ITO, Ward - 32(1), Kolkata, Kolkata V. Hemraj Rice Mills, Kolkata

ITA 578/KOL/2011

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 7938 (ITAT-KOLKATA)
• Duration Of Justice: 3 year(s) 5 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-09-2014
• Appeal Filed By: Department
• Bench Allotted: C
• Assessment Year: 2007-2008
• Appeal Filed On: 12-04-2011
• Court: TRIBUNAL
• Department Lawyers: SNEHATPAL DUTTA JCITLD SR DR
• Assessee Lawyers: J M THARD LD
• Keywords: Business income
• Section: 10B

Judgement Text

ITA NO.578/KOL/2011-C-AM M/S. HEMRAJ RICE MILLS 1 , IN THE INCOME TAX APPELLATE TRIBUNAL, C BENCH: KO LKATA ( ) , , BEFORE HONBLE SRI MAHAVIR SI NGH, JM & HONBLE SRI SHAMIM YAHYA, AM I.T.A NO. 578/KOL/2011 / ASSESSMENT YEAR :2007-08 I.T.O WARD 32(1), KOLKATA VS. M/S. HEM RAJ RICE MILLS PAN: AADFH 415 3 N ( $ /APPELLANT ) ( %&$ / RESPONDENT ) $ / FOR THE APPELLANT : / SHRI SNEHATPAL DUTTA, JCIT/LD.SR.DR %&$ / FOR THE RESPONDENT: / SHRI J.M THARD, ADVOCATE, LD.AR + , /DATE OF HEARING: 30-09-2014 + , /DATE OF PRONOUNCEMENT: 30-09-2014 / ORDER , SHRI SHAMIM YAHYA, AM THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE LD. CIT(A) DATED 31/01/2011 PERTAINING TO ASSESSMENT YEAR 2007-08. 2. THE GROUND OF APPEAL RAISED BY THE REVENUE READS AS UNDER:- THE LD.CIT(A) ERRED IN DELETING THE ADDITION OF RS .24,75,376/- BEING ESTIMATED G.P ADDITION, ARRIVED AT ON THE BASIS OF HIGH CONSUMPTION OF ELECTRICITY VIS--VIS LOW PRODUCTION OF PAR BOI LED RICE. 3. THE BRIEF FACTS OF THE CASE ARE THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS ON VERIFICATION OF DETAILS FILED BY THE ASSESSEE, IT WAS OBSERVED BY THE AO THAT ON MONTH TO MONTH BASIS, THE PRODUCTION OF RICE AND CORRESPONDING CO NSUMPTION OF ELECTRICITY DOES NOT COMMENSURATE IN AN UNIFORM MANNER. FOR EXAMPLE, IN THE MONTH OF OCTOBER, THE PRODUCTION OF RICE WAS 3706 QUINTAL AGAINST CONSUMPTION OF 2371 0 KWH ELECTRICITY. WHEREAS, IN THE MONTH OF APRIL, 2006, THE PRODUCTION OF RICE WAS 1530 QUI NTAL AND THE ELECTRICITY CONSUMED WAS 43209 KWH. IT WAS OBSERVED BY THE AO THAT THERE W AS WIDE VARIATION IN PRODUCTION OF RICE ITA NO.578/KOL/2011-C-AM M/S. HEMRAJ RICE MILLS 2 VIS--VIS THE CONSUMPTION OF THE ELECTRICITY. THUS, THE AO WAS OF THE OPINION THAT THE ASSESSEE HAS SUPPRESSED THE PRODUCTION AND SALE OF RICE. ON BEING QUESTIONED, IT WAS SUBMITTED BY THE ASSESSEE THAT THE CONSUMPTION OF ELECTRICITY, AS SU CH, HAS NO DIRECT RELATIONSHIP WITH THE PRODUCTION OF RICE. THE CONSUMPTION OF ELECTRICITY IS A CONTINUOUS AND REGULAR FEATURE AND IT DEPENDS UPON VARIOUS FACTORS SUCH AS CONDITION OF WIRING, MAINTENANCE, LOAD FACTOR AT A PARTICULAR TIME AND OTHER FACTORS. IT WAS EXPLAINE D BY THE ASSESSEE THAT IT PRODUCES PARBOILED RICE WHERE RICE IS PRODUCED FROM PADDY THROUGH STE