TaxTMI 
TaxTMI 
2010 (2) TMI 926
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.... mtrs. by consumption of 2,06,856 units of electricity which gave a production ratio of 86 per cent. whereas in the month of April, the ratio was only 25 per cent. by consumption of 1,16,448 units of electricity producing 4,05,082 mtrs. of cloth. Similarly, in the month of May, the consumption of electricity was 91,854 units and the production was 2,18,323 mtrs. giving production ratio of 30 per cent. The Assessing Officer also took into account the consumption of gas in the month of April when 58,993 units of gas consumed together with electricity resulted in production of 4,05,082 mtrs. while in the month of May, the consumption of gas was 29,727 units but the production decreased to 2,18,232 mtrs. Similarly, consumption of gas in December was only 86,425 units and electricity 1,18,632 units resulted in production of 1,30,843 mtrs. which was 82 per cent. but this went down to 56 per cent. in January and was the same in the month of February and March. Further, the opening stock of fuel was shown at Rs. 1,80,370 but details thereof were not submitted. The Assessing Officer further observed that the appellant was not maintaining any day-to-day records of consumption of raw, materia....
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....oss profit shown by the appellant during the year was 16.30 per cent. compared to 16.57 per cent. in the earlier year and there would be very few comparable cases showing such results. Complete excise records were also maintained and after bifurcation of production with job charges received from parties, it would be seen that job charges on printing varied from Rs. 8 to 9.50 per metre and on dyeing work, the charges range from Rs. 2 to Rs. 3 per metre and therefore, the average job charges would be Rs. 4.96 per metre. It was further stated that consumption of energy was a relevant factor only in the case of a single process but in the appellant's line of business which consisted of various sub-processes, such comparison was not fair. The Assessing Officer rejected the explanation and held that no convincing argument was furnished by the appellant who failed to establish as to why with minimum consumption of electricity, production in September was substantially high and the same should be taken as the basis to ascertain the lower production in other months. The Assessing Officer also rejected the explanation of having maintained complete excise records which were not examined on da....
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....ng out the production during the other 11 months of the year. It appears that the submissions filed by the appellant and the reasons for low production in other months has not been fully appreciated by the Assessing Officer but he has also admitted that a variation of 25 per cent. is possible on account of fluctuation of electricity, day-to-day repairing of the machinery, modification in dyeing and printing, etc. The main argument of the Assessing Officer is based on consumption of unit of electricity vis-a-vis production in metres. It is also seen that the Assessing Officer has taken into account the quantity of finished goods which were dispatched from the factory during the month and not the actual production. Further, I am inclined to agree with the appellant that the consumption of electricity worked out by the Assessing Officer is not actually the consumption during the month but the bill which was raised for the month which could make a difference in electricity used and the production would be severely effected in the first three months of the year due to strike in the weaving industry when the appellant could not get sufficient raw material but the expenditure in terms of ....
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....aspects have probably not been appreciated by the Assessing Officer, who has simply worked out the so-called suppression of production on the basis of production in only one month of the year which is not at all justified. It is also seen that the Assessing Officer has worked out the percentage consumption of electricity, gas, coal and diesel and all these are on a very high side in the month of April, May and June, whereas compared to September 2003, the month adopted as the benchmark, the percentage in other 8 months of the year are almost similar to September. I have also gone through the various case law cited by the appellant specially the case of Pigeon Textile (supra) wherein the hon'ble Income-tax Appellate Tribunal, Ahmedabad have upheld the order of the Commissioner of Income-tax (Appeals) deleting the addition made by the Assessing Officer by working out average production of cloth on the basis of electricity consumed. The hon'ble Income-tax Appellate Tribunal in this case held that the assessee was engaged only in job work and was not engaged doing any production of its own and keeping in view the submissions of the assessee and also the fact that there was no material ....
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.... Rs.4.76 lakhs to the income of the appellant." 6. The Revenue is in further appeal before us. 7. The learned Departmental representative Shri Kumar Hrishikesh submitted that the consumption of electricity is one of the criteria to come to the conclusion as to what can be the probable production. If the consumption of electricity for the month of September, 2003 is taken into consideration, there is suppressed production even if certain factors like strike, shortage of raw materials, and other factors are considered. The Assessing Officer has given rebate of 25 per cent. for such factors and still production is found to be short against expected production, therefore, the addition needs to be sustained. 8. Learned counsel for the assessee on the other hand, reiterated the submissions made before the learned Commissioner of Income-tax (Appeals) and his findings thereon. 9. We have considered the rival submissions. The shortage of production is worked out on the basis of findings that production for the month of September, 2003 is accepted parameter and if the ratio of the consumption to production for this month is applied, there is a suppression of production for other months. ....
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....might be very less. Thus under no circumstances uniformity in production in metres and consumption of electricity in units can be achieved. The electric units consumed are towards the electricity consumption in the office as well as in the factory and there are many electric fittings like tube lights, air-conditioner, machine, computer, fan, exhaust fan which consumes lot of electricity however do not directly contribute to the production. 11. The process of dyeing and printing is such that ratio of electric units consumed and production is bound to differ from time to time. The process involved in processing the same kind of goods may also create variance between consumption of energy and production. The quality of raw material, regularity of supply of energy, the manufacturing process involving consumption of electricity, the skill and expertise of the person and similar other factors may affect the ratio between consumption of energy and production of goods. The electricity consumption also depends on the ratio of process undertaken for dyeing of fabrics and printing of fabrics. The electricity consumption vis-a-vis production also varies due to the program or job given by the ....
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....o be noted that the cloth cannot be processed merely by using electricity. It also requires the consumption of various dyes and chemical and also use of manpower. For all these factors, no adverse finding is given by the Assessing Officer. Thus, the consumption of intermediate and labour behind this is sufficient for the production achieved by the assessee. Considering all these factors, there is no case of addition as made out by the Assessing Officer. We therefore, do not find any justification for sustaining the addition as proposed by the Assessing Officer. 14. The next ground of appeal is against the deletion of disallowance of interest expenditure to the extent of Rs. 3,03,000. 15. During the course of assessment proceedings, the Assessing Officer observed that a sum of Rs. 40,00,677 was debited as interest in family members and concern specified under section 40A(2)(b) and the interest paid was more than the net income of the assessee. The Assessing Officer held that the assessee had not given any evidence to prove that the deposits obtained from the family members were used for business purposes and not for creating assets. There was capital of Rs. 71,38,989 and unsecured....