Deputy Commissioner Of Income Tax-Central Circle 2(1), Raipur,Chhattisgarh v. M/S Mahamaya Steel Industries Ltd., Mahamaya Tower, 3[Rd] & 4[Th] Floor,In Front Of Anupam Nagar, Near Varun Honda, G.e. Road, Raipur,Chhattisgarh

(Tax Case No.9/2021) 2025:CGHC:45164-DB Digitallysigned bySISTASISTASOMAYAJULUSOMAYAJULUDate:2025.09.0613:09:20HIGH COURT OF CHHATTISGARH AT BILASPUR+0530 NAFR TAXC No. 9 of 2021 {Arising out of order dated 7-11-2019 passed by the Income TaxAppellate Tribunal, Raipur Bench, Raipur in ITA No.233/RPR/2014} -(Assessment Year 201011) Deputy Commissioner of Income Tax-Central Circle 2(1), Raipur,Chhattisgarh. ... Appellant versus M/s Mahamaya Steel Industries Ltd., Mahamaya Tower, 3[rd] & 4[th] Floor,In front of Anupam Nagar, Near Varun Honda, G.E. Road, Raipur,Chhattisgarh. ... Respondent For Appellant /: Mr. Amit Chaudhari, Senior Standing Counsel forRevenuethe Income Tax Department through VideoConferencing and Mr. Vijay Chawla, Advocate. For Respondent /: Mr. Sumit Nema, Senior Advocate with Mr. AnandAssesseeDadariya, Advocate. -Division Bench: Hon'ble Shri Sanjay K. Agrawal and Hon'ble Shri Sanjay Kumar Jaiswal, JJ. Judgment on Board(04/09/2025) Sanjay K. Agrawal, J. 1. This appeal preferred under Section 260A of the Income Tax Act,1961 (for short, ‘the IT Act’) was admitted for hearing on 27-2-2023by formulating the following substantial question of law: -1961 (for short, ‘the IT Act’) was admitted for hearing on 27-2-2023by formulating the following substantial question of law: - (Tax Case No.9/2021) “Whether on the facts and in law, the Income Tax AppellateTribunal was justified in deleting the addition ofRs.16,61,91,372/- by the Assessing Officer on the ground thatthe assessee had suppressed its yield and had indulged inunaccounted production and sales?” 2. The aforesaid question of law arises on the following factual backdrop: - 3. The respondent herein/assessee is engaged in the manufacturing ofre-rolled products such as heavy steel structural, joist and girder.Search and seizure on the premises of the assessee was conductedon 21-6-2011, assessment was completed on 27-3-2014 and orderwas passed under Section 153A read with Section 143(3) of the ITAct for the assessment year 2010-11. The Assessing Officer hasmade an addition on account of unaccounted sales based on anestimated production yield of 89% in the assessee’s SMS Division.The Assessing Officer adopted an estimated yield ratio andproceeded to calculate alleged unaccounted production andconsequential sales, resulting in substantial additions over multipleyears. The Assessing Officer has made addition of ₹ 16,61,91,372/-by recording following finding:- “1.2Thus based on the evidences found during the searchand seizure action, following conclusions can be drawn: - (1) During the search and seizure action short stock offinished goods and raw material totaling to Rs. 79,18,418 wasfound. (2) The actual production shown by the assessee company ismuch less than the installed capacity and even the capacityutilization varies from year to year. (Tax Case No.9/2021) (3) There is no uniform/scientific methodology formeasurement of input of raw material. The burning lossesare reported based on estimation and not actual. (4) In the SMS division there is wide variation inconsumption of sponge iron vis a vis production of finishedgoods in different months of the year. (5) In the SMS division there is no co relation between theconsumption of raw material, electricity and finished goodswhereas, by and large the production process, the productionset up and the sources of raw materials supplies remain thesame. (6) In the SMS division of the company there is widevariation in the consumption of electricity vis a visproduction of finished goods, in different months (7) The figures of production and consumption of SMSdivision shown in the books of accounts of the assessee donot reflect its true state of affairs. (8) In the rolling mill division there is wide variation in theconsumption of electricity vis a vis production of finishedgoods in different months of a year. (5) In the SMS division there is no co relation between theconsumption of raw material, electricity and finished goodswhereas, by and large the production process, the productionset up and the sources of raw materials supplies remain thesame. (6) In the SMS division of the company there is widevariation in the consumption of electricity vis a visproduction of finished goods, in different months (7) The figures of production and consumption