2016 (2) TMI 1262 - AT - Income Tax

Suppressed production - Assessment us 153A - high consumption of electricity in assessee s case - HELD THAT - AO has taken sufficient pains in referring the matter to the Chairman and Managing Director of Sponge Iron India Ltd. and also being examined by a Technical Officer of the said company but there is a disclaimer by the company itself that those statements made by the Technical Officer is based on his personal experiences and cannot be used adversely. That it self takes away the basis of AO s working. Not only that AO himself accepts that assessee s consumption of 1, 260 KWH is on the basis of the production figures as shown in AY. 2001-02. He has taken that year as basis for arriving at the production in all the impugned assessment years including the later year of 2006-07 to 2008-09 (post search) on the same basis. He has not considered the objections raised by assessee at all. Moreover as explained by assessee s counsel and also considered the Ld. CIT(A) the various show cause notices issued by the Excise Department have been more or less settled in favour of assessee and no adverse view can be taken on the basis of the show cause notices. It has no bearing on the sales figures of assessee as there is no case of Central Excise for any suppressed production. Even though Ld. DR relied on the Central Excise case press note before us it is a case by the Central Excise Department for suppressed production on a meticulous enquiry by the officer which was upheld by the Tribunal. In this case in spite of conducting search and seizure operations no incriminating material was found. There is no scope for any addition being made in the present case. As rightly contended by the Ld. Counsel Books of Accounts were not rejected. The addition made by the AO is purely on the basis of estimation of power consumption and supposedly suppressed production cannot be sustained in the absence of any evidence on record. Keeping these aspects in mind we uphold the order of the Ld. CIT(A) and reject the Revenue s grounds.

Summary

Issues Involved:
1. Validity of additions based on electricity consumption.
2. Incriminating material during search.
3. Rejection of books of accounts.
4. Comparison with other units.
5. Central Excise and Sales Tax assessments.
6. Legal grounds under section 153A.
7. Treatment of advances forfeited as income.

Detailed Analysis:

1. Validity of Additions Based on Electricity Consumption:
The primary issue in the appeals was whether the Assessing Officer (AO) was justified in making additions based on the electricity consumption of the assessee's units. The AO estimated the suppressed production and income by analyzing the power consumption and comparing it with industry standards. However, the Commissioner of Income Tax (Appeals) [CIT(A)] found that the AO's basis for arriving at the production on the basis of electricity consumption was incorrect. The CIT(A) noted that the consumption of electricity depends on various factors like labor negligence, power supply irregularities, and outdated machinery. The CIT(A) held that the AO's additions were based on incorrect facts and surmises, and thus, not sustainable.

2. Incriminating Material During Search:
The search and seizure operations conducted did not yield any incriminating material that could substantiate the AO's claims of suppressed production. The CIT(A) observed that no adverse view was taken about the contents of the seized documents, and there was no evidence of suppressed sales or production. The Tribunal upheld the CIT(A)'s view that any addition based on the results of a search must be based on material found during the search, and not on surmises or guesswork.

3. Rejection of Books of Accounts:
The AO did not reject the books of accounts maintained by the assessee. The CIT(A) emphasized that when the books of accounts are not rejected, there is no scope for any addition, and the AO is bound to accept the book results. The Tribunal concurred with this view, stating that the addition made by the AO purely on the basis of estimation of power consumption and supposedly suppressed production could not be sustained in the absence of any evidence on record.

4. Comparison with Other Units:
The AO compared the power consumption of the assessee's units with that of Sponge Iron India Ltd., a modernized and fully equipped automatic unit. The CIT(A) and the Tribunal found this comparison ill-founded, as the assessee's units were small-scale, labor-oriented, and used outdated machinery. The Tribunal noted that the AO's reliance on the technical officer's opinion from Sponge Iron India Ltd. was not valid, as the officer's statements were based on personal experiences and not authoritative.

5. Central Excise and Sales Tax Assessments:
The CIT(A) observed that the Central Excise and Sales Tax authorities had not found any discrepancies in the production and sales of the assessee's units. The Tribunal upheld this observation, stating that the additions made by the AO were based on surmises and guesswork, and there was no evidence of suppressed production or sales as per the Central Excise/Sales Tax Authorities.

6. Legal Grounds Under Section 153A:
The Tribunal addressed the legal contention that additions cannot be made in proceedings under section 153A in the absence of incriminating material. The Tribunal referred to the jurisdictional High Court judgment in the case of Gopal Lal Bhadruka Vs. DCIT, which held that the AO can take into consideration material other than that available during the search for making an assessment of undisclosed income. However, the Tribunal found no reason to adjudicate this issue, as the deletions made by the CIT(A) on merits were upheld, and there was no material to make the additions.

7. Treatment of Advances Forfeited as Income:
The AO treated the advances forfeited by the assessee as camouflaged accounting entries to bring in unaccounted trading receipts. The CIT(A) in some cases upheld this view, while in others, the Tribunal found that the advances forfeited were shown as income in the regular returns and not as a consequence of the search. The Tribunal noted that the AO's addition based on the assumption of suppressed production was not sustainable without any evidence of unaccounted production or sales.

Conclusion:
The Tribunal upheld the CIT(A)'s orders in most cases, finding that the AO's additions were based on incorrect facts, surmises, and guesswork, and not on any incriminating material found during the search. The Tribunal emphasized the importance of evidence and the rejection of books of accounts in making any additions. The appeals by the Revenue were dismissed, and the assessee's appeal was allowed.