2021 (4) TMI 216 - AT - Income Tax

Addition on account of suppressed production on the basis of electricity consumption - huge deviation in the electricity consumption and presumed that the production disclosed in the books was substantially suppressed - HELD THAT - One of the reasons for rejecting the books of account by the AO was inconsistent electricity consumption and proceeded to compute the net profit of suppressed production. The AO did not give the cogent reasons for method of computing suppressed production and he went by supposition but not by actual detention which is not justified as rightly held by the CIT(A). The factors responsible for variation in electricity consumption has been explained by the assessee in his detailed written submissions before the AO - As pointed by the CIT(A) that this Tribunal held the consumption of the electricity for the manufacturing of mild steel ingots/billets depend on various factors like quality of raw material which was the major input, voltage of the supply, power interruptions, mechanical and electrical breakdowns and the chemical composition of the liquid metal. In the present case having explained all the above in assessment proceedings, the AO failed to appreciate these facts and did not attempt to establish a direct nexus between the production and electricity consumed for the manufacturing and arrived at a conclusion that there was an excess consumption of electricity resulting in suppressed production, in our opinion, has no basis for computing alleged suppressed production on estimation. Addition made on account of suppressed production on the basis of electricity consumption is liable to be deleted. We find no infirmity in the order of CIT(A) and it is justified. Accordingly, the only ground raised by the Revenue is dismissed.

Summary

Issues:
Whether the CIT(A) was justified in deleting the addition made on account of suppressed production based on electricity consumption.

Analysis:
The case involved an appeal by the Revenue against the CIT(A)'s order for the assessment year 2013-14. The central issue was whether the CIT(A) was correct in deleting the addition made due to suppressed production based on electricity consumption. The assessee, engaged in manufacturing MS Billets, was asked to provide details of raw materials consumption, finished goods, and electricity consumption. The AO observed variations in electricity consumption and estimated suppressed production, adding a substantial amount to the total income. The assessee contended that variations were due to specific circumstances, but the AO did not find the explanation acceptable. The CIT(A) referred to similar cases before the ITAT Pune Benches and deleted the addition.

The ld. DR relied on the AO's order, while the ld. AR referred to a previous Tribunal order in the assessee's case for A.Y. 2014-15, highlighting the lack of supporting material for estimating gross profit. The Tribunal noted that the AO did not establish a direct nexus between production and electricity consumption, leading to an unjustified estimation of suppressed production. Referring to the previous Tribunal decision, it was concluded that the CIT(A)'s order was fair and reasonable in estimating net profit on suppressed production.

The Tribunal further emphasized the importance of consistency in decisions and found no basis for the AO's estimation of suppressed production based on electricity consumption. Therefore, the addition made on account of suppressed production was deemed to be deleted, upholding the CIT(A)'s order. The appeal by the Revenue was dismissed, affirming the justification of the CIT(A)'s decision.

In conclusion, the Tribunal upheld the CIT(A)'s decision to delete the addition made on account of suppressed production, based on the lack of a direct nexus between production and electricity consumption. The judgment emphasized the importance of providing supporting evidence for estimations and maintaining consistency in decisions.