of SMSdivision shown in the books of accounts of the assessee donot reflect its true state of affairs. (8) In the rolling mill division there is wide variation in theconsumption of electricity vis a vis production of finishedgoods in different months of a year. (9) In the rolling mill division there is wide variation in theconsumption of furnace oil vis a vis production of finishedgoods in different months of a year. (10) In the rolling mill division there is wide variation in theconsumption of raw material vis a vis production of finishedgoods in different months of a year. (11) In the rolling mill division there is no co relation betweenthe consumption of raw material, electricity and furnace oilwith the finished goods whereas, by and large the productionprocess, the production set up and the sources of rawmaterials supplies remain the same. (12) The figures of production and consumption of rolling mildivision shown in the books of accounts of the assessee donot reflect its true state of affairs. (13) The input of raw material is not properly measured andburning loss reported are based on estimation. The entry ofburning loss in the books of account is based on theinformation given by the production department and the information available with the production department isbased on estimation. (14) The SMS division shows yield in the vicinity of 84%which is quite low as compared to the yield being shown byother manufactures of CG. Therefore, based on these evidences, the only logicalconclusion that can be drawn is that the books of account ofthe assessee company are unreliable as they do not reflect thetrue and correct affairs of its business activities and hencedeserved to be rejected.” 4. Feeling aggrieved and dissatisfied with the order of the Assessing Officer making addition under Section 153A of the IT Act, theassessee preferred an appeal before the Commissioner of IncomeTax (Appeals) and the CIT (Appeals) by order dated 17-7-2014allowed the appeal and set-aside the addition of unaccounted salesmade by the Assessing Officer. The CIT (Appeals) has summarisedthe allegations made by the AO in paragraph 7.13 of its order asunder: - “7.13 The findings of the A.O at Para 1.2 on Page no.14 of theassessment order are discussed hereunder:- (1) Regarding stock, as stated supra, the A.O. has not drawnany adverse inference as regards difference in inventory. (2) Regarding capacity utilization, the allegation of the A.Othat the actual production is much less than the installedcapacity has been negated by the appellant by placing onrecord actual production data i.e. quantitative informationwith reference to weighted installed capacity based on actualnumber of days during which the production process wasgoing on. On the matter of capacity utilization, I do find thatthe assumption of the A.O that the factory will remain inoperation for 365 days is quite hypothetical as the A.O. hascompletely ignored the fact that there would be weekly offs /holidays apart from national holidays and routinemaintenance. I am convinced with the explanation tenderedby the appellant regarding capacity utilization and in view thereof, I am of the considered opinion that the capacityutilization cannot be said to be lower as presumed by the A.O.on the basis of incorrect interpretation of facts. thereof, I am of the considered opinion that the capacityutilization cannot be said to be lower as presumed by the A.O.on the basis of incorrect interpretation of facts. (3) Regarding uniform methodology for measurement ofinputs, in my considered view, the same is not fatal and thatper se is not sufficient to reject the books of accounts and thisfact cannot be given undue significance in isolation whileignoring the yield, GP and NP rate declared by the appellantbased on audited account. This issue regarding “estimation” has been discussed in detail in the subsequent paras. (4) Regarding variation in consumption of sponge iron,power in the SMS Division, in my considered view, the samemay lay foundation for raising suspicion, however, at thesame time, it is settled principle of law that suspicion,howsoever grave it may be, cannot take place of the evidence.On an independent appreciation of reasons explained by theappellant for variation in yield i.e. for variation inconsumption of sponge iron and power in SMS Division, Ifind that the explanation of the appellant to be convincing,particularly, when the appellant has brought on recordcertificate from registered valuer which is placed in the paperbook