Bhoday Steel Rolling Mills Vs ITO (ITAT Chandigarh)
Summary: ITAT Chandigarh allowed the appeal of Bhoday Steel Rolling Mills for AY 2011-12 and deleted additions arising from rejection of books based on variation in electricity consumption. The assessee challenged, inter alia, rejection of its books and additions of Rs.9,75,098 towards gross profit on alleged unaccounted sales and Rs.72,42,835 towards investment in alleged unaccounted production. The assessee contended that the issue was already covered by the Coordinate Bench decision in Kripalu Strips Vs ITO, where rejection of books merely on suspicion of higher production inferred from electricity consumption had been decided in favour of the assessee.
The Tribunal noted that the Revenue itself accepted that the facts were identical to those considered in Kripalu Strips. It was also undisputed that the assessee’s repeated request to cross-examine persons and confront the information/report relied upon by the Department had not been addressed. The assessee relied upon the legal position considered in R.A. Castings Pvt. Ltd., as distinguished from Melton India, and argued that once rejection of books was unsustainable, the consequential additions could not survive.
The Tribunal followed the reasoning adopted in Kripalu Strips and the connected steel-industry cases. Those decisions had considered the report of a committee constituted by the Principal CIT, Patiala, assisted by experts from the National Institute of Secondary Steel Technology and industry representatives. The committee found appreciable variation in electricity consumption per metric ton of finished goods and adopted a 15% variation from yearly average consumption as an acceptable norm. The underlying reasoning was that electricity consumption can vary because of technology, raw material, finished-goods specifications and other production factors; therefore, variation in power consumption by itself could not justify rejection of books and estimation of suppressed production.
The Tribunal further referred to R.A. Castings Pvt. Ltd., where it was held that no universal and uniformly acceptable electricity-consumption standard could be adopted for determining liability on the basis of imaginary production without supporting records, evidence or documents. It also found that the Revenue had failed to confront the assessee with incriminating statements relied upon or make the concerned persons available for cross-examination despite repeated requests. Holding such action unsustainable in law, ITAT Chandigarh allowed the appeal and directed deletion of the additions sustained by the lower authorities.
Cases Discussed
- M/s Kripalu Strips Vs ITO (ITAT Chandigarh), ITA Nos. 818 & 879/CHD/2019, dated 11/11/2020 — Followed. The Tribunal held that the present case involved identical facts and followed the decision rejecting the Revenue’s attempt to discard books and estimate unaccounted production merely from electricity-consumption variation.
- ITO Vs M/s Baba Balak Nath Steels Pvt. Ltd. (ITAT Chandigarh), ITA No. 44/CHD/2019, dated 06/08/2019 — Relied upon in Kripalu Strips against rejection of books based upon differences in power consumption.
- ITO Vs M/s Hansco Iron & Steel P. Ltd. (ITAT Chandigarh), ITA No. 397/CHD/2017 — Relied upon on the same issue concerning estimation of production from electricity consumption.
- ITO Vs M/s Kailash Steel Rolling Mills (ITAT Chandigarh), ITA No. 398/CHD/2017, dated 03/10/2017 — Relied upon on rejection of books and estimation of production based on electricity consumption.
- ITO, Ward-1 Vs M/s Dhiman Steel Rolling Mills & Ors. (ITAT Chandigarh), ITA No. 392/CHD/2017 & connected matters, dated 28/04/2017 — Referred to as the group of cases dealing with the same electricity-consumption methodology.
- CIT Vs R.A. Castings Pvt. Ltd., 2011 (269) E.L.T. 337 — Relied upon for the proposition that no universal electricity-consumption standard can be adopted to presume unaccounted production without supporting records, evidence or documents.
- Melton India Vs CIT, Civil Appeal No. 372 of 2007 — Distinguished by the assessee; the Revenue did not dispute the legal position canvassed on the basis of the later decision in R.A. Castings Pvt. Ltd..
