ITO, Sirhind V. M/s Hansco Iron & Steel Pvt. Ltd., Mandi Gobindgarh

ITA 397/CHANDI/2017

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 6766 (ITAT-CHANDIGARH)
• Duration Of Justice: 7 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-10-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: SMC
• Assessment Year: 2012-2013
• Appeal Filed On: 02-03-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MANJIT SINGH
• Keywords: Unexplained investment; Income from undisclosed sources
• Section: 144

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCHES, SMC, CHANDIGARH BEFORE MS. DIVA SINGH, JUDICIAL MEMBER ITA NO 397/CHD/2017 ASSESSMENT YEAR: 2012-13 THE ITO, VS. M/S HANSCO IRON & STEEL P.LTD., WARD-1, JALALPUR CHOWK, MANDI GOBINDGARH AMLOH ROAD, HQ SIRHIND. MANDI GOBINDGARH. PAN NO. AABCH7381P & ITA NO 398/CHD/2017 ASSESSMENT YE AR: 2012-13 THE ITO, VS. M/S KAILASH STEEL ROLLING MILLS, WARD-1, AMLOH ROAD, MANDI GOBINDGARH MANDI GOBINDGARH HQ SIRHIND. PAN NO. AAIFK9592P (APPELLANT) (RESPONDENT) DEPARTMENT BY : SHRI MANJIT SINGH, SR. DR ASSESSEE BY : SHRI PARIKSHIT AGGARWAL ,CA DATE OF HEARING : 12.07.2017 DATE OF PRONOUNCEMENT : 03.10.2017 ORDER BOTH THESE APPEALS FILED BY THE REVENUE IN THE CAS E OF DIFFERENT ASSESSEES ARE BEING DECIDED BY A COMMON ORDER AS IDENTICAL ISSUE IS AGI TATED IN BOTH THE APPEALS. IT WAS A COMMON STAND OF THE PARTIES BEFORE THE BENCH THAT T HE ISSUE STANDS CONSIDERED BY VARIOUS ORDERS OF THE ITAT AS SUCH THE ARGUMENTS WOULD REMA IN THE SAME. 2. ACCORDINGLY, FOR READY REFERENCE, GROUND OF I TA 397/CHD/ 2017 IS REPRODUCED AS UNDER : IN THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION MADE BY THE ASSESSING OFFICER MADE ON ACCOUNT OF UNACCOUNTED INVESTMENT AND UNACCOUNTED P ROFIT OUT OF UNACCOUNTED PRODUCTION. 3. SINCE THE PRESENT APPEALS ARE FILED BY THE R EVENUE, THE LD. SR.DR WAS REQUIRED TO ADDRESS THE ISSUE. RELIANCE WAS PLACED ON THE ASSE SSMENT ORDER, THE LD. AR SUBMITTED THAT THE ISSUE IS COVERED IN HIS FAVOUR BY A GROUP OF NI NE CASES WHEREIN A CONSOLIDATED ORDER DATED 28.04.2017 IN ITA 392/CHD/2017 IN THE CASE OF ITO, WARD-1 VS M/S DHIMAN STEEL ROLLING MILLS AND EIGHT OTHER ASSESSEES PERTAINING TO 2011-12, 2012-13 ASSESSMENT YEARS WAS RELIED UPON. IN THE FACTS OF THE PRESENT CASE A LSO, REFERRING TO PARA 5.2 OF THE IMPUGNED ORDER, ATTENTION WAS INVITED TO THE REFERENCE MADE TO THE COMMITTEE CONSTITUTED BY PR. CIT, PATIALA WHICH, IT WAS NOTED, HAD BEEN DIRECTED TO V ERIFY THE NORMAL VARIATION IN CONSUMPTION OF ELECTRICITY FOR MANUFACTURING EACH M ETRIC TON OF FINISHED GOODS. THE ITA 397 & 398/2017 A.Y 2012-13 PAGE 2 OF 4 ORDERS, IT WAS SUBMITTED HAVE BEEN PASSED ADHERING TO THE SAID DIRECTIONS IN BOTH THE APPEALS. 