TaxTMI 
TaxTMI 
2020 (11) TMI 767
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....f the Income Tax Act, 1961. 2. That on law, facts and circumstances of the case, the Worthy CIT(A) was not justified in confirming the action of Ld.AO wherein he had rejected the books of accounts of the appellant merely on suspicion of higher production on the basis of electricity consumption. 3. That on law, facts and circumstances of the case, the Worthy CIT(A) has erred in confirming the action of Ld. AO wherein he had made addition of Rs. 13,04,677/- on account of alleged unaccounted Gross Profit on alleged unaccounted production." 3. The Revenue's cross appeal No. 879/Chd/2019 canvasses the following grounds: "1. Whether on the facts and in the circumstances of the case, the ld. CIT(A) is correct in deleting the addition of Rs. 1,62,54,188/- made by the Assessing Officer on account of unaccounted investment in unaccounted production. 2. That it is prayed that the order of ld. CIT(A), Patiala be set aside and that of the Assessing Officer be restored." 4. Learned authorized representative vehemently contended during the course of hearing that both the lower authorities have erred in law and on facts in rejecting the assessee' s books o....
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....ocess of the Appellant electric power. The Ld. AO analyzed the specific production process of the appellant and the issue of alleged unaccounted production (para 4.0 of the assessment order) and his findings are summarized as under: i. The process involves heating of raw material ad passing the same through various rollers to get final finished goods that may vary as per requirement of sizes/sections. ii. Power production is directly proportional to the production iii. To make finer sizes/sections more power per metric tonne (hereinafter PMT) is used. 6.1 The Ld. AO has further sought to establish that the production of finished goods is directly proportional to the units of electricity consumed. In order to co-relate the consumption of electricity vis-a-vis the production shown, the Ld. A.O. collected the granular data regarding metered electricity consumption from the Electricity board. The A.O. further analyzed this data; the data and analysis finds reproduction in five analytical reports that form part of the assessment orders as annexure A to E. Annexure-A inter-alia depicts the quantity in metric tons of finished goods produced on a given d....
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....e appellant maintains a size wise production register and the same is verifiable with reference to the production/sale invoices. ix. That excise registers are audited by excise agencies and no anomaly has been pointed out. 6.3 The Ld. AO has analyzed the reply of the appellant and not accepted it in toto (Para 4.3.2 to 4.4 of the assessment order). The analyses is summarized as under: i. No evidence of daily record of production of finished goods detailing size/quality have been furnished ii. The variations cannot be explained with reference to differential power consumed for different sizes iii. No evidence that thinner sections produced on days of higher power consumption or larger section on days of low power consumption produced iv. The onus lies on the appellant to prove that particular class of raw material used on a particular day. a. No daily record of type of raw material used/finished good produced b. Form IV does not record size/quality v. The miscellaneous reasons cited apply to all days whether having normal high or low consumption vi. The reasons do not explain the large variatio....
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.... issue of legitimate variation in consumption a detailed study has been conducted by a Committee, constituted by the Principal CIT Patiala, with a view to examine the variation in the consumption of electricity vis-a-vis the production of finished goods in the rolling mills and induction furnaces of the area. The committee, a broad-based multimember body, had the additional Commissioner of Income Tax, Range, Mandi Gobindgarh as its head and all the AO's of the range as its members. It was assisted by the experts from the National Institute of the Secondary Steel Technology (NISST) and the industry representatives. I have accessed its report from the Addl. CIT, Range, Mandi Gobindgarh. Its relevant excerpt reads as under: "Thereafter, to ascertain the amount of variation in consumption of electricity per metric ton of finished goods produced of similar sizes and odd sizes, the AOs carried out on the spot verification by running some of the rolling mills on a fix period of time and noticed quite appreciable variation in the consumption of electricity per metric ton of finished goods in similar sizes as well as odd sizes. The technical experts from national Institute of s....
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....g goods of 12 micron, which requires more electricity consumption as compared to the goods of 23 micron as the length of 12 micron is more than the length of 23 micron. The weight of 23 micron is 33 gm. per sq. meter, whereas the weight of 12 micron is almost half i.e. 17 gram per sq. meter, and therefore to manufacture 1 kg. goods of 12 micron the consumption of electricity is almost double than the consumption of electricity for manufacture of 1 kg. of 23 micron. 6.2 The Hon'ble Apex did not accept the contention of the applicant and stated as under: Ordinarily, when electricity consumption goes up, a reasonable inference can be drawn that the production will also have gone up. If the electricity consumption is going up but the production is seen to be going down, a reasonable inference can, prima facie, be drawn that there was suppression of production and consequently suppression of sales in order to avoid sales tax. The appellant also had not maintained separate accounts for its own manufacturing and the job work, and it could not inform which raw materials have been used in the manufacturing of job work and which goods have been used on the asse....
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....e have been observed as the appellant has been offered a reasonable opportunity to explain its case both during assessment/appellate proceedings iii. The days of production have been removed and the average of the higher and lower production PMT has been taken, in addition the safe harbor of 15 % has been kept in account. It is therefore, my considered view that the burden of proof on the department to establish that the production records are unreliable has squarely been discharged and the onus shifted on the appellant who has failed to discharge the same. The method of computing the suppressed production is not based on cogent reasons and has scientific basis. Allowance of 15% variation is not arbitrary. The Ld. Assessing Officer has examined the entire manufacturing process carried out by the assessee and examined the stated issue of quality of raw materials, by shifting the frame of reference to a month; there is near equal probability of the factors is such as raw material variation/power failure, breakdown etc. Further the appellant's additional evidence with regards to the detailed physical records seen by the excise and VAT departments has als....
