2019 (11) TMI 922 - AT - Income Tax

Tribunal upholds CIT(A)'s decisions, deems AO's book rejection unjustified. Seized cash adjustment allowed.

The Tribunal dismissed the Revenue's appeals and the assessee's cross objections, upholding the CIT(A)'s decisions. The AO's rejection of the books of ... Lower yield declared by the assessee - excessive consumption of electricity / power / furnace - variation in consumption of electricity, furnace oil vis-à-vis production of finished goods - yield declared by the assessee and information regarding yield declared by other assesses, as received from the DCIT-1(2), Raipur was compared with reference to the uniform and standard yield adopted by the Assessing Officer and the result of the comparison so made are on record - HELD THAT:- CIT(A) had made exercise to bring out the percentage of yield declared by the other assessee engaged in similar line of business and nowhere the yield was 89%. AO also gave no basis for its calculation of the yield at 89%. There was no scientific or logical basis in the exercise conducted by the AO. The submissions made by the assessee, were also summarily rejected by the AO which is therefore, not in accordance with judicial principle as herein above enshrined in the various judicial pronouncements. We have also observed in the case of ACIT-1(1) Raipur Vs. Ramesh Steel Industries [2014 (12) TMI 1353 - ITAT RAIPUR] the AO made addition as he noted that in the year under appeal, the assessee had consumed more units of power as compared to the last two assessment years. The Tribunal observed that “consumption of power in itself is not an evidence to prove or disprove the production of finished goods.” We further observe that in the case Sulabh Marbles (P.) Ltd. [2006 (7) TMI 653 - HIGH COURT OF RAJASTHAN] has held that “disparity in electricity consumption cannot be the criteria for rejection of accounts and for making ad-hoc additions. The assessee had maintained regular books of account and the AO had not come across any unaccounted purchase or suppressed sale. In these circumstances, only on the basis of power consumption, no addition could be or sustained.” It is apparent from the records that the Assessing Officer has not brought on record any evidence stating lower or suppression of sales by the assessee. He tried to support his case by showing deficiency in power consumption by the assessee. But the Hon’ble High Courts have held without any direct corroborative evidences on low yield or suppressed sales, the disparity of power consumption cannot be the sole ground or reason for making addition by the Assessing Officer. CIT(A) is absolutely correct and therefore, the same does not call for any interference. Thus, ground relating to “issue of the lower yield declared by the assessee” in all the appeals for all the assessment years are therefore dismissed. Giving credit of cash seized during the course of search operation u/s.132 as prepaid taxes while computing tax liability of the assessee - HELD THAT:- In the computation of tax such adjustment was not there and therefore, it was right for the Ld. CIT(A) to direct the Assessing Officer for such adjustment to be made in the hands of the assessee while determining tax liability. In view of the matter, we sustain the relief provided to the assessee by the Ld. CIT(A) Issues Involved:1. Lower yield declared by the assessee.2. Credit of cash seized during the search operation as prepaid taxes.Issue-wise Detailed Analysis:1. Lower Yield Declared by the Assessee:The primary issue revolves around the discrepancy in the yield declared by the assessee, which led the Assessing Officer (AO) to reject the books of accounts and make various additions. The AO observed that the assessee, engaged in manufacturing rerolled products, showed a lower yield in its Steel Melting Shop (SMS) division compared to the industry standard of 89%. The AO's findings were based on mathematical calculations and power consumption data, concluding that the assessee suppressed its yield.The assessee contested this, and the Commissioner of Income Tax (Appeals) [CIT(A)] examined the matter thoroughly. The CIT(A) found that the AO did not provide a basis for the 89% yield standard and noted that different assessees in the same industry declared varying yields, none reaching 89%. The CIT(A) also highlighted that the assessee's yield was higher than the industry average and that the AO failed to substantiate the nexus between the mathematical calculations and the alleged suppression of yield.The CIT(A) further noted that the assessee maintained proper quantitative records, which were audited and verified by the Central Excise Department. The CIT(A) found no tangible evidence of unaccounted sales or suppression of yield. The AO's reliance on mathematical calculations without corroborative evidence was deemed insufficient to reject the books of accounts. The CIT(A) emphasized that variations in yield could be due to differences in raw material quality and other factors, and low yield alone could not justify the rejection of books.The Tribunal upheld the CIT(A)'s findings, noting that the AO did not bring any cogent evidence to support the addition and relied heavily on mathematical calculations without concrete proof. The Tribunal also referred to various judicial pronouncements that supported the CIT(A)'s decision, concluding that the AO's rejection of the books of accounts and the subsequent addition were not justified.2. Credit of Cash Seized During the Search Operation:For the assessment year 2012-13, the issue was whether the cash seized during the search operation should be credited as prepaid taxes. The CIT(A) directed the AO to give credit for the seized cash, citing the decision of the Mumbai Bench of the Tribunal in Vipul D. Doshi Vs. CIT, which supported such adjustment while determining the tax liability.The Tribunal agreed with the CIT(A), emphasizing that the seized cash should be adjusted against the tax liability of the assessee. The Tribunal upheld the CIT(A)'s direction to the AO to recompute the tax liability after adjusting the seized cash.Conclusion:The Tribunal dismissed the Revenue's appeals and the assessee's cross objections for all assessment years, upholding the CIT(A)'s decisions on both issues. The Tribunal found the AO's rejection of the books of accounts and the addition based on lower yield to be unjustified and supported the CIT(A)'s direction to adjust the seized cash against the tax liability.