4. I HAVE HEARD SUBMISSIONS AND PERUSED THE MATERIA L AVAILABLE ON RECORD. IT IS SEEN THAT THE CO-ORDINATE BENCH IN THE AFORESAID ORDER O F THE ITAT HAD AN OCCASION TO CONSIDER THE FACTS AS UNDER : 4. THE BRIEF FACTS RELATING TO THE ISSUE UNDER C ONSIDERATION ARE THAT THE ASSESSEE COMPANY RUN A FURNACE UNIT AND IS ENGAGED IN THE P RODUCTION OF INGOTS. DURING THE ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER ASKED THE ASSESSEE TO FURNISH DETAILS OF DAILY PRODUCTION OF FINISHED GOODS AS WELL AS THE D ETAILS OF THE MANUFACTURING PROCESS INVOLVED. THE ASSESSING OFFICER FURTHER OBSERVED TH AT THE AMOUNT OF ELECTRICITY CONSUMED WAS DIRECTLY RELATED TO THE PRODUCTION OF FINISHED GOODS. IN ORDER TO CO-RELATE THE CONSUMPTION OF ELECTRICITY VIS--VIS PRODUCTION SHO WN, THE ASSESSING OFFICER GATHERED INFORMATION REGARDING THE CONSUMPTION OF ELECTRICIT Y FROM THE ELECTRICITY BOARD. THE ASSESSING OFFICER ANALYZED THE CONSUMPTION DATA OF ELECTRICITY VIS-A VIS THE PRODUCTION OF FINISHED GOODS AND OBSERVED THAT THERE WERE WIDE VA RIATION IN RATIO OF ELECTRICITY UNITS CONSUMED TO PER METRIC TONS OF FINISHED GOODS PRODU CED DURING THE YEAR. HE OBSERVED THAT THE LOWEST UNITS CONSUMED FOR PRODUCTION OF ON E METRIC TON OF FINISHED GOODS WERE 1117.17 UNITS AND THE HIGHEST ELECTRIC UNITS CONSUM ED FOR PRODUCTION OF ONE METRIC TON OF FINISHED GOODS WERE 1188.12 UNITS. HE FURTHER OBSER VED THAT ON SOME DAYS, ELECTRIC UNITS CONSUMED WERE VERY LOW WHEREAS FINISHED GOODS PRODU CED WERE VERY HIGH GIVING A VERY LOW VALUE OF ELECTRIC UNITS CONSUMED TO PER TON OF FINISHED GOODS, WHEREAS ON SOME OTHER DAYS, ELECTRIC UNITS CONSUMED WERE VERY HIGH WHEREA S THE FINISHED GOODS PRODUCED WERE VERY LESS GIVING A VERY HIGH VALUE OF ELECTRIC UNIT S CONSUMED PER METRIC UNIT OF FINISHED GOODS. HE FURTHER OBSERVED THAT EVEN ON SOME DAYS T HOUGH THERE WAS ELECTRICITY CONSUMPTION YET NO PRODUCTION WAS SHOWN. HE FURTHER NOTED THAT OTHERWISE ON OTHER DAYS, THERE WAS ALSO A BALANCE AND CONSISTENCY IN CONSUMP TION OF ELECTRIC UNITS VIS-A-VIS PRODUCTION OF FINISHED GOODS. HE, THEREFORE, OBSERV ED THAT IT INDICATED THAT THE DAILY PRODUCTION RECORDED BY THE ASSESSEE OF THE FINISHED GOODS WAS NOT CORRECT AND, HENCE, NOT RELIABLE. HE OBSERVED THAT THE DATA RELATING TO THE DAILY PRODUCTION HAD BEEN MAINTAINED AS PER ACTUAL PRODUCTION. WHEN CONFRONTED IN THIS R ESPECT, THE ASSESSEE EXPLAINED