TaxTMI 
TaxTMI 
2010 (7) TMI 833
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....cer. Subsequently it was sought to be reopened, under section 148 of the Act, based upon information received from Maharashtra State Electricity Board (hereinafter called as "MSEB"). Relevant portion of the reasons accompanying the notice issued under section 148 reads as under :- (i) The figure given by the MSEB for A.Y. 1999-2000 and 2000-2001 are incomplete. If the bills for the entire year is considered then this amount will be much higher than the figures intimated by the MSEB. (ii) If the correct amount of electricity charges is taken into account, the corresponding production/sale amounts will also be proportionately increased; (iii) Not relevant for impugned year ; In the circumstances and in view of the above mentioned facts, I have reason to believe that assessee is income chargeable to tax for A.Y. 1998-99 to 2003-04 has escaped assessment. It is therefore proposed to reopen the assessment for A.Y. 1998-99 to 2003-04 u/s. 147 of the Income Tax Act, 1961." 3. The case of the Assessing Officer was that the assessee was caught, indulging in power theft, by MSEB authorities in February, 2004 and FIR was lodged at Palghar Police Station. Letters of Director of Vigilance,....
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....oss account is allowed to it. Hence, the net profit is established at Rs.26,18,399 - Rs.4,49,363 = Rs.21,69,036/-. Subject to the above remarks, the total income of the assessee is computed as under :- Total income of the assessee is estimated (as discussed above) Rs.21,69,036 Less: No further deduction u/s.80IA/80IB is being Allowed to assessee (as discussed above) Rs. NIL. Total income Rs.21,69,036 Rounded off Rs.21,69,040" 5.1. On similar lines, income was estimated for the other years under consideration 6. Aggrieved, assessee contended before the first appellate authority that reopening of the assessments is bad in law since there is no independent evidence available on record other than the investigation made by the MSEB which allegation has been turned down by the Special Judge of the Hon'ble Additional Sessions Judge, Palghar and, in support, filed on record a copy of the Civil Court Order. Decision of the ITAT, 'B' Bench, Mumbai in assessee's own case relevant to assessment year 1998-99 and 1999-2000 was relied upon in support of its contention that the charge of Assessing Officer that there was power theft does not survive in view of the decision of the Civil Co....
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....d sales. 9. Learned Counsel submitted that the assessee's factory had worked under one shift whereas the Assessing Officer estimated the production by assuming that it worked for three shifts ; Assessing Officer having denied the claim of deduction u/s. 80IB on the ground that only 4 workers were employed from the beginning till date, he erred in overlooking the fact that with 4 workers it would not have been possible to work for three shifts. It was also pointed out that as per the brochure of the machine manufacturer atleast 3 workers are required to operate the machine for one shift. Income Tax Inspector confirmed that only 4 workers were employed at assessee's factory. If 3 workers are required for one shift, to work for 3 shifts atleast 10-12 workers are required as against the admitted position of 4 workers employed in the factory. 10. As regards the assumption that output would be 2.50 kg of wool per unit of power consumed, it was submitted that the Assessing Officer has wrongly compared the assessee's machine with the machine of M/s. SS Machine Manufacturing Company ; Motor capacity of assessee's machine is of 40 HP and it was a locally assembled machine costing below Rs.....
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....ho in turn stated that there is no evidence on record to show that the machine purchased by the assessee was locally assembled. However, having regard to the material placed on record learned CIT(A) admitted that the assessee purchased machine from M/s. DO All Engineering Co, Howrah. 11.1. Assessing Officer further submitted that the report of the Chartered Engineer cannot be relied upon because the machine which was used by the assessee was already sold off by the time the Chartered Engineer inspected the premises and hence inspection of so-called identical machine used by the sister concern i.e., M/s. Ashish Industries do not reflect the correct version/assessment. Assessing Officer further reported that the Chartered Engineer discussed about the wastages in production whereas no such wastage was shown in the P & L account filed by the assessee. MSEB informed that the machinery used by the assessee consumes 30 units of electricity per hour whereas Engineer's Report mentions use of 0.9 to 1 unit of electricity to produce 1 kg of steel wool. Assessing Officer also contended that the assessee has been suppressing the consumption of electricity and claimed wrong deduction under sect....