at Page no.261 of Volume 8 of the Paper Book in thecase of Abhishek Steel Industries Limited which is also partof the Mahamaya Group of companies. The A.O. has not brought on record any evidence todisbelieve the certificate of registered valuer who is dulyapproved u/s 34AB of the Wealth Tax Act, 1957 vide orderdated 06.07.2011. As per the said certificate of the registeredvaluer, the average yield in SMS Division for manufacturingof Blooms and Billets using sponge iron as raw material mayvary from 80 to 86% and the power consumption forproduction of Blooms and Billets in SMS Division may varyfrom 800 to 1500 KW for production of each MT of Bloomsand Billets. The quantitative details of consumption ofsponge iron and power were found to be within thereasonable range as certified by the registered valuer.” 5. Questioning legality, validity and correctness of the order passed by the CIT (Appeals) deleting the addition made by the AO, theRevenue preferred an appeal before the ITAT and the learned ITATconcurred with the findings of the CIT (Appeals) and dismissed the (Tax Case No.9/2021) appeal by the impugned order resulting into filing of appeal beforethis Court. 6. Mr. Amit Chaudhari, learned Senior Standing Counsel for theIncome Tax Department i.e. the appellant herein/Revenueappearing through Video Conferencing, would submit that both theauthorities were absolutely unjustified in deleting the addition ofunaccounted sales based on an estimated production yield of 89%which is based on the evidence available on record as a result ofsearch and seizure conducted and the assessment order has rightlybeen passed under the provisions contained in Section 153A readwith Section 143(3) of the IT Act which could not have beenreversed by the CIT (Appeals) and could not have been affirmed bythe ITAT, therefore, the appeal be allowed. Income Tax Department i.e. the appellant herein/Revenueappearing through Video Conferencing, would submit that both theauthorities were absolutely unjustified in deleting the addition ofunaccounted sales based on an estimated production yield of 89%which is based on the evidence available on record as a result ofsearch and seizure conducted and the assessment order has rightlybeen passed under the provisions contained in Section 153A readwith Section 143(3) of the IT Act which could not have beenreversed by the CIT (Appeals) and could not have been affirmed bythe ITAT, therefore, the appeal be allowed. 7. Mr. Sumit Nema, learned Senior Counsel appearing on behalf ofthe respondent herein/assessee, would support the impugnedorders passed by the CIT (Appeals) and the ITAT and submit thatthe aforesaid findings recorded by the two authorities deleting theaddition of ₹ 16,61,91,372/- were made only on the basis ofsuspicion which was totally impermissible in law in light of thedecision of the Supreme Court in the matter of DhakeswariCotton Mills Limited v. Commissioner of Income Tax,West Bengal1. Therefore, the aforesaid findings are totallyfindings of fact and there is no demonstrable perversity or errorapparent on the face of record cited by the appellant/Revenuethe respondent herein/assessee, would support the impugnedorders passed by the CIT (Appeals) and the ITAT and submit thatthe aforesaid findings recorded by the two authorities deleting theaddition of ₹ 16,61,91,372/- were made only on the basis ofsuspicion which was totally impermissible in law in light of thedecision of the Supreme Court in the matter of DhakeswariCotton Mills Limited v. Commissioner of Income Tax,West Bengal1. Therefore, the aforesaid findings are totallyfindings of fact and there is no demonstrable perversity or errorapparent on the face of record cited by the appellant/Revenue (Tax Case No.9/2021) warranting interference by this Court. As such, the findings withregard to unaccounted sales based on estimated production yieldhave rightly been set-aside by the CIT (Appeals) which has rightlybeen affirmed by the ITAT and therefore the present appealdeserves to be dismissed. 8. We have heard learned counsel for the parties and considered theirrival submissions made herein-above and also went through therecord with utmost circumspection.rival submissions made herein-above and also went through therecord with utmost circumspection. 