THAT THE CONSUMPTION OF ELECTRICITY WAS DEPENDENT ON VARIOUS FACTS AS DETAILED IN HIS REPLY DATED 16.3.2015 WHICH HAS BEEN REPRODUCED BY THE ASSESSIN G OFFICER IN THE ASSESSMENT ORDER DATED 26.3.2015. THE ASSESSING OFFICER, HOWEVER, WA S NOT SATISFIED WITH THE ABOVE REPLY OF THE ASSESSEE. HE ULTIMATELY HELD THAT THE ASSESSEE COMPANY WAS INVOLVED IN UNACCOUNTED PRODUCTION OF FINISHED GOODS WHICH RESULTED IN UNAC COUNTED SALES AND PURCHASES. HE, THEREFORE, HELD THAT THE SALE AND PURCHASE FIGURES IN THE BOOKS OF ACCOUNT OF THE ASSESSEE WERE NOT CORRECT AND HE ACCORDINGLY REJECTED THE BO OKS OF ACCOUNT OF THE ASSESSEE BY INVOKING THE PROVISIONS OF SECTION 145(3) OF THE IN COME-TAX ACT, 1961 (IN SHORT 'THE ACT') AND PROCEEDED TO FRAME THE ASSESSMENT IN THE MANNER AS PROVIDED U/S 144 OF THE ACT. HE, THEREAFTER ESTIMATED THE INCOME OF THE ASSESSEE ON THE BASIS OF MINIMUM VALUATION OF AVERAGE OF ELECTRIC UNIT CONSUMED PER METRIC TON OF FINISHED GOODS PRODUCED FOR OVER THE PERIOD OF 10 DAYS. HE TOOK THE LOWER AVERAGE VALUE OF ELECTRIC UNITS CONSUMED PER METRIC TON OF AVERAGE FINISHED GOODS OVER A PERIOD OF 10 D AYS AND ON THIS BASIS, AND CALCULATED THE ACTUAL MONTH WISE PRODUCTION OF THE ASSESSEE. HE COMPARED THE SAME WITH THAT SHOWN IN THE BOOKS OF ACCOUNT OF THE ASSESSEE AND ESTIMAT ED THE UNACCOUNTED PRODUCTION FOR EACH MONTH. THEREAFTER, ON THE BASIS OF AVERAGE SA LES RATE, THE VALUE OF TOTAL UNACCOUNTED PRODUCTION WAS ESTIMATED. THEN ADOPTING THE GROSS PROFIT RATE SHOWN BY THE ASSESSEE, THE UNACCOUNTED PROFIT OUT OF THE UNACCOU NTED PRODUCTION WAS WORKED OUT. SECONDLY THE PEAK UNACCOUNTED PRODUCTION FOR THE RE LEVANT MONTH WAS DETERMINED AND BY MULTIPLYING THE AVERAGE SALE RATE OF FINISHED GOODS , THE UNACCOUNTED INVESTMENT WAS WORKED OUT. THE ASSESSING OFFICER IN THIS WAY WORK ED OUT THE TOTAL UNACCOUNTED INCOME OF THE ASSESSEE OUT OF THE UNACCOUNTED PRODUCTION A T RS. 86 , 88,365/- AND ADDED BACK THE SAME TO THE INCOME OF THE ASSESSEE. 4.1 PERUSAL OF THE IMPUGNED ORDER SHOWS THAT FACTS HAVE BEEN CONSIDERED IN THE FOLLOWING MANNER : 5.2 THE REPORT OF THE AO WAS CALLED FOR ON THE WRIT TEN SUBMISSIONS OF THE APPELLANT. IN THE REPORT, SENT VIDE LETTER NO. ITO/W-L/MGG/201 6-17/2227 DATED 02.12.2016, THE A.O. ITA 397 & 398/2017 A.Y 2012-13 PAGE 3 OF 4 HAS TRIED TO DEFEND THE REJECTION OF BOOKS OF ACCOU NT ON THE BASIS OF REASONING GIVEN IN THE ASSESSMENT ORDER. HOWEVER, REGARDING APPELLANTS CON TENTION W.R.T. THE EXTENT OF VARIATION IN THE CONSUMPTION OF ELECTRICITY PMT OF FINISHED G OODS, THE AO CONVEYED