The ITO, Ward-5(3), Ahmedabad V. M/s. Rutvi Steel & Alloys Pvt.Ltd., Ahmedabad

ITA 3870/AHD/2007

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 5896 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 8 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-06-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 08-06-2010
• Assessment Year: 2005-2006
• Appeal Filed On: 15-10-2007
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A K KHANDELWAL
• Assessee Lawyers: M K PATEL
• Keywords: Rejection of books of accounts; Commercial expediency
• Section: 145

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH A BEFORE SHRI T.K.SHARMA, JUDICIAL MEMBER AND SHRI N.S. SAINI, ACCOUNTANT MEMBER DATE OF HEARING:10.6.10 DRAFTED ON:10.06.10 ITA NO.3870/AHD/2007 ASSESSMENT YEAR : 2005-2006 ITO, WARD 5(3), C.U.SHAH COLLEGE BLDG., 2 ND FLOOR, AHMEDABAD. VS. RUTVI STEEL & ALLOYS P. LTD. 20, ASHUTOSH SOC., NR. BHAIRAVNATH CHAR RASTA, MANINAGAR, AHMEDABAD. PAN/GIR NO. : AAACR 7103 E (APPELLANT) .. (RESPONDENT) APPELLANT BY : SHRI A.K.KHANDELWAL D.R. RESPONDENT BY: SHRI M.K.PATEL, A.R. O R D E R PER N.S.SAINI , ACCOUNTANT MEMBER :- THIS IS AN APPEAL FILED BY THE REVENUE AGAINST TH E ORDER OF LEARNED COMMISSIONER OF INCOME TAX(APPEALS)-XI, AHM EDABAD DATED 13.08.2007. 2. GROUND NOS.1 AND 2 OF THE APPEAL READS AS UNDER: - 1. THE LD. COMMISSIONER OF INCOME TAX (A)-XI, AHMEDABAD HAS ERRED IN LAW AND ON FACTS IN HOLDING THAT REJECTION OF BOOKS OF ACCOUNT UNDER SECTION 145 OF THE INCOME TAX ACT, 1961 IS NOT JUSTIFIED. 2. THE LD. COMMISSIONER OF INCOME TAX (A)-XI, AHMEDABAD HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION MADE OF RS.92,89,426/- ON ACCOUNT OF SUPPRESSION OF PRODUCTION. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE APPELLA NT IS A PRIVATE LIMITED COMPANY ENGAGED IN THE BUSINESS OF MANUFACT URE OF M. S - 2 - AND CTD BARS. THE LEARNED ASSESSING OFFICER OBSERVE D THAT ASSESSEE HAD SHOWN TOTAL PRODUCTION OF 1736.535 MT. TO VERIFY THE SAME, THE ASSESSEE WAS REQUIRED TO PRODUCE RG-1 REG ISTER AND ALSO TO GIVE MONTH WISE CONSUMPTION OF POWER IN UNITS VI S--VIS PRODUCTION. ON VERIFICATION OF THE DETAILS FILED SH OWING MONTH WISE PRODUCTION AND ELECTRICITY CONSUMPTION, WITH THOSE OF RG-1 REGISTER. THE LEARNED ASSESSING OFFICER OBSERVED THAT THERE W AS LARGE VARIATION IN THE ELECTRICITY CONSUMED FOR MONTH AND THE CORRESPONDENCE PRODUCED IN THE MONTH. HE NOTICED T HAT ASSESSEE HAS SHOWN PRODUCTION OF 133 MT AGAINST CONSUMPTION OF 82,847 UNITS OF ELECTRICITY I.E. THE ASSESSEE HAS SHOWN PR ODUCTION OF 1 MT AGAINST THE CONSUMPTION OF POWER OF 622.9 UNITS IN THE MONTH OF MAY 2004. CONSIDERING THE FACT THAT DURING THE YE AR, ASSESSEE HAS SHOWN TOTAL CONSUMPTION OF POWER OF 14,50,899 UNITS AND TAKING AVERAGE PRODUCTION OF 1 MT WITH 622.9 UNITS OF POWE R AS DECLARED IN THE MONTH OF MAY 2004. THE LEARNED ASSESSING OFFICE R CALCULATED THE TOTAL PRODUCTION WITH THE CONSUMPTION OF 14,50, 899 UNITS AT 2329.264 MT AS AGAINST 1736.535 MT SHOWN BY THE ASS ESSEE. THUS, THE LEARNED ASSESSING OFFICER HELD THAT THERE IS SUPPRESSION OF PRODUCTION OF 592.729 MT. THE LEARNED ASSESSING OF FICER FURTHER NOTED THAT DURING THE YEAR ASSESSEE HAS SHOWN SALES OF 1748.675 MT. FOR RS.3,92,52,302/- I.E. AT AN AVERAGE SALE PR ICE OF RS.22446.88 PER MT. CONSIDERING THE SAME, THE SALE VALUE OF SUPPRESSED PRODUCTION OF 592.729 MT. WAS WORKED OUT AT RS.1,39,04,960/-. 