2019 (10) TMI 1064 - AT - Income Tax

Unaccounted sale - Addition on account of Gross Profit made due to alleged theft of electricity - AO made the addition on the basis of alleged unmetered electricity consumed at 181498 units - HELD THAT - The assessee itself worked out that considering the calculation error made by the MGVCL the unaccounted production works out to only 2125 MT and if it is taken as the basis the unaccounted sales would arriving at 22598 units and applying the average sale price at ₹ 905/- the unaccounted sales would work out 19,23,231/-. Perusal of records also shows that the basis of the addition by the AO was un-metered electricity whereas CIT(Appeals) has taken the basis of lower Gross Profit/Net Profit rate. Except for the electricity units issue no other mistake has been pointed out in the books of account regularly maintained that audited. Except the submission of the assessee accepting the excess units of 22598 units and working out the unaccounted sales all the charges levelled against the assessee by both the lower authorities have no sound basis and they are moving here and there. Sometimes the un-metered units are taken as a basis and sometimes lower Gross Profit/Net Profit rate is taken as a basis to complete the addition even when books of account stands not rejected. Most addition for undisclosed Gross Profit at the average Gross Profit rate of 11.28% on the unaccounted sales accepted by the assessee at ₹ 19,23,231/- can be sustained. We accordingly, confirm the addition at ₹ 2,16,940/- for undisclosed Gross Profit, delete the addition for 13,08,432/- and partly allow the assessee s appeal.

Summary

Issues:
Appeal against addition on account of Gross Profit due to alleged theft of electricity for A.Y. 2007-08.

Analysis:
1. The assessee appealed against the addition on account of Gross Profit made by the Assessing Officer due to alleged theft of electricity. The Ld. CIT(A) confirmed the addition despite the firm's court victory against the electricity theft allegations. The Ld. CIT(A) noted a sharp decline in Gross Profit and Net Profit rates, coupled with the penalty levied by MGVCL for alleged theft of electricity. The assessee failed to justify the decline in profits, leading to the application of net profit rates based on past years' data. The court order showed discrepancies in the electricity theft case, and the firm admitted unaccounted production during the assessment proceedings.

2. The Tribunal observed that the Assessing Officer made the addition based on alleged un-metered electricity consumption, resulting in an estimated production value. The assessee's written submission during assessment proceedings highlighted discrepancies in MGVCL's calculations and challenged the excess electricity consumption figures. The Tribunal found that the lower authorities had no substantial basis for the addition besides the electricity units issue, as the books of account were audited and not rejected.

3. Considering the facts and circumstances, the Tribunal held that the addition for undisclosed Gross Profit at the average rate of 11.28% on the unaccounted sales accepted by the assessee could be sustained. Therefore, the Tribunal confirmed an addition of &8377; 2,16,940 for undisclosed Gross Profit, deleted the addition of &8377; 13,08,432, and partly allowed the assessee's appeal against the addition on account of Gross Profit due to alleged theft of electricity for A.Y. 2007-08.