Assistant Commissioner of Income-tax, Jalna V. M/s. Bhadramaruti Concost Pvt. Ltd., Jalna

ITA 939/PUN/2017

• Counselvise Citation: [2022] 105 COUNSELVISE.COM (IT) 3666 (ITAT-PUNE)
• Duration Of Justice: 5 year(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-04-2022
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2011-2012
• Appeal Filed On: 12-04-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Depreciation
• Section: 271(1)(c); 144; 143(3)

Judgement Text

आयकर अपीऱीय अधिकरण “ए” न्यायपीठ पुणे में । IN THE INCOME TAX APPELLATE TRIBUNAL “A” BENCH, PUNE BEFORE SHRI S. S. GODARA, JM AND SHRI DR. DIPAK P. RIPOTE, AM आयकर अपीऱ सं. / ITA No.939/PUN/2017 ननधधारण वषा / Assessment Year : 2011-12 The Asstt. Commissioner of Income Tax, Jalna Circle, Jalna .......अपऩलधथी / Appellant बनधम / V/s. M/s. Bhadramaruti Concost Pvt.Ltd. Plot No. E-12, Phase-II, Addl. MIDC Area, Jalna - 431203. PAN : AAECA9498F ........प्रत्यथी / Respondent Assessee by : None Revenue by : Shri S. P. Walimbe सपनवधई की तधरऩख / Date of Hearing : 19.04.2022 घोषणध की तधरऩख / Date of Pronouncement : 27.04.2022 आदेश / ORDER PER S. S. GODARA, JM : 1. This assessee’s appeal for A.Y. 2011-12 is directed against the CIT(A) - 1, Aurangabad’s order dated 24/01/2017 in case No. ABD/CIT(A)/160/2014-15 involving proceeding u/s. 143(3) of the Income Tax Act, 1961 ; in short "the Act. Heard both the parties. Case file perused. 2 ITA No.939/PUN/2017 M/s.Bhadramaruti Concost P.Ltd 2. The Revenue’s solitary substantive ground pleaded in the instant appeal is that the CIT(A) has erred in law and on facts in reversing the assessment findings making unaccounted production addition of Rs.2,81,02,449/- based solely on at the alleged irregular power consumption trends. We note that the detailed lower appellant discussion to this effect reads as follows. “In the first two grounds of appeal, the appellant has challenged the action of the AO in making addition of Rs.2,81,02,449/- being income from unaccounted production and initiation of penalty proceeding u/s.271(1)(c) of the Act. Before me, the counsel of the appellant has argued that the assessee company was engaged in the manufacturing of Ingots/Billets. The assessee company had filed the return of income for the AY 2011-12 on 30.09.2011 declaring total loss of Rs.4,26,90,657/-. The Assessing Officer on the basis of monthly consumption of electricity worked out the suppressed production. It was alleged by the AO that minimum electricity unit consumption per MT of production stood at 678 units in the month of December, 2011 and maximum electricity consumption per MT of production was at 1241 units in the month of November, 2010. This indicated abnormal deviation in electricity consumption to the extent of 563 units per MT and accordingly AO was of the view that production was not disclosed correctly in the books of account of the assessee. The AO worked out average purchase price of raw material at Rs.18,262.90/- per MT & average sale price of goods at Rs.26,142/- per MT. The AO concluded that taking into the above consideration, the books results were not fair and true. Finally the AO concluded that books of account did not reflect the true and correct picture of manufacturing results of the assessee and therefore he believed that the manufacturing records of the assessee were incorrect and the assessee company had suppressed the production and sale of products. The Assessing Officer had calculated excess production of 4378.575 MT (As per Annexure-C). After taking into account the average sale price, average purchase price & the burning loss, the AO calculated the suppressed production at Rs.2,81,02,449/- as under : Particulars Amount Amount Average sale price 26,142/- Average purchase price of raw material 18,262/- (Burning loss average @8%) 1461/- Hence average purchase price of actual raw material used for production 19,723/- Net gain in sale & purchase rate 6,418/- It was argued that the electricity consumption could not be taken as abstract figure because the consumption of electricity depended upon the factors viz. type of raw material, quality of raw material, number of 3 ITA No.939/PUN/2017 M/s.Bhadramaruti Concost P.Ltd breakdown, electricity failure, power cut issues, fluctuation of