4. THE ASSESSEE EXPLAINED BEFORE THE LEARNED ASSESS ING OFFICER THAT THE POWER CONSUMPTION IN THIS TYPE OF INDUSTRY IS NOT DIRECTLY PROPORTIONAL TO THE QUANTITY OF FINISHED GOODS PROD UCED. THE CONSUMPTION OF POWER DEPENDS ON A NUMBER OF FACTORS VIZ. QUALITY AND SIZE OF RAW MATERIALS AND THE SIZE OF FINISHED GOODS PRODUCED. - 3 - HARDER THE QUALITY AND HIGHER THE SIZE OF RAW MATER IAL IN TERMS OF DIAMETER, POWER CONSUMPTION WILL BE MORE. LIKEWISE, THINNER THE SIZE OF FINISHED GOODS PRODUCED MORE WILL BE THE PO WER CONSUMPTION AS NEEDS MORE PRESSING. FOR EXAMPLE, USE OF 16MM. SCRAP PLATE AS RAW MATERIAL WILL CONSUME MORE POWER AS AGAINST USE OF 8MM.SCRAP PLATE. 5. THE LEARNED ASSESSING OFFICER AFTER CONSIDERING THE ARGUMENTS OF THE ASSESSEE OBSERVED THAT THE SAME ARE NOT ACCE PTABLE FOR FOLLOWING REASONS:- A) WITH REGARD TO VARIATION IN ELECTRICITY EXPENSES FROM RS.3049 PMT TO RS.6633 PMT, NO PLAUSIBLE REASONS WI TH DETAILED WORKING ABOUT SUCH DRASTIC VARIATION IN ELECTRICITY PER MONTH ARE FURNISHED. B) THE ARGUMENT THAT THE READING IS MADE BETWEEN 18 TH AND 25 TH OF EVERY MONTH IS NOT ACCEPTABLE AS THE DATE OF BILL SHOWN ABOVE INDICATES THAT THE BILLS ARE USUAL LY AS ON LAST DATE OF MONTH AND THAT APPEARS TO BE THE DATE OF READING IN ABSENCE OF ANY INFORMATION ABOUT THE PRE CISE DATE OF READING. C) THE ISSUE RAISED IS NOT THE PRODUCTION IN TERMS OF DIFFERENT SIZE OF BARS I.E. 6MM OR 10MM BARS BUT WI TH REFERENCE TO THE PRODUCTION IN MT. FURTHER, IT IS N OT THE CASE THAT DIFFERENT SIZE OF BARS ARE PRODUCED IN DI FFERENT MONTHS IN EACH MONTH, ALL TYPE OF PRODUCTION IS CONSIDERED AND THAT IS THE REASON WHY THE PRODUCTIO N IN METRIC TON IS CONSIDERED FOR WORKING OUT THE ABOVE DIFFERENCE. THE ASSESSEE HAS GIVE A ROUTINE REPLY B Y WHICH IT FAILED TO SUBSTANTIATE ITS CASE FOR SUCH A N - 4 - ALARMING DIFFERENCE IN THE PRODUCTION IN TERMS OF M T. HOWEVER, TO COVER ALL ADVERSE EVENTUALITIES IN THE PRODUCTION PROCESS WITH REFERENCE TO THE CONSUMPTIO N OF POWER IN UNIT AND CONSIDERING THE CONTENTION OF THE ASSESSEE THAT THE PRODUCTION CANNOT BE COMPARED WIT H CONSUMPTION OF POWER IN TOTO. THE SUPPRESSED PRODUCTION IS ESTIMATED AT 414.910 (I.E. 70% OF 592 .729 MT WORKED OUT IN THE SHOW CAUSE NOTICE.) FROM THE ABOVE, IT IS CLEAR THAT THE ASSESSEE HAS NOT COGENT OR DOCUMENTS TO EXPLAIN THE DISCREPANCIE S DISCUSSED. THEREFORE, THE PROVISIONS OF SECTION 145 (3) ARE INVOKED AND THE BOOKS OF ACCOUNT ARE REJECTED. 6. THEREAFTER, THE LEARNED ASSESSING OFFICER DETERM INED THE VALUE OF SUPPRESSED PRODUCTION OF 414.910MT. CONSID ERING THE AVERAGE SALE PRICE OF 12 MONTHS OF RS.22389 AT RS.9 2,89,426/- AND MADE ADDITION TO THE INCOME OF THE ASSESSEE. 7. ON APPEAL BEFORE THE LEARNED COMMISSIONER OF INC OME TAX(APPEALS), THE ASSESSEE SUBMITTED THAT THE LEARN ED A.O. HAS NO BASIS FOR THE REJECTION OF BOOKS OF ACCOUNTS. AS PE R SECTION 145(3) THE BOOKS OF ACCOUNTS OF ON ASSESSEE CAN BE REJECTE D IF: 'WHERE THE ASSESSING OFFICER IS NOT SATISFIED ABOUT CORRECTNESS OR COMPLETENESS OF THE ACCOUNTS OF THE ASSESSES, OR WHERE THE METHOD OF ACCOUNTING PROVIDE D IN SUB-SECTION (1) OR ACCOUNTING STANDARDS AS NOTIFIED UNDER SUB-SECTION (2), HAVE NOT BEEN REGULARLY FOLL OWED BY THE ASSESSEE, THE ASSESSING OFFICER MAY MAKE AN