2019 (11) TMI 514 - AT - Income Tax

Tribunal rejects revenue's appeal, upholds deletion of addition for alleged production suppression.

The tribunal upheld the CIT(A)'s decision to delete the addition of Rs. 1,84,25,409 made by the AO for alleged suppression of production. The tribunal ... Addition on account of suppression of production - high consumption of electricity - HELD THAT:- AO has proceeded to make addition on the basis of suspicion and noticing the factum of higher consumption of electricity and lower production which could be a case of strong suspicion but it is also settled law that suspicion, however strong, cannot take the place of evidence against the assessee for making a sustainable addition. CIT(A) was right in deleting the addition by following his own order for the preceding assessment year 2011-12, which was self-explanatory and justified and reasonable. We also find that there is allegation of the Assessing Officer regarding suppressed production, which were sold in the market. CIT(A) was also quite correct in taking the cognizance of proposition rendered by ITAT Hyderabad Bench in the case of Balaji Steel Rolling Mills (P) ltd [2016 (2) TMI 1262 - ITAT HYDERABAD] wherein, held that the electricity consumption depends upon various factors like type of quality of scrap used, number of break downs, quality of labour/supervisory staff, diligence of management etc and thus, it was held that the action of the AO estimating the production of assessee on the basis of alleged excessive consumption of electricity is erroneous and fallacious. - Decided against revenue Issues Involved:1. Justification of CIT(A) in deleting the addition of Rs. 1,84,25,409 on account of suppression of production.Issue-wise Detailed Analysis:1. Justification of CIT(A) in Deleting the Addition of Rs. 1,84,25,409 on Account of Suppression of Production:The revenue challenged the order of the CIT(A) which deleted the addition of Rs. 1,84,25,409 made by the Assessing Officer (AO) on the grounds of suppression of production. The AO had observed discrepancies in the consumption of raw materials, electricity, labor wages, and manufacturing expenses, which led to a significant decrease in production compared to the preceding year. Specifically, the AO noted that the production per unit of electricity had reduced from 24.45 MT in the assessment year 2011-12 to 19.5 MT in the assessment year 2012-13, indicating a 25.38% reduction in production. The AO concluded that the assessee had suppressed production and calculated the suppressed production at 1163 MT, valuing it at Rs. 1,84,25,409, which was added to the assessee's income.The CIT(A), however, deleted this addition, stating that the AO's conclusions were based on suspicion and surmises without concrete evidence. The CIT(A) emphasized that higher consumption of electricity with lower production could raise suspicion but cannot be the sole basis for a sustainable addition. The AO did not provide any material evidence to prove that there was actual suppression of production or unaccounted sales. The AO also did not find any defects in the assessee’s accounts or question the purchases of raw materials, sale of finished products, and closing stocks as disclosed. The CIT(A) further noted that the assessee's accounts were audited under the Companies Act, Income Tax Act, and Central Excise Act, and no discrepancies were found by the auditors.The CIT(A) referenced several judicial precedents, including decisions by the ITAT Ahmedabad in the case of Rutvi Steel & Alloys (P) Ltd., ITAT Hyderabad in the case of Balaji Steel Rolling Mills Pvt Ltd., and the Central Excise Tribunal in the case of Commissioner of Central Excise, Patna vs. Universal Polyethylene Industries, which supported the view that high consumption of electricity alone cannot justify an addition for suppressed production.The tribunal upheld the CIT(A)'s decision, agreeing that the AO's method of estimating suppressed production based on electricity consumption was flawed and not supported by tangible evidence. The tribunal reiterated that suspicion, however strong, cannot replace evidence in making a sustainable addition. The tribunal also noted that the AO had not applied consistent methods for different assessment years and had not provided a valid basis for the addition.In conclusion, the tribunal found no valid reason to interfere with the CIT(A)'s order and dismissed the revenue's appeal, confirming that the deletion of the addition was justified and reasonable.Order:The appeal of the revenue is dismissed. Order pronounced on 4/11/2019.