AJAYKUMAR SHROFF,MUMBAI vs. ACIT - 31 (1), MUMBAI

The sole issue in this appeal is with regard to the addition of Rs.2,58,036/- made by the Assessing Officer u/s 69C of the Act treating the purchases to the above extent as unexplained.

The assessee is an individual who is carrying on a proprietary business of manufacturing and trading of industrial filters. The Assessing Officer treated the purchases of Rs.2,58,036/- made from one, M/s. Reliable Metal (India) as being unexplained based on the information received from the Sales Tax Department of Maharashtra to the effect that the supplier in question was a hawala dealer, i.e. it was indulging in issuing accommodation bills without effecting actual purchases/sales. The addition has also been sustained by the CIT(A), against which assessee is in further appeal before us.

Before us, the learned representative for the assessee pointed out that apart from other submissions, assessee had demonstrated before the lower authorities that the materials purchased in question were thereafter sold to third parties and that the sales have not been doubted, therefore, it could not be said that no purchases were effected.

The ld. DR relied on the order of the authorities below.

Having considered the rival submissions, in our considered opinion, the factum of purchases in question remaining unexplained is clearly emerging from the record. No doubt, the Assessing Officer has based his decision on the information provided by the Sales Tax Department of Maharashtra, but he has also carried out a verification exercise and no response was forthcoming from the said party. Therefore, the impugned purchases being unexplained, is clearly discernable. So, however, the other point that is sought to be made by the assessee is that the corresponding sales have not been doubted and, therefore, it can at best be a case where the purchases would have been effected by the assessee in grey market. Under these circumstances, following the ratio of the judgment of the Hon'ble Gujarat High Court in the case of CIT vs. Simit P. Sheth, 356 ITR 451 (Guj), what is liable to be assessed is only the net profit/savings effected by the assessee in making the purchases in grey market, and not the entire amount of such purchases. Taking a cue from the judgment of the Hon'ble Gujarat High Court, we deem it fit and proper to direct the Assessing Officer to retain the addition only to the extent of 12.5% of the purchases and delete the balance.

In the result, appeal of the assessee is partly allowed.