voltage, idleness of workers, auxiliary load like workshop machines, cutting machines, welding machines, grinders etc. and factory & office lights. The AO had considered hypothetical working and made addition without considering practical difficulties in running of the unit. The AO had worked out suppressed production merely on the ground of monthly variation in consumption of electricity vis-à-vis production. The assessment order of AO was based on estimates, academic study and theoretical calculations. The Executive Director, All India furnace Association vide his report dated 18.03.2008 had stated that the higher consumption of electricity could be attributable to light scrap & sponge iron used in manufacturing process. Also unit capacity included usage of furnace load or auxulary load, a 6 MT furnace would consume slightly more power than 25 MT furnace per MT or production. A continuous casting process used more electricity. The undisclosed production calculated on the basis of electricity consumption was not justified. The AO had considered entire electricity units for production whereas about 75% units were consumed for furnace i.e. for production. The reliance was placed on the decision in the case of ACIT Vs. SRJ Peety Steels Pvt. Ltd (137 TTJ 627) wherein it had been held that no addition could be made merely on the basis of technical electricity consumption formula and the addition was deleted. Also same view was taken by in the case of Rishi Steel & Alloys Private Limited in ITA No.219 to 221/PN/2012, Jailaxmi Casting & Alloys Private Limited in ITA No. 216 & 218/PN/2012 and Mauli Steel Private Limited in ITA No. 402/PN/2012. The perusal of judgment of Hon’ble Apex Court showed that electricity consumption could not be taken as a reliable basis for working out the suppressed production as decided in the case of Vishal Coaters limited, Patiala Vs. Department of income Tax 26 March, 2012, Arora Alloys Ltd., Ludhiana Vs.Department of income Tax on 1 st March, 2012, M/s. Jeevaka Industries Ltd. Hyderabad Vs. Asst. CIT Circle-2(1), Hyderabad. The AO had also initiated penalty proceedings against said addition of Rs.2,81,02,449/- on account of suppressed production. The said penalty proceedings were initiated on the ground that the assessee company had concealed the particulars of its income and it had furnished inaccurate particulars of income. It was argued that penalty under section 271(1)(c) could be levied only in circumstances wherein assessee had either concealed the particulars of its income or furnished inaccurate particulars pertaining to such income. Under no circumstances, it could be said in the present case that the assessee company had either concealed the particulars of its income or furnished inaccurate particulars pertaining to such income. It was only due to difference in opinion and the fact that the Assessing Officer had not considered other factors which affected the production. Hence under these circumstances penalty proceedings could not be initiated with respect to said addition of Rs.2,81,02,449/- being unaccounted production. In view of above facts, it was requested to delete the addition of Rs.2,81,02,449/- made by the AO. 5. I have duly considered the submissions of the appellant. The issue under consideration is covered in the favour of the assessee 4 ITA No.939/PUN/2017 M/s.Bhadramaruti Concost P.Ltd company by the order of the Hon’ble ITAT, Pune in the case of Nilesh Steel & Alloys Pvt. Ltd. In ITA No. 1636 & 1637/PN/2012 dated 30.11.2015 and Bhagyalaxmi Steel Alloys Pvt. Ltd. in ITA No.1292/PN/2012 & 1478/PN/2012 dated 15.07.2015 for AY 2009- 10 wherein the alleged addition on account of suppressed production on the basis of electricity consumption made by the AO on similar facts & circumstances was deleted. The Hon’ble ITAT Pune had also allowed relief to the assessee against the order of CIT(Appeals) on account of estimation of GP on suppressed production. While rendering its decision, the Hon’ble Tribunal followed its own decision in the case of SRJ Peety Steel Pvt.Ltd. (137 TTJ 627) for AY 2000-01 to AY 2006-07. The unexplained investment/ working capital requirement in unaccounted purchases which stood confirmed by the order of CIT(Appeals) was also not sustained by the