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January 20, 2023

Rejecting books of accounts based on excessive electricity use is acceptable

by CA Shivam Jaiswal in Income Tax

Rejecting books of accounts based on excessive electricity use is acceptable

Fact and issue of the case

The Assessee before this Court had established a factory for manufacturing of Flour, Maida and Sooji. The matter relates to Assessment Year 2007-08 for the period 01.01.2008 to 31.03.2008, and Assessment Year 2008-09. The Assessee had disclosed total purchase of Rs.99,80,498/- and sale of Rs.1,20,78,303/- for the period 01.01.2008 to 31.03.2008. During the assessment period of 2007-08, a show cause notice was issued to the Assessee and the same was replied on 28.04.2010. The Assessing Authority rejected the books of accounts vide order dated 15.06.2010 and enhanced the turn over on the ground of excessive consumption of electricity. Aggrieved by the order, a first appeal was preferred before the Additional Commissioner, Grade-II (Appeals), Commercial Tax, Gorakhpur. The appeal was allowed vide order dated 15.11.2010 and the quantum of tax was reduced. Against the order dated 15.11.2010, the Department filed Second Appeal No.38 of 2011. The Tribunal allowed the appeal of the Department while rejected the appeal of the Assessee. During the assessment proceedings for the year 2008-09, the Assessing Authority found that there was consumption of 26.351 units of electricity for production of 1 quintal of flour against the disclosed consumption of 8.840 unit of electricity by the Assessee. The first Appellate Authority reduced the tax liability imposed by the Assessing Authority in the first appeal relying upon the consumption of electricity for the earlier year 2007-08 at 20.887 units per quintal. Against the order of first Appellate Authority, one appeal was filed by the Assessee being Second Appeal No.104 of 2011 and the other appeal filed by the Revenue being Second Appeal No.47 of 2011. Hence the present revisions.

Both the revisions are being heard together with the consent of counsel for the parties and are being decided by the common order.

According to learned Standing Counsel, the Assessing Authority as well as Tribunal after recording a finding that for the period 01.04.2007 to 31.12.2007, the consumption per quintal for grinding wheat was 8.840 units while for the period 01.01.2008 to 31.03.2008 was 20.887 units which is more than double and it cannot be believed that such high electricity consumption was because of the Air Conditioners working at the residential quarters of the officials.

Observation of the court

Reliance placed by the Assessee counsel on the report of M/s Flour Mill Engineers and Consultants dated 20.06.2010 before the first Appellate Authority wherein it was stated that an inspection of the factory was done on 10.06.2010 and it was found that machinery was old and there was fault in the electricity being supplied to the factory. This report is of the year 2010 filed before the first Appellate Authority and that too by a private person. The report cannot be taken into account as the relevant period is 01.01.2008 to 31.03.2008. Subsequent report after two and a half years cannot be taken into account and the findings recorded by the first Appellate Authority relying upon said report was rightly negated by the Tribunal.

Thus, in the light of the constant view of this Court and Hon’ble Apex Court, it is apparent that the Assessing Authority had rightly rejected the books of accounts on the basis of high consumption of electricity after dealing with each aspect of the case and recording a categorical finding as to the production of flour made from the wheat during the relevant period of assessment year in question. The earlier Division Bench and coordinate Bench of this Court had only held that rejection of books of accounts cannot be done on the basis of high consumption when there was no material on record. However, in the present case, the Assessing Authority has demonstrated how the electricity was consumed by the Assessee during the period 01.04.2007 to 31.12.2007 and 01.01.2008 to 31.03.2008 when the production did not increase but only the consumption was high.

In M/s Melton India, Gautambudh Nagar (supra), the Apex Court had held that where the production does not increase with the high consumption of electricity, inference is drawn as to the evasion of sales tax by the Assessee by not disclosing the sale.

Considering the facts and circumstances of the case, I find that no ground for interference is made out in the order of Tribunal. Both the revisions lack merits and are hereby dismissed.

The question of law stands answered in favour of the Revenue and against the Assessee.

Read the full order from here

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Conclusion

The tribunal has ruled in favour of the assessee and dismiss the appeal

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