ASSESSMENT IN THE MANNER PROVIDED IN SECTION 144' IN THE CASE OF ASSESSEE IT HAS MAINTAINED PROPER B OOKS OF ACCOUNTS INCLUDING PURCHASE REGISTER, SALES REGISTER, LEDGER , CASH BOOK, BANK - 5 - BOOK AND JOURNAL. IT HAD ALSO MAINTAINED RAW MATERI AL AND FINISHED GOODS REGISTER. THE ACCOUNTS MAINTAINED BY APPELLAN T ARE CORRECT AND COMPLETE IN ALL RESPECTS. THE ACCOUNTS OF THE A PPELLANT HAVE BEEN AUDITED BY A CHARTERED ACCOUNTANT UNDER COMPAN IES ACT AS WELL AS UNDER SECTION 44AB OF THE INCOME TAX ACT. T HE AUDITORS HAVE CERTIFIED THAT THE PROPER BOOKS OF ACCOUNTS AR E MAINTAINED BY THE APPELLANT. THE AFORESAID ACCOUNTS WERE PRODUCED BEFORE THE A.O. AND NO DEFECT, OF WHATSOEVER NATURE, HAS BEEN FOUND BY HIM. THUS THERE IS NO REASON FOR THE A.O, TO REJECT THE BOOKS OF ACCOUNTS. 8. IT WAS FURTHER ARGUED THAT THE ASSESSEE IS A PRI VATE LIMITED COMPANY ENGAGED IN THE BUSINESS OF MANUFACTURE OF M .S AND CTD BARS. THE ACCOUNTS OF THE APPELLANT ARE AUDITED. IN THE ASSESSMENT YEAR, THE LEARNED A.O. HAS MADE THE IMPUGNED ADDITI ON ON THE GROUND THAT THERE IS A VARIATION IN THE ELECTRICITY CONSUMPTION PER M.T. OF FINISHED GOODS FROM MONTH TO MONTH. IT IS R ESPECTFULLY SUBMITTED THAT THE ELECTRICITY CONSUMPTION IN THIS TYPE OF INDUSTRY IS NOT PROPORTIONAL TO THE QUANTUM OF PRODUCTION. IT D EPENDS ON NUMBER OF FACTORS VIZ. QUALITY AND SIZE OF RAW MATE RIALS USED, THE QUALITY AND SIZE OF FINISHED GOODS. HARDER THE QUAL ITY AND HIGHER THE SIZE OF RAW MATERIAL (IN TERMS OF DIAMETER) HIGHER WILL BE THE POWER CONSUMPTION. LIKEWISE THINNER THE SIZE OF FINISHED GOODS , PRODUCED MORE WILL BE POWER CONSUMPTION AS IT NEEDS MORE PRE SSING. FOR EXAMPLE, USE OF 16 MM SCRAP PLATES AS RAW MATERIAL WILL CONSUME MORE POWER AS AGAINST USE OF 8 MM SCRAP PLATES. SIM ILARLY, PRODUCTION OF 6 MM OR 10 MM BARS WILL CONSUME MORE POWER THAN PRODUCTION OF 20 MM OR 25 MM BAR. THE ELECTRICITY C ONSUMPTION ALSO DEPENDS ON OTHER FACTORS ALSO LIKE AGING OF MACHINERY, LABORS PRODUCTIVITY, INCOMING VOLTAGE, BREAKDOWN MAINTENANCE TIME AND CLIMATIC CONDITIONS. IN VIEW OF THESE FACT S AND CIRCUMSTANCES IT CLEAR THAT THE ELECTRICITY CONSUMP TION IS NOT SOLE - 6 - CRITERION FOR DETERMINING TOTAL PRODUCTION. FURTHER , THE MONTH WISE FIGURES OF PRODUCTION AND POWER CONSUMPTION ARE NOT COMPARABLE BY THEMSELVES AS THE PRODUCTION FIGURES ARE FOR FULL C ALENDAR MONTHS WHEREAS THE CONSUMPTION OF POWER UNITS ARE FOR BROK EN MONTHS AS THE METER READING IS TAKEN DURING THE MONTH SO THE POWER CONSUMPTION IS SHOWN UPTO THAT DATE ONLY. IT WAS FU RTHER SUBMITTED THAT SIMILAR VARIATION EXISTED IN PRECEDING YEARS A LSO BUT NO ADVERSE INFERENCE WAS DRAWN IN THOSE YEARS. THE ASSESSEE HA S MAINTAINED REGULAR BOOKS OF ACCOUNTS AND ALL THE SALES AND PUR CHASES WERE FULLY VOUCHED, RECORDED END SUPPORTED BY RAW MATERIAL CON SUMPTION REGISTER AND PRODUCTION REGISTER AND FINISHED GOODS REGISTER. NONE OF THE PURCHASE AND SALES WERE FROM ANY PERSONS SPECIF IED U/S 40A(2)(B) OF INCOME TAX ACT. THE APPELLANT HAS MAIN TAINED QUANTITY DETAILS OF RAW MATERIAL AND FINISHED GOODS. THERE A LSO NO DISCREPANCY IS FOUND. THESE RECORDS HAVE BEEN DULY CHECKED AND VERIFIED BY THE EXCISE AUTHORITY. THE EXCISE AUTHOR ITIES DID NOT FIND ANY DISCREPANCY DURING THEIR AUDIT AND THEY HAVE GI VEN A CLEAN AUDIT REPORT. IT IS FURTHER SUBMITTED THAT MERE VARIATION IN CONSUMPTION OF ELECTRICITY CAN NOT BE REGARDED AS A GROUND TO DISR EGARD DECLARED VERSION OF THE APPELLANT. 