Hon’ble Tribunal. There is no change in the facts and circumstances of the assessment year under reference as compared to those in AY 2009-10. In the case of SRJ Peety Steel Pvt. Ltd. (133 TTJ 627), one of the reasons for rejecting the books of account by the AO was inconsistent electricity consumption. In this regard, the stand of the assessee company was that the AO had simply taken the lowest electricity consumption for a month in the whole year and treated the production in that month as the correct production and then proceeded to arrive at the production figure by multiplying the production in the books by the ratio of production to the electricity consumption for the month in which electricity consumption was minimum. However the method of computing the so-called suppressed production was not based on cogent reasons. The AO had gone by supposition but not by actual detection which was not justified. The entire method in this regard was based on pre-supposition and lacked scientific basis. The AO had failed to examine the entire manufacturing process carried out by the assessee company. He had not gone into the quality of raw materials, nor had he bothered to take the type of technology used by the assessee company. The AO had also not taken strength from comparable case of similarly placed situation. The factors responsible for variation in electricity consumption had been explained by the assessee company in his detailed written submissions dated 22 nd Oct., 2007 wherein it was emphasized that improper supply by MSEB, which deficited the melting efficiency, lower the voltage supply level, higher the consumption of electricity. Notably, voltage supply varied on a daily basis which would at once be clear if some comparable cases had been studied by the AO before jumping to the conclusion. Reheating of the material due to the interruptions in supply, when the heat was in process and there was an interruption in supply, the raw material had to be heated again using electricity though the same was used earlier, without giving the final product. Notably supply was notoriously erratic in a place like Jalna, which would at once have been clear if some comparable cases had been studied by the AO before jumping to hypotheses and conclusions. Reheating of the material due to the breakdown in equipment or machinery was also quite usual in a manufacturing process. To manufacture the final product, number of machines had to be used and unexpected breakdown of any one machine consumed electricity again. The AO rejected the submissions by 5 ITA No.939/PUN/2017 M/s.Bhadramaruti Concost P.Ltd saying that there would be equal probability of the above factors in every month. This was difficult to understand. Had the AO gone into the reasonableness of the explanation and technical details adduced by the assessee instead of merely evaluating the technical issues in a causal and isolated manner with a cursory look into monthly electricity consumption without any support from other comparable cases, his conclusions would have been significantly different. The AO had himself agreed that there might be factors outside the control of assessee which might affect electricity consumption. However, he made an allowance of 10 per cent over and above the lowest monthly consumption in the year. The basis of allowing this over the lowest monthly consumption in the year was not scientific and therefore arbitrary. Further, even the basis of arriving at this 10 per cent had not been spelt out by the AO. It was argued that no fixed parameters and statistical formula on the basis of burning loss and electricity consumption, in isolation, could be applied for working out suppressed production, that too, in total disregard of the books of accounts which, in the facts of case, did not warrant rejection. It was held by Hon’ble ITAT, Pune that having rejected the books of accounts of the assessee company for all the years under consideration, the AO devised a statistical formula on the basis of electricity consumption that was applied uniformly in order to work out certain production and resultant concealed income for each year under consideration. The AO could not substitute the same by cogent reasoning. He had simply taken the lowest