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Income Tax Appellate Tribunal, CHANDIGARH BENCH “A”,
Before: SMT. DIVA SINGH, JM & Dr. B.R.R. KUMAR , AM
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.
In the present appeal Revenue has raised the following grounds:
On the facts and in the circumstances, the Ld. CIT(A) has erred in deleting the addition of Rs. 45,20,667/- as unaccounted profit out of unaccounted production of finished products. 2. On the facts and in the circumstances, the Ld. CIT(A) has erred in deleting the addition of Rs. 88,36,165/- as unaccounted investment for unaccounted production of finished goods. 3. On the facts and in the circumstances, the Ld. CIT(A) has erred in providing deduction under section 80IC of the Income Tax Act on the disallowance of interest income received by the assessee which was not disclosed by the assessee in P&L Account.
Ground 1 & 2 are being taken up together.
The brief facts relating to the issues under consideration are
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.
Being aggrieved from the above order of the Assessing officer
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.
Ld. Counsel for the Assessee, relying upon the report of the
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.
This Tribunal vide its common order dated 14.2.2017, passed in
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.
In the instant case, the Ld. CIT(A) after examining in detail the
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.
After hearing both the parties and going through the issues
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).
In the result, appeal of the Revenue on this ground is
dismissed.
Ground No. 3 deals with the deduction of 80IC on the interest
received by the assessee.
Brief facts of the case are that the Assessing Officer observed
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.
Before us, the Ld. DR relied on the orders of the Assessing
Officer and Ld. AR relied on the CBDT Circular.
Since the decision of the Ld. CIT(A) is rightly based on the
directions issued vide the circular mentioned above, we hereby
decline to interfere with the order of the Ld. CIT(A).
In the result, appeal of the Revenue on this ground is dismissed.
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