9. The Assessing Officer, for the reasons noticed herein-above, madean addition of ₹ 16,61,91,372/- on account of alleged unaccountedsales based on an estimated production yield of 89% in the SteelMelting Shop (SMS) Division of the assessee. However, for thereasons mentioned above, finding that the Assessing Officer hasproceeded on the basis of suspicion and conjectures, the CIT(Appeals) has set-aside that addition, which the ITAT hasconcurred with by holding as under: -an addition of ₹ 16,61,91,372/- on account of alleged unaccountedsales based on an estimated production yield of 89% in the SteelMelting Shop (SMS) Division of the assessee. However, for thereasons mentioned above, finding that the Assessing Officer hasproceeded on the basis of suspicion and conjectures, the CIT(Appeals) has set-aside that addition, which the ITAT hasconcurred with by holding as under: - “8.We have perused the case records and heard the rivalcontentions. We have also analyzed the judicialpronouncements placed before us. The facts on recordsclearly demonstrates that the Assessing Officer has failed tobring any cogent reasons/evidences for making addition inthe case of the assessee. He has arrived at variousmathematical calculations and has derived the yield at 89%.All these were done by the Assessing Officer without bringingon record any single document which indicates that theassessee has suppressed its yield or has indulged in anyunaccounted sales. It is also on record that though theAssessing Officer has estimated production at 89% in SMSdivision and had made various mathematical calculations atPages 7 to 11 of the assessment order regarding Rolling MillDivision, however, it is seen from the assessment order thatcontentions. We have also analyzed the judicialpronouncements placed before us. The facts on recordsclearly demonstrates that the Assessing Officer has failed tobring any cogent reasons/evidences for making addition inthe case of the assessee. He has arrived at variousmathematical calculations and has derived the yield at 89%.All these were done by the Assessing Officer without bringingon record any single document which indicates that theassessee has suppressed its yield or has indulged in anyunaccounted sales. It is also on record that though theAssessing Officer has estimated production at 89% in SMSdivision and had made various mathematical calculations atPages 7 to 11 of the assessment order regarding Rolling MillDivision, however, it is seen from the assessment order that the Assessing Officer has not drawn any adverse inference asregards Rolling Mill Division and nor did the AssessingOfficer find yield of Rolling Mill Division to be lower. TheAssessing Officer has not substantiated the relevance andsignificance of these mathematical calculations pertaining toRolling Mill Division. 8.1We further observe that the Ld. CIT(A) on his ownconducted specific enquiry in order to find out the percentageof yield declared by the other assessee engaged in similar lineof business. It is noted from such comparison that the yielddeclared by the different assessees in the same year is notuniform, conversely every assessee declared different yield.Not even a single comparable instance was found declaringyield of 89%. That further, action of the Assessing Officer inrejecting the books of accounts merely due to the reason thatthe yield achieved by the assessee is less than the yieldpercentage i.e. 89% which has not been achieved even byother assessees engaged in similar line of business. TheAssessing Officer has not brought on record the manner inwhich he has worked out yield of 89% in SMS Division. 9.In the case of M/s. Ramesh Steel Industries Vs.DCIT-1(1), Raipur, ITA No.48 of 2015, the Hon’bleChhattisgarh High Court has held and observed that “thepower of the Assessing Officer under Section 145(3) is notabsolute but was regulated and circumscribed by statutoryprovisions.” That further “power consumption in anindustry may vary for various reasons. Under Section145(3) of the Income Tax Act, the jurisdiction of theAssessing Officer arises if he was not satisfied about thecorrectness of the accounts of the assessee. However, theAssessing Officer should give specific reasons for rejectingbooks of accounts.” 9.In the case of M/s. Ramesh Steel Industries Vs.DCIT-1(1), Raipur, ITA No.48 of 2015, the Hon’bleChhattisgarh High Court has held and observed that “thepower of the Assessing Officer under Section 145(3) is notabsolute but was regulated and circumscribed by statutoryprovisions.” That further “power consumption in anindustry may vary for various reasons. Under Section145(3) of the Income Tax Act, the jurisdiction of theAssessing Officer arises if he was not satisfied about thecorrectness of the accounts of the assessee. However, theAssessing Officer should give specific reasons for rejectingbooks of accounts.” 