DCIT, Circle, Mandi Gobindgarh Hq, Sirhind V. M/s Sahil Concast (P) Ltd., Mandi Gobindgarh

ITA 959/CHANDI/2019

• Counselvise Citation: [2021] 108 COUNSELVISE.COM (IT) 7390 (ITAT-CHANDIGARH)
• Duration Of Justice: 1 year(s) 9 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-04-2021
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 31-03-2021
• Assessment Year: 2012-2013
• Appeal Filed On: 27-06-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ASHOK KHANNA
• Keywords: Rejection of books of accounts; Income from undisclosed sources
• Section: 13; 145(3)

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL, CHANDIGARH BENCH B, CHANDIGARH , ! ' , $ % & ' ( , ' BEFORE: SMT.DIVA SINGH, JUDICAL MEMBER AND SMT.ANNAPURNA GUPTA, ACCOUNTANT MEMBER ./ ITA NO.959/CHD/2019 / ASSESSMENT YEAR : 2012-13 THE D.C.I.T., CIRCLE MANDI GOBINDGARH, HQ. SIRHIND. M/S SAHIL CONCAST (P) LTD., AMLOH ROAD, MANDI GOBINDGARH. ./PAN NO: AAMCS2652K /APPELLANT /RESPONDENT /ASSESSEE BY : SHRI DEEPAK AGGARWAL, ADV. ! / REVENUE BY : SHRI ASHOK KHANNA, ADDL.CIT ' # $ /DATE OF HEARING : 31.03.2021 %&'( $ /DATE OF PRONOUNCEMENT: 06 .04. 2021 (VIRTUAL COURT) / ORDER PER ANNAPURNA GUPTA, ACCOUNTANT MEMBER : THE ABOVE APPEAL HAS BEEN PREFERRED BY THE REVENUE AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS )[IN SHORT THE LD.CIT(A)] , PATIALA DATED 08.04.2019 RELATING TO ASSESSMENT YEAR 2012-13 PASSED U/S 250( 6)) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS A CT. ITA NO.959 /CHD/2019 A.Y. 2012-13 PAGE 2 OF 17 2. THE SOLITARY GROUND RAISED BY THE REVENUE IS AS UN DER: 1. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE, THE LD. CIT(A) IS CORRECT IN DELETING THE AD DITION OF RS.2,11,54,2887- MADE BY THE ASSESSING OFFICER ON A CCOUNT OF UNACCOUNTED INCOME FROM UNACCOUNTED PRODUCTION.. 3. ON THE EARLIER DATE OF HEARING I.E. 25.03.2021, IT WAS CONTENDED BY THE LD.COUNSEL FOR THE ASSESSEE THAT T HE ISSUE STOOD COVERED IN FAVOUR OF THE ASSESSEE VIDE THE OR DER OF THE ITAT IN THE CASE OF ITO, WARD-1 VS. M/S SERVICE IRO N & STEEL ROLLING MILLS IN ITA NO.251/CHD/2019 DATED 28.02.20 20. COPY OF THE ORDER WAS PLACED BEFORE US. THE LD. DR FAIRL Y AGREED TO THE SAME, BUT HE WAS DIRECTED BY THE BENCH TO SUBMI T IN WRITING SHOWING HOW THE ISSUES ARE THE SAME IN BOTH THE CASES AND HENCE COVERED BY THE AFORESAID DECISION OF THE ITAT IN THE CASE OF M/S SERVICE IRON & STEEL ROLLING MILLS (SUP RA). THE SUBMISSIONS IN WRITING WERE FILED BEFORE US DATED 2 5.03.2021, BRING OUT THE FACTS OF THE CASE AND THE BASIS ON WH ICH THE LD.CIT(A) HAD ADJUDICATED THE APPEAL OF THE ASSESSE E AND FURTHER STATING THAT ON SIMILAR LINE THE APPEAL OF THE REVENUE WAS DISMISSED IN THE CASE OF M/S SERVICE IRON & STE EL ROLLING MILLS (SUPRA). THE CONTENTS OF THE SUBMISSIONS OF T HE LD. DR ARE REPRODUCED HEREUNDER: ITA NO.959 /CHD/2019 A.Y. 2012-13 PAGE 3 OF 17 BRIEF NOTE IN THE CASE OF DCIT MANDI GOBINDGARH VS. M/S SAHIL CONCAST PVT. LTD., FOR A.Y. 2O12-13 IN ITA NO. 959/CHDY2019 THE ASSESSEE FIRM SUBMITTED THE RETURN OF INCOME FO R THE A.Y. 2012-13 ON 29.09.2012. THE INCOME RETURNED WAS RS. 63,667/-. THE ASSESSEE FIRM MANUFACTURES MS ING OTS. THE APPELLANT FIRM WAS ONE OF THE MANY MANUFACTURER S OF STEEL AND SIMILAR INDUSTRIES IN THE MANDI GOBIND GARH AND SURROUNDINGS REGION WHICH WERE INVESTIGATED WITH RE GARDS TO ALLEGED UNDISCLOSED PRODUCTION BASED IN PART ON THE INCONSISTENT CONSUMPTION ELECTRICITY QUA THE UNIT P RODUCTION OF FINISHED GOODS. DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS THE A.O. ANALYZED THE SPECIFIC PRODUCTION PROCESS OF THE APP ELLANT AND THE ISSUE OF ALLEGED UNACCOUNTED PRODUCTION (PARA4 OF THE ASSESSMENT ORDER) AND HIS FINDINGS REGARDING THE PR ODUCTION PROCESS ARE SUMMARIZED AS UNDER: I. THE