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2021 (7) TMI 614 - AT - Income TaxUndisclosed production and investment in stock arrived at on the basis of variation in electricity consumption and calculations - HELD THAT - The issue of variation in electricity consumption stands addressed by M/s. R.A. Castings Pvt. Ltd. 2010 (9) TMI 669 - ALLAHABAD HIGH COURT wherein the Court was pleased to hold, Therefore, no universal and uniformly acceptable standard of electricity consumption can be adopted for determining the excise duty liability that too on the basis of imaginary production assumed by the Revenue with no other supporting record, evidence or document to justify its allegations. Similarly it is seen that the deficiency of the Revenue Authorities in not confronting the incriminating statements relied upon and making those persons available for cross examination persists. In the facts of the present case, repeatedly request to this extent has been made by the assessee all along and for unstated reasons, it remains unaddressed, such an action again is unsustainable in law. Accordingly, the appeal of the assessee is allowed and the additions sustained are directed to be deleted.
Issues Involved:
1. Rejection of books of accounts based on variation in electricity consumption. 2. Adverse inference from higher variation in electricity consumption. 3. Addition of ?9,75,098/- on account of gross profit from alleged unaccounted sales. 4. Addition of ?72,42,835/- on account of investment in alleged unaccounted production. Detailed Analysis: Issue 1: Rejection of Books of Accounts Based on Variation in Electricity Consumption The appellant contested the CIT(A)'s decision to reject the books of accounts solely based on variations in electricity consumption. The appellant argued that this issue had already been decided in their favor in a previous ITAT ruling (M/s. Kripalu Strips Vs ITO, ITA 818 & 879/CHD/2019). The Tribunal had previously held that mere suspicion of higher production based on electricity consumption was insufficient for rejecting the books of accounts. The Tribunal referenced similar cases like ITO Vs M/s. Baba Balak Nath Steels Pvt. Ltd., where it was decided that a variation within 15% of yearly average electricity consumption should not warrant rejection of the books of accounts. Issue 2: Adverse Inference from Higher Variation in Electricity Consumption The appellant argued that the CIT(A) erred in drawing adverse inferences from slightly higher variations in electricity consumption in two cycles compared to an arbitrarily set benchmark of 15%. The Tribunal noted that the appellant had been consistently requesting an opportunity to cross-examine the individuals whose statements were relied upon by the department, but this request was not addressed. The Tribunal found that the CIT(A)'s reliance on the case of Melton India Vs CIT was misplaced and that the latest decision in CIT Vs M/s. R.A. Castings Pvt. Ltd. should be considered, which emphasized that no universal standard of electricity consumption could be adopted without supporting evidence. Issue 3: Addition of ?9,75,098/- on Account of Gross Profit from Alleged Unaccounted Sales The Tribunal examined the addition of ?9,75,098/- made by the AO on account of gross profit from alleged unaccounted sales. The Tribunal found that similar additions had been dismissed in previous cases (e.g., ITO Vs M/s. Hansco Iron & Steel P Ltd.). The Tribunal emphasized that the rejection of books of accounts based on electricity consumption variations was not justified, and therefore, the related addition for gross profit could not be sustained. Issue 4: Addition of ?72,42,835/- on Account of Investment in Alleged Unaccounted Production The Tribunal also reviewed the addition of ?72,42,835/- for alleged unaccounted production investment. It noted that the CIT(A) had followed a similar reasoning as in the previous cases where such additions were not upheld. The Tribunal reiterated that without a proper basis for rejecting the books of accounts, the subsequent additions for unaccounted production and investment could not stand. Conclusion: The Tribunal allowed the appeal, directing the deletion of the additions sustained by the CIT(A). The Tribunal held that the issues raised were covered by previous ITAT decisions, which had ruled in favor of the assessee. The Tribunal emphasized the importance of providing the assessee an opportunity to cross-examine the individuals whose statements were relied upon and found the actions of the Revenue Authorities unsustainable in law. The appeal was thus allowed, and the additions were directed to be deleted.
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