9. IT WAS FURTHER SUBMITTED THAT THE ITAT DELHI ON AN IDENTICAL FACTS IN CASE OF PONDY METAL & ROLLING MILLS (P) LT D. V/S DY.C.I.T 107 TTJ 336 HAS DECIDED IN FAVOUR OF THE ASSESSEE RELYI NG ON THE FOLLOWING DECISIONS OF THE HIGH COURT :- I) IN CASE OF N. RAJA PULLAIAH V/S DY.C.T.O. (196 9) 73 ITR 224 (AP) WHEREIN HON'BLE HIGH COURT HAS HELD THUS : 'THE ASSESSING AUTHORITY REJECTED THE ACCOUNT BOOKS OF THE ASSESSES, A GROUNDNUT OIL MILLER, AND ESTIMATED THE TURNOVER ON THE BASIS OF CONSUMPTION OF ELECTRICITY AND THE RESULT OF TESTS CONDUCTED IN OTHER MILLS. NO TE ST, - 7 - HOWEVER, WAS CONDUCTED IN THAT VERY MILL TO FIND OU T THE RATE OF CONSUMPTION OF ELECTRICITY FOR A DEFINITE Q UANTITY OF SEEDS TO BE CONVERTED INTO OIL. THE ASSESSEE QUESTIONED THE ASSESSMENT IN WRIT PROCEEDINGS : HELD, THAT ALL THE MILLS CANNOT BE SAID TO BE SIMIL ARLY CIRCUMSTANCED IN ALL RESPECTS AND AS SUCH THE ASSESSMENT BASED ON THE DATA OF MILLS OTHER THAN TH E ASSESSEE'S MILL IS ARBITRARY,' II) TO THE CASE OF MAHABIR PRASAD JAGDISH PRASAD V/S CST 27 STC 337 (ALL) WHEREIN HON'BLE HIGH COURT HAS HELD T HUS : 'THE ACCOUNT BOOKS OF AN ASSESSES CANNOT BE REJECTE D ON MERE SUSPICION OR CONJECTURE UNLESS THE ACCOUNTS ARE KEPT IN SUCH A WAY THAT RELIANCE CANNOT BE PLACED U PON THEM. IF THE METHOD OF ACCOUNTING FOLLOWED BY THE ASSESSEE IS SO DEFECTIVE THAT THERE IS A POSSIBILIT Y OF SUPPRESSION AND LEAKAGE, THE ACCOUNTS CAN BE REJECT ED WITHOUT ANY FURTHER MATERIAL. BUT, IF THE ACCOUNTS ARE PROPERLY MAINTAINED WITH ALL THE RELEVANT DETAILS, IT IS NECESSARY FOR THE ASSESSEE AUTHORITY TO PLACE ON RE CORD SOME MATERIAL TO SHOW THAT THE ACCOUNTS ARE NOT TENABLE. THE FACT THAT THE CONSUMPTION OF ELECTRICI TY SHOWN BY THE ASSESSES WAS UNDULY HIGH CAN GIVE RISE TO A STRONG SUSPICION THAT THE ASSESSES MIGHT HAVE SUPPRESSED ITS PRODUCTION AND THEREBY MIGHT HAVE UNDERSTATED ITS SALES. BUT, SUSPICION, HOWSOEVER ST RONG IT MAY BE CANNOT TAKE THE PLACE OF POSITIVE MATERIA L. EVEN IF THE SALES TAX OFFICER IS ABLE TO DETECT ON E INSTANCE WHERE THE ASSESSEE MIGHT HAVE UNDERSTAND I TS SALES HE WOULD BE JUSTIFIED IN REJECTING THE ACCOUN TS AND MAKING AN ESTIMATE OF THE ESCAPED TURNOVER. BUT, T HE HIGH CONSUMPTION OF ELECTRICITY ALONE CANNOT BE HEL D TO BE A MATERIAL JUSTIFYING THE REJECTION OF THE ACCOU NTS PARTICULARLY WHEN THE ASSESSEE'S ACCOUNTS HAD ONCE BEEN ACCEPTED DURING THE REGULAR ASSESSMENT PROCEEDINGS. ' IT WAS THEREFORE PRAYED THAT THE IMPUGNED ADDITIONS MADE ON THE BASIS OF VARIATION IN CONSUMPTION OF ELECTRICITY IS NOT LEGALLY SUSTAINABLE. 10. THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE OBSERVE D THAT THE ASSESSEE HAS MAINTAINED BOOKS OF ACCOUNT, PURCHASE AND SALES - 8 - REGISTER, BANK ACCOUNT ETC. AS PER THE PROVISIONS O F THE INCOME TAX ACT. THE BOOKS OF ACCOUNTS ARE AUDITED UNDER COMPAN IES ACT AS WELL AS UNDER THE PROVISIONS OF INCOME TAX ACT UNDER SEC TION 44AB. WHILE REJECTING THE BOOKS OF ACCOUNT, THE LEARNED A SSESSING OFFICER HAS NOT BROUGHT ON RECORD ANY MATERIAL EVIDENCE TO SHOW THAT THE SAME ARE NOT MAINTAINED AS PER THE PROVISIONS OF TH E INCOME TAX ACT. ACCORDINGLY, HE HELD THAT IN HIS VIEW, THE LE ARNED ASSESSING OFFICER IS NOT JUSTIFIED IN REJECTING THE ASSESSEE S