10.In the instant case, the Assessing Officer calculatedyield of 89% and has also calculated consumption of powerand difference thereto pertaining to production and has heldthat the books of accounts are therefore not reliable andrejected the books of account while resorting to Section145(3) of the Act. As per the legal principles laid down by theHon’ble Chhattisgarh High Court (supra.) that this power isnot unfettered and it has to be used judicially by givingspecific reasons which in the instant case, the AssessingOfficer has not complied with. (Tax Case No.9/2021) 13.It is apparent from the record that the AssessingOfficer has not brought on record any evidence stating loweror suppression of sales by the assessee. He tried to supporthis case by showing deficiency in power consumption by theassessee. But the Hon’ble High Courts have held without anydirect corroborative evidences on low yield or suppressedsales, the disparity of power consumption cannot be the soleground or reason for making addition by the AssessingOfficer.” 10. However, at this stage, it would be appropriate to notice thedecision of the Supreme Court in Dhakeswari Cotton Mills Limited(supra) in which their Lordships of the ConstitutionBench of the Supreme Court dealing with the jurisdiction whilemaking order under Section 23(3) of the Income Tax Act, 1922 andalso considering the scope of power under Section 23(3) and limitsthereon, held that while making the assessment under sub-section(3) of Section 23 of the Act, the Income Tax Officer is not entitledto make a pure guess and make an assessment without reference toany evidence or any material at all, and observed as under:- “9.As regards the second contention, we are in entireagreement with the learned Solicitor General when he saysthat the Income Tax Officer is not fettered by technical rulesof evidence and pleadings, and that he is entitled to act onmaterial which may not be accepted as evidence in a court oflaw, but there the agreement ends; because it is equally clearthat in making the assessment under sub-section (3) ofSection 23 of the Act, the Income Tax Officer is not entitled tomake a pure guess and make an assessment withoutreference to any evidence or any material at all. There mustbe something more than bare suspicion to support theassessment under Section 23(3). The rule of law on thissubject has, in our opinion, been fairly and rightly stated bythe Lahore High Court in Gurmukh Singh v. CIT[2].” Page 10 of 11 (Tax Case No.9/2021) Page 10 of 11 (Tax Case No.9/2021) 11. Reverting to the facts of the present case in light of the principles oflaw relating to Section 145(3) of the IT Act and also considering theprinciples of law laid down by their Lordships of the SupremeCourt in Dhakeswari Cotton Mills Limited(supra), it is quitevivid that the CIT(Appeals) and the ITAT, both, after objectivelyanalysing the factual situation, found complete absence of anyadverse material against the assessee which can support theallegation of the AO towards unaccounted production presumed onthe basis of alleged low yield declared by the assessee. Thus, incomplete absence of any adverse material, both the authoritieshave concurrently reached to the conclusion that the additionmade by the AO is baseless and without any evidence, therefore,the rejection of books of accounts is invalid and addition made bythe AO on account of alleged suppression of yield is based uponmere guess work. It was further held by the two authorities thatthe yield declared by the assessee is neither low nor the booksmaintained by the assessee could be impeached by some tangibleevidence/material on record and therefore the ITAT has rightlyconfirmed the order of the CIT (Appeals) and proceeded to dismissthe appeal filed by the Revenue. In our considered opinion, theconcurrent finding recorded by the two authorities holding that theaddition made by the Assessing Officer for the assessment year2010-11 is baseless and without any evidence/material, is a pureand simple finding of fact based on the evidence available onrecord, which is neither perverse nor contrary to the record. (Tax Case No.9/2021) Accordingly, we proceed to dismiss the appeal and the substantial question of law is answered in favour of the assessee and againstthe Revenue. 12. In the result, the appeal stands dismissed leaving the parties to bear their own cost(s). Sd/- (Sanjay K. Agrawal)Judge Sd/- (Sanjay Kumar Jaiswal)Judge