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TMI Blog2018 (9) TMI 1684X X X X Extracts X X X X X X X X Extracts X X X X ..... f raw material or cost of manufacturing or suppressed its sale prices order, or that it has made purchases of raw material or sale of finished goods outside the books. Since the quantum of production and turnover has been accepted, the rejection of books of accounts in the peculiar facts and circumstances has been held to be inapplicable and we find no good reason available on record on the basis of which the said conclusion can be varied. - Decided against revenue - ITA No. 671/CHD/2016 - - - Dated:- 9-5-2018 - MS. DIVA SINGH, JUDICIAL MEMBER AND Dr. B. R. R. KUMAR, ACCOUNTANT MEMBER For The Appellant : Shri Manjit Singh, Sr.DR For The Respondent : Shri N.K. Garg ORDER PER DIVA SINGH, JM The present appeal has been filed by the Revenue assailing the correctness of the order dated 29.03.2016 of CIT(A) Patiala pertaining to 2011-12 assessment year on the following grounds : 1. In the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the addition of ₹ 81,11,115/- made by the Assessing Officer after rejecting assessee's books of account u/s 145(3) of the Income Tax Act, 1961. 2. In the facts an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1 M.T. of raw material No. of units consumed for production/obtained 1 M.T. of finished goods 1 2 3 4 5 6 7.4.2010 72 65 12299 171 189 23.5.2010 62 57 10216 164 180 8.7.2010 66 60 12009 182 198 1.9.2010 66 60 12560 190 208 9.12.2010 9 8 1281 142 157 14.1.2011 9 8 1331 147 168 21.3.2011 12 15 1760 104 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was required to show cause why books of account maintained should not be rejected by applying GP rate of 18.49% which had been shown by the assessee in 2009-10. Referring to pages 5 to 9 of the assessment order, it was submitted, the assessee's submissions have been brought out and considered by the AO. On going through the same, the AO has held them to be not tenable in view of the specific reasoning referred to in page 10, 11 and 12 of the assessment order. The said conclusions were heavily relied upon by the Department. For the sake of completeness, these are reproduced hereunder : The reply field by the assessee has carefully been considered which is not tenable owing to following reasons:- (i) The assessee has no evidence on record relating to sizes and quality of finished goods (i.e. paper) produced on day to day. This means that assessee had no proof or evidence to support its contention/reasons for variation in electric units consumed per MT of finished goods produced. (ii) With regard to consumption of electric units consumed (chart as per show cause notice i.e. Part-A/Electricity units consumed less than 200 units for consumption of 1 metric tone of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AO has fairly and reasonably applied the average G.P. rate of 2009- 10 and 2010-11 assessment year of the assessee itself which came to 16.54% leading to the addition of ₹ 81,11,115/-.The said addition, it was submitted, has been deleted by the CIT(A) without addressing the specific objections taken into consideration by the AO and also ignoring the decision of the Hon'ble Apex Court in the case of Melton India V Commissioner of Trade Tax, U.P.[Appeals (Civil)] No. 373 of 2007 dated January 31, 2007 (2007) 5 VST 613 (S.C.) 6. Inviting attention to the said judgement dated 31/01/2007 filed in the Court it was admitted that a perusal of the said decision would show that the Tribunal therein had rejected the books of accounts of the assessee on the ground of electricity consumption which had increased which fact had been taken into consideration in holding that it can be reasonably inferred that assessee's production must have also increased. Referring to the said decision, it was submitted that on behalf the assessee it had been argued that a higher consumption of electricity is not a good ground for rejection of the books of accounts. The Apex Court considering the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee's production has increased and in the facts of the present case, it is not that there is higher consumption of electricity and low production, facts are to the contrary. No doubt the nature of assessee's work, it was submitted, is peculiar as for the production of different qualities of paper etc. and the frequent tripping of power in these areas does necessitate waste of power, however the assessee's efficiency has increased as with less power consumption, the assessee is able to produce more. Apart from that, the chart and detail relied upon by the Revenue is a meaningless exercise as its correctness is not sacrosanct as on certain dates, the number of units consumed is zero whereas the production is there. Material relied upon and confronted, infact is not accurate. Consequently, without paying attention to the nature of paper being produced etc. and the nature of work at the relevant point of time, the exercise is a meaningless exercise. Heavy reliance was placed upon the impugned order. It was also his submission that Paper Book running into 63 pages, what has been argued before AO and CIT(A) on facts and case law Paper Book of 49 pages on record has not be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... factors contributing to the disparity in the consumption of electricity per ton production of finished goods or consumption of per ton raw material. Detailed stage wise manufacturing process was explained to the AO. All this shows that various factors contribute in varying degrees in consumption of electricity vis-a viz per metric ton production of finished goods or per metric ton consumption of raw material. This alone does not