BOOKS OF ACCOUNT UNDER SECTION 145 OF THE ACT. 11. FURTHER, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) OBSERVED THAT THE LEARNED ASSESSING OFFICER HAS MAD E THE ABOVE DISALLOWANCE FROM THE GROUND OF REJECTION OF BOOKS OF ACCOUNT UNDER SECTION 145 AS WELL AS VARIATION IN CONSUMPTION OF ELECTRICITY. HOWEVER, WHILE MAKING THE HUGE ADDITION, THE ASSESS ING OFFICER HAS NOT BROUGHT ON RECORD ANY MATERIAL EVIDENCES TO IND ICATE THAT THE ASSESSEE HAD BEEN INDULGING IN UNACCOUNTED MANUFACT URING AND SALES. THERE SHOULD HAVE BEEN AT LEAST UNACCOUNTED PURCHASE OF RAW MATERIALS TO MANUFACTURE UNACCOUNTED PRODUCTS. NOTH ING IS ASCERTAINED BY THE A.O. THE BOOKS OF ACCOUNT OF THE APPELLANT ARE ALSO AUDITED BY TAX AUDITORS U/S. 44AB AND THEY HAV E NOT MADE ANY ADVERSE COMMENTS WITH REGARD TO THE PRODUCTION. THE RECORDS OF THE APPELLANT HAVE ALSO BEEN VERIFIED BY THE EXCISE AUT HORITIES AND THEY ALSO DID NOT FIND ANY DISCREPANCIES. THEREFORE, THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) AGREED WITH THE CONTENTIONS PUT FORTH BY THE A.R. OF THE ASSESSEE AND THE RELIA NCE PLACED ON THE DECISION OF DELHI ITAT IN THE CASE OF PONDY METAL & ROLLING MILLS (P) LTD. KEEPING IN VIEW, THE ABOVE FACTS AND CIRCUMST ANCES OF THE CASE AS WELL AS DECISIONS, REFERRED AS ABOVE, RELIED UPO N BY THE A.R. OF THE ASSESSEE, HE HELD THAT THE ASSESSING OFFICER IS NOT JUSTIFIED IN MAKING THE ABOVE DISALLOWANCE. THEREFORE, HE DELETE D THE ADDITION MADE BY THE A.O. OF RS.92,89,426/-. - 9 - 12. THE LEARNED DEPARTMENTAL REPRESENTATIVE RELIED ON THE ORDER OF THE LEARNED ASSESSING OFFICER WHEREAS THE LEARNE D AUTHORISED REPRESENTATIVE OF THE ASSESSEE SUPPORTED THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS). 13. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. IN THE INSTANT CASE, THE ASSESSEE IS A PRIVATE LIMITED COMPANY ENGAGED IN THE BUSINESS OF MANUFACTURE OF M. S AND CTD BARS. THE LEARNED ASSESSING OFFICER OB SERVED THAT THERE WAS HUGE VARIATION BETWEEN THE PRODUCTION SHO WN BY THE ASSESSEE AND THE UNITS OF ELECTRICITY CONSUMED IN E ACH MONTH DURING THE YEAR HELD THAT THE BOOKS OF ACCOUNTS ARE NOT RE LIABLE AND REJECTED THE SAME BY INVOKING SECTION 145 OF THE IN COME TAX ACT, 1961. HE THEREAFTER, OBSERVED THAT IN THE MONTH OF MAY 2004, THE ASSESSEE HAS SHOWN PRODUCTION OF 133MT AGAINST CONS UMPTION OF 82847 UNITS OF POWER. THUS, HE HELD THAT FOR 1 MT O F PRODUCTION, 622.9 UNITS OF POWER CONSUMPTION HAS BEEN DECLARED BY THE ASSESSEE. HE NOTED THAT 14,15,899 UNITS OF POWER W AS CONSUMED BY THE ASSESSEE IN THE ENTIRE YEAR AND BY TAKING TH E PRODUCTION RATE AS 1 MT AGAINST CONSUMPTION OF 622.9 UNITS OF POWER ARRIVED AT TOTAL PRODUCTION OF 2329.264 MT. AS AGAINST 1736.535 MT. AND BY ADOPTING THE AVERAGE SALE PRICE OF 22436.88 MT. SHO WN BY THE ASSESSEE ARRIVED AT THE VALUE OF SUPPRESSED PRODUCT ION OF 592.729 MT. AT RS.1,33,04,916/-. AFTER ALLOWING REBATE FOR ALL ADVERSE EVENTUALITIES IN THE PRODUCTION PROCESS WITH REFERE NCE TO THE CONSUMPTION OF POWER UNIT AND ALSO CONSIDERING CONT ENTION OF THE ASSESSEE THAT PRODUCTION CANNOT BE COMPARED WITH CO NSUMPTION OF POWER ONLY ESTIMATED 70% OF RS.1,33,04,916/- AS SUPPRESSED PRODUCTION OF THE ASSESSEE WHICH WORKED OUT TO RS.9 2,,89,426/- AND MADE ADDITION TO THE INCOME OF THE ASSESSEE. IN AP PEAL, THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) HELD