Amin Badruddin Keshwani Vs CIT (ITAT Mumbai)
ITAT Mumbai held that reopening of assessment without valid reason or intangible material, merely on the basis of information from Electricity Authroity, is not sustainable in the eye of law.
Facts-
Assessee is engaged in manufacturing of steel wool. On the basis of information received from Electricity Authorities vide letter V&S/ENF/874 dated 18.03.2006 that the assessee had consumed 37.3 units of electricity per hour in his factory out of which steel wool making machine consumed 29.84 units electricity per hour i.e. 80% of the total consumption of 37.3 units per hour.
On the basis of information “reason for reopening” was recorded and proceedings u/s. 147/148 of the Act were initiated. Vide notice issued u/s. 142(1) of the Act necessary detail was called which the assessee has filed. Rejecting the contentions raised by the assessee in its submissions AO proceeded to estimate the turnover and profit ratio thereon to the tune of 8.11% on the ground that assessee’s total consumption of electricity for the year under assessment was 61147 units out of which 80% units is towards manufacturing process as per letter issued by electricity authorities (supra), which comes to 48,918 units. Taking the production @ 2.5 Kg per unit of electricity consumption is 122295 Kg, sales @ 55 per Kg works out to Rs.67,26,225/-. AO thereby applied the profit ratio of 8.11% which comes to Rs.5,45,497/- as against the net profit shown by the assessee at Rs.1,46,242/- and thereby the AO made the addition of Rs.3,99,255/- to the total income of the assessee.
CIT(A) dismissed the appeal. Being aggrieved, the present appeal is filed.
Conclusion-
Held that the AO was not having any valid reason to reopen the assessment nor any intangible material was there, further estimating the income by merely calculating the production of the assessee on the basis of guess work is not sustainable on merits also. Because assessee’s contentions which are sustainable that a locally assembled machine, which the assessee has been using consumes more electricity than the branded one. The AO has also not made any comparison with the assessee’s own productions in the earlier years to arrive at the logical conclusion. Even in earlier years for A.Y. 2002-03, 2003-04 and 2005-06 the Ld. CIT(A) himself quashed the reopening which were made on the basis of information received from Maharashtra State Electricity Board that the assessee is involved in theft of electricity.
In view of what has been discussed above, very initiation of reopening in this case is not sustainable in the eyes of law, hence same is quashed and the addition made by the AO is also not sustainable on merits, hence ordered to be deleted.
