ACIT 6(1), MUMBAI vs. AMITY INTERLINK STEEL P.LTD, MUMBAI

The brief facts of the case are that assessment under Section 143(3) r.w.s. 147 of the Income Tax Act, 1961 (hereinafter “the Act”) was completed on 26.12.2011 assessing total income at `2,75,32,370/-. Thereafter reassessment proceedings were initiated by issuing notice under Section 148 of the Act dated 28th March, 2011 after the AO received an information from the office of the ACIT (Inv), Mumbai that the assessee is a 2 M/s. Amity Interlinks Steels Pvt. Ltd. beneficiary of bogus purchase bills from various concerns which are being operated by Shri Prakash Kedar Patel. In compliance with notice under Section 148 dated 28.03.2011, the assessee submitted a letter dated 12.07.2011 stating that the return filed on 30.09.2004 be treated as return filed in response to notice under Section 148 of the Act and further requested vide letter dated 28.07.2011 to provide reasons for reopening of assessment which were provided vide letter dated 01.08.2011 by the AO. The assessee is a dealer in iron and steel items. During the course of assessment proceedings assessee submitted various details as called for by the AO. It was submitted by the assessee before the AO vide letter dated 18.08.2011 that it has purchased goods worth `1,77,41,902/- from M/s. Kinjal Industrial Corporation and also submitted necessary bills, vouchers, copy of accounts and bank statements to the AO. It was stated before the AO that the purchases were made from this party and corresponding sales were also made during the year or in the subsequent year which were duly recorded and shown in the books of accounts. However the reply of the assessee did not find favour with the AO who added the entire purchases from M/s. Kinjal Industrial Corporation to the tune of `1,77,41,902/- to the income of the assessee on the ground that the principal officer of M/s. Kinjal Industrial Corporation admitted in his statement recorded under Section 131 of the Act that the said concern was involved in providing accommodation bills to various parties without delivering any goods physically in consideration of certain commission. Finally the assessment was framed under Section 143(3) r.w.s. 147 of the Act vide order dated 26.08.2011 assessing the income of the assessee at `4,52,74,270/- .

In the appellate proceedings , the learned CIT(A) allowed the appeal of the assessee by holding and observing as under: -

The learned D.R. submitted before the Bench that the First Appellate Authority has grossly erred on facts and law in deleting the entire addition on account of bogus purchases as made by the AO by ignoring the fact that the principal officer of M/s. Kinjal Industrial Corporation admitted while recording the statement under Section 131 of the Act that the said concern was engaged in the business of providing accommodation entries of purchases for which commission was charged without supplying any material physically. The learned D.R. also submitted that the assessee has failed to produce the parties before the AO and therefore the said purchases could not be confirmed. The learned D.R. contended that the order of the CIT(A) being incorrect and against the facts on record should be reversed and that of the AO be upheld.

Per contra the learned A.R. relied heavily on the order of the CIT(A) by submitting that the assessee has placed all the necessary records available with it regarding the purchases comprising bills, vouchers, copy of ledger accounts, evidence of payment, bank statement and evidence of sales in the books of the assessee. Having filed all these evidences with the AO, the AO is not even bothered to do any verification of the said record or even issued notice under Section 133(6) of the Act to the party but merely relied on the statement of the principal officer of M/s. Kinjal Industrial Corporation and the report of the ACIT (Inv), Unit-II(3), Mumbai. The learned A.R. prayed that on the said failure on the part of the AO to carry out investigation, the revenue has no case. The learned AR contended that the assessee has discharged its onus by filing the necessary evidences before the AO and it the AO who has failed to bring any materials on record to prove the purchases to be non-genuine. Therefore, the order of 4 M/s. Amity Interlinks Steels Pvt. Ltd. the CIT(A) deserved to be upheld. The learned AR relied upon a series of decisions of the coordinate benches. In the alternative, the learned A.R. prayed before the Bench that an addition of 1% may kindly be made to the income of the assessee.

We heard the rival submissions and perused the material on record. The undisputed facts are that the assessee received accommodation entries, as per the report of the ACIT, Investigation Wing, from M/s. Kinjal Industrial Corporation to the tune of `1,77,41,902/-. The principal officer of M/s. Kinjal Industrial Corporation confirmed to have engaged in the business of supplying accommodation entries and purchase bills on commission basis without delivering any actual materials/goods. During the year the turnover the assessee was `93.48 crores whereas the purchases were to the tune of `90 crores and the G.P. declared was 3.05%. Upon being called upon, the assessee filed all the details comprising bills, vouchers, copy of ledger accounts, evidence of payment, bank statement and evidence of sales in the books of the assessee before the AO but AO simply relied on the statement of the principal officer and did not carry out any further verification and thus not discharging the onus upon him. Thus, it is correct that the AO has not carried out any further investigation to bring out the truth and also not disputed the sales by the assessee out of said purchases. The learned CIT(A) has deleted the addition on the basis that the AO has not carried out any investigation and the assessee has fully discharged the onus by filing the necessary proof with the AO. We observed from the assessment records that the AO has failed to bring on record any evidence to justify the addition whereas the CIT(A) has taken a reasonable view of the matter. But when the issue of bogus purchases is involved some addition has to be made thereby accepting the alternative prayer of the ld AR. In the present case the AO has completely failed in carrying out any investigation and therefore only addition based upon some small percentage would be justified. Considering the facts of the case in totality, we are of the opinion that it would be reasonable and fair to make an addition of 2.5% of the bogus purchases to the income of the

In the result appeal is partly allowed.

In all these appeals Revenue has raised identical issues as raised in except variation in amounts. Therefore our observations and decision given in the above mentioned appeal is mutatis mutandis applicable to all these appeals.

In the result, all the appeals filed by the Revenue are partly allowed.