Addition made for electricity variation with quantum of production deleted. Lower consumption of electricity for the same quantum of production should be viewed positively and not adversely-ITAT
ABCAUS Case Law Citation:
ABCAUS 2200 (2018) (02) ITAT
The instant appeal was filed by the Revenue against the order of the Commissioner of Income Tax (Appeals) directing the Assessing officer (AO) in rejecting the books of account of the assessee u/s 145(3) of the Income Tax Act, 1961 (the Act) and making additions on account of unaccounted investment and unaccounted profits.
Brief Facts of the Case:
The respondent assessee firm was re-rolling mill manufacturing iron and steel products. During the assessment proceedings, the Assessing Officer (AO) noted that the amount of electricity consumed was directly related to the production of finished goods. In order to co-relate the consumption of electricity viz-a-viz, the production shown, the Assessing Officer gathered information regarding consumption of electricity from the electricity board.
The AO, thereafter, analyzed the consumption data of electricity viz-a-viz, the production of finished goods and observed that there was wide variation in the ratio of electricity units consumed to Per Metric Tonne (PMT) of finished goods produced. He further noted that there were certain days when there was high consumption of electricity but no production of finished goods. It was also observed that there was days on which electricity consumed PMT of finished goods was low but the production of finished goods was very high.
When confronted with this aspect, the assessee explained that the consumption of electricity was dependent on various factors namely, delay or time lag in the recording of production in books, difference in type and quality of raw material used, power cuts, grid failures, voltage fluctuations, mill condition, motor, break down and labour efficiency etc.
The AO, was however, not satisfied with the reply. Consequently, being not satisfied with the correctness of the books of account of the assessee, he rejected the same by invoking the provisions of Section 145(3) of the Income Tax Act, 1961 (Act).
Thereafter the AO estimated the unaccounted production of finished goods by adopting the value of electricity consumed PMT on the basis of minimum average value. The AO determined the peak unaccounted production and worked out the unaccounted investment allegedly made in unaccounted production and the unaccounted profit out of such unaccounted production. Accordingly, he made addition on account of total unaccounted income.
Being aggrieved with the addition, the assessee preferred an appeal before the CIT(A). It was brought to the knowledge of the CIT(A) that subsequent to the passing of the assessment order, a detailed study was carried out at the instance of the Principal CIT with a view to examine the fluctuation in the consumption pattern of electricity vis a vis production in the rolling mills and induction furnaces of the area. The Committee was headed by the Additional CIT having all the AOS of the range as its members and it was assisted by the experts and the industry representatives.
It was submitted that 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 average consumption of power, the book results should be accepted.
It was pointed out that following the said recommendation, book results of other firms in similar trade had been accepted for the following assessment year in similar cases
The AO also conceded that the variation in the consumption of electricity units PMT of finished goods of the assessee was less than 15% of the yearly average on higher side whereas it was more than 15% of the lower side. The CIT(A) interpreted the higher variation on the lower side positively set aside the action of the AO in rejecting the books of account of the assessee and deleted the additions made.
Aggrieved by the order of the CIT(A), the Revenue went in appeal before the Tribunal.
Contentions made on behalf of the Respondent Assessee:
It was pointed out that in a similar case, the Tribunal had upheld the order of the CIT(A), directing the Assessing Officer to accept the book results shown by the assessee and to delete the additions made on account of unaccounted profits/unaccounted investment.
Contention made on behalf of the Appellant Revenue:
It was pointed out that there was a distinguishing fact in the present case with the assessee showing variation exceeding 15% on the lower side of the yearly average consumption.
Observations made by the Tribunal:
The ITAT observed that admittedly the issue of disparity in consumption of electricity viz-a-viz production in the steel Rolling Mills of the area, had been a matter of detailed study which was conducted by a committee constituted by the PCIT and which had accepted variation of 15% in the consumption pattern of electricity as being normal.
It was also noted that undisputedly, on the basis of the said report, the assessment orders in the case of several assessees had been passed accepting book results since the assessees had showed variation in the consumption pattern of electricity within the acceptable range.
The ITAT observed that in group of cases it had accepted that in view of norms outlined by the committee, there was no reason to reject the book results shown by the assessee who have reflected variation in the production pattern within the acceptable range as prescribed by the committee constituted.
The ITAT opined that since the consumption of electricity was less than 15% of the yearly average the decision rendered by it will squarely apply to the present case and accordingly it upheld order of the CIT(A).
Regarding the contention of the Revenue that the assessee had exhibited variation of more than 15% on the lower side of the average, the ITAT rejected it and expressed agreement with the CIT(A) that lower consumption of electricity for the same quantum of production should be viewed positively and not adversely and it could not be the basis for rejecting the books of account of the assessee.
Appeal was dismissed