AM. THE ONLY RAW MATERIAL IS PADDY, WHICH IS PURCHASED FULL OF DUST AND OTHER PARTICLES. IT HAS TO UNDERGO THE PROCESS OF CLEANING THROUGH NETTING MACHINE, BY VIBRATING SYSTEM. THE MACHINE I S RUN BY THE ELECTRICITY AND THE CONSUMPTION OF ELECTRICITY CANNOT BE CHECKED OR MEA SURED AS IT DEPENDS ON THE QUALITY OF PADDY AND PERCENTAGE AND NATURE OF DUST AND OTHER P ARTICLES. AFTER REMOVAL OF DUST AND OTHER PARTICLES, THE PADDY IS WASHED BY WATER. AT THIS ST AGE THE ELECTRICITY IS CONSUMED FOR MAINTAINING THE FLOW OF WATER FOR WASHING. THEREAFT ER, THE RICE IS BOILED AND PAR-BOILED RICE IS DRIED PRIOR TO FURTHER PROCESSING. AT DRYING STAGE, THERE IS CONSUMPTION OF POWER WHICH IS VARIABLE DEPENDING ON THE MOISTURE CONTENT. IT WA S SUBMITTED BEFORE THE AO THAT THERE IS CONSUMPTION OF ELECTRICITY AT VARIOUS STAGES AND A T NONE OF THE STAGE THE CONSUMPTION OF POWER IS FIXED AND NOT IN THE CONTROL OF ASSESSEE. APART FROM THIS, THERE IS LEAKAGE AND WASTAGE OF ELECTRICITY AS THE ASSESSEES RICE MILL AND MACHI NERIES ARE VERY OLD AND THE ELECTRICAL WIRING IS ALSO QUITE OLD. THE ASSESSEE HAS ALSO MADE COMPLAI NT WITH THE WBSEB REGARDING ERRATIC AND EXCESS ELECTRICITY CONSUMPTION AND BILLING. IT WAS FURTHER SUBMITTED BY THE APPELLANT THAT MANY A TIMES THE ELECTRICITY BILL IS ISSUED WITHOUT TA KING MATER READING PHYSICALLY BY THE CONCERNED STAFF AND ON RANDOM BASIS. HOWEVER, THE EXPLANATION OF THE ASSESSEE WAS NOT ACCEPTED BY THE AO AND BY ADOPTING THE PRODUCTION OF RICE AND CON SUMPTION OF ELECTRICITY IN THE MONTH OF OCTOBER,2006 AS BASE, IT WAS OBSERVED BY THE AO THA T IN THE PREVIOUS YEAR CONSUMPTION OF ELECTRICITY WAS 472264 KWH. HENCE, 472264 KWH OF EL ECTRICITY HAD PRODUCED [3706/23710] X 472264=73817.393 QUINTALS OF RICE AND 5720.848 QU INTALS OF RICE BRAN. AS PER TAR, THE CLOSING STOCK OF RICE AND RICE BRAN ARE 1660.2 AND 148.4 QUINTALS RESPECTIVELY. HENCE, THE ASSESSEE SOLD 72157.193 QUINTALS OF RICE AND 5572. 448 QUINTALS OF RICE BRAN DURING THE YEAR. THE AVERAGE RATE OF RICE WAS 983.37 PER QUINTAL AND THAT OF RICE BRAN OF RS.706.98 PER QUINTAL. THUS, THE TOTAL SALES OF RICE AND RICE BRAN WAS ES TIMATED AT RS. 7,48,96,828/- I.E (72,157.193 X ITA NO.578/KOL/2011-C-AM M/S. HEMRAJ RICE MILLS 3 RS.983.37 + 5572.448 X RS.706.98). THE AO ADOPTED GP @ 4.89% AS DECLARED BY THE ASESSEE AND CALCULATED GP OF RS.36,62,455/-. SINCE, THE ASS ESSEE HAS DISCLOSED GP OF RS.11,87,079/-, THE BALANCE AMOUNT OF RS.24,75,376/- WAS ADDED TO T HE INCOME. 