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TMI Blog2012 (10) TMI 1065X X X X Extracts X X X X X X X X Extracts X X X X ..... icals. The dyeing and pringng charges varied from month to month, which meant that the Assessee had suppressed the charges for certain months. The consumption of electricity was also unusually higher in certain months of the year, and the ratio was 27.56% in the month of September, 2004 as against 16.51% in May, 2004. Similarly, there was substantial variation in the consumption of gas as well, and its ratio varied from 15.49% in the month of April, 2004 to 9.22% in February, 2005. The Assessee had purchased only 11.62 Metric Ton (MT) of coal upto August whereas, given the production process of the Assessee, the requirement was much higher. This meant that the Assessee had suppressed the purchase of coal. On the basis of such findings, the AO came to the conclusion that the Assesee's book results were not reliable. He therefore rejected the same u/s. 145(3) of the IT Act. He then issued a show cause notice (para 5.1, pages 6-10 of the assessment order). Through the show-cause notice, the AO asked the Assessee to explain why the GP should not be adopted at 15% of the turnover. The AO also asked the Assessee to explain the variation in the consumption ratios of electricity as wel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ected the Assessee's submissions observing that the same was vague and unsatisfactory. The Assessee had failed to explain why in the month of May, 2004 there was a reasonable production of printed/dyed cloth in comparison to the consumption of electricity, but in the other months it was not so. Similar was the case of gas. Detailing the reasons for rejection (para 5.3, pages 15-22) the AO observed that the three sources of energy were not interdependent, even though they supplemented each other in some ways. The consumption and production of one did not affect the consumption and production of other sources of energy. If the boiler is run by coal/lignite, it cannot be run by any other source unless there is a gas connection to the boiler. When the gas is used then it cannot be run on coal/lignite. According to the AO, the Assessee had furnished such a vague explanation only to mislead the Department. Similarly, the Assessee had failed to explain the variation in the consumption ratios of electricity and gas. It was pointed out by the AO that in the AY 2001-02, certain bogus purchase bills of colours and chemicals were detected and the amount of such bills had been added to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rked out the unaccounted production to 4,08,314.918 meters. The Assessee was charging job charges at the average rate of ₹ 6.79 per meter. Therefore, the total suppressed job charges was worked out to ₹ 27,72,458/-. The A.O. specifically observed that such suppression of job charges was calculated by him on the bsis of suppression of the production. Consequently, it could not be confused with the enhancement of G.P. showed in the books. He further reiterated that the addition of ₹ 27,72,458 would not have any effect on the GP shown in the books because the job-work done outside the books could not be correlated to the job charges shown in the trading account. While making the addition, the AO further observed that the survey conducted by the Department had detected suppression in many such cases and such activities had also been reported by many newspapers. 4. Before ld. CIT(A) the contention of the assessee was as under:- In the written submissions, the AR has reiterated the claim that there was an increase in the GP ratio as also in the NP ratio as compared to the immediately preceding year. The GP and the NP had also increased in absolute terms. Therefor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 37 ITR 151 (SC) (ii) Lalchand Bhagat Ambica Ram V. CIT(1959) 37 ITR 288(SC) (iii) CIT V. Daulat Ram (1973) 87 ITR 349 (SC) 5. After taking into consideration these submissions of the assessee ld. CIT(A) deleted the addition by observing as under:- 6.2 Coming to the addition on account of suppressed production, the basis on which the AO worked out the suppression, was the ratio of consumption of electricity and gas as compared between the months of the year. On the basis of the consumption in the month of May, and the production achieved during the same month, the AO worked out the estimated production for the remaining months and after adjusting the production disclosed by the Assessee, and allowing for 20% variation, the AO worked out the suppressed job-work charges received by the Assessee. I simply do not agree with the method adopted by the AO. Firstly, the Assessee was engaged in the business of doing job-work of dyeing and printing where the grey is provided by the Assessee s clients. The Assessee incurs expenses on colours and chemicals and also on fuel and wages/salaries. There could be many reasons for the variation in the consumption of electricity ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d/2007, A.Y. 2004-05 (ITO Vs. M/s Pragati Fashions) (ii) ITA No.4593/Ahd/2007, A.Y. 2004-05 (ITO Vs. Nemcon Texturisers) (iii) ITA No.1861/Ahd/2006, A.Y. 2003-04 (ACIT Vs. M/s Pigeon Textiles,Surat) Ld. D.R., on the other hand, relied on the order of lower authorities. 7. After hearing both the parties and perusing the record we find that the A.O. has made addition of ₹ 27,72,458/- on account of suppressed production. For working out this suppression the A.O. has relied on the ratio of consumption of electricity and gas as compared between the months of the year on the basis of consumption in the month of May and the production achieved during the same month the A.O. worked out the estimated production for the remaining part of the year and after adjusting the production disclosed by the assessee and allowing for 20% variation the A.O. worked out the suppressed job work charges received by the assessee. Ld. CIT(A) for the reasons given by him in his order, the relevant portion of which we have already reproduced above, has given clear finding that averages or the ratio of particular months could not be used to take the view that production have been suppressed in the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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