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....sponding production/sale amounts will also be proportionately increased". 15. Learned Counsel adverted our attention to pages 18, 20 and 21 of the paper book to submit that the Additional Sessions Judge, Palghar has turned down the allegation of theft of electricity by observing as under : "8. The only fact that aroused suspicion that the accused must be committing theft of electricity was that the glass of the meter fell inside the meter. In this regard it may be mentioned that the all the seals of the meter were intact P.W. No.2 Moreshwar admitted in the evidence that the glass fell inside the meter only when it was push by his superior officer by applying pressure on it. As a matter of fact it would be stretching things too far to conclude that the accused must be tampering with the meter. Judicial notice can be taken that one such glass goes inside the meter it could be replaced to the original position only if the meter is opened. In the instant case the seals were found intact the benefit of this must be given to the accused". 16. In the assessee's case for the assessment years 1998-99 and 1999-2000 (para 9 at page 12 of the paper book) the ITAT, 'B' Bench, Mumbai (ITA. No....
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....6 (Del.) The fact that consumption of electricity shown by the assessee was higher can give raise to a strong suspicion that it has suppressed production but suspicion however strong, cannot take the place of positive material; consumption of electricity by itself cannot form a reliable test for determining the production since it depends upon various factors. 4. Prem Cables (P) Ltd. vs. ACIT 56 ITD 382 Ratio between consumption of energy consumed and production obtained is bound to differ from time to time, place to place, skill and expertise of persons handling machines and other similar factors. Thus electricity consumption alone cannot be a basis for estimating production. 5. ACIT vs. Khambhatta Family Trust 67 ITD 411 Whether there is no evidence with the Revenue that purchases were made outside the books of account or sales were effected out side the books of account, consumption of electricity alone cannot be a factor to estimate the income by assuming suppression of production ; there cannot be a tailor-made formula in the production of final product. 6. DCIT vs. Royal Marwar Tobacco Product (P) Ltd. (2009) 120 TTJ (Ahd) 387 Estimating suppressed sales on the basi....
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....aving not turned up for hearing despite several notices, the Assessing Officer had to complete the assessment to the best of his judgment by invoking section 144 of the Act. Under the circumstances, reopening of assessment and consequent addition made to the best of his judgment is in accordance with law. Relying upon the following judgments, learned DR submitted that the report of the MSEB authorities has a basis and it was admitted partly by the assessee by paying the electricity bills as raised by MSEB authorities. Under these circumstances there is 'reason to believe' that the income assessable to tax for the years under consideration has escaped assessment in which event sufficiency of the reasons cannot be gone into, particularly on account of the fact that assessee furnished skeleton details and no books were produced. (i) ACIT vs. Rajesh Jhaveri Stock Brokers P. Ltd. (2007) 291 ITR 500 (SC) (ii) Raymond Woollen Mills Ltd. vs. ITO and others (1999) 236 ITR 34 22. It was further submitted that prosecution proceedings were launched under the Electricity Act against the partners and not against the firm (page 18 of the paper book) and the proceedings were dropped mainly on a....
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....ed on the number of units stated to have been consumed, as per the estimate of MSEB, production of steel wool would have been more than what is declared and consequently there is a possibility of suppression of sales on the part of the assessee. Till the date of assessment, Additional Sessions Judge, Palghar has not given his verdict on the issue of tampering the meter and the assessee has paid bills raised by MSEB over and above what is declared in the return of income. Such being the case we are of the considered view that at the time of issuance of notice the Assessing Officer had "reason to believe" that the income assessable to tax, for the years under consideration, escaped assessment. Therefore, we affirm the Order of the learned CIT(A), on this issue, and hold that the reopening of assessment is in accordance with law. 24. As regards the addition made by the Assessing Officer, by taking aid of complex methodology to arrive at the number of units consumed ; he (Assessing Officer) assumed that it was run on 3 shifts basis (40% discount factor considered towards possible use for one shift, load shedding etc.,) and thereafter it was further assumed that the machinery used by t....