TH AT REJECTION OF - 10 - BOOK RESULT WAS NOT JUSTIFIED BY THE LEARNED ASSESS ING OFFICER FOR THE REASON THAT THE ASSESSEE MAINTAINED BOOKS OF AC COUNT WHICH WERE AUDITED UNDER THE COMPANIES ACT AND ALSO UNDER SECTION 44AB OF THE INCOME TAX ACT AND THE LEARNED ASSESSING OFF ICER HAS BROUGHT NO MATERIAL TO SHOW THAT THEY ARE NOT MAINT AINED AS PER PROVISIONS OF THE INCOME TAX ACT, 1961. FURTHER, TH E LEARNED COMMISSIONER OF INCOME TAX(APPEALS) OBSERVED THAT T HE LEARNED ASSESSING OFFICER HAS NOT BROUGHT ON RECORD ANY MAT ERIAL EVIDENCES WHICH INDICATES THAT THE ASSESSEE WAS INDULGING IN UNACCOUNTED MANUFACTURING AND SALES AND MADE UNACCOUNTED PURCHA SES OF RAW MATERIALS TO MANUFACTURE UNACCOUNTED PRODUCTS. THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) HAS ALSO OBSERV ED THAT THE EXCISE AUTHORITIES HAVE VERIFIED THE PRODUCTION REC ORDS OF THE ASSESSEE AND HAS FOUND NO DISCREPANCIES IN THEM. H E ALSO OBSERVED THAT IN THE SIMILAR FACTS AND CIRCUMSTANCES, THE DE LHI BENCH OF THE TRIBUNAL IN THE CASE OF PONDY METAL AND ROLLING MIL LS P. LTD. (SUPRA) DELETED THE ADDITION MADE ON ACCOUNT OF SUPPRESSED PRODUCTION AND DELETED THE ADDITION OF RS.92,82,426/-MADE IN THE I NSTANT CASE OF THE ASSESSEE. THE LEARNED DEPARTMENTAL REPRESENTATI VE HAS MERELY RELIED UPON THE ORDER OF THE LEARNED ASSESSING OFFI CER. HE COULD NOT POINT OUT ANY ERROR IN THE ABOVE FINDING OF THE LEA RNED COMMISSIONER OF INCOME TAX(APPEALS). THE LEARNED DEPARTMENTAL REPRESENTATIVE COULD NOT BRING ANY MATERIAL ON RECO RD TO SHOW THAT THE ASSESSEE HAS PURCHASED RAW MATERIALS OUTSIDE TH E BOOKS OF ACCOUNT FOR MAKING UNACCOUNTED PRODUCTION. FURTHER , THE ASSESSEE HAS MAINTAINED BOOKS OF ACCOUNT, PURCHASE AND SALE REGISTER AND NO DEFECTS COULD BE POINTED OUT IN THE SAME BY THE LEA RNED ASSESSING OFFICER. FURTHER, NO ERROR COULD BE POINTED OUT IN THE SUBMISSION OF THE ASSESSEE THAT IT HAS MAINTAINED RG-1 REGISTER W HICH IS SUBJECT TO VERIFICATION BY EXCISE AUTHORITIES AND NO DEFECT HA S BEEN POINTED OUT BY THEM ON THEIR INSPECTION AND THAT THE ACCOUNTS O F THE ASSESSEE ARE AUDITED UNDER THE COMPANIES ACT AND THE INCOME TAX ACT, 1961 - 11 - AND NO ADVERSE COMMENTS WERE MADE BY THE AUDITORS O N THE ACCOUNTS OF THE ASSESSEE. FURTHER, THE HON'BLE DELH I BENCH OF THE TRIBUNAL IN THE CASE OF PONDY METAL AND ROLLING MIL LS P. LTD. (SUPRA) HAS HELD THAT WHERE ASSESSEE IS MAINTAINING REGULAR BOOKS OF ACCOUNTS AND ALL THE PURCHASE AND SALES ARE DULY VO UCHED AND SUPPORTED BY RAW MATERIAL REGISTER, PRODUCTION REGI STER AND FINISHED GOOD REGISTER WHICH WARE SUBJECT TO CHECK BY EXCISE AUTHORITIES NO ADDITION CAN BE MADE ON ACCOUNT OF ALLEGED SUPPRESS ION OF PRODUCTION SIMPLY ON THE BASIS OF CONSUMPTION OF EL ECTRICITY. WE ALSO FIND THAT THE CONTENTION OF THE ASSESSEE THAT THE VARIATION IN CONSUMPTION OF ELECTRICITY MAY BE CAUSED DUE TO VAR IOUS REASONS SUCH AS BREAK DOWN OF MACHINERY, QUALITY OF RAW MAT ERIALS, THICKNESS OF FINISHED GOODS AND FREQUENCY OF POWER FAILURE, ETC. COULD NOT BE CONTROVERTED BY THE LEARNED ASSESSING OFFICER. RATHER IT IS OBSERVED THAT THE ABOVE ARGUMENT OF THE ASSES SEE WAS ACCEPTED BY THE LEARNED ASSESSING OFFICER TO THE EX TENT OF 30% FOR WHICH NO BASIS COULD BE CITED. NO MATERIAL WAS BRO UGHT ON RECORD TO SHOW THAT IT WAS SCIENTIFIC TO ARRIVE AT THE QUANTI TY