DCIT, CIRCLE, PARWANOO vs. M/S JAI JAWALA STEELS PVT. LTD., SANSIWALA

आदेश/Order PER DR. B.R.R. KUMAR, A.M.:

The present appeal has been filed by the Revenue against the order of

the Ld. CIT(A), Shimla, H.P. dt. 20/02/2018.

that the assessee company is a steel Re-Rolling Mill engaged in

manufacturing of iron and Steel Products viz Structural Steel like

angles, channels, flats, joists, beams etc. During the assessment

proceedings, the Assessing officer asked the assessee to furnish

details of daily production of finished goods as well as the details of

the manufacturing process involved. The Assessing officer further

observed that the amount of electricity consumed was directly

related to the production of finished goods. In order to co-relate the

consumption of electricity vis-à-vis production shown, the Assessing

officer gathered information regarding the consumption of

electricity from the Electricity Board. The Assessing officer analyzed

the consumption data of electricity vis-a vis the production of

finished goods and observed that there were wide variation in ratio

of electricity units consumed to per metric tons of finished goods

produced during the year. He observed that the electricity

consumption pmt of finished goods varies from in a range as per the

chart submitted before the Assessing Officer as well as the CIT(A).

He further observed that on some days, electric units consumed

were very low whereas finished goods produced were very high

giving a very low value of electric units consumed to per ton of

finished goods, whereas on some other days, electric units

consumed were very high whereas the finished goods produced

were very less giving a very high value of electric units consumed

per metric unit of finished goods. He further observed that even on

some days though there was electricity consumption yet no

production was shown. He further noted that otherwise on other

days, there was also a balance and consistency in consumption of

electric units vis-a-vis production of finished goods. He, therefore,

observed that it indicated that the daily production recorded by the

assessee of the finished goods was not correct and, hence, not

reliable. He observed that the data relating to the daily production

had been maintained as per actual production. When confronted in

this respect, the assessee explained that the consumption of

electricity was dependent on various factors as detailed in his reply

which has been reproduced by the Assessing officer in the

assessment order. The Assessing officer, however, was not satisfied

with the above reply of the assessee. He ultimately held that the

assessee company was involved in unaccounted production of

finished goods which resulted in unaccounted sales and purchases.

He, therefore, held that the sale and purchase figures in the books

of account of the assessee were not correct and he accordingly

rejected the books of account of the assessee by invoking the

provisions of section 145(3) of the Income-tax Act, 1961 (in short 'the

Act') and proceeded to frame the assessment in the manner as

provided u/s 144 of the Act. He thereafter estimated the income of

the assessee on the basis of electric units consumed for 12 months as

per chart reproduced in the assessment order. He compared the

same with that shown in the books of account of the assessee and

estimated the unaccounted production for each month. Thereafter,

on the basis of average sales rate, the value of total unaccounted

production was estimated in monetary terms and then adopting the

gross profit rate shown by the assessee, the unaccounted profit out

of the unaccounted production was worked out. Secondly, the peak

unaccounted production for the relevant month was determined

and by multiplying the average sale rate of finished goods, the

unaccounted investment was worked out. The Assessing officer in

this way worked out the total unaccounted investment of the

assessee in the unaccounted production at Rs.88,36,165/- and Rs.

45,20,667/- being unaccounted profit out of unaccounted

production and added back the same to the total income of the

assessee.

the assessee preferred appeal before the CIT(A). The Ld. CIT(A)

deleted the addition based on the developments took place

subsequent to the passing of the above stated impugned

assessment order, a detailed study was carried out by a Committee

headed by the Additional Commissioner of Income Tax, Range,

Mandi, Gobindgarh having all the Assessing officers of the Range as

its members. The committee was assisted by the experts from the

NISST (National Institute of the Secondary Steel Technology) and also

the industry representatives. On the basis of the report of the

committee, it was decided that if the variation in the consumption

of the electricity is within the range of 15% of the yearly average

consumption of power, the book results should be accepted.

Committee constituted by the Principal Commissioner of Income Tax,

Patiala argued that he was covered on the issue of production as

decided by the Committee. The assessee was entitled to benefit of

15% variation in consumption of electricity per metric ton of finished

goods produced from the average worked out on yearly basis and

the variation up to 15% would not warrant any adverse cognizance.

the case of M/s Modi Oil & General Mill, Mandi Gobindgrh and

Others in ITA No. 149/Chd/2016 and in ITA No. 662/Chd/2016in the

case of M/s.Unipearl Alloys, observing that consequent to the report

of the Committee constituted by the Principal Commissioner of

Income Tax, Patiala certain internal guidelines regarding

acceptability of variation upto 15% have been issued and further

that no additions have been made on similar issue in subsequent

years by the Assessing officer, has remanded the matter to the

Assessing officer with a direction to decide the issue afresh in

accordance with law in the light of the internal guidelines issued by

the Principal Commissioner of Income Tax, Patiala.

table after considering variation of 7.5% for different months,

examined the finished goods produced, calculating the difference

in production in MT and also the difference in production in

percentage categorically held that the assessee falls within the

accepted range of variation and therefore no interference with the

book result is warranted. It was also held by the Ld. CIT(A) that since

the ground relating to unaccounted production stands allowed the

consequential addition made under unexplained investment would

also be deemed to have been allowed.

involved in the case, considering the facts and circumstances and

since the facts and issues involved in all the other captioned

appeals are identical, and in view of our similar findings given by

this Tribunal we hereby decline to interfere with the order of the Ld.

CIT(A).

dismissed.

received by the assessee.

that the assessee has received interest of Rs. 508862/- which has

been set off against interest expenses and P&L Account. This amount

pertains to the interest of Rs. 377740/- earned from the HPSEB on the

security deposit given, and interest earned on FDRs kept with SBI

against the bank guarantee and also the interest on the FDR kept

with sales tax department. The Ld. CIT(A) confirmed the

disallowance made by the Assessing Officer. The resultant being

increased in the profits of the Company. The Ld. CIT(A) allowed the

deduction under section 80IC of the Act based on the increased

profits and relied on the CBDT Circular No. 37 2016 dt. 02/11/2016

wherein it was directed that the deduction under Chapter VI are

admissible on the profits enhanced by any disallowances.

Officer and Ld. AR relied on the CBDT Circular.

directions issued vide the circular mentioned above, we hereby

decline to interfere with the order of the Ld. CIT(A).

Order pronounced in the open Court. Sd/- Sd/- �दवा �संह डा. बी.आर.आर. कुमार, (DIVA SINGH) (Dr. B.R.R. KUMAR) �या�यक सद�य/ Judicial Member लेखा सद�य/ Accountant Member AG Date: 29/10/2018

आदेश क� ��त�ल�प अ�े�षत/ Copy of the order forwarded to : 1. अपीलाथ�/ The Appellant 2. ��यथ�/ The Respondent 3. आयकर आयु�त/ CIT 4. आयकर आयु�त (अपील)/ The CIT(A) 5. �वभागीय ��त�न�ध, आयकर अपील�य आ�धकरण, च�डीगढ़/ DR, ITAT, CHANDIGARH 6. गाड� फाईल/ Guard File