TMI Blog2010 (7) TMI 833X X X X Extracts X X X X X X X X Extracts X X X X ..... orkers were employed at assessee’s factory, it is strange to notice that the Assessing Officer proceeded on the assumption that the factory would have worked for 3 shifts (after considering over all discount factor on various counts). There is no evidence on record to show that the assessee has either suppressed sales or purchased raw material without reflecting the same in its books. Having regard to the fact that there was no evidence to prove that 50 HP motor was not utilised by the assessee, learned CIT(A) proceeded on the assumption that 40 HP was used to produce steel wool. It was not a case of pilferage of electricity in which event the very basis for making the addition falls to ground. Mere alleged disparity in consumption of electricity cannot be a reason for estimating the turnover since production depends upon various factors and any addition made to estimate suppressed sales, on the basis of consumption of electricity, deserves to be deleted since it has no scientific basis. - Additions deleted - Decided in favor of assessee. - ITA. No. 4059/Mum/2009, ITA. No. 4060/Mum/2009, ITA. No. 4061/Mum/2009, ITA. No. 4062/Mum/2009, ITA. No. 4063/Mum/2009 - - - Dated:- 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2006 whereby the Assessing Officer called upon the assessee for its comments/objections. 4. In the P L account of the assessee, electricity charges of the previous year relevant to the assessment year 2000-2001 were shown as Rs.50,000/- whereas as per the information supplied by the MSEB it works out to Rs.4,99,363/-. In the light of electricity charges as reflected in the bills issued by the MSEB the Assessing Officer was of the view that the assessee has illegally siphoned of the electricity, obviously with a view to increase the production (and consequent sales) which have not been disclosed. 5. Despite an objection by the assessee, Assessing Officer proceeded to calculate the production capacity with reference to the number of units of energy utilised per hour and estimated the total income at Rs.21,69,040/- by observing as under : I am driven to making this estimation purely on the basis of the material available on record and which has been narrated above. Till date the assessee has not appeared before me to conclusively reply to the queries in the questionnaire. Even the assessee s representative has only filed the letters to which I have responded as above. In shor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aving regard to the circumstances of the case, learned CIT(A) admitted the additional evidence and called for a remand report from the Assessing Officer. In the remand report dated 22-1-2009 the Assessing Officer pointed out that the notice under section 148 was issued in prescribed time and the assessee had been acquitted of the charge of power theft on the basis of benefit of doubt ; Since the reopening was based upon sufficient material the Assessing Officer was justified in entertaining a view that the assessee s production and sales must have gone up proportionately, due to increase in electricity consumption. In other words, there was a valid reason to believe that the assessee had resorted to suppression of production and consequent sales. Thus the Assessing Officer justified his action of reopening the assessment. 7.1. Learned CIT(A) was of the view that so long as there was prima facie evidence of reopening the assessment, sufficient or correctness of such material cannot be considered at the stage of issuance of notice. By placing reliance upon the decision of the Apex Court in the case of Raymond Woolen Mills 236 ITR 34 he concluded that reopening of assessment is i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nufactures Company s machine was a 2006 model. He has also referred to Chartered Engineers Report to submit that the standard output on the type of machine used by the assessee would be around Rs. 1 kg per unit. It was also pointed out that gross profit rate was estimated arbitrarily at 30.58% without considering the direct expenses while computing the GP rate and in this regard filed a tabular chart before the learned CIT(A). Placing reliance upon the following decisions of the ITAT it was contended that no case was made out for estimating the income on an arbitrary basis ignoring the standard GP in this line of business which ranges between 8 to 10 percent on sales. (i) Shabnam Marbles (P) Ltd. vs. ACIT 77 TTJ 189 (Jp) (ii) Anjaneya Brick Works vs. ACIT (Inv) 74 TTJ 921 (Bang.) (iii) Prem Cables (P) Ltd. vs. ACIT 56 ITD 382 (iv) ACIT vs. Khambhatta Family Trust 67 ITD 411 (v) Pondy Metal Rolling Mills (P) Ltd. vs. DCIT 107 TTJ 336 (Del.) (vi) Milap Textile Mills vs. DCIT 86 TTJ 1125 (Jd) 11. The learned CIT(A) was of the opinion that the Assessing Officer was justified in estimating income, in the circumstances of the case, though, he noticed some merit in the con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... used by the assessee is admittedly of lesser HP i.e. 40 HP and production capacity would be less but proceeded to estimate the production at 1.75 kg per unit. Similarly gross profit rate was directed to be taken at 27.70% as against 8 to 10% claimed by the assessee as the prevalent GP rate in the industry. 13. Identical additions were made in the assessment years 2001-2002 to 2004-2005 and the assessee challenged the validity of reopening as well as the methodology followed by the Assessing Officer in estimating the income. Learned CIT(A) upheld the reopening of assessment proceedings and, for identical reasons, partly allowed the appeals filed by the assessee. 