OF PRODUCTION MERELY ON THE BASIS OF CONSUMPTION OF UNITS OF ELEC TRICITY. THEREFORE, IN OUR CONSIDERED OPINION MERELY ON THE BASIS OF UNITS OF ELECTRICITY CONSUMPTION, IT CANNOT BE CONCLUDED THA T THE ASSESSEES BOOKS OF ACCOUNT WERE NOT RELIABLE OR THE ASSESSEE IS ENGAGED IN PRODUCING FINISHED GOODS OUTSIDE THE GOODS OF ACCOU NT. KEEPING IN VIEW THE ABOVE FACTS AND CIRCUMSTANCES OF THE CASE, WE DO NOT FIND ANY GOOD REASON TO INTERFERE WITH THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS). IT IS CONFIRM ED AND THE GROUND OF APPEAL OF THE REVENUE IS DISMISSED. 14. GROUND NO.3 OF THE APPEAL READS AS UNDER:- 3. THE LD. COMMISSIONER OF INCOME TAX (A)-XI, AHMEDABAD HAS ERRED IN LAW AND ON FACTS IN DELETING THE - 12 - ADDITION MADE OF RS.55,000/- ON ACCOUNT OF DISALLOW ANCE OF INTEREST EXPENSES. 15. THE LEARNED A.O. HAS DISALLOWED RS.55,000/- OUT OF INTEREST EXPENSES ON THE GROUND THAT INTERNET FREE LOAN OF R S.5,00,000/- IS GIVEN TO ONE PARTY. IT WAS SUBMITTED BY THE ASSESSE E BEFORE THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) THAT IT HAS NOT USED INTEREST BEARING LOAN FOR THIS PURPOSE. THE ASSESSE E HAD SUFFICIENT INTEREST FREE FUNDS AT ITS DISPOSAL. THE ASSESSEE H AS A SHARE CAPITAL AND FREE RESERVE TO THE EXTENT OF RS.1,02,16,696/- AS ON 31.03.2005 ON WHICH NO INTEREST WAS PAID. FURTHER THE ASSESSEE HAS ALSO UNSECURED LOANS OF RS.38,86,415/- AS ON 31.03,2005 ON WHICH NO INTEREST WAS PAID. RELIANCE WAS ALSO PLACED ON THE DECISION OF ITAT, AHMEDABAD IN CASE OF TORRENT FINANCIALS LTD 73 TTJ 624 WHEREIN IT WAS HELD THAT IF THE ENTIRE INTEREST-FREE FUNDS INC LUDING OWNER'S OWN CAPITAL, ACCUMULATED PROFITS AND OTHER INTEREST-FR EE CREDITORS AND LOANS, DOES NOT EXCEED TOTAL INTEREST-FREE ADVANCES INCLUDING DEBIT BALANCES OF PARTNERS ACCOUNT THEN NO INTEREST IS DI SALLOWABLE ON ACCOUNT OF UTILISATION OF FUND FOR NON-BUSINESS PUR POSES. 16. THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) AFTER CONSIDERING THE SUBMISSIONS MADE BY THE ASSESSEE HE LD THAT DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAD SUF FICIENT INTEREST FREE FUNDS AS WELL AS SHARE CAPITAL & INTEREST FREE RESERVE FUND TO THE EXTENT OF RS.1,02,16,696/- ON WHICH NO INTEREST WAS PAID BY THE ASSESSEE. THE ASSESSEE HAS ALSO UNSECURED LOANS TO THE EXTENT OF RS.38,86,415/- AND NO INTEREST WAS ALSO PAID ON THI S AMOUNT. THEREFORE, THE ADDITION MADE BY THE A.O. IS UNWARRA NTED AND NOT JUSTIFIABLE. 17. THE LEARNED DEPARTMENTAL REPRESENTATIVE SUPPORT ED THE ORDER OF THE LEARNED ASSESSING OFFICER WHEREAS THE LEARNE D AUTHORISED - 13 - REPRESENTATIVE OF THE ASSESSEE SUPPORTED THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS). 18. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. THE ASSESSEE MADE IN TEREST FREE ADVANCE OF RS.5,00,000/- DURING THE YEAR UNDER APPE AL. THE LEARNED ASSESSING OFFICER DISALLOWED INTEREST @ 11% ON THE SAID AMOUNT WHICH WORKED OUT TO RS.55,000/- ON THE GROUN D THAT BORROWED FUNDS HAVE BEEN ADVANCED FOR NON BUSINESS PURPOSES WITHOUT CHARGING INTEREST. THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) OBSERVING THAT THE ASSESSEE HAD SUFFIC IENT INTEREST FREE FUNDS AVAILABLE TO ADVANCE RS.5,00,000/- OUT OF THE SAME DELETED THE DISALLOWANCE MADE BY THE LEARNED ASSESSING OFFI CER. THE LEARNED DEPARTMENTAL REPRESENTATIVE COULD NOT POINT OUT ANY