PROCESS INVOLVES HEATING OF RAW MATERIAL AND PASSING THE SAME THROUGH VARIOUS ROLLERS TO GET FINAL FINISHED GOODS THAT MAY VARY AS PER REQUIREMENT OF SIZES/SECTIONS. II. POWER UTILIZATION IS DIRECTLY PROPORTIONAL TO T HE PRODUCTION. III. TO MAKE FINER SIZES/SECTIONS MORE POWER PER ME TRIC TON (PMT) IS USED. THE A.O. HAS FURTHER SOUGHT TO ESTABLISH THAT THE PRODUCTION OF FINISHED GOODS IS DIRECTLY PROPORTION AL TO THE UNITS OF ELECTRICITY CONSUMED. IN ORDER TO CO-RELAT E THE CONSUMPTION OF ELECTRICITY VIS-A-VIS THE PRODUCTION SHOWN, THE A.O. COLLECTED THE GRANULAR DATA REGARDING METERED ELECTRICITY CONSUMPTION FROM THE ELECTRICITY BOARD. IT WAS OBSE RVED THAT THE AVERAGE CONSUMPTIONS OF ELECTRICITY PMT PRODUCT ION OF FINISHED GOODS VARIES FROM 108.13 UNITS TO 2964.33 UNITS WHILE THE AVERAGE FOR THE ENTIRE YEAR IS 310.64 UNITS/PMT . THE A.O. OBSERVED THAT THERE WERE DAYS, WHEN ELECTRIC UNITS CONSUMED WERE VERY LOW WHEREAS FIRM FINISHED GOODS PRODUCED WERE VERY HIGH, GIVING A VERY LOW VALUE OF UNITS CO NSUMED PER TON OF FINISHED GOODS AND ON SOME DAYS ELECTRIC UNI TS CONSUMED WERE VERY HIGH WHEREAS FINISHED GOODS PROD UCED WERE LOW, GIVING VERY HIGH VALUE OF ELECTRIC UNITS CONSUMED ITA NO.959 /CHD/2019 A.Y. 2012-13 PAGE 4 OF 17 PER UNIT OF FINISHED GOODS. FURTHER, THERE ARE CERT AIN DAYS WHEN THERE IS HIGH CONSUMPTION OF ELECTRICITY, BUT NO PRODUCTION OF FINISHED GOODS AS HAS BEEN REPORTED AS PER THE P RODUCTION RECORDS. HE OBSERVED THAT THE FIRM WAS INVOLVED IN UNACCOUNTED PRODUCTION OF FINISHED GOODS WHICH RESU LTED IN UNACCOUNTED PURCHASE AND SALE. THE A.O. WENT ON THE REJECT THE BOOKS OF ACCOUNT U/ S 145(3) OF THE ACT HOLDING THAT HE WAS NOT SATISFIED WITH THE CORRECTNESS OF THE BOOKS OF ACCOUNT OF THE APPELLAN T FOR DETERMINATION OF THE PROFIT OF THE BUSINESS FOR THE REASONS DETAILED IN THE ASSESSMENT ORDER. THE A.O., THEREAF TER, ADOPTED THE VALUE OF ELECTRICITY CONSUMED PINT, ON THE BASI S OF MINIMUM AVERAGE VALUE FOR A PERIOD OF 10 DAYS ASSUMING THAT WITHIN A PERIOD OF 10 DAYS VARIOUS TYPES OF RAW MATERIALS WO ULD HAVE BEEN USED AND OTHER FACTORS CONTRIBUTING TO TH E VARIATION IN CONSUMPTION OF ELECTRICITY PMT OF FINI SHED GOODS WOULD HAVE BEEN TAKEN CARE OF. THEREAFTER, ON THE B ASIS OF AVERAGE SALES RATE TOTAL UNACCOUNTEDPRODUCTION OF R S. 18556408.08/- WAS ESTIMATED IN MONETARY TERMS AND T HEN ADOPTING THE GROSS PROFIT RATE SHOWN BY THE APPELLA NT, THE UNACCOUNTED PROFIT OF OUT OF THE UNACCOUNTED PRODUCTION WAS WORKED OUT AS RS. 2597880.00/-. DURING THE COURSE OF APPELLATE PROCEEDINGS, THE CIT (APPEALS) AFTER CONSIDERING THE SUBMISSIONS OF THE APPELLANT, THE REMAND REPORT AND COUNTER COMMENTS AND CONSIDER ING THE SAME OBSERVED THAT THE AR'S REWORKING OF ANNEXU RE E DEMONSTRATING LOWEST SPC OF 916.269 UNITS INSPIRES MORE CONFIDENCE AND IS MORE SCIENTIFIC AS THE A.O'S. BEN CHMARKED PERIOD OF 19.10.2011 TO 29.10.2011 INCLUDES NON-PRO DUCTION DAYS ALSO. THAT THE REWORKED SPC (ANNEXURE E) SHOWS NO VARIATION IN EXCESS OF 15% IS A MATTER OF RECORD AN D THE LD. A.O. HAS NOT REFUTED THE SAME DURING REMAND PROCEED INGS. FURTHER, BASED ON THE A.O. RESPONSE IN THE REMAND REPORT AND THE APPELLANT'S SUBMISSION THAT THE VARI ATION OF THE APPELLANT'S PRODUCTION FALLS WITHIN THE SAFE HARBOR OF THE EXPERT COMMITTEE'S REPORT REFERRED TO SUPRA OF 15% AS PER THE REWORKED ANNEXURES E WHICH IS PREDICATED ON SCI ENTIFIC WORKING RATHER THAN THE UNRELIABLE WORKING OF THE A .O., THE CIT (APPEALS) CONCLUDED THAT THE APPELLANT DOES NOT BREACH THE 15% SAFE HARBOR. IT WAS FURTHER OBSERVED THAT IN TH E CASE, THE VARIATION IN POWER CONSUMPTION, AS HAS BEEN DISCUSS ED CANNOT BE TREATED AS BEING IN EXCESS OF THE 15% WIN DOW MENTIONED SUPRA. IN CONTRA TO THE ABOVE, THERE ARE ITA NO.959 /CHD/2019 A.Y. 