4. AGAINST THE ABOVE ORDER THE ASSESSEE APPEALED BE FORE THE LD.CIT(A). THE LD.CIT(A) CONSIDERED THE ASSESSEES SUBMISSIONS THAT THE AO H AD REJECTED THE ASSESSEES BOOKS OF ACCOUNT AND BOOKS RESULT AND HELD THAT THE ASSESSEE HAD P RODUCED RICE AND RICE BRAN AND SOLD THEM OUTSIDE THE BOOKS. THIS HAS BEEN DONE SOLELY ON THE BASIS OF CONSUMPTION OF ELECTRICITY OR ELSE NO DEFECT OR DISCREPANCY WAS FOUND BY THE AO IN THE AUDITED BOOKS OF ACCOUNT. IT WAS ARGUED BY THE ASSESSEE THAT BEFORE THE AO IT WAS EXPLAINE D THAT THE CONSUMPTION OF POWER HAS NO DIRECT RELATION WITH PRODUCTION AND THERE COULD BE SEVERAL REASONS FOR ERRATIC CONSUMPTION OF POWER AND PRODUCTION OF RICE. IT WAS CONTENDED BY THE ASSESSEE THAT THE MACHINERIES OF THE ASSESSEE ARE VERY OLD AND THAT ELECTRICAL LINES ARE ALSO VERY OLD. THERE ARE SEVERAL TECHNICAL AND PHYSICAL REASONS DUE TO WHICH THE CONSUMPTION OF EL ECTRICITY CANNOT BE UNIFORM IN ALL THE MONTHS OF THE OF THE YEAR AND IT ALSO DEPENDS ON T HE QUALITY OF PADDY USED FOR PRODUCTION OF RICE. IT WAS SUBMITTED BY THE APPELLANT THAT, IN F ACT, THE APPELLANT HAS SURRENDERED THE OLD ELECTRIC METER IN THE MONTH OF SEPTEMBER, 2007 AND APPLIED FOR NEW CONNECTION TO FIND OUT THE ERRATIC CONSUMPTION OF ELECTRICITY. IT WAS ARGUED BY THE APPELLANT THAT, IN ANY CASE, THE CONSUMPTION OF ELECTRICITY CANNOT BE THE SOLE REASO N TO HOLD THAT THE APPELLANT HAD SUPPRESSED ITS PRODUCTION OF RICE AND SALE OF RICE, ESPECIALLY WHEN THE AO HAS NOT FOUND ANY DEFECT IN THE BOOKS OF ACCOUNTS. FURTHER, THE CONSUMPTION OF PAD DY, PRODUCTION OF RICE AND SALE OF RICE ARE CONTROLLED AND CHECKED BY THE OTHER GOVERNMENT AUTH ORITIES AND THEY REGULARLY CHECK THE CONSUMPTION AND PRODUCTION RECORDS OF RICE AND DULY STAMPED AND SIGNED BY THEM. 5. CONSIDERING THE ASSESSEES SUBMISSIONS THE LD. CIT(A) HELD THAT PRODUCTION OF RICE CANNOT BE ESTIMATED PURELY ON THE BASIS OF CONSUMP TION OF ELECTRICITY. IN THIS REGARD HE REFERRED TO THE FOLLOWING DECISIONS/CASE LAWS: MAHAVIR PRASAD JAGDISH PRASAD VS. CST REPORTED IN 27 STC 337 (ALL. HIGH COURT) ITO VS. SATYANARAYAN PAREEK REPO RTED IN 71 TTJ 997(ITAT GAUHATI) ITA NO.578/KOL/2011-C-AM M/S. HEMRAJ RICE MILLS 4 IN THE CASE OF THE NEW INDIA RICE MILL P.LTD, IN IT A NO.355/KOL/2010 (ITAT, KOLKATA) 6. IN ALL THESE CASES THE REJECTION OF BOOKS SOLELY ON THE GROUND OF VARIATION OF CONSUMPTION OF ELECTRICITY AND ESTIMATION OF SUPPR ESS SALES WAS SET ASIDE BY THE APPELLATE AUTHORITY. IN THE LIGHT OF THE ABOVE, THE LD.CIT( A) HELD THAT THE AO WAS NOT JUSTIFIED IN REJECTING THE AUDITED BOOKS OF ACCOUNT AND ESTIMATI NG THE PRODUCTION OF RICE ON THE BASIS OF CONSUMPTION OF ELECTRICITY. 7. AGAINST THE ABOVE ORDER OF THE LD.CIT(A) THE RE VENUE IS IN APPEAL BEFORE US. 8. WE HAVE HEARD BOTH THE LD. COUNSEL AND PERUSED THE RECORD. WE FIND THAT THE AO HAS NOT BEEN ABLE TO POINT OUT ANY DEFECTS IN THE BOOKS OF ACCOUNT OF THE ASSESSEE. NOTHING HAS BEEN BROUGHT ON RECORD THAT THERE IS ANY EVIDENCE O F SUPPRESSION OF SALES BY THE ASSESSEE. WE FIND THAT VARIATION IN THE CONSUMPTION OF ELECTRICI TY CAN GIVE RISE TO SUSPICION, BUT IT