ERROR IN THE ABOVE FINDING OF THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) BY BRINGING COGENT AND RELEVANT MATERIAL ON RECORD TO SHOW THAT THE ASSESSEE HAD ADVANCED RS.5,00,000/- I N QUESTION OUT OF THE INTEREST BEARING BORROWED FUNDS OR TO SHOW T HAT ASSESSEE COULD NOT HAVE ADVANCE RS.5,00,000/- OUT OF THE INT EREST FREE FUNDS AVAILABLE WITH IT. IN ABSENCE OF ANY SUCH EVIDENC E BEING BROUGHT ON RECORD, WE DO NOT FIND ANY GOOD REASON TO INTERFERE WITH THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS). WE THEREFORE, CONFIRM THE ORDER OF THE LEARNED COMMISSIONER OF IN COME TAX(APPEALS) AND DISMISS THE GROUND OF APPEAL OF TH E REVENUE. 19. GROUND NO.4 OF THE APPEAL OF THE ASSESSEE READS AS UNDER:- 4. THE LD. COMMISSIONER OF INCOME TAX (A)-XI, AHMEDABAD HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION MADE OF RS.33,000/- ON ACCOUNT OF DISALLOW ANCE OF INTEREST ON CASH BALANCE. - 14 - 20. THE ASSESSING OFFICER OBSERVED THAT THE ASSESSE E WAS KEEPING CASH IN HAND OF RS.3,00,000/- AND INSPITE OF THIS W AS WITHDRAWING MONEY FROM BANK FOR ITS BUSINESS PURPOSES. THEREFO RE, HE DISALLOWED OF INTEREST @ 11% ON RS.3,00,000/- AND M ADE ADDITION TO THE INCOME OF THE ASSESSEE. IN APPEAL, THE LEAR NED COMMISSIONER OF INCOME TAX(APPEALS) DELETED THE ADD ITION OBSERVING THAT THE AUDITORS OF THE COMPANY HAVE NOT MADE ANY ADVERSE COMMENTS ON THIS ISSUE. WE FIND THAT IT IS NOT THE CASE OF THE REVENUE THAT CASH IN HAND WAS UTILISED BY THE A SSESSEE FOR NON BUSINESS PURPOSES OR CASH IN HAND WAS KEPT FOR ANY PURPOSE OTHER THAN THE BUSINESS CONSIDERATION BY THE ASSESSEE. IN OUR CONSIDERED OPINION, HOW MUCH CASH SHOULD BE MAINTAINED BY A BU SINESSMAN IS THE PREROGATIVE OF THE BUSINESSMAN AND THE LEARNED ASSESSING OFFICER CANNOT LAY DOWN ANY GUIDELINES IN THIS REGA RD. A BUSINESSMAN MAY MAKE AN IMPRUDENT DECISION BUT THAT BY ITSELF DOES NOT ENTITLE THE ASSESSING AUTHORITY TO NOT TO ALLOW DEDUCTION FOR EXPENSES INCURRED OUT OF COMMERCIAL EXPEDIENCY. THU S, WE FIND THAT THE ADDITION OF RS.33,000/- WAS MADE ON A WRONG FOO TING AND THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) WAS FUL LY JUSTIFIED IN DELETING THE SAME. THEREFORE, THIS GROUND OF APPEAL OF THE REVENUE IS DISMISSED. 21. IN THE RESULT, THE APPEAL OF THE REVENUE IS DIS MISSED. ORDER SIGNED, DATED AND PRONOUNCED IN THE COURT ON 18 TH DAY OF JUNE, 2010. SD/- SD/- ( T.K. SHARMA ) ( N.S. S AINI ) JUDICIAL MEMBER ACCOUNTAN T MEMBER AHMEDABAD; ON THIS 18 TH DAY OF JUNE, 2010 PARAS - 15 - COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE LD. CIT(APPEALS)-XI, AHMEDABAD. 5. THE DR, AHMEDABAD BENCH 6. THE GUARD FILE. BY ORDER, //TRUE COPY// (DY./ASSTT.REGISTRAR), ITAT, AHMEDABAD DATE INITIALS 1. DRAFT DICTATED ON 10.06.2010 -------------- ----- 2. DRAFT PLACED BEFORE AUTHORITY 11.06.2010 ---- --------------- 3. DRAFT PROPOSED & PLACED 11.06.2010 --------- ---------- JM BEFORE THE SECOND MEMBER 4. DRAFT DISCUSSED/APPROVED 11.06.2010 ---------- --------- JM BY SECOND MEMBER 5. APPROVED DRAFT COMES TO P.S 14.06.2010 -------- ------------ 6. KEPT FOR PRONOUNCEMENT ON 18.06.2010 -------- ------------ 7. FILE SENT TO THE BENCH CLERK 18.06.2010 ------ -------------- 8. DATE ON WHICH FILE GOES TO THE ---------------- -------------------- 9. DATE OF DISPATCH OF ORDER ---------------- ---- -----------------