RAJEN NANALAL SHANGHVI,MUMBAI vs. ITO - 25(3)(3), MUMBAI

The assessee company is engaged in the business of trading in gift articles. The revenue received the information from Sales tax department that certain dealers have provided accommodation bills without actually supplying goods. On further examination, the revenue noticed that the assessee herein has purchased goods from a person named M/s Neptune Corporation, who was listed as a hawala dealer by the Sales tax department, for a sum of Rs.35,99,438/-. The assessee furnished the copies of bills, quantitative details, stock register, reconciliation of purchases and sales and payment details to the 2 Rajen Nanalal Shanghvi AO. However, the AO observed that the supplier M/s Neptune Corporation has accepted before the Sales tax authorities that he has provided only accommodation bills and hence the assessee could have obtained only accommodation bills. Since the assessee has reconciled the purchases and sales, the AO took the view that the assessee could have purchased goods from grey market, i.e., the assessee purchased goods from grey market without bills and made good the same by procuring accommodation bills from alleged hawala traders. Accordingly the AO, by placing reliance on the decision rendered by Hon’ble Gujarat High Court in the case of Smit P Shah (ITA No.553 of 2012), took the view that the profit element from the purchases should be estimated. Accordingly he completed the assessment by adding 15% of the purchase value of Rs.35,99,438/- referred above. The Ld CIT(A) confirmed the addition made by the AO and hence the assessee has filed this appeal.

I heard the parties and perused the record. I notice that the assessee has purchased 8012 pieces of a gift article (Popcorn maker) from M/s Neptune corporation. Out of the same, 7412 pieces have been sold to M/s Sun Pharma Ltd and 600 pieces have been sold to M/s Ranbaxy Ltd. The assessee has furnished copies of purchase invoies, sales invoices, copies of orders placed by M/s Sun pharma and M/s Ranbaxy Ltd. The AO has also stated that the assessee has maintained stock register and also reconciled the purchase and sales. Since the sales have been proved, the AO has taken the view that the assessee could have purchased goods from grey market and accordingly estimated the profit that could have been made out of purchases. The Ld CIT(A) has also observed that the purchase of goods are not being doubted, but the source of purchase is being doubted.

The Ld A.R submitted that the Gross profit rate has gone up during the year under consideration as compared earlier years and subsequent years. He

On the contrary, the Ld D.R submitted that the information received from Sales tax department prove that the assessee has received only accommodation bills. The assessee has not produced the supplier nor any confirmation letter filed. The assessee has also not proved the transportation of materials from the supplier to the assessee. Accordingly she submitted that the Ld CIT(A) was justified in upholding the view of the AO that the assessee could have purchased goods from grey market.

I notice that the AO has not doubted the sale of gift articles and doubts the source of purchase only. Though the assessee has produced purchase and sales bills, yet the assessee has not furnished details of transportation of goods. The purchase bills state that “the goods delivered at Bhiwandi Godown on your behalf”. The assessee has not explained the meaning of this statement nor did he explain the mode of transportation. Hence I am of the view that the tax authorities are justified in doubting the source of purchases. However, since the assessee has shown higher G.P rate during the year under consideration, the rate of profit estimated by the AO appears to be on the higher side. Accordingly I am of the view that addition may be restricted to 5% of the purchases in order to take care of the profit, if any, earned from purchases made from other sources. Accordingly I modify the order passed by Ld CIT(A) and direct the AO to make addition at 5% of the purchases made from M/s Neptune corporation.

In the result, the appeal filed by the assessee is partly allowed. Order has been pronounced in the Court on 4.5.2017.