become the basis for drawing an outright adverse inference. Finally, it is fallacious to conclude that the checks exercised by the Excise Department and the records maintained under the excise law are not relevant for income tax purpose. On fact, there are complementary to it, as these testify to the production aspect with regard to the manufacturing quality, sizes, quantum of finished goods, raw material and other consumables on day to day basis. It is seen that the appellant has maintained complete quantitative information in connection with purchases, production and sales. The AO has not pointed out any specific defect with evidence in the audited books of account and has not recorded any finding to the effect that the appellant had inflated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me was assailed not only before the CIT(A) but the arguments have also been raised before the assessing officer also. We also take note that the arguments that there were multiple reasons for variations, even for the variations in electricity consumption by the assessee was also not taken up for the first time before the CIT(A). The record shows that in the reply extracted at pages 5 to 9 of the assessment order, the assessee has submitted that variation in consumption of power could be due to multiple reasons such as interruptions in regular supply of power, quality of power, tripping in power supply, quality of raw material and finished product, efficiency of the machine operator and the workers, breakdown of the machinery etc. Similarly the assertion that the power consumption in the year under consideration has infact gone down vis-a-vis the earlier years is also evident from the very same reply recorded at specific page 6 of the assessment order. A perusal of the same shows that on behalf of the assessee as per the written reply extracted in the order it has been stated that we have already submitted that during the year our power consumption has gone down per MT of productio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d affirmed the conclusion drawn by the Hon'ble High Court that excessive power consumption prima facie establishes the assessee's intention to suppress the production and the turnover. In the facts of the present case, the electricity consumption on an annual basis has gone down over a period of time and production has increased. In the facts of the said decision we also note that the assessee had not produced the relevant books despite several opportunities which had been taken note of by the AO, the CIT(A), Tribunal as well as the High Court which is not the position in the present case as books have been produced and seen alongwith vouchers etc. wherein no defect has been pointed out. Apart from that, it is seen that in the facts of the said case the Hon'ble Apex Court also took note of the fact that the ITAT is the last fact finding authority and it had noted that there was no verification of the raw materials used in the work done on job work basis which remain unverified. The rejection of books of accounts it was noticed by the Hon'ble Apex Court was on various grounds and thus in the face of the findings of facts, the Apex Court held that the High Court could ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hree cases) and May 24, 2013 (in one case) without pointing out the specific reason for applying these different rates in similar case even though the AO has applied a common yardstick in all these four cases for estimating production and income ?. ( emphasis supplied) 9.4 In the facts of the said decision the original assessment order of the assessing officer was set aside by the CIT(A) exercising his powers under Section 263. The assessee's appeal against the said Revisionary order was dismissed by the ITAT. In the assessment proceedings pursuant to the order of the CIT s Revisionary Order, addition on account of suppressed production on the basis of consumption of electricity was made in the hands of the assessee. The issue was carried in appeal by the assessee before the CIT(A) who granted substantial relief by reducing the addition from ₹ 54,82,489/- to ₹ 13,25,728/- directing the assessing officer to apply the GP rate of 23%. The said order of the CIT(A) was upheld by the ITAT. The correctness of the said decision was challenged. The issue of maintainability of G.P. addition was never challenged by the assessee. For the sake of greater clarity, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to consideration the production results of comparable business turnover and specific circumstances of the assessee, adopted gross profit rate of 23 per cent, and sustained the addition to that extent. 9.5. It is further seen that considering the submissions of the parties before the Court, the Hon'ble High Court was pleased to hold as under: 8. The findings recorded by the Commissioner of Income-tax (Appeals) and the Tribunal were not shown to be erroneous or perverse in any manner by the learned counsel for the Revenue. Further, in the judgment of the apex court in Melton India's case (supra), it was held that consumption of electricity can be one of the factors for drawing an inference that the assessee's intention to avoid tax was there. However, in the light of the findings noticed hereinabove, the addition on the basis of the gross profit rate of 23 per cent, on the total turnover of ₹ 93,26,096 in the facts and circumstances of the present case could not be faulted. 9.6 Accordingly in the peculiar facts and circumstances of the present case we find that the said decision is of no help to the Revenue and the issues in the facts of the presen ..... X X X X Extracts X X X X X X X X Extracts X X X X
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