2012-13 PAGE 5 OF 17 ARGUMENTS THAT THE STATISTICAL BENCHMARK OF 15% IS ARBITRARY AND THAT A SUSTAINED VARIATION OF 14% MAY BE A GREA TER RISK TO REVENUE THAT ABOVE 15% DAYS FOR A LIMITED NUMBER OF DAYS DURING AN ASSESSMENT YEAR. FURTHER, IT MAY ALSO BE ARGUED THAT SUCH A STATISTICAL MODEL PUNISHES THOSE WHO RE PORT A HIGHER GP AGAINST THOSE WHO UNDER REPORT. ALTERNATE LY UNMETERED POWER CONSUMPTION IS ALSO A REALITY IN TH IS COUNTRY WHILE THESE ARGUMENTS DO MERIT ATTENTIONS IN GENERA L; THE IMPUGNED APPEAL HAS TO BE DECIDED BASED ON THE PREC EDENTS AND FACTS. KEEPING IN VIEW THE ENTIRE SET OF DISCUS SION ABOVE, IT WAS CONCLUDED THAT IN THE INSTANT CASE THE POWER VARIATION CANNOT BE TAKEN AS BEING IN EXCESS OF 15% FOR ANY P ERIOD. IN VIEW OF THE ABOVE OBSERVATION THE CIT(A) ALLOWED THE APPEAL OF THE ASSESSEE FIRM HOLDING THAT VARIATION IN POWER CONSUMPTION WAS WITHIN THE WINDOW OF 15% AS FIXED B Y THE EXPERT COMMITTEE. ON SIMILAR LINES THE APPEAL OF THE REVENUE WAS DISMISSED IN THE CASE REFERRED BY THE ASSESSEE VIZ-A-VIZ ITA NO. 251/CHD/2019 IN ITO WARD-1, MANDI GAOBINDGARH VS. M/S SERVICE IRON & STEEL PROCESSING MILLS, MANDI GOHINDGARH FOR A.Y. 2011-12, BY THE HON'BLE BENCH VIDE ITS ORDER DATED 28.02.2020 (COPY ENCLOSED FOR REFERENCE). 4. BOTH THE PARTIES WERE SO HEARD AND SUBMISSIONS M ADE THE LD. DR ALSO GONE THROUGH AS ALSO THE ORDER OF THE I TAT IN THE CASE OF M/S SERVICE IRON & STEEL ROLLING MILLS (SUP RA). 5. THE ISSUE, WE FIND, IN THE PRESENT APPEAL PERTAI NS TO THE ADDITION MADE ON ACCOUNT OF UNACCOUNTED INCOME FROM UNACCOUNTED PRODUCTION, WHICH WAS DELETED BY THE LD .CIT(A). THE ASSESSEE, WE HAVE NOTED FROM THE FACTS RECORDED IN THE ORDERS OF THE LOWER AUTHORITIES, WAS A MANUFACTU RER OF STEEL AND ONE AMONG MANY SUCH INDUSTRIES IN MANDI G OBINDGARH WHICH HAD BEEN INVESTIGATED WITH REGARDS TO ALLEGED ITA NO.959 /CHD/2019 A.Y. 2012-13 PAGE 6 OF 17 UNDISCLOSED PRODUCTION, BASED IN PART ON THE INCONS ISTENT CONSUMPTION OF ELECTRICITY QUA THE UNIT PRODUCTION OF FINISHED GOODS. DURING THE ASSESSMENT PROCEEDINGS THE AO HA D ANALYZED THE PRODUCTION OF THE ASSESSEE AND HAD FO UND THAT THE PROCESS INVOLVED HEATING OF RAW MATERIAL, PASSI NG THE SAME THROUGH VARIOUS ROLLERS TO GET FINISHED GOODS AND T HAT THE PRODUCTION OF THE FINAL PRODUCT WAS IN DIRECT PROPO RTION OF THE POWER CONSUMED. THE AO COLLECTED THE GRANULAR DATA REGARDING METERED ELECTRICITY CONSUMED FROM THE ELECTRICITY B OARD AND ANALYZED THIS DATA WITH THE QUANTITY IN METRIC TONS FROM FINISHED GOODS PRODUCED ON A GIVEN DAY, ARRIVING TH US AT THE PER METRIC TON OF ELECTRICITY CONSUMED WITH REGARD TO THE FINISHED GOODS PRODUCED ON THAT PARTICULAR DAY, AS PER THE PRODUCTION RECORDS OF THE ASSESSEE. THIS ANALYSIS D ATA IS REPRODUCED IN FIVE REPORTS WHICH FORM PART OF THE A SSESSMENT ORDER, AS ANNEXURE A TO E. FROM THE SAME, THE AO FO UND THAT THE AVERAGE CONSUMPTION OF ELECTRICITY PER MT OF FI NISHED GOODS PRODUCED VARIED FROM 108.13 UNITS TO 2964.33 UNITS WHILE THE AVERAGE FOR THE ENTIRE YEAR WAS 310.64 UNITS PER MT . HE FURTHER NOTED FROM THE DATA COLLECTED THAT THERE WAS WIDE V ARIATION IN THE CONSUMPTION OF ELECTRICITY PER MT OF FINISHED G OODS PRODUCED, WITH SOME DATES SHOWING VERY LOW CONSUMPT ION OF ELECTRICITY AGAINST HIGH PRODUCTION OF FINISHED GOODS, WHILE ITA NO.959 /CHD/2019 A.Y. 2012-13 PAGE 7 OF 17 OTHER DAYS SHOWING JUST THE REVERSE I.E. FROM HIGH CONSUMPTION OF ELECTRICITY AGAINST VERY LOW PRODUCTION OF FINI SHED GOODS. THE AO ALSO NOTED THAT THERE WERE DAYS SHOWING HIGH CONSUMPTION OF ELECTRICITY AND NO PRODUCTION OF FIN ISHED GOODS. THE AFORESTATED ANOMALIES WERE BROUGHT TO THE NOTIC E OF THE ASSESSEE AND HIS EXPLANATION SOUGHT FOR THE SAME. D UE REPLY WAS FILED BY THE ASSESSEE CONTENDING THE VARIATION