THE issues before the Bench are - Whether additions are
warranted when there is a substantial increase in consumption of electricity but
without corresponding increase in production and also no mention of
work-in-progress in books; Whether merely providing an explanation that
Electricity Board would issue bills for minimum contracted units, whether they
were consumed or not, can constitute sufficient evidence for showing the
discrepancy between the power consumption and actual production and Whether the
books of accounts can be rejected when in addition to the huge discrepancy
between the productivity compared with the electricity consumption, the assessee
has also not recorded the work in progress in its books of accounts. And the
verdict goes against the assessee.
The assessee is
engaged in the production of groundnut oil, groundnut refined oil as well as
small quantity of cotton seed oil. The assessee itself filed details giving
month-wise production of oil and month-wise consumption of power. The
consumption of power was directly linked with the production. Consumption of
power was recorded and charged by the Electricity Board/power supplying company.
The AO observed that consumption of power increased substantially with very
marginal increase in the production of the oils. The AO recorded in his order
that the details filed by the assessee gave a clear indication that the
production recorded by the assessee in its books of account was completely
inconsistent with the pattern of power consumed. The AO rejected the books of
accounts and made various additions, in particular, on the premise of low output
as compared to the electricity consumption and made matching additions. In the
absence of any satisfactory explanation, the AO on the basis of average
production observed that a reasonable basis for working out the suppressed
production was on the basis of units of power consumed in remaining months of
the year and therefore, calculated the same. On this amount so calculated the AO
applied 2.46% as gross profit and made the necessary additions. On appeal, the
CIT (A) allowed the assessee's appeal and deleted the additions.
On
further appeal by the Revenue before the Tribunal, the Tribunal accepted the
stand taken by the AO. However, the High Court remanded the matter before the
Tribunal observing that the Tribunal had not given independent reasons why the
CIT (A) was not justified in estimation of gross profit. In the second round of
hearing, the Tribunal directed the AO to apply 2% of gross profits instead of
2.46% on the suppressed amount so calculated. The Tribunal also gave a detailed
reasoning and calculation for arriving at such 2%. Further the Tribunal observed
that assessee had not recorded work-in-progress in the books of account and it
was not possible to have nil work-in-progress in oil producing mills. The
Tribunal held that it was convinced that the assessee had not recorded
procurement and processing of raw materials as also production and sale of oil
truly and correctly in its books of account and therefore the books of account
maintained by the assessee cannot be said to be correct and completed to that
extent.
On appeal, the High Court
held that,
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average production from using of power consumption widely fluctuated from month
to month. The explanation rendered by the assessee was not accepted. It was,
therefore, that the Tribunal agreed to reject the book results. Significantly,
the Tribunal noted that in addition to such fluctuation in the output ratio, the
assessee also did not record the work in progress in its books of accounts. It
is because of this that the CIT (Appeals) who substantially allowed the
assessee's appeal, was still persuaded to make addition of Rs. 5.72 lakh on this
score. The Tribunal has, therefore, in our opinion, rightly recorded that the
CIT (Appeals) thus effectively and essentially rejected the books of accounts of
the assessee. From the above, it can be seen that not only Assessing Officer but
CIT (Appeals) and Tribunal also found that the books of accounts of the assessee
could not be accepted. In addition to wide fluctuation in the productivity
compared to the electricity consumption, significant factor was that the
assessee had not recorded the work-in-progress in the books of
accounts;
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this was, therefore, not a case where book results were rejected merely on
unusual electricity consumption rate, but on additional factors, including the
factor that for considerable fluctuation in the output ratio, the assessee's
explanation was not found acceptable. We have perused the explanation rendered
by the assessee which found favour with the CIT (Appeals). The principle
explanations were that the assessee was engaged in oil extraction from different
oil seeds and further that Gujarat Electricity Board would issue bills for
minimum contracted units, whether they were consumed or not. Except for merely
suggesting these factors, the assessee produced no further evidence. If the oil
output was vastly different for different oil seeds, which was the reason for
fluctuation in productivity, the assessee could have easily demonstrated from
the books of accounts and other literature. Merely suggesting that the Gujarat
Electricity Board would issue the bills for minimum contracted units without
full consumption, is merely stating the obvious. The assessee could have pointed
out from such bills that the amounts charged did not match full consumption. In
fact, the Tribunal's findings are based on the consumption of units of
electricity and not on the bills raised by the Gujarat Electricity Board on
fixed/committed charge basis;
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Coming to the question of estimation of gross profit, the Tribunal has given the
following reasons for adopting the rate of 2%. Here also the entire issue is
based on appreciation of material on record. The Tribunal having given its
consideration and having adopted the GP rate of 2% by giving its own reasons, we
do not find that any question of law, much less any substantial question of law
arises.
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