2023 (1) TMI 446 - HC - VAT and Sales Tax

Rejection of books of accounts of assessee - enhancement of turnover - higher consumption of electricity during the period 01.01.2008 to 31.03.2008 - HELD THAT - This question has been directly and indirectly under consideration of this Court as well as Hon ble Apex Court for a long time. The Division Bench of this Court in MAHABIR PRASAD JAGDISH PRASAD, VARANASI VERSUS COMMISSIONER OF SALES TAX, UP. 1970 (7) TMI 71 - ALLAHABAD HIGH COURT was of the view that high consumption of electricity may be a circumstance justifying action under Section 21 of U.P. Sales Tax Act, 1948, but, the Court was of the view that high consumption of electricity by itself is no material for rejecting the books of accounts of the Assessee. The judgment of Mahabir Prasad Jagdish Prasad was followed by another Division Bench in MAHASHAKTI OIL MILL VERSUS COMMISSIONER, SALES TAX, UP., LUCKNOW 1972 (1) TMI 91 - ALLAHABAD HIGH COURT wherein the proceedings were under Section 21 of Act of 1948 and the Court was of the view that if no material was brought by the taxing authorities on record, there was no justification for rejecting the books of accounts. The said judgment was subsequently followed in M/S SUNITA ISPAT PVT. LTD. VERSUS THE COMMISSIONER, COMMERCIAL TAX 2016 (11) TMI 131 - ALLAHABAD HIGH COURT and the Court found that excessive electricity consumption cannot be a ground for rejection of books of accounts. In the case in hand, there is no denial of the fact that for nine months starting from 01.04.2007 to 31.12.2007, the total electricity consumption was 8,55,375 and total grinding of wheat, which was done, was 96760.05 quintals, while for the remaining period i.e. 01.01.2008 to 31.03.2008, only 8791.14 quintals of wheat was grinded consuming 1,83,625 units of electricity, which comes to 20.887 units of electricity per quintal compared to the earlier period, where the consumption was 8.840 units per quintal. The difference between consumption of electricity for the period 01.4.2007 to 31.12.2007 and 01.01.2008 to 31.03.2008 is about 2.5 times high, for which justification given by the Assessee to the extent of electricity being consumed by the officials at their residential premises for running Air Conditioners, fans and light, cannot be accepted, as the period for which explanation has been given is the winter time when there is no use of Air Conditioners and the domestic consumption cannot be believed on such a higher side. Thus, it is apparent that the Assessing Authority had rightly rejected the books of accounts on the basis of high consumption of electricity after dealing with each aspect of the case and recording a categorical finding as to the production of flour made from the wheat during the relevant period of assessment year in question. The earlier Division Bench and coordinate Bench of this Court had only held that rejection of books of accounts cannot be done on the basis of high consumption when there was no material on record. However, in the present case, the Assessing Authority has demonstrated how the electricity was consumed by the Assessee during the period 01.04.2007 to 31.12.2007 and 01.01.2008 to 31.03.2008 when the production did not increase but only the consumption was high. There are no ground for interference is made out in the order of Tribunal. Both the revisions lack merits and are hereby dismissed.

Summary

Issues:
1. Rejection of books of accounts based on excessive consumption of electricity.
2. Interpretation of relevant case laws on rejection of books of accounts.
3. Justification for rejection of books of accounts in the case at hand.

Detailed Analysis:
1. The revisions under Section 58 of the U.P. Value Added Tax Act, 2008 were filed challenging the Tribunal's order dismissing the Assessee's second appeal and allowing the Revenue's appeals. The primary issue was whether the books of account could be rejected due to higher consumption of electricity during specific assessment periods.

2. The Assessee operated a factory for manufacturing Flour, Maida, and Sooji. The dispute pertained to Assessment Year 2007-08 and 2008-09. The Assessing Authority rejected the books of accounts based on excessive electricity consumption, leading to appeals and subsequent revisions. The key contention was whether rejection solely on electricity consumption grounds was justified.

3. The Assessee argued that high electricity consumption was due to old machinery and residential quarters' electricity usage. Case laws like Mahabir Prasad Jagdish Prasad and M/s Abhinav Steels Pvt. Ltd. were cited to support the argument that excessive electricity use alone cannot warrant book rejection. Conversely, the Revenue contended that the significant increase in electricity consumption without a proportional rise in production indicated potential tax evasion.

4. The Court analyzed past judgments, emphasizing that high electricity consumption alone is insufficient to reject books of accounts. However, if material justifies rejection, excessive electricity use may raise suspicion warranting further examination. In this case, the Assessing Authority demonstrated a substantial increase in electricity consumption without a corresponding rise in production, leading to the rejection of books of accounts.

5. The Court dismissed the revisions, upholding the Tribunal's decision. It concluded that the Assessing Authority rightly rejected the books of accounts based on detailed analysis and findings regarding electricity consumption vis-à-vis production. The judgment favored the Revenue, highlighting the importance of substantive justification for rejecting books of accounts based on electricity consumption discrepancies.