TO BE ON ACCOUNT OF ASSESSEE USING LOW GRADE TECHNOLOGY, USI NG DIFFERENT TYPES AND QUALITIES OF RAW MATERIAL, USING A MANUAL PLANT, BREAKDOWN OF MACHINERY, FREQUENT POWER FAILURE, ETC . THE AO REBUTTED THE CONTENTIONS OF THE ASSESSEE AND THEREA FTER WENT ON TO REJECT THE BOOKS OF ACCOUNT OF THE ASSESSEE U/S 145(3) OF THE ACT HOLDING THAT HE WAS NOT SATISFIED WITH THE CORR ECTNESS OF THE BOOKS OF ACCOUNT OF THE ASSESSEE FOR DETERMINAT ION OF THE PROFIT OF THE BUSINESS. HE THEREAFTER PROCEEDED TO CALCULATE THE PRODUCTION ACTUALLY DONE BY THE ASSESSEE DURING THE YEAR BY FIRST WORKING OUT THE AVERAGE CONSUMPTION OF ELECTR ICITY PER MT, ON THE BASIS OF MINIMUM AVERAGE VALUE FOR A PERIOD OF 10 DAYS AND ON THE SAID BASIS HE ESTIMATED THE UNACCOUNTED PRODUCTION. THE AO ESTIMATED THE FINISHED GOODS PRO DUCED AND THEREAFTER ESTIMATED THE UNACCOUNTED PRODUCTION FOR EACH MONTH AFTER DEDUCTING FINISHED GOODS PRODUCED DURIN G THE MONTHS AS REFLECTED IN THE BOOKS OF ACCOUNT. APPLYING THE ITA NO.959 /CHD/2019 A.Y. 2012-13 PAGE 8 OF 17 AVERAGE SALES RATE IN SO CALCULATED UNACCOUNTED PRO DUCTION, THE AO ESTIMATED THE UNACCOUNTED SALES AT RS.1,85,5 6,408/-. ADOPTING THE GROSS RATE SHOWN BY THE ASSESSEE HE TH EREAFTER WORKED OUT THE UNACCOUNTED PROFIT EARNED BY THE ASS ESSEE FROM THE UNACCOUNTED PRODUCTION AT RS.25,97,880/- MAKING ADDITION OF THE SAME TO THE INCOME OF THE ASSESSEE. 6. THE MATTER WAS CARRIED IN APPEAL BEFORE THE LD.C IT(A), WHO NOTED THE FACT THAT A NUMBER OF UNITS WITH THE SIMILAR MANUFACTURING PROCESS AS THE ASSESSEE HAD BEEN SUBJ ECTED TO INVESTIGATION AND THAT DETAILED STUDY HAD BEEN CON DUCTED BY A COMMITTEE CONSTITUTED BY THE PRINCIPAL COMMISSIONER OF INCOME TAX, PATIALA, TO DETERMINE THE LEGITIMATE VA RIATION IN THE CONSUMPTION VIS--VIS THE PRODUCTION OF FINISH ED GOODS IN ROLLING MILLS AND INDUCTION FURNACES OF THE AREA. T HE LD.CIT(A) NOTED THAT THE COMMITTEE WAS A BROAD-BASED MULTI ME MBER BODY WITH THE ADDL.CIT, RANGE MANDI GOBINDGARH AS I TS HEAD AND ALL THE AOS OF THE RANGE AS ITS MEMBERS. HE NOT ED THAT THE COMMITTEE WAS ASSISTED BY EXPERTS FROM NATIONAL INS TITUTE OF SECONDARY STEEL TECHNOLOGY AND INDUSTRIES REPRESENT ATIVES. THE LD.CIT(A) ACCESSED THE REPORT OF THE COMMITTEE FROM THE ADDL.CIT, RANGE MANDI GOBINDGARH AND NOTED FROM THE SAME THAT THE COMMITTEE HAD DECIDED TO GIVE BENEFIT OF 1 5% VARIATION ITA NO.959 /CHD/2019 A.Y. 2012-13 PAGE 9 OF 17 IN CONSUMPTION OF ELECTRICITY PER MT OF FINISHED GO ODS PRODUCED FROM THE AVERAGE WORKED OUT ON YEARLY BASIS. HE NOT ED THAT THIS 15% VARIATION IN POWER CONSUMPTION PER MT OF FINISH ED GOODS WAS THE INDUSTRIAL NORM WARRANTING NO ADVERSE COGNI ZANCE AND, THEREFORE, ANY VARIATION WITHIN THIS RANGE DID NOT WARRANT REJECTION OF BOOKS OF ACCOUNT. HE NOTED THAT THE A OS HAD FOLLOWED THIS NORM WHILE MAKING ASSESSMENTS IN SIMI LAR CASES AND IN SIMILAR SET OF CIRCUMSTANCES AND ACCEPTED TH E BOOK RESULTS WHERE THE VARIATION WAS WITHIN 15% WINDOW. 7. BEFORE THE LD.CIT(A), THE ASSESSEE FILED DETAIL ED SUBMISSIONS AND CONTENDED THEREIN THAT VARIATION O F ELECTRICITY IN ITS CASE WAS WITHIN 15% RANGE RECOMMENDED BY THE COMMITTEE. THE SUBMISSIONS OF THE ASSESSEE WERE FOR WARDED TO THE AO SEEKING HIS COMMENTS ON THE SAME WHICH WERE DULY SUBMITTED AND ON WHICH THE COUNTER COMMENTS OF THE ASSESSEE WERE ALSO SOUGHT. AFTER CONSIDERING ALL THE ABOVE, THE LD.CIT(A) NOTED SEVERAL DISCREPANCIES IN THE WORKING OF THE AO VIS--VIS POWER CONSUMPTION PER MT AND AVERAGES SO CALCULATED AND FOUND THAT THE ASSESSEES REWORKING OF THE SAME INS PIRED MORE CONFIDENCE AND WAS MORE SCIENTIFIC. HE FURTHER NOTE D THAT THE RE-WORKED DATA SHOWED NO VARIATION IN EXCESS OF 15% . ACCORDINGLY, CONSIDERING THE REPORT OF THE COMMIT TEE AND THE ITA NO.959 /CHD/2019 