AS UNDER: 'A} THE ASSESSES IN ITS WRITTEN SUBMISSION HAS CONT ENDED THAT 15% VARIATION ON YEARLY AVERAGE CONSUMPTION OF POWER FOR PRODUCTION OF EACH METRIC TONE OF FINISHED GOODS WAS ACCEPTED IN THE A.Y. 2013-14. THE CONTENTION OF THE ASSESSES IS CORRECT AS A COMMITTEE WAS CONSTITUTED BY THE WORTHY PR. COMMISS IONER OF INCOME TAX, PATIALA TO VERIFY THE NORMAL VARIATION IN CONSUMPTION OF EL ECTRICITY FOR MANUFACTURING EACH METRIC TONNE OF FINISHED GOODS. ON THE BASIS OF REP ORT OF THE COMMITTEE WHICH WAS HEADED BY ADDL. COMMISSIONER OF INCOME TAX, RANGE M ANDI GOBINGARH HAVING ALL THE AO'S OF MANDI GOBINDGARH AS MEMBER AND TECHNICA L PERSON OF NISST. IT WAS DECIDED BY THE COMMITTEE THAT 15% VARIATION FROM AV ERAGE CONSUMPTION OF POWER FOR PRODUCING OF EACH METRIC TONNE OF FINISHED GOODS SH OULD BE ACCEPTED. AS SUCH THE CASES OF FOR THE A. Y. 2013-14 WERE DECIDED BY FOLL OWING THESE GUIDELINES. B) THE CONTENTION OF THE ASSESSES THAT HIS CASE FOR THE A. Y. 2012-13 FALLS WITHIN 15% VARIATION HAS BEEN VERIFIED FROM RECORD AND FOUND T O BE CORRECT.' 4.2 CONSIDERING THE FACTUAL BACKGROUND, THE CIT(A ) DELETED THE ADDITION HOLDING AS UNDER: 5.3 I HAVE CONSIDERED THE FACTS OF THE CASE AS ALS O THE SUBMISSIONS AND THE REPORT OF THE LD. AO. UNDOUBTEDLY, THE ONLY REASON LEADING TO THE REJECTION OF THE BOOKS OF ACCOUNTS OF THE APPELLANT COMPANY, WHICH RUNS AN FU RNACE UNIT, WAS DESPERATE CONSUMPTION OF ELECTRICITY VIS-A-VIS THE PRODUCTION OF FINISHED GOODS. THEREAFTER, AS DETAILED EARLIER, THE AO, ON THE BASIS OF AVERAGE P URCHASE RATE, WENT ON TO ESTIMATE UNACCOUNTED PRODUCTION IN MONETARY TERMS AND THEN A DOPTING THE GROSS PROFIT RATE SHOWN BY THE APPELLANT WORKED OUT UNACCOUNTED PROFI T OUT OF UNACCOUNTED PRODUCTION ON THE BASIS OF AVERAGE SALE RATE. BESIDES, THE PEA K UNACCOUNTED PRODUCTION FOR THE RELEVANT MONTH WAS DETERMINED AND BY MULTIPLYING WI TH THE AVERAGE PURCHASE RATE OF FINISHED GOODS THE UNACCOUNTED INVESTMENT WAS WORKE D OUT THIS FINALLY RESULTED INTO ADDITIONS ON THE BASIS UNACCOUNTED INVESTMENT AND U NACCOUNTED PROFIT AT RS.57,93,183/-. THE APPELLANT COMPANY HAS NOW CONTENDED THAT RECENT LY, A DETAILED STUDY WAS CARRIED OUT BY A COMMITTEE HEADED BY THE ADDITIONAL COMMISSIONER OF INCOME TAX, RANGE, MANDI GOBINDGARH HAVING ALL THE AO'S OF THE RANGE AS ITS MEMBERS. THE COMMITTEE WAS ASSISTED BY THE EXPERTS FROM THE NISS T [NATIONAL INSTITUTE OF THE SECONDARY STEEL TECHNOLOGY] AND ALSO THE INDUSTRY R EPRESENTATIVES. ON THE BASIS OF THE REPORT OF THE COMMITTEE, IT WAS DECIDED THAT IF THE VARIATION IN THE