- ITO Vs Arora Alloys Ltd., Ludhiana (ITAT Chandigarh), ITA No. 78/CHD/2012 — Referred to regarding reliance on material obtained behind the assessee’s back without providing an opportunity of cross-examination.
- CIT Vs Rieta Biscuits Co. (P) Ltd. (Punjab & Haryana High Court), (2009) 309 ITR 154 — Relied upon in the extracted precedent on the principle of consistency where the same issue had been decided against the Revenue in another assessment year.
FULL TEXT OF THE ORDER OF ITAT CHANDIGARH
The present appeal has been filed by the assessee wherein the correctness of the order dated 17.12.2018 of CIT(A)-I Patiala pertaining to 2011-12 assessment year is assailed on the following grounds :
1. That the order of the ld. CIT(A) is against the facts of the case and is bad in law.
2. That on the facts & circumstances of the case,the Id.CIT(A) has erred in upholding the rejection of books of accounts solely on the basis of variation in electric consumption.
3. That on the facts & circumstances of the case.the Ld.CIT(A) has erred in drawing adverse inference from slightly higher variation in electric comsumption in two cycles only,than the arbitrarily considered benchmark of 15%.
4. That on the facts & circumstances of the case the Ld.CIT(A) has erred in confirming the addition of Rs.9,75,098/- on account of gross Profit on the alleged unaccounted sales and Rs.72,42,835/-on account of investment in alleged unaccounted production,though telescoped with last year investment.
5. That the appellant craves leave to add. amend or delete any of the grounds of appeal before the same is finally heard & disposed off.
2. The present appeal has come up for hearing in the background where the issues were stated by the ld. AR to be fully covered in favour of the assessee. For this claim, reliance had been placed upon the order of the ITAT dated 11.11.2020 in ITA 818/CHD/2019 and ITA 879/CHD/2019 M/s Kripalu Strips Vs ITO wherein the cross appeals of the Assessee and the Revenue were decided by the Co-ordinate Bench where similar issue came up for consideration. For the said purpose, the ld. AR had drawn specific attention to the issues as considered and decided by the ITAT wherein the assessee’s grievance on rejection of books of account addressed in page 2 para 2 was raised before the ITAT and was decided in its favour.
3. Accordingly, in the background of the said submissions when the appeal came up for hearing, ld. AR reiterating his earlier position drew attention to ground No. 2 addressed by the assessee in M/s Kripalu Strips Vs ITO ITA No. 818 & 879/CHD/2019 namely; “That on law, facts and circumstances of the case, the Worthy CIT(A) was not justified in confirming the action of ld. AO wherein he had rejected the books of account of the appellant merely on suspicion of higher production on the basis of electricity consumption.” The issue, it was submitted, was decided in assessee’s favour. Specific finding arrived at in page 14 para 7 was relied upon wherein reliance had been placed upon this Tribunal’s Coordinate Bench decision in ITO Vs M/s Baba Balak Nath Steels Pvt. Ltd. in ITA No. 44/CHD/2019 dated 06.08.2019 and various other decisions referred to in page 18 para 18 namely ITO Vs M/s Hansco Iron & Steel P Ltd. in ITA No. 397/CHD/2017 and ITO Vs M/s Kailash Steel Rolling Mills in ITA No. 398/CHD/2017 dated 03.10.2017, considering which the appeal of the Revenue was dismissed and the assessee’s appeal was allowed. Page 23 para 9 of the order of the ITAT was relied upon.
4. Apart from that, it had also been his submission that consistently the assessee has been asking for an opportunity to cross examine the persons on whom reliance has been placed by the department.
4.1 Specific reference was made to page 14-15 of the assessment order wherein the assessee’s submissions to the said extent has been extracted by the AO himself.
4.2 Attention was also invited to a similar prayer made before the CIT(A) and the submissions have been extracted in para 4.6 at page 7 and 8.