A.Y. 2012-13 PAGE 10 OF 17 FACTS BEFORE HIM, HE HELD THAT THERE WAS NO POSSIBI LITY OF ANY UNACCOUNTED PRODUCTION IN THE CASE OF THE ASSESSEE SINCE HIS POWER CONSUMPTION DATA PER MT FELL WITHIN THE PRESC RIBED NORMS OF THE COMMITTEE. ACCORDINGLY, HE DELETED THE ADDITION MADE BY THE AO. DETAILED FINDINGS OF THE CIT(A) HOL DING SO ARE AS UNDER: DISCUSSION & DETERMINATION THE LD. AO HAS PLACED CONSIDERABLE RELIANCE ON THE JUDGEMENT OF THE APEX COURT IN THE CASE OF MELTON INDIA VS. C OMMISSIONER OF TRADE OF TAX (UP) APPEAL NO. (CIVIL) 373 OF 2007 (S C) CITED SUPRA. A DISCUSSION OF THE CASE WOULD BE IN ORDER IN LINE WITH THE APPELLANT'S SUBMISSION IN THIS CAS E, IN THE MELTON CASE THE CONCERNED APPELLANT HAS ARGUED THAT POWER CONSUMPTION FOR DIFFERENT END PRODUCTS/RAW MATERIAL WERE DIFFERENT. THE CONCERNED APPELLANT: EXPLAINED THAT DURING THE PERIOD IN QUESTION IT HAD SWITCHED OVER FROM PRODUCTION OF 23 MICRON GOODS TO PRODUCTION OF 12 MICRON GOODS. ACCORDING TO IT, ELE CTRICITY CONSUMPTION IN THE MANUFACTURING OF 23 MICRON GOODS WAS LESS THAN THAT IN MANUFACTURING 12 MICRON GOODS. IT WAS EXPLAINED THAT THE APPELLANT WAS NOW MANUFACTURING GOODS OF 12 MICRON, WHICH REQUIRES MORE ELECTRICITY CONSU MPTION AS COMPARED TO THE GOODS OF 23 MICRON AS THE LENGTH OF 12 MICRON IS MORE THAN THE LENGTH OF 23 MICRON. THE WE IGHT OF 23 MICRON IS 33 GM. PER SQ. METER, WHEREAS THE WEIGHT OF 12 MICRON IS ALMOST HALF I.E. 17 GRAM PER SQ. METER, A ND THEREFORE TO MANUFACTURE 1 KG. GOODS OF 12 MICRON T HE CONSUMPTION OF ELECTRICITY IS ALMOST DOUBLE THAN TH E CONSUMPTION OF ELECTRICITY FOR MANUFACTURE OF 1 KG. OF 23 MICRON. THE HON'BLE APEX DID NOT ACCEPT THE CONTENTION OF T HE APPLICANT AND STATED AS UNDER: ITA NO.959 /CHD/2019 A.Y. 2012-13 PAGE 11 OF 17 ORDINARILY, WHEN ELECTRICITY CONSUMPTION GOES UP, A REASONABLE INFERENCE CAN BE DRAWN THAT THE PRODUCTI ON WILL ALSO HAVE GONE UP. IF THE ELECTRICITY CONSUMPT ION IS GOING UP BUT THE PRODUCTION IS SEEN TO BE GOING DOW N, A REASONABLE INFERENCE CAN, PRIMA FACIE, BE DRAWN THA T THERE WAS SUPPRESSION OF PRODUCTION AND CONSEQUENTLY SUPP RESSION OF SALES IN ORDER TO AVOID SALES TAX. THE APPELLAN T ALSO HAD NOT MAINTAINED SEPARATE ACCOUNTS FOR ITS OWN MANUFACTURING AND THE JOB WORK, AND IT COULD NOT IN FORM WHICH RAW MATERIALS HAVE BEEN USED IN THE MANUFACTU RING OF JOB WORK AND WHICH GOODS HAVE BEEN USED ON THE ASSE SSEE'S OWN MANUFACTURING. IN VIEW OF THE ABOVE, WE AGREE WITH THE HIGH COURT THAT EXCESSIVE POWER CONSUMPTION, PRIMA FADE, ESTABLISHE S THE ASSESSEE'S INTENTION TO SUPPRESS THE PRODUCTION AND THE TURN OVER. UNDER SUCH CIRCUMSTANCES A.O. MAY PROCEED UNDER SEC TION 145(3) UNDER ANY OF THE FOLLOWING CIRCUMSTANCES: (A) WHERE HE IS NOT SATISFIED ABOUT THE CORRECTNESS OR COMPLETENESS OF THE ACCOUNTS (B) WHERE METHOD OF ACCOUNTING CASH OR MERCANTILE HAS N OT BEEN REGULARLY FOLLOWED BY THE ASSESSEE (C) ACCOUNTING STANDARDS AS NOTIFIED BY THE CENTRAL GOV ERNMENT HAVE NOT BEEN REGULARLY FOLLOWED BY THE ASSESSEE. HON'BLE MADRAS HIGH COURT IN THE CASE OF ALAGAPPA C EMENT PVT. LTD. VS. CEGAT & CCE, TRICHY 2010-TIOL-770-HC- MAD-CX) HAS HELD THAT THE REVENUE CANNOT BE FAULTED FOR DEMANDING DUTY ON THE STEEL INGOTS WHICH COULD HAVE BE EN MANUFACTURED BY CONSUMING EXCESS QUANTITY OF ELECTR ICITY. WHILE THE LD. AO HAS SOUGHT TO ESTABLISH THAT THE D AY TO DAY RECORDS OF PRODUCTION QUALITY AND SIZE WISE WER E NOT MAINTAINED OR PRODUCED. CASES WHERE DAY-TO-DAY MANU FACTURING OR PRODUCTION ACCOUNT IS NOT MAINTAINED CAN BE REGA RDED AS FIT CASES FOR REJECTION OF BOOKS OF ACCOUNTS. SUCH A ST AND IS SUPPORTED BY THE FOLLOWING JUDICIAL PRECEDENT I. THE DECISION OF THE HON'BLE ALLAHABAD HIGH COURT BHARAT MILK PRODUCTS II. COMMISSIONER OF INCOME TAX 128 ITR 682, ALLAHAB