2020 (11) TMI 767 - 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 - income estimation - HELD THAT - No merit in the Revenue s stand that the Assessing Officer s three folded action inter alia in rejecting the assessee s books of account followed by gross profit element on alleged unaccounted production of ₹ 13,04,677/- as well as unaccounted investment in stock of ₹ 1,62,54,188 78 - Case records indicate that this issue of rejection of books of account based on difference in power consumption of the relevant previous year turning act to be excessive than the so called tolerable limit of 15 % is no more res-intgra. This Tribunal s coordinate bench decision ITO Vs M/s Baba Balak Nath Steels 2019 (8) TMI 1587 - ITAT CHANDIGARH has rejected Revenue s identical stand wherein 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 Involved:
1. Rejection of books of accounts under Section 145(3) of the Income Tax Act, 1961.
2. Addition of ?13,04,677/- on account of alleged unaccounted gross profit.
3. Deletion of addition of ?1,62,54,188/- on account of unaccounted investment in stock.

Issue-wise Detailed Analysis:

1. Rejection of Books of Accounts under Section 145(3):
The Assessing Officer (AO) rejected the assessee's books of accounts on the grounds that there was significant variation in electricity consumption vis-à-vis production of finished goods, which was beyond the acceptable 15% tolerance margin. The AO argued that this indicated unaccounted production and sales. The AO relied on various judicial precedents, including Melton India vs. Commissioner of Trade of Tax (UP) and Kanchwala Gems vs. JCIT, to support the rejection of the books. The AO's analysis included detailed data on electricity consumption and production, highlighting days with high electricity usage but low production and vice versa. The CIT(A) upheld the AO's decision, stating that the rejection of books was justified due to the significant anomalies in power consumption and production records.

2. Addition of ?13,04,677/- on Account of Alleged Unaccounted Gross Profit:
The AO estimated unaccounted production based on the minimum electricity units consumed per metric ton (PMT) of finished goods and calculated the unaccounted production for each month. The AO then determined the unaccounted profit by applying the average sales rate and gross profit rate shown by the assessee. The CIT(A) upheld this addition, stating that the AO's method was fair and reasonable, and the burden of proof had shifted to the assessee, who failed to discharge it. The CIT(A) also noted that the AO had given credit for holidays and other factors affecting production.

3. Deletion of Addition of ?1,62,54,188/- on Account of Unaccounted Investment in Stock:
The CIT(A) deleted the addition of ?1,62,54,188/- made by the AO on account of unaccounted investment in stock. The CIT(A) accepted the assessee's argument that the minimum stock of raw material as per the books was much more than the peak stock needed for unaccounted production. The CIT(A) allowed the benefit of telescoping, relying on the judgment of the Hon'ble Supreme Court in Anantharam Veer Singhaiah & Co. Vs. CIT. The CIT(A) found the assessee's request for telescoping reasonable and accepted it.

Tribunal's Decision:
The Tribunal found no merit in the Revenue's stand that the AO's actions were justified. It noted that similar issues had been decided in favor of the assessee in previous cases, including ITO Vs M/s Baba Balak Nath Steels Pvt. Ltd. and ITO Vs M/s Hansco Iron & Steel P Ltd. The Tribunal held that the CIT(A)'s order, which favored the assessee in the preceding assessment year, had attained finality. Therefore, the Tribunal accepted the assessee's appeal, rejecting the lower authorities' action of rejecting the books of accounts and adding the gross profit element on alleged unaccounted production. Consequently, the Revenue's cross appeal was dismissed.

Conclusion:
The assessee's appeal in ITA No. 818/Chd/2019 was allowed, and the Revenue's cross appeal in ITA No. 879/Chd/2019 was dismissed. The Tribunal directed that the order be placed in the respective case files and pronounced the order in the open court on 11th November 2020.