electricity consumption for a month in the whole year and treated the production in that month as the correct production and then proceeded to arrive at his production figure by multiplying the production in the books by ration of production to the electricity consumption for the month in which electricity consumption was minimum. The method of computing the so-called suppressed production was not justified in absence of sound basis for same. The consumption of the electricity for the manufacturing of mild steel ingots/billets depended on various factors like quality of raw material which was the major input, voltage of the supply, power interruptions, mechanical and electrical breakdowns and the chemical composition of the liquid metal which had to be finally cast into ingots/billets. The AO failed to appreciate these facts and did not attempt to establish a direct nexus between the production and electricity consumed for the manufacture of round/TMT bars and arrived at a conclusion that there was an excess consumption of electricity resulting in suppressed production and alleging that the assessee company had indulged in unaccounted production. It was finally held that each year of the assessment was independent and evidences found relating to assessment year 2006-07 could not have an adverse impact on the assessments of the assessee company from the assessment years 2000- 01 to 2005-06. Therefore, rejection of books for these years purely on the ground that there had been divergence in the consumption of electricity and application of section 144 was not all justified. Accordingly the impugned additions were deleted. 6 ITA No.939/PUN/2017 M/s.Bhadramaruti Concost P.Ltd 3. The Mr.Walimbe quotes hon’ble apex court’s decision in Civil Appeal No. 373/2007 decided on 31.01.2007 M/s. Melton India India Vs. Commissioner Trade Tax, U.P. as well as (2014) 363 ITR 467 (Guj.) Ramjoti industries Vs. Joint CIT that on assessee’s irregular power consumption in issue duly establishes its suppressed unaccounted production in the regular course of its business. The assessee placed strong reliance on the CIT(A)’s detailed discussion. We find no merit in Revenue’s forgoing arguments. We make it clear that there is hardly any issue regarding the forgoing judicial precedents having settled the law on the instant issue. The same do not apply to the relevant factual matrix before us as apart from the assessee’s alleged irregular power consumption, the department has not indicated any abnormal trend in its fixed assets schedule eligible for depreciation, repair/maintenance or fresh additions therein, increase in raw material consumption or suppliers or sundry creditors and debtors in the regular course of business as the case may be, as the relevant previous year. We make it clear that the said assessee’s before their lordships had even failed to get the raw materials and job work verified during the course of scrutiny. We therefore uphold the CIT(A)’s findings herein deleting the impugned addition in these peculiar facts and circumstances. 4. This Revenue’s appeal is dismissed. Order pronounced in the Open Court on this 27 th day of April, 2022. Sd/- Sd/- (DR.DIPAK P.RIPOTE) (SATBEER SINGH GODARA) लेखध सदस्य/ ACCOUNTANT MEMBER न्यधनयक सदस्य/JUDICIAL MEMBER 7 ITA No.939/PUN/2017 M/s.Bhadramaruti Concost P.Ltd पपणे / Pune; ददनधांक / Dated : 27 th April, 2022. Ashwini आदेश की प्रनतनलनप अग्रेनषत / Copy of the Order forwarded to : 1. अपऩलधथी / The Appellant. 2. प्रत्यथी / The Respondent. 3. The CIT(A)-1, Aurangabad. 4. The Pr.CIT-1, Aurangabad. 5. नवभधगऩय प्रनतनननध, आयकर अपऩलऩय अनधकरण, “ए” बेंच, पपणे / DR, ITAT, “A” Bench, Pune. 6. गधर्ा फ़धइल / Guard File. आदेशधनपसधर / BY ORDER, // True Copy // Senior Private Secretary आयकर अपऩलऩय अनधकरण, पपणे / ITAT, Pune. 8 ITA No.939/PUN/2017 M/s.Bhadramaruti Concost P.Ltd S.No. Details Date Initials 1 Draft dictated on 19.04.2022 2 Draft placed before author 21.04.2022 3 Draft proposed & placed before the Second Member 4 Draft discussed/approved by Second Member 5 Approved Draft comes to the Sr. PS/PS 6 Kept for pronouncement on 7 Date of uploading of Order 8 File sent to Bench Clerk 9 Date on which the file goes to the Head Clerk 10 Date on which file goes to the A.R. 11 Date of Dispatch of order