AD; AND II. PUNJAB TRADING CO. LTD V. CIT 53 FTR 335 PUNJAB ; ITA NO.959 /CHD/2019 A.Y. 2012-13 PAGE 12 OF 17 THE LD. AO HAS WHILE MAKING THE ESTIMATION USED THE BENCHMARK OF THE MINIMUM VALUE OF THE AVERAGE OF EL ECTRIC UNITS CONSUMED PER METRIC TONS OF FINISHED GOODS OVER A P ERIOD OF 10 DAYS AND THE LOWEST AVERAGE VALUE OF ELECTRIC UNITS CONSUMED PER METRIC TONS FOR EVALUATING THE UNACCOUNTED PRODUCTI ON AND TAKING AVERAGE STOCK HOLDING THEREAFTER THE SUPPRES SION OF INCOME. THAT THE LD AO HAS TAKEN THE BENCHMARK AS T HE AVERAGE UNITS AT 897.82 UNITS PER METRIC TONNE BASED ON THE PERIOD FROM 19.10.2011 TO 29.10.2011, AS PER THE BOOKS OF ACCOU NTS OF THE APPELLANT AND ALSO THE BENCHMARKED THE GP AT 3.79% IS A MATTER OF RECORD AND NOT IN DISPUTE. THAT THE LD. AO HAS W ORKED OUT THE POWER CONSUMPTION OF ELECTRIC UNITS PER METRIC TON OF FINISHED GOODS PRODUCED OVER A PERIOD OF 10 FOR THE PERIOD 1 9.10.2011 TO 29.10.2011 AT 897.82 IN ANNEXURE-E IS A MATTER OF R ECORD OF RECORD AND NOT IN DISPUTE. THAT THE AVERAGE PRODUCTION SO ARRIVED IS NEAR UNIF ORM AND WITHIN THE SAFE HARBOR OF 15% IS ALSO MATTER OF REC ORD AND NOT IN DISPUTE. THE LD AO'S, ADOPTING THE MINIMUM AVERAGE OF 897.82 RELATING TO THE 19.10.2011 TO 29.10.2011 PERIOD IS IN MY CONSIDERED VIEW NOT SCIENTIFIC. THAT AS PER ANNEXUR E E TOO, ONLY FIVE CYCLES OF 10 DAYS EACH GO OUTSIDE 15 % BENCH M ARK OUT OF 35 PRODUCTION CYCLES IS ALSO MATTER OF RECORD AND NOT IN DISPUTE. THAT THE LD. AO HAS GIVEN AN ALLOWANCE OF 9.45 UNITS/ DA Y NON- MANUFACTURING LOAD IS A MATTER OF RECORD. IT IS MY CONSIDERED VIEW THAT WITH NON-PRODUCTION ELECTRIC LOAD OF 200 KW, THE ALLOWANCE IS NOT BASED ON SCIENTIFIC ESTIMATION. TH AT DURING THE PERIOD 24/12/2011 TO 02/01/2012 THE MINIMUM SPS WAS 916.269 UNITS AND THEREFORE THE SCIENTIFIC BASIS OF THE AO CALCULATION IS SUBJECT TO QUESTIONING. THAT THERE ARE A NUMBER OF INCONSISTENCIES BETWEEN THE UNITS CONSUMED AS GIVEN IN ANNEXURE C AND ANNEXURE OF THE ASSESSMENT ORDER IS AMPLY DEMONSTRATED BY THE LD. A R. THERE IS CONSIDERABLE MERIT IN THE LD. AR'S SUBMISS ION THAT DATA IN ANNEXURE E AND ANNEXURE B, C AND D ARE PRED ICATED UPON ALTERNATE READINGS/ DIFFERENT FOOTING AND THER E IS MORE THAN ONE VERSION OF STATISTICAL INFORMATION AND TRUTH WH ICH THE LD. AO HAS FAILED TO RECONCILE. THAT THE LD. AO HAS WHILE DETERMINING ANNEXURE E TAKEN COGNIZANCE OF NON-PRODUCTION DAYS THEREBY DISTORTING THE COMPARABLES IS IN MY CONSIDERED VIEW AMPLY DEMONSTRATED BY THE LD. AR. THE LD. ARS REWORKING O F THE ANNEXURE E DEMONSTRATING A LOWEST SPC OF 916.269 UN ITS INSPIRES MORE CONFIDENCE AND IS MORE SCIENTIFIC AS THE LD. AO'S BENCHMARKED PERIOD OF 19/10/2011 TO 29/10/2011INCLU DES ITA NO.959 /CHD/2019 A.Y. 2012-13 PAGE 13 OF 17 NON-PRODUCTION DAYS. THAT THE REWORKED SPC (ANNEXUR E E) SHOWS NO VARIATION IN EXCESS OF 15% IS A MATTER OF RECORD AND THE LD. AO HAS NOT REFUTED THE SAME DURING REMAND P ROCEEDINGS. THIS IS WITH REFERENCE TO THE CAPTIONED APPEAL WHER EIN THE LD. ASSESSING OFFICER IN RESPONSE TO APPELLANT SUBMISSI ON REGARDING AVERAGE SPC AND OTHER DISCREPANCIES IN ORDER, AS PE R ITS LETTER F NO/ JTO/ WARD-L/MGG/2018-19/115 DT 15/05/2018 HAS S TATED AS UNDER:- '2. IN THIS REGARD, THE ASSESSEE HAS CONTENDED THAT THE VARIATION WAS WITHIN 15% FROM THE ANNUAL AVERAGE OF CONSUMPTI ON OF ELECTRICITY FOR PRODUCTION OF PER METRIC TONNE OF G OODS. HOWEVER, IT HAS BEEN VERIFIED FROM THE RECORD THAT THE YEARLY A VERAGE COMES TO 1019.10 UNITS WHEREAS THE HIGHEST AVERAGE PER CY CLE OF 10 DAYS AS PER ANNEXURE E WAS 1250,43 UNITS AND LOWEST 897.82 UNITS. AS SUCH, THE VARIATION IS MORE THAN 15% OF T HE YEARLY AVERAGE.' THE TOTAL ELECTRICITY CONSUMPTION FOR MANUFACTURING PURPOSES AS STATED BY ASSESSING OFFICER IN HIS ORDER WAS 