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Higher electricity consumption & Validity of addition done by estimating suppressed production: An Interesting case before Pune ITAT
ACIT Vs Gajalaxmi Steel Pvt Ltd
ITA No. 2519/Pun/2017
Assessee is a company engaged in the business of manufacturing of MS Billets.
The said MS Billets are mainly used by Re-Rolling Mills for manufacturing of MS Bars. The main raw materials are sponge iron and MS Scrap.
During the course of hearing, the assessee was asked to furnish the details of raw materials consumption, finished goods, consumption of electricity and unit consumption per MT with its month-wise details, in response to which the assessee furnished the details.
After verification of the said production details the AO worked out the average month-wise sale and purchase and also month-wise consumption of raw material and electricity.
He analyzed the facts and figures from the month-wise of electricity consumption and opined the electricity consumption was lowest in the month of February, 2013 at 1141 Units PMT and it was highest in the month of April, 2012 at 1368 Units PMT.
The AO asked the assessee to show cause as to why the basis of production should not be adopted at 1026 Units PMT as adopted by the Directorate General of Central Excise Intelligence (DGCEI).
In response the assessee contended that the electricity consumption varies only due to some special circumstances.
The variation may be due to various factors in the manufacturing process and the quality of raw material available with the assessee and the variation may be due to that the assessee consumed raw material as old scrap lying with it for year or so, which consumed electricity units at large and the electricity is consumed in large proportions.
The said submissions were found not acceptable to the AO and accordingly, excess consumption of electricity was made basis for estimating the gross profit and net suppressed production to an extent of Rs. 7,65,23,877/- was added to the total income of the assessee.
On appeal, such findings were quashed by the CIT(A).
On appeal, the issue before Tribunal was whether additions framed on the basis of excess electricity consumption, which is then made basis for estimating gross profit & net suppressed production, can be sustained.
ITAT held it in favour of Assessee by saying No. It observed as under:
in assessee’s own case as relied by the AR at Page No. 3 of the paper book we note that this Tribunal in Revenue’s appeal held the order of CIT(A) is fair and reasonable on the issue where the AO proceeded to estimate the net profit on alleged suppressed production. It was held that “…”5. ………. Since the facts were identical to that of the case decided by the Tribunal, therefore, following the decision of the Coordinate Bench of the Tribunal in the case of Bhagyalaxmi Steel Alloys Pvt. Ltd. ITA Nos. 1292/PN/2012 and in absence of any contrary material brought to its notice, the grounds raised by the Revenue were dismissed by the ITAT, Pune and the addition sustained by the CIT(A) was also deleted.
Accordingly the appeal of the Revenue was dismissed. Reverting back to the present case, the Assessing Officer had made the addition of Rs. 4,38,86,292/- on the basis of wrong presumption/assumptions. I find it quite baffling that the A.O. had levelled the allegation of unrecorded sales against the appellant company on the basis of some mathematical exercise without any corroborative evidence on record. This allegation of the A.O. has remained unsubstantiated and it is nothing more than a sweeping statement.
The production of the assessee company is liable to Central Excise Duty and hence, the assessee has also maintained records and register as prescribed under Central Excise Act. Considering the judicial ratios, it is clear that no addition can be made merely on basis of electricity consumption formula.
This view is also supported by the decisions of various Tribunals such as Janta Tiles vs ACIT (66 TTJ 695) (Jurisdictional Pune Bench); DCIT Kolapur vs J. D. Thote Dairies (Jurisdictional Pune Bench in ITA No 115/PN/2000 decision dated 31/05/2011); Roop Niketan vs ACIT (90 TTJ 1097) (Mumbai Bench) and ITO vs Gurubachansingh Juneja (55 ITD 75).
Respectfully following the above decisions and the facts & circumstances of the present case, I direct the AO to delete the addition of Rs. 4,38,86,292/- made by him. This ground of appeal is accordingly allowed…”; hence the addition made on account of suppressed production on the basis of electricity consumption is liable to be deleted.
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