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2018 (2) TMI 967 - AT - Income TaxRejection of books of accounts - additions made on account of unaccounted investment and unaccounted profits - variation of consumption of electricity was more than 15% - CIT-A deleted the addition - Held that - We find, in group of cases with the lead case being Singla Concast Pvt. Ltd. (2017 (4) TMI 1310 - ITAT CHANDIGARH) has accepted that in view of norms outlined by the committee, there was no reason to reject the book results shown by the assessee who have reflected variation in the production pattern within the acceptable range as prescribed by the committee constituted. In view of the same and since as per the facts of the present case, the consumption of electricity is less then 15% of the yearly average the decision rendered by the I.T.A.T. in the case of Singla Concast Pvt. Ltd. (supra) will squarely apply to the present case following which we uphold the order of the ld. CIT(A) directing the Assessing Officer to accept the book result shows by the assessee and to delete the additions made on account of unaccounted profits/unaccounted investment. The contention of the ld. DR that the assessee having shown variation of more than 15% on the lower side of the average,we find, merits no consideration, since we agree with the ld. CIT(A) that lower consumption of electricity for the same quantum of production should be viewed positively and not adversely. Therefore, we agree with the Ld.CIT(A) that this cannot be the basis for rejecting the books of account of the assessee. In view of above, the grounds of appeal raised by the Revenue are dismissed.
Issues:
1. Rejection of books of account under Section 145(3) of the I.T. Act due to disparity in electricity consumption and finished goods production. 2. Assessment of unaccounted production and income based on estimated electricity consumption. 3. Appeal before CIT(A) challenging the additions made by the Assessing Officer. 4. CIT(A) decision based on the report of a committee regarding acceptable variation in electricity consumption. 5. Appeal by Revenue against CIT(A) decision. Issue 1: Rejection of books of account under Section 145(3) of the I.T. Act: The Assessing Officer rejected the books of account of the assessee due to a wide variation in the ratio of electricity units consumed to Per Metric Tonne (PMT) of finished goods produced. The AO estimated unaccounted production of finished goods based on minimum average electricity consumption over 30 days, leading to additions on account of unaccounted income. The AO's decision was based on discrepancies between electricity consumption and production data. Issue 2: Assessment of unaccounted production and income: The Assessing Officer estimated unaccounted production and income by analyzing electricity consumption data and applying it to calculate total unaccounted investment and profit. This estimation was made due to discrepancies in the consumption pattern of electricity compared to the production shown in the books of account. The AO's calculations resulted in additions on account of unaccounted income. Issue 3: Appeal before CIT(A): The assessee appealed before the CIT(A) challenging the additions made by the Assessing Officer. The assessee presented detailed submissions and highlighted a committee's report recommending acceptance of variation up to 15% in electricity consumption. The CIT(A) verified the facts and decided to accept the book results of the assessee, leading to the deletion of the additions made by the AO. Issue 4: CIT(A) decision based on committee report: The CIT(A) based the decision on a committee report suggesting that if the variation in electricity consumption is within 15% of the average, the book results should be accepted. The CIT(A) found that the variation in the consumption pattern of electricity by the assessee was within the acceptable range, following the committee's recommendation. Therefore, the CIT(A) set aside the AO's action and deleted the additions made. Issue 5: Appeal by Revenue against CIT(A) decision: The Revenue appealed against the CIT(A) decision, arguing that the variation in electricity consumption exceeded 15%, justifying the AO's rejection of the books of account. The Revenue contended that the CIT(A) decision was contrary to the principle of independent assessment years. However, the Tribunal upheld the CIT(A) decision, citing previous cases where similar issues were decided in favor of the assessee. In conclusion, the Tribunal dismissed the Revenue's appeal and upheld the CIT(A) decision to accept the book results of the assessee, deleting the additions made by the Assessing Officer. The decision was based on the committee's report recommending acceptance of variation up to 15% in electricity consumption, which was found to be within the acceptable range for the assessee. The Tribunal found no reason to reject the book results based on the established norms outlined by the committee.
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