145424 90 UNITS AND THE FINISHED GOODS PRODUCT/ON THIS YEAR WAS 14293.6 2 UNITS. FROM THE ABOVE REPORT IT IS VERY MUCH CLEAR THAT TH E ID. ASSESSING OFFICER HAS OFFERED NO COMMENTS :- 4. REGARDING INCLUSION OF NON PRODUCTION DAYS I.E. 17.10.2011TO21.10.2011 IN ANNEXURE E WHICH IS TAKEN AS BASE FOR CALCULATION OF SPC AND UNRECORDED PRODUCTION. IF THE ID. ASSESSING OFFICER HAS CONSIDER THESE DAYS IN CALCULATING THE PRODUCTI ON CYCLE OF 10 DAYS, THE RESULT WILL CHANGE AUTOMATICA LLY SO THE ANNEXURE E RELIED UPON BY THE ASSESSING OFFI CER IS UNRELIABLE. THE ID, ASSESSING OFFICER HAS FAILED TO COMMENT ON NEW ANNEXURE E SUBMITTED SO ITS AUTHENTICITY STAND ESTABLISHED. HENCE THE ADDITION MADE BY THE ASSESSING OFFICER HAS BECOME FACTUALLY INCORRECT. 5. THE ID. ASSESSING OVER HAS TAKEN AVERAGE OF 1019 .10 UNITS PER METRIC TONNE OF GOODS WHEREAS AVERAGE UNIT CONSUMPTION COMES TO 1017.41 UNITS. SO THE CALCULATION GIVEN BY THE ASSESSING OFFICER IS NOT FACTUALLY INCORRECT HENCE CAN NOT BE RELIED UPON IN THE MATTER. 6. THE ID. ASSESSING OFFICER HAS FAILED TO COMMENT ON APPELLANT OBSERVATION THAT GP RATE ADDITION IN ABSE NCE ITA NO.959 /CHD/2019 A.Y. 2012-13 PAGE 14 OF 17 OF COMPARABLE CASES OR ENQUIRY IS NOT HOLD GOOD HENCE TO BE DELETED. AS PER GUIDELINES OF THE COMMITTEE CONSTITUTED BY CHIEF COMMISSIONER OF INCOME TAX, CHANDIGARH, WE HA VE SUBMITTED THAT AVERAGE SPC SHOULD BE TAKEN AT AVERA GE OF HIGHEST SPC AND LOWEST SPC AS CONTAINED IN ANNEXURE -E, THE CALCULATION COMES TO AS UNDER- THE MINIMUM SPC AS PER NEW ANNEXURE E COMES TO 933.569 UNITS AND MAXIMUM SPC COMES TO 1250.425 UNITS. AVERAGE SPC I.E AVERAGE OF TWO VALUES COMES TO 1091.997 UNITS. THE CALCULATION IS AS UNDER:- MIN. SPC 933,569 UNITS MAX. SPC 1250,425 UNITS ---------------- AVERAGE SPC 2183.994/2 =1091.997 UNITS LEVERAGE AS PER CCIT COMMITTEE 15% MAXIMUM ACCEPTABLE LEVEL 1091.997+15% =1255.80 UN ITS MINIMUM ACCEPTABLE LEVEL 1091.997-15% =928.19 UNITS IN VARIOUS APPEALS/ASSESSMENT THIS FORMULA HAS APPLIED. HENCE IN THIS WAY NO CYCLE IS OUTSIDE ACCE PTABLE LEVEL HENCE NO ADVERSE VIEW SHOULD BE TAKEN IN THE MATTER. SO IN THIS WAY THE OBSERVATIONS GIVEN BY THE ASSESSING OFFICER IS FACTUALLY INCORRECT HENCE CAN NOT BE A BASE TO REJECT BOOKS OF ACCOUNTS UNDER SECTION 145( 3) OF THE ACT AND TO ESTIMATE INCOME OF THE APPELLANT COMPANY SO IT IS REQUESTED THAT THE ASSESSEE HAS SHOWN GENUINE PR OFITS IN THIS BOOKS, SO NO GROSS PROFIT ADDITION IN THE A BSENCE OF ANY COMPARABLE CASES OR ENQUIRY BY THE ASSESSING OFFICER, NO ADDITION ON SHOULD BE MADE. IN THE INSTANT CASE IT IS MY CONSIDERED VIEW BASED ON THE LD. AO RESPONSE IN THE REMAND REPORT AND THE APPELLANT' S SUBMISSION THAT THE VARIATION OF THE APPELLANT'S PR ODUCTION FALLS WITHIN THE SAFE HARBOUR OF THE EXPERT COMMITTEE'S R EPORT REFERRED TO SUPRA OF 15% AS PER THE REWORKED ANNEXURE E WHIC H IS PREDICATED ON SCIENTIFIC WORKINGS RATHER THAN THE U NRELIABLE WORKING OF THE LD. AO. IT IS MY CONSIDERED VIEW THA T THE APPELLANT DOES NOT BREACH THE 15% SAFE HARBOUR. THAT ELECTRICITY IS AN IMPORTANT FACTOR OF PRODUCTI ON IS IN THE MANUFACTURING PROCESS OF THE APPELLANT IS ESTAB LISHED BEYOND A ITA NO.959 /CHD/2019 A.Y. 2012-13 PAGE 15 OF 17 SHRED OF DOUBT. FURTHER THE APPELLANT HAVING A SIGN IFICANT TURNOVER AND GETTING HIS BOOKS AUDITED WAS SUBJECT TO MAINTA INING PRODUCTION RECORDS ADEQUATE TO THE BUSINESS OF THE APPELLANT AND THAT THE AUDITOR WAS REQUIRED TO GIVE FINDINGS RELA TED ON THE SAME. IN ADDITION, THE PROFIT AND LOSS ACCOUNTS OF THE AP PELLANT ARE DERIVED FROM THE PRIMARY PRODUCTION REGISTERS. IN T HE EVENT THE PRODUCTION REGISTERS DO NOT INSPIRE CONFIDENCE AND VERACITY OF THE BOOKS GETS DENTED. THE PRINCIPLE STATED ABOVE HAS B EEN UPHELD BY THE HON'BLE SUPREME COURT IN