2019 (8) TMI 1587 - AT - Income Tax

Unaccounted investment and unaccounted profit out of unaccounted production - variation of consumption of electricity was more than 15% - Rejection of books of accounts - AO 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 - HELD THAT - The issue is squarely covered by the above referred to decision of the Tribunal in the case of ITO vs Shri Harpreet Singh 2017 (8) TMI 1621 - ITAT CHANDIGARH wherein while dismissing the identical appeals of the Revenue held CIT(A) has accepted the variation of 15% in consumption of electricity per metric ton of finished goods as per the report of the Committee. He has also observed that pursuant to the report of committee the AO have also followed this norm while making assessment in similar type of cases and have accepted the book results shown by the assesses. No infirmity in the order of the CIT(A) while directing the Assessing officer to accept the books results shown by the assessee for this year also and to delete the additions made by the Assessing officer on account of unaccounted profits / unaccounted investment made on estimation basis - Decided in favour of assessee.

Summary

Issues:
Appeal against deletion of addition on account of unaccounted investment and profit due to variation in electricity consumption and production correlation.

Analysis:
The issue in this case revolves around the correlation between electricity consumption and production of finished goods by the assessee company. The Assessing officer observed wide variations in the ratio of electricity units consumed to per metric tons of finished goods produced during the year. This led to doubts about the accuracy of the daily production recorded by the assessee, as some days showed discrepancies where electricity consumption did not align with production figures. Consequently, the Assessing officer rejected the books of accounts, invoking section 145(3) of the Income-tax Act, 1961, and added the unaccounted income resulting from the alleged unaccounted production of finished goods.

Upon appeal before the CIT(A), the assessee presented detailed submissions and highlighted a committee's report that recommended accepting book results if the variation in electricity consumption was within 15% of the yearly average. The CIT(A) verified this information with the Assessing officer and concluded that consistency should be maintained in assessments, especially when a similar issue had been decided favorably in a subsequent year. Relying on the committee's report, the CIT(A) held that the variation in electricity consumption within 15% should not raise concerns, and the Assessing officer should accept the book results. Consequently, the CIT(A) set aside the rejection of books of account and deleted the additions made by the Assessing officer on an estimation basis.

The Revenue, dissatisfied with the CIT(A)'s decision, appealed to the ITAT. The ITAT, after considering the arguments and referring to previous Tribunal decisions, upheld the CIT(A)'s order. The ITAT found that the issue and facts were similar to previous cases where the CIT(A) had directed the Assessing officer to accept book results within a 15% variation in electricity consumption and production correlation. Therefore, the ITAT dismissed the Revenue's appeal, affirming the CIT(A)'s decision.

In conclusion, the ITAT's judgment in this case emphasizes the importance of consistency in assessments and the relevance of following internal guidelines and committee reports to determine the acceptability of book results, especially concerning variations in electricity consumption and production figures.