TMI Blog2021 (6) TMI 724X X X X Extracts X X X X X X X X Extracts X X X X ..... . Diva Singh, Judical Member And Smt. Annapurna Gupta, Accountant Member For the Assessee : Shri Deepak Aggarwal, Adv. For the Revenue : Shri Ashok Khanna, Addl.CIT 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 Act . 2. The solitary ground raised by the Revenue is as under: 1. Whether on the facts and in the circumstances of the case, the Ld. CIT(A) is correct in deleting the addition of ₹ 2,11,54,2887- made by the Assessing Officer on account 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 the issue stood covered in favour of the assessee vide the order of the ITAT in the case of ITO, Ward- 1 Vs. M/s Service Iron Steel Rolling Mills in ITA No.251 /Chd/ 2019 dated 28. 02.2020. Copy of the order was placed before us. The Ld. DR fairly agreed to the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at 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 consumed per ton of finished goods and on some days electric units consumed were very high whereas finished goods produced were low, giving very high value of electric units consumed per unit of finished goods. Further, there are certain days when there is high consumption of electricity, but no production of finished goods as has been reported as per the production records. He observed that the firm was involved in unaccounted production of finished goods which resulted 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 appellant for determination of the profit of the business for the reasons detailed in the assessment order. The A.O., thereafter, adopted the value of electricity consumed pint, on the basis of minimum average value for a period of 10 days assuming that within a period of 10 days various types of raw materials would have been used and other factors contributing to the variatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the assessee firm holding that variation in power consumption was within the window of 15% as fixed by 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 made the Ld. DR also gone through as also the order of the ITAT in the case of M/s Service Iron Steel Rolling Mills (supra). 5. The issue, we find, in the present appeal pertains 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 manufacturer of steel and one among many such industries in Mandi Gobindgarh which had been investigated with regards to alleged undisclosed production, based in part on the inconsistent consumption of electricity qua the unit production of finished goods. During the assessme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... production. The AO estimated the finished goods produced and thereafter estimated the unaccounted production for each month after deducting finished goods produced during the months as reflected in the books of account. Applying the average sales rate in so calculated unaccounted production, the AO estimated the unaccounted sales at ₹ 1, 85 ,56 ,408 /-. Adopting the gross rate shown by the assessee he thereafter worked out the unaccounted profit earned by the assessee from the unaccounted production at ₹ 25 , 97, 880 /- making addition of the same to the income of the assessee. 6. The matter was carried in appeal before the Ld. CIT(A), who noted the fact that a number of units with the similar manufacturing process as the assessee had been subjected to investigation and that detailed study had been conducted by a Committee constituted by the Principal Commissioner of Income Tax, Patiala, to determine the legitimate variation in the consumption vis- - vis the production of finished goods in rolling mills and induction furnaces of the area. The Ld.CIT(A) noted that the Committee was a broad- based multi member body with the Addl.CIT, Range Mandi Gobindgarh as its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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, electricity 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 consumption as compared to the goods of 23 micron as the length of 12 micron is more than the length of 23 micron. The weight 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, and therefore to manufacture 1 kg. goods of 12 micron the consumption of electricity is almost double than the consumption of electricity for manufacture of 1 kg. of 23 micron. The Hon'ble Apex did not accept the contention of the applicant and stated as under: Ordinarily, when electricity consumption goes up, a reasonable inference can be drawn that the production will also have gone up. If the electricity consumption is going up but the production is seen t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 011, as per the books of accounts 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 worked out the Power consumption of electric units per metric ton of finished goods produced over a period of 10 for the period 19.10.2011 to 29.10.2011 at 897.82 in Annexure-E is a matter of record of record and not in dispute. That the average production so arrived is near uniform and within the safe harbor of 15% is also matter of record 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 annexure E too, only five cycles of 10 days each go outside 15 % bench mark 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/ day 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. That 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the assessing officer 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 absence 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 have submitted that average SPC should be taken at average 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 un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bove, 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 number 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 unmetered power consumption is also a reality in this country while these arguments do merit attention in general; the impugned appeal has to be decided based on the precedents and facts. Keeping in view the entire set of discussion above it is my considered view that in the instant case the power variation cannot be taken as being in excess of 15% for any period. The appeal on this ground of appeal is allowed. 8. The Ld. DR has fairly admitted before us that identical issue has been considered by the ITAT in the case of M/s Service Iron Steel Rolling Mills (supra) and adjudicated in favour of the assessee. We have also gone through the aforesaid order of the ITAT and find that the issue in the Revenues appeal in that case also, before the ITAT was identical. The assessee in the said case was in the identical busin ..... X X X X Extracts X X X X X X X X Extracts X X X X
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