THE CASE OF MELTON IND IA VS. COMMISSIONER OF TRADE OF TAX (UP) APPEAL NO. (CIVIL ) 373 OF 2007 (SC) AND KANCHWALA GEMS VS. JCIT 288 ITR 10 (SC) AN D FOLLOWED BY THE JURISDICTIONAL HIGH COURT SH. GANPATI EMBROI DERY PVT. LTD. VS. CIT 16 DTR (P & H). HOWEVER, IN THE INSTANT CASE, THE VARIATION IN POWE R CONSUMPTION, AS HAS BEEN DISCUSSED CANNOT BE TREATE D AS BEING IN EXCESS OF THE 15% WINDOW MENTIONED SUPRA. IN CONTRA TO THE ABOVE, THERE ARE ARGUMENTS THAT THE STATISTICAL BENCHMARK OF 15% IS ARBITRARY AND THAT A SUSTAINED VARIATION OF 14% MAY BE A GREATER RISK TO REVENUE THAT ABOVE 15% DAYS FOR A LIMITED N UMBER OF DAYS DURING AN ASSESSMENT YEAR. FURTHER, IT MAY ALSO BE ARGUED THAT SUCH A STATISTICAL MODEL PUNISHES THOSE WHO REPORT A HIGHER GP AGAINST THOSE WHO UNDER REPORT. ALTERNATELY UNMETER ED POWER CONSUMPTION IS ALSO A REALITY IN THIS COUNTRY WHILE THESE ARGUMENTS DO MERIT ATTENTION IN GENERAL; THE IMPUGN ED APPEAL HAS TO BE DECIDED BASED ON THE PRECEDENTS AND FACTS . KEEPING IN VIEW THE ENTIRE SET OF DISCUSSION ABOVE IT IS MY CO NSIDERED VIEW THAT IN THE INSTANT CASE THE POWER VARIATION CANNOT BE T AKEN AS BEING IN EXCESS OF 15% FOR ANY PERIOD. THE APPEAL ON THIS GR OUND OF APPEAL IS ALLOWED. 8. THE LD. DR HAS FAIRLY ADMITTED BEFORE US THAT ID ENTICAL ISSUE HAS BEEN CONSIDERED BY THE ITAT IN THE CASE O F M/S SERVICE IRON & STEEL ROLLING MILLS (SUPRA) AND ADJU DICATED IN FAVOUR OF THE ASSESSEE. WE HAVE ALSO GONE THROUGH T HE AFORESAID ORDER OF THE ITAT AND FIND THAT THE ISSUE IN THE RE VENUES APPEAL IN THAT CASE ALSO, BEFORE THE ITAT WAS IDENT ICAL. THE ASSESSEE IN THE SAID CASE WAS IN THE IDENTICAL BUSI NESS OF MANUFACTURING IRON AND STEEL GOODS AND IDENTICAL A DDITION OF UNACCOUNTED PROFITS FROM UNACCOUNTED PRODUCTION CAL CULATED ITA NO.959 /CHD/2019 A.Y. 2012-13 PAGE 16 OF 17 FROM AVERAGE PMT ELECTRICITY CONSUMED HAD BEEN MADE IN ITS CASE ALSO. IN THE SAID CASE ALSO, WE FIND, THAT THE LD.CIT(A) HAD DELETED THE ADDITION NOTING THE REPORT OF THE COMMI TTEE SPECIALLY FORMED FOR STUDYING AVERAGE VARIATION IN ELECTRICITY CONSUMPTION IN SIMILAR MILLS OF THE MANDI GOBINDGAR H REGION ,ACCEPTING 15% AS ACCEPTABLE VARIATION. THAT THE LD .CIT(A) HAD NOTED FROM THE FACTS OF THE SAID CASE THAT THE VARI ATION FELL WITHIN THE RANGE SO PRESCRIBED BY THE COMMITTEE AND ACCORDINGLY DELETED THE ADDITION MADE BY THE AO. TH E SAID ORDER OF THE LD.CIT(A), WE FIND WAS UPHELD BY THE I TAT, FINDING IT WELL REASONED. 9. IN THE PRESENT APPEAL ALSO, WE HAVE NOTED THAT THE LD.CIT(A) ,AFTER NOTING THE FACT THAT THE DATA SUBM ITTED BY THE ASSESSEE REGARDING CONSUMPTION OF ELECTRICITY AND P MT PRODUCTION OF FINISHED GOODS THEREFROM WAS MORE REL IABLE AS OPPOSED TO THAT OF THE AO, WENT ON TO FIND THEREFRO M THAT THE VARIATION IN ELECTRICITY CONSUMPTION PMT OF GOODS P RODUCED BY THE ASSESSEE FELL WITHIN THE ACCEPTABLE 15% RANGE. THE LD. DR HAS NOT CONTROVERTED THE AFORESTATED FINDINGS OF F ACT RECORDED BY THE LD.CIT(A). THE ISSUE STANDS SQUARELY COVERE D THEREFORE IN FAVOUR OF THE ASSESSEE BY THE ORDER OF THE ITAT IN THE CASE OF M/S SERVICE IRON & STEEL ROLLING MILLS (SUPRA). ITA NO.959 /CHD/2019 A.Y. 2012-13 PAGE 17 OF 17 10. FOLLOWING THE SAME THEREFORE, WE SEE NO REASON TO INTERFERE IN THE WELL-REASONED ORDER OF THE LD.CIT( A), AND UPHOLD THE SAME. ACCORDINGLY, THE GROUND RAISED BY THE REVENUE IS DISMISSED. 11. IN THE RESULT, THE APPEAL OF THE REVENUE IS DI SMISSED. ORDER PRONOUNCED ON 06.04.2021. SD/- SD/- (DIVA SINGH) (ANNAPURNA GUPTA) !'/ JUDICIAL MEMBER )*'/ ACCOUNTANT MEMBER DATED: 6 TH APRIL, 2021 * * *+ ,+ / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. ' - / CIT 4. ' - ( )/ THE CIT(A) 5. +./ 0 , $ 0 , 123/4 / DR, ITAT, CHANDIGARH 6. /3 / GUARD FILE ' / BY ORDER, / ASSISTANT REGISTRAR