CANNOT BE A CONCLUSIVE BASIS OF REJECTION OF BOOKS OF ACCOU NT AND ESTIMATION OF SUPPRESSED SALES. IT IS NOT THE CASE OF THE AO THAT THERE IS ANY ABNORMAL V ARIATION OF THE GROSS PROFIT RATIO. IT IS ALSO NOT THE CASE THAT THE G.P OF THE ASSESSEE IS NOT I N ACCORDANCE WITH INDUSTRY NORMS. THE CASE LAWS REFERRED BY THE LD.CIT(A) ALSO SUPPORT THE CAS E OF THE ASSESSEE. IN THIS REGARD, IT IS WORTH WHILE TO REFER THE DECISION OF THE HONBLE ALLAHAB AD HIGH COURT IN THE CASE OF MAHABIR PRASAD JAGDISH PRASAD (REFER TO SUPRA), WHEREIN THE HONBLE HIGH COURT HAS HELD AS UNDER:- THE ACCOUNT BOOKS OF AN ASESSEE CANNOT BE REJECTE D ON MERE SUSPICION OR CONJECTURE UNLESS THE ACCOUNTS ARE KEPT IN SUCH A WAY THAT RELIANCE CANNOT BE PLACED UPON THEM. IF THE METHOD OF ACCOUNTING FOLLO WED BY THE ASSESSEE IS SO DEFECTIVE THAT THERE IS A POSSIBILITY OF SUPPRESSIO N AND LEAKAGE, THE ACCOUNTS CAN BE REJECTED WITHOUT ANY FURTHER MATERIAL. BUT, IF THE ACCOUNTS ARE PROPERLY MAINTAINED WITH ALL THE RELEVANT DETAILS, IT IS NEC ESSARY FOR THE ASSESSING AUTHORITY TO PLACE ON RECORD SOME MATERIAL TO SHOW THAT THE ACCOUNTS ARE NOT RELIABLE. THE FACT THAT THE CONSUMPTION OF ELECTRIC ITY SHOWN BY THE ASSESSEE WAS UNDULY HIGH CAN GIVE RISE TO A STRONG SUSPICION TH AT THE ASSESSEE MIGHT HAVE SUPPRESSED ITS PRODUCTION AND THEREBY MIGHT HAVE U NDERSTATED ITS SALES. BUT, SUSPICION, HOWSOEVER STRONG IT MAY BE, CANNOT TAKE THE PLACE OF POSITIVE MATERIAL. EVEN IF THE SALES-TAX OFFICER IS ABLE TO DETECT ONE INSTANCE WHERE THE ASSESSEE MIGHT HAVE UNDERSTAND ITS SALES HE WOULD BE JUSTIFI ED IN REJECTING THE ACCOUNTS AND MAKING AN ESTIMATE OF THE ESCAPED TURNOVER. BUT , THE HIGH CONSUMPTION OF ITA NO.578/KOL/2011-C-AM M/S. HEMRAJ RICE MILLS 5 ELECTRICITY ALONE CANNOT BE HELD TO BE A MATERIA L JUSTIFYING THE REJECTION OF THE ACCOUNTS PARTICULARLY WHEN THE ASSESSEES ACCOUNTS HAD ONCE BEEN ACCEPTED DURING THE REGULAR ASSESSMENT PROCEEDINGS. 8.1 SIMILAR VIEW WAS ALSO EXPRESSED IN THE CASES O F SATYANARAYAN PAREEK ( SUPRA) AND THE NEW INDIA RICE MILL (P) LTD ( SUPRA). IN THESE CIRC UMSTANCES, IN OUR CONSIDERED OPINION THERE IS NO INFIRMITY IN THE ORDER OF THE LD.CIT(A). ACCORDI NGLY, WE UPHOLD THE SAME. 9. IN THE RESULT, THE APPEAL OF THE REVENUE IS DIS MISSED. . , ORDER PRONOUNCED IN THE OPEN COURT ON 30/09/2014 SD/- SD/- [ , ] [ , ] [ MAHAVIR SINGH, JUDICIAL MEMBER ] [ SHAMIM YAHYA, ACCOUNTANT MEMBER ( , ) DATED :30/09/2014 ** PRADIP SPS + %1 21 / COPY OF THE ORDER FORWARDED TO: 1. . $ / THE APPELLANT : SHRI SOVAN BANDYOPADHYAY, ITO, W 32(1), 2 ND FL., 10B MIDDLETON ROW, KOLKATA. 2 %&$ / THE RESPONDENT- M/S. HEMRAJ RICE MILLS 46B, RAF I AHMED KIDWAI RD, KOL-16. 3. 5. / THE CIT, 4. ( )/ THE CIT(A) % / DR, KOLKATA BENCH 6.GUARD FILE . &1 % / TRUE COPY, / BY ORDER, / ASSTT REGIST RAR