14. Further aggrieved, assessee is in appeal before us. Learned Counsel, appearing on behalf of the assessee, strongly objected to the reopening of assessment by stating that in order to initiate proceedings under section 148 of the Act, Assessing Officer should have reasons to believe that income assessable to tax had escaped assessment and it should not be confused for reasons to suspect . Adverting our attention to page 8 of the paper book, learned Counsel submitted that though assessment for the assessment years ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6th January, 2009) accepted that there was no power theft and in this regard observed in para 6 as under : The charge of the Assessing Officer that there was power theft does not survive in view of the decision of the Civil Court. 17. Even in the case of associate concern i.e., Ashish Industries (ITA. Nos. 1840 1841/Mum/2008 dated 22nd June, 2009) the Bench has correctly appreciated the facts and circumstances of the case to come to the conclusion that Abdul Rasul Badruddin Keshwani was acquitted not on account of giving benefit of doubt but on merits. 18. Though it was admitted that the Order of the Additional Sessions Judge was passed on 29-12-2006 whereas assessments for the years under consideration were completed on 28-12-2006, in the light of the Order passed by the Additional Sessions Judge, Palghar, learned Counsel submitted that the reopening of assessment was based on mere allegations of MSEB and hence reopening is bad in law. 19. As regards the addition sustained by the learned CIT(A) by partly affirming the estimate made by the Assessing Officer, learned Counsel submitted that alleged power pilferage cannot be the sole basis for estimating the income. In th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Royal Marwar Tobacco Product (P) Ltd. (2009) 120 TTJ (Ahd) 387 Estimating suppressed sales on the basis of consumption of electricity has no scientific basis. 20. As regards the comments of the Assessing Officer in the remand report filed before the CIT(A), learned Counsel, appearing on behalf of the assessee, submitted that the Chartered Engineer had given his report bearing in mind the circumstances of the case. Adverting our attention to pages 25 to 29 of the paper book learned Counsel submitted that by the time the Chartered Engineer visited the premises of the assessee s factory building the machine was no longer available with the assessee and hence based upon the statement of Mr. Abdul Rasool Keshwani partner of M/s. Boon Industries, Chartered Engineer physically inspected the presently working Steel Wool Manufacturing Plant at Ashish Industries which is identical to that of the plant hitherto used by the assessee. He has also verified the actual production capacity and found that it was much less than the production capacity assumed by the Assessing Officer. It is well known that the standard production capacity advertised by the plant manufactures would b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct against the partners and not against the firm (page 18 of the paper book) and the proceedings were dropped mainly on account of the fact that in a criminal case allegations have to be proved beyond reasonable doubt. In other words, the fact that glass of the meter fell inside and the payments of monthly electricity bills, as demanded by the MSEB, would indicate that the assessee impliedly admitted that meters did not work properly. Similarly, Chartered Engineer s Report cannot be relied upon since it was not based on the examination of the machine used by the assessee but merely based on the report of the partner that an identical machine was used by sister concern. Regarding the rate of GP adopted by the Assessing Officer, and later scaled down by the learned CIT(A), learned DR submitted that in a best judgment assessment the Assessing Officer had no other alternative except to take into consideration the GP declared by the assessee and even the CIT(A) has taken into consideration the GP recomputed by the assessee. Thus, in both events, the rate of GP taken into consideration is not an imaginary figure. He further submitted that the case law relied upon by the assessee are dist ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... towards possible use for one shift, load shedding etc.,) and thereafter it was further assumed that the machinery used by the assessee was of a higher quality on which assessee would have obtained 2.5 kg of wool per unit of electricity consumed and again assumed a specific sale value and the percentage of G.P. so as to ultimately arrive at the suppressed income. In our considered opinion the methodology followed by the Assessing Officer which was partly affirmed by the CIT(A) is frought with many fallacies. There is no evidence on record to show that the assessee s machinery was an imported machinery having 50 HP motor capacity. There is nothing on record to suggest that machine could be run with four persons for three shifts. Even going by the standard prescription in the brochure of the machine manufacturers, 3 workers are required to run the machine for one shift and the Income Tax Inspector having reported to the Assessing Officer that only 4 workers were employed at assessee s factory, it is strange to notice that the Assessing Officer proceeded on the assumption that the factory would have worked for 3 shifts (after considering over all discount factor on various counts). Th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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