4.3 Arguments have been advanced that the decision of the Apex Court in the case of Melton India Vs CIT (Civil Appeal No. 372 of 2007) is not applicable to facts has also been argued before the CIT(A) and the argument is extracted at page 11. Various other decisions of the ITAT addressing similar issue had been referred to.
4.4 Reliance had also been placed on a latest decision of the Apex Court in the case of CIT Vs M/s R.A. Castings Pvt. Ltd. 2011 (269) E.L.T. 337 (All.) and in the decision cited at page 16 of the impugned order i.e. ITO V. Arora Alloys Ltd., Ludhiana in ITA No. 78/CHD/2012 of the CHD Bench) [17 ITR AT Section 133-424), reference has been made to similar legal position of relying on information sought at the back of the assessee without affording an opportunity to cross examine stands addressed. The action has been deprecated.
4.5 Accordingly, it was been his prayer that the issue is covered in his favour.
5. The ld. AR referring to these arguments made on the earlier date, drew attention to the fact that time was given to the ld. Sr.DR Ms. M. Vohra to go through the order of the ITAT dated 11.11.2020 in M/s Kripalu Strips Vs ITO ITA No. 818 & 879/CHD/2019 relied upon and considered the submissions.
6. Ms. Vohra on the next date on perusal of the record submitted that facts in the present case indeed remain identical as considered in M/s Kripalu Strips Vs ITO (supra). On the issue of information sought by the assessee to cross examine the information/Report etc. relied upon, she agreed it was not addressed. In the absence of any discussion thereon, she placed reliance on the respective orders of the ITAT. The position of law as canvassed in M/s Kripalu Strips Vs ITO (supra) and reliance on R.A. Castings Pvt. Ltd. decision of the Apex Court latest in point of time and found considered as opposed to the case of Melton India (supra) was not disputed.
7. The ld. AR in reply summed up the position of law as argued and relying on the same it was his submission that ground No. 2 following the proposition of law as considered by the ITAT in identical cases deserves to be allowed and in the circumstances, following the precedent the additions made which are addressed in ground Nos. 3 and 4 are not maintainable as after upholding the said ground, additions cannot be sustained.
8. I have heard the submissions and perused the material on record. In the facts of the present, it is seen that to the returned income of the assessee of Rs. 4,98,332/-, addition of Rs. 9,75,098/- was made on account of undisclosed production and investment in stock arrived at on the basis of variation in electricity consumption and calculations as considered in various identical cases. It is seen that similar issues have been considered by the ITAT in its latest order dated 11.11.2020 in ITA 818 & 879/CHD/2019 in the case of M/s Kripalu Strips Vs ITO (supra). It is seen that before the Co-ordinate Bench in similar set of facts and circumstances following ground No. 2 had been raised by the assessee:
“That on law, facts and circumstances of the case, the Worthy CIT(A) was not justified in confirming the action of ld. AO wherein he had rejected the books of account of the appellant merely on suspicion of higher production on the basis of electricity consumption.”
9. The issue has been considered by the Co-ordinate Bench in para 7 page 14 of its order. The detailed reasoning for the sake of completeness is extracted hereunder:
7. After giving thoughtful consideration to the above stated rival arguments, we find no merit in the Revenue’s stand that the Assessing Officer’s three folded action inter alia in rejecting the assessee’s books of account followed by gross profit element on alleged unaccounted production of Rs. 13,04,677/- as well as unaccounted investment in stock of Rs. 1,62,54,188.78. Case records indicate that this issue of rejection of books of account based on difference in power consumption of the relevant previous year turning act to be excessive than the so called tolerable limit of 15% is no more res-lntgra. This Tribunal’s coordinate bench decision ITO Vs M/s Baba Balak Nath Steels Pvt. Ltd. in ITA No. 44/Chd/2019 dated 06/08/2019 has rejected Revenue’s identical stand as follows:
