Akil Kureshi, J.:— The assessee has filed this appeal challenging the judgment of the Income-tax Appellate Tribunal, Rajkot (hereinafter referred to as “the Tribunal”) dated July 31, 2013, raising the following questions for our consideration:
“(i) Whether, in the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was right in law in vacating the action of the Commissioner of Income-tax (Appeals) who had held that there were no defects in the books of account of the appellant, especially when the Tribunal had held there is no defect in the books of account in the appellant's own case for the assessment year 2004–05?
(ii) Whether, in the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was right in law in sustaining the addition of Rs. 1.49 crores (gross profit rate of 2 per cent.) out of the total addition of Rs. 2.53 crores (gross profit rate of 2.46 per cent.) which itself was erroneously made by the respondent on the basis of estimation?”
2. Briefly stated the facts are that for the assessment year 2005–06 in the case of the appellant-assessee, the Assessing Officer rejected the books of account and made various additions, in particular, on the premise of low output as compared to the electricity consumption and made matching additions. The assessee carried the matter in appeal. The Commissioner of Income-tax (Appeals) allowed the assessee's appeal on this score and deleted the addition. This time the Revenue carried the matter in appeal before the Tribunal. The Tribunal at one stage allowed the Revenue's appeal by an order dated October 16, 2009, and restored a part of the additions made by the Assessing Officer. The assessee thereupon filed Tax Appeal No. 2398 of 2009 before the High Court. The High Court remanded the matter before the Tribunal observing that the Tribunal had not given independent reasons why the Commissioner of Income-tax (Appeals) was not justified in estimation of the gross profit. In the second round of hearing, the Tribunal passed the impugned order and made an addition on the basis of gross profit rate of 2 per cent, as compared to 2.46 per cent, adopted by the Assessing Officer. It is this fresh order which has given rise to the present tax appeal.
3. The learned counsel, Shri Soparkar for the appellant-assessee, has strenuously taken us through the material on record and raised the following contentions:
(i) The Revenue's appeals, being Tax Appeals Nos. 269 and 270 of 2012, involving similar questions for earlier assessment years are admitted and pending before the court.
(ii) The Assessing Officer as well as the Tribunal committed a serious error in rejecting the book results only on the ground of irregular pattern of consumption of electricity. He relied on the following decisions in support of his contention:
(1) St. Teresa'S Oil Mills v. State Of Kerala reported in [1970] 76 ITR 365 (Ker);
(2) CTT v. Sulabh Marbles (P.) Ltd. reported in [2006] 205 CTR 464 (Raj);
(3) N. Raja Pullaiah v. Deputy CTO reported in [1969] 73 ITR 224 (AP).
(iii) The Tribunal has not given any reasons for adopting the gross profit rate of 2 per cent, though the High Court has provided specifically in the remand order.
4. Having heard the learned counsel for the assessee and having perused the material on record, we do not find that the appeal gives rise to any substantial question of law.
5. Tax Appeals Nos. 269 and 270 of 2012 filed by the Revenue pertain to the earlier assessment years and their admission per se would not convince us to admit this appeal as well. More importantly, the questions framed in such admission order pertain to the propriety of the Tribunal making deletions in the miscellaneous application. The learned counsel for the assessee, however, would contend that this reference to the miscellaneous application in the questions framed is erroneous and the issue arises in the order passed by the Tribunal, not in the miscellaneous application. Be that as it may, we have perused the questions and considering that the appeals pertain to another assessment year altogether, mere pendency of such appeal would not persuade us to admit the assessee's appeal. By very nature of the issue, the consideration of it would depend on the material on record. Consideration of such an issue, therefore, in each year will have to be separately done on the basis of evidence on record in each year.
6. Coming to the question of rejection of book results and additions sustained by the Tribunal, we notice that the Assessing Officer as well as the Tribunal noticed a rather irregular pattern of output by the assessee in comparison to the electricity consumption. If we record such facts which are not seriously in dispute from the order of the Tribunal, it emerges thus:
“20. Be that as it may, the matter now stands restored to the file of this Tribunal. We have, therefore, independently examined all the relevant aspects of the case in the light of the applicable law. The assessee-firm itself filed details giving month-wise production of oil and month-wise consumption of power. They have been extracted from the assessment order and reproduced earlier in this order. The assessee is engaged in the production of groundnut oil, groundnut refined oil as well as the small quantity of cotton seed oil. In the month of April, the assessee reported production of 4,91,003 kgs. of groundnut oil and 33,185 kgs of refined groundnut oil for which it reported consumption of 18,191 units of power which resulted in average production of 28.81 kg. of oil for each unit of power consumed. In the month of December, the assessee reported production of 4,43,569 kgs of groundnut oil, 74,537 kgs of refined groundnut oil and 27,885 kgs of cotton seed oil against consumption of 27725 units of power resulting in average production of 19.69 kg. of oil for each unit of power consumed as against the average production of 28.81 kgs. of oil against each unit of power consumed in the month of April. In the month of March, the assessee reported production of 20,441 kgs of groundnut oil, 35,353 kgs of groundnut refined oil and 2,82,871 kgs of cotton seed oil against 11999 units of power consumed resulting in the average production of 28.22 kgs. against each unit of power consumed. Similarly, production (in kg.) of oil against each unit of power consumed in the month of August worked out to 5.99 kgs. The figures as supplied by the assessee and reproduced in paragraph 3 of the assessment order give a clear indication that the production recorded by the assessee in its books of account is completely inconsistent with the pattern of power consumed. There can be some fluctuations in the consumption of power on day-to-day basis but such fluctuations have got to be within reasonable limits. Once the average for the whole month is taken as it has been taken by the assessee-firm itself, the day-to-day fluctuations or asymmetrical consumption of power at times are automatically taken care of. The consumption of power is directly linked with the production. Consumption of power is recorded and charged by the electricity board/power supplying company and, therefore, the assessee cannot change those figures of units which have actually been consumed. Figures of production, on the other hand, are recorded by the assessee itself in its books. All the machines used in industries are power rated which means that the running of oil mill and consequential production of oil depends to a large extent on rated consumption of power. Consumption of power is one of the most objective criteria to assess the running of the mill and consequential production. Subject to some adjustments, the units of power consumed give a fairly good idea about the running of the mill and consequential production achieved. At the time of hearing, the learned counsel for the assessee was specifically asked to spell out the reasons for such lower production of oil as reported by the assessee in certain months qua the power consumed. He, however, expressed his inability to do so. All the reasons given by the assessee before the learned Commissioner of Income-tax (Appeals) in this behalf do not satisfactorily explain the reasons for such lower production qua consumption of power in all the other months of year as compared to the month of April. There is thus no satisfactory explanation for lower production in several months of the year under appeal against power consumed. Another important aspect, which cannot be lost sight of, is the month-wise yield groundnut oil, groundnut refined oil and refined cotton seed oil. There is wide and abnormal fluctuation in the month-wise yield of groundnut oil, refined groundnut oil and cotton seed oil. There is no satisfactory explanation for such wide fluctuations. Yet another fact of significance, which has been highlighted by the learned Commissioner of Income-tax (Appeals) in his appellate order, is that the assessee has not recorded work-in-progress in the books of account which let the learned Commissioner of Income-tax (Appeals) himself to make addition of Rs. 9,57,432. We are in agreement with the observation of the Commissioner of Income-tax (Appeals) that it is not possible to have nil work-in-progress in oil producing mills. This shows that the purchases of raw materials, their processing and ultimate production have not been correctly shown by the assessee in its books of account. In the case of the such materials on record, we are convinced that the assessee has 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. Finding recorded by the learned Commissioner of Income-tax (Appeals) that there is no defect in the books of account is, therefore, unsustainable. Having held that the assessee has not recorded work-in-progress in its books and consequently made addition of Rs. 9,57,432 on that basis, it was not open to the Commissioner of Income-tax (Appeals) to hold that there were no defects in the books of account. The decision of the Commissioner of Income-tax (Appeals) in this behalf, therefore, deserves, on the facts of the case, to be vacated and is accordingly vacated.”
7. From the above, it can be seen that the 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 account. It is because of this that the Commissioner of Income-tax (Appeals) who substantially allowed the assessee's appeal, was still persuaded to make addition of Rs. 5.72 lakhs on this score.
8. The Tribunal has, therefore, in our opinion, rightly recorded that the Commissioner of Income-tax (Appeals) thus effectively and essentially rejected the books of account of the assessee. From the above, it can be seen that not only the Assessing Officer but the Commissioner of Income-tax (Appeals) and the Tribunal also found that the books of account 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 account.
9. 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 Commissioner of Income-tax (Appeals). The principal explanations were that the assessee was engaged in oil extraction from different oil seeds and further that the Gujarat Electricity Board would issue bills for minimum contracted units, whether they were consumed or not.
10. 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 account 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.
11. The decisions cited before us rest on slightly different facts. In the case of St. Teresa (supra), the Kerala High Court observed that in the case on hand, the only ground relied on by the authority for rejection of accounts was wide disparity in consumption of electricity.
12. In the case of N. Raja Pullaiah (supra), the Andhra Pradesh High Court once again on similar facts rejected the Revenue's stand.
13. In the case of Sulabh Marbles (P.) Ltd. (supra), the Rajasthan High Court upheld the finding of the Commissioner of Income-tax (Appeals) and the Tribunal that in the absence of any defect in the books of account, the same could not be rejected merely on the basis of quantum of electricity expenses holding that such observations were based on the relevant material on record and, therefore, no question of law arises. These observations are based on different facts and, therefore, distinguishable. Coming to the question of estimation of the gross profit, the Tribunal has given the following reasons for adopting the rate of 2 per cent.:
“23. The assessee-firm itself has reported the average production/yield of 28.81 kgs of oil against each unit of power consumed in the month of April, 2004. In the absence of any satisfactory explanation, the aforesaid fact provides a reasonable basis for working out the suppressed production on the basis of the units of power consumed in the remaining months of the year. Calculated in the aforesaid manner, the quantity of the suppressed production of oil in the year under appeal works out to about 31,84,708 kgs. of oil. According to the assessee-firm, the average selling price of oil was about Rs. 800 per 15 kg. in the year under appeal. Suppressed value of sale thus works out to about Rs. 16.98 crores. Even if the modest margin of 2 per cent, (being consumed) is applied on such suppressed sales, the resultant addition on account of suppressed profit alone would be about Rs. 2.40 crores. Then, further addition on account of initial investments in procurement of raw materials outside the books would also have to be considered. If all the aforesaid factors are taken into account, the resultant addition would be much more than what the Assessing Officer has made (i.e, Rs. 2,53,44,285) or what this Tribunal has earlier confirmed (i.e, about Rs. 1.49 crores). It may, however, be stated that the earlier order passed by this Tribunal by which the Assessing Officer was directed to apply the gross profit rate of 2 per cent, as against 2.46 per cent, applied by him was not challenged by the Revenue was satisfied with the earlier order passed by this Tribunal. In this view of the matter, we sustain addition, on the facts of the case, to the extent of Rs. 1.49 crores (as originally sustained by this Tribunal by applying the gross profit rate of 2 per cent.) out of the total addition of Rs. 2,53,44,285 made by the Assessing Officer (by applying the gross profit rate of 2.46 per cent.) towards the gross profit. The issue as restored by the Hon'ble High Court to this Tribunal is disposed of accordingly. For statistical purposes, both the appeals shall be treated, as they were originally treated, as partly allowed.”
14. Here also the entire issue is based on appreciation of material on record. The Tribunal having given its consideration and having adopted the gross profit rate of 2 per cent, by giving its own reasons, we do not find that any question of law, much less any substantial question of law arises.
15. Resultantly, the tax appeal is dismissed.
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