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....f the appellant. I uphold the decision of the Appellant to reject the books of Accounts as per the provisions of Section 145(3) of the Act. The estimation of production and income thereafter, too deserves to be upheld as the Ld AO has judicially given credit for the holidays. 7. The estimate taken for determining GP is also in my considered view fair and reasonable. The appellant does not succeed on Grounds of Appeal 2 and 3 the rejection of books u/s 145(3) and consequent estimation of Gross profit and the addition of Rs. 13,04,676.90 is confirmed. 07. Ground of appeal No. 4 : This ground of appeal agitates the addition regards to the undeclared investment in stock of the appellant. The submission of the appellant on this ground of appeal is as under: "The Ld AO has calculated the unaccounted income of Rs. 175.59 lacs during the year under consideration. But we are sorry to say that Ld AO has failed to establish where this money is lying. It is only a hypothetical figure that was neither earned nor invested in any asset The Ld AO has failed to establish that the Assessee invested such a huge amount in any new or existing asset. It is worthwhile ....
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....ooks of account based on difference in power consumption of the relevant previous year turning act to be excessive than the so called tolerable limit of 15 % is no more res-intgra. This Tribunal' s coordinate bench decision ITO Vs M/s Baba Balak Nath Steels Pvt. Ltd. in ITA No. 44/Chd/2019 dated 06/08/2019 has rejected Revenue' s identical stand as follows: "3 The brief facts relating to the issue under consideration are that the assessee company is engaged in manufacturing of Steel products. During the assessment proceedings, the Assessing officer asked the assessee to furnish details of daily production of finished goods as well as the details of the manufacturing process involved. On examination of the details, the Assessing officer observed that the amount of electricity consumed was directly related to the production of finished goods. In order to co- relate the consumption of electricity vis- à- vis production shown, the Assessing officer gathered information regarding the consumption of electricity from the Electricity Board. The Assessing officer analyzed the consumption data of electricity vis-a vis the production of finished goods and observed that ther....
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....ailed study was carried out by a Committee headed by the Additional Commissioner of Income Tax, Range, Mandi Gobindgarh having all the Assessing officers of the Range as its members. The committee was assisted by the experts from the NISST (National Institute of the Secondary Steel Technology) and also the industry representatives. On the basis of the report of the committee, it was decided that if the variation in the consumption of the electricity is within the range of 15 % of the yearly average consumption of power, the book results should be accepted. That pursuant to the report of the Committee, the Assessing Officers have followed this norm while making assessment in similar cases and has accepted the book results if the variation is within 15 % window. It was, therefore, pleaded that the book results of the assessee for the assessment year 2012 - 13 should also be accepted and consequently, the addition should be deleted. The Ld. CIT(A) got verified from the Assessing officer the above contentions of the assessee which was reported to be correct by the Assessing officer. The Ld. CIT(A) thereafter held that once an issue has been decided on merits in a subs....
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....eard submissions and perused the material available on record. It is seen that the Co-ordinate Bench in the aforesaid order of the ITAT had an occasion to consider the facts as under : "4. The brief facts relating to the issue under consideration are that the assessee company run a furnace Unit and is engaged in the production of Ingots. During the assessment proceedings, the Assessing officer asked the assessee to furnish details of daily production of finished goods as well as the details of the manufacturing process involved. The Assessing officer further observed that the amount of electricity consumed was directly related to the production of finished goods. In order to co-relate the consumption of electricity vis-à-vis production shown, the Assessing officer gathered information regarding the consumption of electricity from the Electricity Board. The Assessing officer analyzed the consumption data of electricity vis-a vis the production of finished goods and observed that there were wide variation in ratio of electricity units consumed to per metric tons of finished goods produced during the year. He observed that the lowest units consumed for production of on....
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....ed the same with that shown in the books of account of the assessee and estimated the unaccounted production for each month. Thereafter, on the basis of average sales rate, the value of total unaccounted production was estimated. Then adopting the gross profit rate shown by the assessee, the unaccounted profit out of the unaccounted production was worked out. Secondly the peak unaccounted production for the relevant month was determined and by multiplying the average sale rate of finished goods, the unaccounted investment was worked out. The Assessing officer in this way worked out the total unaccounted income of the assessee out of the unaccounted production at Rs. 86,88,365/- and added back the same to the income of the assessee." 4.1 Perusal of the impugned order shows that facts have been considered in the following manner : 5.2 The report of the AO was called for on the written submissions of the appellant. In the report, sent vide letter No. ITO/W-l/MGG/2016- 17/2227 dated 02.12.2016, the A.O. has tried to defend the rejection of books of account on the basis of reasoning given in the assessment order. However, regarding appellants contention w.r.t.....
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....the AO's of the Range as its members. The committee was assisted by the experts from the NISST [National Institute of the Secondary Steel Technology] and also the industry representatives. On the basis of the report of the Committee, it was decided that if the variation in the consumption of electricity is within the range of 15% of the yearly average consumption of power, the book results should be accepted. Accordingly, its book results were accepted for the A.Y. 2013-14. Therefore, its book results for the A.Y. 2012-13 should also be accepted and consequently, the additions should be deleted. The contention of the appellant company has been verified from the AO and as quoted above, he has reported it correct. There is a decision of the Hon'ble Punjab and Haryana High Court in the case of a CIT vs. Rieta Biscuits Co. (P) Ltd (2009) 309 ITR 154 wherein their Lordships have held that "keeping in view the principles of consistency once the issue on the merits has been decided against the revenue on the same issue during the subsequent assessment years, we do not deem it appropriate to take a different view on a technical reason. Accordingly, without specifically opi....