2017 (2) TMI 1319 - AT - Income Tax

Estimation of the unaccounted production based upon power consumption - Variation in consumption of electricity units pmt. of finished goods as reproduced in the assessment year - unaccounted investment in unaccounted production and unaccounted profit out of the unaccounted production - addition to income - Held that - All the respective grounds of appeal in cross appeals are connected with estimation of the unaccounted production based upon power consumption by estimating unaccounted investment and unaccounted profit out of unaccounted production and on the same, Revenue Department has constituted the Committee to consider the grievances of the assessees/tax payers and CIT issued the above guidelines by modifying the basis of estimation of unaccounted production and same guidelines have been adopted in subsequent years by the respective Assessing Officers. Thus entire matter requires re-consideration at the level of the Assessing Officer. We set aside the orders of authorities below and restore the entire issue to the file of Assessing Officer i.e. rejection of the books of account under section 145(3)/144, unaccounted production of finished goods, unaccounted profit and unaccounted investment out of unaccounted production with reference to consumption of electricity units per metric ton production of finished goods with direction to re-decide the entire issue in accordance with law in the light of the internal guidelines issued by the ld. Pr. Commissioner of Income Tax, Patiala. - Decided in favour of assessee for statistical purposes.

Issues Involved:
1. Rejection of books of account under section 145(3)/144 of the Income Tax Act.
2. Estimation of unaccounted production based on electricity consumption.
3. Calculation of unaccounted profit and unaccounted investment from unaccounted production.

Detailed Analysis:

1. Rejection of Books of Account:
The Assessing Officer (A.O.) rejected the books of account of the assessee under section 145(3) of the Income Tax Act. The A.O. observed significant discrepancies in the electricity consumption vis-a-vis the production of finished goods. The A.O. noted that the consumption of electricity per metric ton (pmt) of finished goods varied widely, and there were days with high electricity consumption but no production or low electricity consumption with high production. The A.O. concluded that there was no evidence on record relating to the types, sizes, and quality of finished goods produced daily. Consequently, the A.O. rejected the books of account and relied on various case laws to support the rejection.

2. Estimation of Unaccounted Production:
The A.O. estimated the unaccounted production by adopting the minimum value of average electricity consumed pmt for a period of 30 days. The lowest value was 37.53 units pmt, which was used to estimate the unaccounted production. The A.O. computed the quantum of actual finished goods produced and ascertained the unaccounted production for each month after deducting the finished goods shown in the books of account. The A.O. then estimated the unaccounted production in monetary terms and applied the gross profit rate shown by the assessee to determine the unaccounted profit. Additionally, the peak unaccounted production for the relevant month was determined to estimate the unaccounted investment.

3. Calculation of Unaccounted Profit and Investment:
The A.O. made an addition of ?1,90,01,568/- on account of unaccounted investment and unaccounted profit from unaccounted production, computing the total income of the assessee at ?3,50,24,654/-. The assessee challenged these additions before the Commissioner of Income Tax (Appeals) [CIT(A)], arguing that the consumption of electricity depends on various factors and that the books of account were maintained correctly. The CIT(A) upheld the estimation of electricity consumption but accepted the argument regarding the circulation of stock, ultimately sustaining an addition of ?55,78,821/- on account of unaccounted investment.

Remand for Reconsideration:
The Principal Commissioner of Income Tax, Patiala, formed a Committee to verify the normal variation in electricity consumption for manufacturing each metric ton of finished goods. The Committee's report led to internal guidelines allowing up to 15% variation in electricity consumption. The Department suggested remanding the matter to the A.O. for reconsideration in light of these guidelines. Both the assessee's counsel and the Department's representatives agreed to this approach.

Conclusion:
The Tribunal set aside the orders of the lower authorities and remanded the entire issue to the A.O. for reconsideration. The A.O. was directed to re-decide the issues of rejection of books of account, unaccounted production, unaccounted profit, and unaccounted investment in accordance with the internal guidelines issued by the Principal Commissioner of Income Tax, Patiala, and to provide a reasonable opportunity for the assessee to be heard.

Result:
All cross appeals were allowed for statistical purposes, and the A.O. was instructed to re-assess the matters in accordance with the law and the internal guidelines provided.

← Previous Next →