee but by ARINC and merely for contractual arrangement and convenience, if IEC code of assesse was used for the transaction same alone is not sufficient to vest the ownership of the goods with the assesse when otherwise ARINC vide aforesaid communication dated 28.11.2017 and 05.12.2017 had admitted that payments were made by ARINC and the title of the goods also vested with ARINC. As also from any of the financials or any other inquiry of AO it was not established that these goods were used by assesse in any of its operation.
In the light of aforesaid we are inclined to sustain the grounds. The appeal is allowed and the impugned addition is directed to be deleted.