CONSUMPTION OF ELECTRICITY IS WITHIN THE RANGE OF 15% OF THE YEARL Y AVERAGE CONSUMPTION OF POWER, THE BOOK RESULTS SHOULD BE ACCEPTED. ACCORDINGLY, ITS B OOK RESULTS WERE ACCEPTED FOR THE A.Y. 2013-14. THEREFORE, ITS BOOK RESULTS FOR THE A.Y. 2 012-13 SHOULD ALSO BE ACCEPTED AND CONSEQUENTLY, THE ADDITIONS SHOULD BE DELETED. THE CONTENTION OF THE APPELLANT COMPANY HAS BEEN VE RIFIED FROM THE AO AND AS QUOTED ABOVE, HE HAS REPORTED IT CORRECT. THERE IS A DECISION OF THE HON'BLE PUNJAB AND HARYANA HIGH COURT IN THE CASE OF A CIT VS. RIETA B ISCUITS CO. (P) LTD (2009) 309 ITR 154 WHEREIN THEIR LORDSHIPS HAVE HELD THAT 'KEEPING IN VIEW THE PRINCIPLES OF CONSISTENCY ONCE THE ISSUE ON THE MERITS HAS BEEN DECIDED AGAIN ST THE REVENUE ON THE SAME ISSUE DURING THE SUBSEQUENT ASSESSMENT YEARS, WE DO NOT D EEM IT APPROPRIATE TO TAKE A DIFFERENT VIEW ON A TECHNICAL REASON. ACCORDINGLY, WITHOUT SP ECIFICALLY OPINING ON THE ISSUE ON THE MERITS, THE REFERENCE IS DECIDED AGAINST THE REVENU E'. ON A CAREFUL CONSIDERATION OF THE TOTALITY OF FACTS AND CIRCUMSTANCES ON RECORD, I'M OF THE VIEW THAT THE PLEA OF THE APPELLANT COMPANY MERITS CONSIDERATION. IT IS A MATTER OF FACT THAT A DETAILED STUDY HAS BEEN CONDUCTED BY A COMMITTEE, CONSTITUTED BY THE PRINCIPAL CIT PATIALA, WITH A VIEW TO EXAMINE THE V ARIATION IN THE CONSUMPTION OF ELECTRICITY VIS-A-VIS THE PRODUCTION OF FINISHED GO ODS IN THE ROLLING MILLS AND INDUCTION FURNACES OF THE AREA. THE COMMITTEE, A BROAD-BASED MULTIMEMBER BODY, HAD THE ADDITIONAL COMMISSIONER OF INCOME TAX, RANGE, MANDI GOBINDGARH AS ITS HEAD AND ALL THE AO'S OF THE RANGE AS ITS MEMBERS. IT WAS ASSISTED BY THE EXPERT S FROM THE NATIONAL INSTITUTE OF THE SECONDARY STEEL TECHNOLOGY (NISST) AND THE INDUSTRY REPRESENTATIVES. I HAVE ACCESSED ITS REPORT FROM THE JOT, RANGE, MANDI GOBINDGARH. IT'S RELEVANT EXCERPT READS AS UNDER: 'THEREAFTER, TO ASCERTAIN THE AMOUNT OF VARIATION I N CONSUMPTION OF ELECTRICITY PER METRIC TON OF FINISHED GOODS PRODUC ED OF SIMILAR SIZES AND ODD SIZES, THE AOS CARRIED OUT ON THE SPOT VERIFICATION BY RUNNING SOME OF THE ROLLING ITA 397 & 398/2017 A.Y 2012-13 PAGE 4 OF 4 MILLS ON A FIX PERIOD OF TIME AND NOTICED QUITE AP PRECIABLE VARIATION IN THE CONSUMPTION OF ELECTRICITY PER METRIC TON OF FINISH ED GOODS IN SIMILAR SIZES AS WELL AS ODD SIZES. THE TECHNICAL EXPERTS FROM NATIO NAL INSTITUTE OF SECONDARY STEEL TECHNOLOGY (NISST), MANDI GOBINDGARH ALSO OPI NED THAT GIVEN THE NATURE OF TECHNOLOGY, RAW MATERIALS AND FINISHED GOODS, SU BSTANTIAL VARIATION IN THE NUMBER OF