Income Tax Appellate Tribunal - Ahmedabad
I.P. Patel & Co.,, Surat vs Assessee
IN THE INCOME TAX APPELLATE TRIBUNAL
AHMEDABAD BENCH "D" AHMEDABAD
Before Shri Mahavir Singh, Judicial Member, and
Shri D. C. Agrawal, Accountant Member
ITA No.1958/ Ahd/2010
Assessment Year:2006-07
Date of hearing:1.10.10 Drafted:4.10.10
M/s. I.P. Patel & Co. V/s. Addl. Commissioner of
404, Super Diamond Income-tax, Circle-9,
Market, Kapodara, Surat
Surat,
PAN No. AAAF165 01Q
(Appellant) .. (Respondent)
Appellant b y :- Shri Hardik Vora, AR
Respondent by:- Shri A.K. Tiwari, SR-DR
ORDER
PER Mahavir Singh, Judicial Member:-
This appeal by the assessee is arising out of the order of Commissioner of Income-tax (Appeals)-V, Surat in appeal No.CAS-V/259/08-09 dated 09-03-2010. The assessment was framed by ACIT, Range-9, Surat u/s 143(3) of the Income-tax Act, 1961 (hereinafter referred to as 'the Act') vide his order dated 31-12-2008 for assessment year 2006-07.
2. The only issue in this appeal of assessee is against the order of CIT(A) in confirming the disallowance made by Assessing Officer on account of electricity expenses at Rs.7,63,792/-. For this, assessee has raised the following ground No.1:-
"1. On the facts and in the circumstances of the case as well as on the subject, the learned Commissioner of Income-tax (Appeals) has erred in confirming the action of the assessing officer in making disallowance of Rs.7,63,792/- on account of electricity expenses."ITA No.1958/Ahd/2010 A.Y. 2006-07
M/s. I.P. Patel & Co. v. ACIT, Cir-9, SRT Page 2
3. We have heard the rival contentions and gone through the facts and circumstances of the case. We find that assessee is engaged in the business of import, export and manufacturing of diamond. The assessee's turnover declared during the course of year under consideration was at Rs.87.03 crores out of which direct sale of rough diamond at Rs.60.91 crores. Further during the course of assessment proceedings, Assessing Officer noted that assessee has claimed electricity expenses at Rs.15,25,945/- as against the previous year's claim of Rs.14,32,431/- and he compared the consumption of electricity with consumption of rough diamond of manufacturing and noted that the consumption of rough diamond for manufacturing is reduced by 74% and correspondingly the consumption of electricity has increased at 6%. Accordingly AO made disallowance of 50% of electricity expenses as not justified. Aggrieved, assessee preferred appeal before CIT(A). The CIT(A) confirmed the disallowance by giving following finding in para-4 of his appellate order:-
"4. I have perused the findings of the AO and the submissions made by the appellant. The AO in his reasoned order has come to a finding that consumption of electricity is not commensurate with the volume of manufacturing activities. The AO has observed that expenses towards electricity consumption has increased by 6% whereas manufacturing activity of rough diamond has decreased by 74%. This has been further supported by the fact that during the year the assessee carried out manufacturing activity in respect of 54151 carrots of diamonds as against 201165 carrots of rough diamonds manufactured during the preceding year. The AO further observed that central AC system was not a new addition during year in respect of which the assessee is claiming increased expenses on electricity. As a matter of fact, in the written submission, the Authorized Representative has admitted that the same centralized AC system was used in the office premises in the earlier year. Therefore, it was incumbent upon the assessee to explain and justify the expenses on electricity consumption by co-relating it with the manufacturing operations. Other things remaining same, there is a direct co- relation between the consumption of electricity and quantum of manufacturing activity. The assessee has failed to explain the consumption of electricity9 by providing any supporting evidence. Merely by stating that consumption of rough diamonds has a meager impact on the overall electricity expenses does not explain the issue at stake. When the centralized AC was is in use both the years, it was incumbent upon the assessee to explain the co-relation between the consumption of rough diamonds with electricity expenses. In view of this, I do not find any infirmity in the order of the AO. The AO has taken a very reasonable sand in treating 50% of the electricity expenses excessive and not justified. The disallowance of Rs.7,63,792/- is, therefore, confirmed."
Aggrieved, assessee came in second appeal before us.
ITA No.1958/Ahd/2010 A.Y. 2006-07M/s. I.P. Patel & Co. v. ACIT, Cir-9, SRT Page 3
4. We have heard the rival contentions and gone through the facts and circumstances of the case. We find that assessee's claim in this year regarding consumption of electricity increased is on account of centralized AC system used in the office premises of the assessee and increase in electricity from Rs.14,32,431/- in the previous year to Rs.15,25,945/- is on account of use of centralized AC system during the year. The assessee claimed before us that the electricity expenses claimed at Rs.15,25,945/-include the expense of electricity incurred for office premises also. We find that there is slight increase to the extent of Rs.1,13,514/-, even if we go by the decrease in consumption of rough diamond to 74% and there is increase in electricity expenses and the entire disallowance of 50% cannot be made. We are of the view that a reasonable disallowance will meet the ends of justice, which we assume at Rs.2 lakh and we direct the Assessing Officer to re-compute the disallowance at Rs.2 lakh and accordingly assess the income.
5. In the result, assessee's appeal is partly allowed as indicated above.
Order pronounced in Open Court on 01/10/2010
Sd/- Sd/-
(D.C.Agrawal) (Mahavir Singh)
(Accountant Member) (Judicial Member)
Ahmedabad,
Dated : 01/10/2010
*Dkp
Copy of the Order forwarded to:-
1. The Assessee.
2. The Revenue.
3. The CIT(Appeals)-V, Surat
4. The CIT concerns.
5. The DR, ITAT, Ahmedabad
6. Guard File.
BY ORDER,
/True copy/
Deputy/Asstt.Registrar
ITAT, Ahmedabad