ELECTRICITY UNITS FOR PRODUCTION OF ONE M ETRIC TON OF FINISHED GOODS INTER DAY BASIS, ARE BOUND TO BE THERE.' BASED ON ITS FINDING OF FACTS, IT HAS DECIDED 'TO G IVE BENEFIT OF 15% VARIATION IN CONSUMPTION OF ELECTRICITY PER METRIC TON OF FINISH ED GOODS PRODUCED FROM THE AVERAGE WORKED OUT ON YEARLY BASIS'. MEANING, THEREBY THAT 15% VARIATION IN THE NUMBER OF ELECTRICITY UNITS CONSUMED PER METRIC TON OF FINISH ED GOODS AS COMPARED TO THE AVERAGE CONSUMPTION OF ELECTRICITY UNITS PER METRIC TON OF FINISHED GOODS IS THE INDUSTRIAL NORM WARRANTING NO ADVERSE COGNIZANCE. HENCE, BECAUSE OF THAT REASON ALONE, BOOKS OF ACCOUNT SHOULD NOT BE REJECTED. INDEED, AS STATED ABOVE, PU RSUANT TO THE REPORT OF THE COMMITTEE, THE AO'S HAVE FOLLOWED THIS NORM WHILE MAKING ASSES SMENTS IN SIMILAR CASES AND IN SIMILAR SET OF CIRCUMSTANCES AND ACCEPTED THE BOOK RESULTS SHOWN BY THE ASSESSEES WHICH INCLUDES THE APPELLANT AS WELL. IN VIEW OF THIS AND ALSO PLACING RELIANCE ON THE DECISION OF THE HON'BLE JURISDICTIONAL PUNJAB AND HARYANA HIGH COURT IN THE CASE OF A CIT VS. RIETA BISCUITS CO. (P) LTD (2009) 309 ITR 154,1 AM OF THE VIEW THAT THE BO OK RESULTS SHOWN BY THE APPELLANT COMPANY FOR THE YEAR UNDER CONSIDERATION NEED TO BE ACCEPTED AS WELL. CONSEQUENTLY, THE ACTION OF THE AO IN RESPECT OF REJECTION OF BOOKS O F ACCOUNT BY RESORTING TO SEC. 145(3) OF THE IT. ACT IS NOT UPHELD. THE AO IS DIRECTED TO AC CEPT THE BOOK RESULTS SHOWN BY THE APPELLANT. THE TWIN ADDITIONS MADE BY THE AO ON ACCOUNT OF UNA CCOUNTED PROFITS AND UNACCOUNTED INVESTMENT ARE ALSO DELETED AS A CONSEQUENCE. 4.3 IN THE FACTS, AS THEY STAND, IT IS EVIDENT THAT THE POINT AT ISSUE IS FULLY COVERED IN FAVOUR OF THE ASSESSEE. ACCORDINGLY, IN THE ABSENCE OF ANY CHANGE IN FACTS, CIRCUMSTANCES OR POSITION OF LAW, THE IMPUGNED ORDER IS UPHELD AN D THE DEPARTMENTAL APPEAL IS DISMISSED. 5. IN ITA 398/CHD/2017, A PERUSAL OF THE RECORD SHOWS THAT TH E VERY SAME ORDER HAS BEEN FOLLOWED BY THE CIT(A) IN THE FACTS OF THIS AS SESSEE. NO CHANGE IN FACTS, CIRCUMSTANCES OR POSITION OF LAW HAS BEEN BROUGHT T O MY NOTICE IN ORDER TO TAKE A CONTRARY VIEW. CONSIDERING THE CONSISTENT ARGUMENTS OF THE PARTIES BEFORE THE BENCH, AND THE PRECEDENT APPLICABLE AS CONSIDERED IN ITA 397/CHD/2 017 , THE APPEAL OF THE REVENUE IS ALSO DISMISSED. 6. IN THE RESULT, BOTH APPEALS OF THE REVENUE ARE D ISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 03.10. 2017. SD/- (DIVA SINGH) JUDICIAL MEMBER POONAM COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR ASSTT. REGISTRAR ITAT,CHANDIGARH.