Dy. Commissioner Of Income Tax-2(1), 1[St] Floor, Civil Lines, Raipur,Chhattisgarh v. Mahamaya Steel Industries Ltd., B-8 & B

(Tax Case No.9/2022) 2025:CGHC:45165-DB Digitallysigned bySISTASISTASOMAYAJULUSOMAYAJULUDate:2025.09.0613:09:59HIGH COURT OF CHHATTISGARH AT BILASPUR+0530 NAFR TAXC No. 9 of 2022 {Arising out of order dated 22-10-2021 passed by the Income TaxAppellate Tribunal, Raipur Bench, Raipur in ITA No.5/RPR/2020} -(Assessment Year 201617) Dy. Commissioner of Income Tax-2(1), 1[st] Floor, Civil Lines, Raipur,Chhattisgarh. ... Appellant versus Mahamaya Steel Industries Ltd., B-8 & B-9, Sector-C, Urla IndustriesArea, Sarora, Raipur, District Raipur, Chhattisgarh. ... Respondent -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 29-8-2023by formulating the following substantial question of law: -1961 (for short, ‘the IT Act’) was admitted for hearing on 29-8-2023by formulating the following substantial question of law: - “Whether on the facts and in law, the Income Tax AppellateTribunal was justified in deleting the addition of Rs.15,94,08,394- by the Assessing Officer on the ground that theassessee had suppressed its yield and had indulged inunaccounted production and sales?” 2. The aforesaid question of law arises on the following factualbackdrop: - 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 27-12-2018 and orderwas passed under Section 153A read with Section 143(3) of the ITAct for the assessment year 2016-17. 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 ₹ 15,94,08,394/-by recording following finding:- “9.… The reply of the assessee has been considered but isnot acceptable. For a better comparison across partiesdealing with the same manufacturing business, enquirieswere done into the yield percentage being offered by otherassessee being assessed during the same year. On perusal ofAudit Reports and Balance Sheets of various other parties inthe same business, it was seen that yield percentage of ashigh as 97% has been furnished for the manufacturing of MSIngot/Billets by the respective CCM Divisions. …not acceptable. For a better comparison across partiesdealing with the same manufacturing business, enquirieswere done into the yield percentage being offered by otherassessee being assessed during the same year. On perusal ofAudit Reports and Balance Sheets of various other parties inthe same business, it was seen that yield percentage of ashigh as 97% has been furnished for the manufacturing of MSIngot/Billets by the respective CCM Divisions. … 10.Therefore, by invoking the provisions of Section 145(3),the books of accounts maintained by the assessee firm arethe books of accounts maintained by the assessee firm are hereby rejected and assessment is framed in the mannerprovided in Section 144 of the Income Tax Act, 1961. 10.Therefore, by invoking the provisions of Section 145(3),the books of accounts maintained by the assessee firm arethe books of accounts maintained by the assessee firm are hereby rejected and assessment is framed in the mannerprovided in Section 144 of the Income Tax Act, 1961. 11.Before making the estimation of income of assesseefirm, reference is also invited to the following judgments infavour of revenue. The Hon’ble Supreme Court of India in itsdecision dated 31-1-2007 (Case No. Appeal (Civil) 373 of2007) in the case of Melton India. The Commissioner TradeTax, U.P., wherein rejection of books of accounts was upheld,has laid down that excessive power consumption, prima facie,established the assessee’s intention to suppress theproduction and enhanced the turnover based on the principleof Preponderance of probabilities as the revenue authoritiesare not strictly bound by law of evidence. 12.After a rejection of books of accounts of the assessee,the estimation of income of the assessee firm is as per theaverage yield across the business, taken at 89%, which comesto Rs. 15,94,08,394/- as per the table above. Accordingly, anaddition is being made of the shortfall of Rs. 15,94,08,394/-in the yield declared by the assessee during the year.” 4. Feeling aggrieved and dissatisfied with the order of the AssessingOfficer 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 22-10-2019allowed 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 10.9 of its order asunder: - “10.9 In the appellant’s own case for A.Y. 2013-14 in AppealNo.CIT(A)-II/RPR/A.No.104/17-18 dated 02.02.2018 onsame facts and circumstances the appeal was allowed by meby holding when there is no material for adopting 89% evenduring the search assessments there is no basis for relyingon the search assessments in adopting 89% yield for the AY2013-14. In accordance with maintaining c0nsistency anduniformity on same set of facts and circumstances and legalposition as discussed above I find no basis for adopting 89%No.CIT(A)-II/RPR/A.No.104/17-18 dated 02.02.2018 onsame facts and circumstances the appeal was allowed by meby holding when there is no material for adopting 89% evenduring the search assessments there is no basis for relyingon the search assessments in adopting 89% yield for the AY2013-14. In accordance with maintaining c0nsistency anduniformity on same set of facts and circumstances and legalposition as discussed above I find no basis for adopting 89% yield and hence the addition of Rs. 15,94,08,394/- isunwarranted. Accordingly, grounds no.2 & 3 are allowed.”unwarranted. Accordingly, grounds no.2 & 3 are allowed.” 5. Questioning legality, validity and correctness of the order passed bythe 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 theappeal by the impugned order resulting into filing of appeal beforethis Court.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 theappeal by the impugned order resulting into filing of appeal beforethis Court. yield and hence the addition of Rs. 15,94,08,394/- isunwarranted. Accordingly, grounds no.2 & 3 are allowed.”unwarranted. Accordingly, grounds no.2 & 3 are allowed.” 5. Questioning legality, validity and correctness of the order passed bythe 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 theappeal by the impugned order resulting into filing of appeal beforethis Court.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 theappeal 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 ₹ 15,94,08,394/- were made only on the basis ofsuspicion which was totally impermissible in law in light of thethe 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 ₹ 15,94,08,394/- were made only on the basis ofsuspicion which was totally impermissible in law in light of the decision 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/Revenuewarranting 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. 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 ₹ 15,94,08,394/- 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 ₹ 15,94,08,394/- 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: - “9.We have carefully considered the rival submissions.We straightway find that the issue is squarely covered infavour of the assessee by the decision of the co-ordinatebench for A.Ys. 2009-10 to 2012-13 in ITA Nos. 232 to 235/RPR/2014 order dated 07.11.2019. The co-ordinate bench ofWe straightway find that the issue is squarely covered infavour of the assessee by the decision of the co-ordinatebench for A.Ys. 2009-10 to 2012-13 in ITA Nos. 232 to 235/RPR/2014 order dated 07.11.2019. The co-ordinate bench of the Tribunal dismissed the appeal of the Revenue against theorder of CIT(A) in identical factual and legal matrix. TheRevenue has failed to show the departure in substantial facts.The whole basis for addition on account of allegedsuppression of production in SMS/ Furnace division ismerely relying upon the conclusion drawn by the predecessorAO in the search assessment of the assessee, which was foundto be unsustainable both by the CIT(A) as well as the ITAT inearlier years. We simultaneously note of the fact that theyield percentage of 97% referred by the AO in the assessmentyear with which comparison has been made does not relate toSMS division as the billets have been mentioned in the tableas raw material whereas billets are finished products of SMSdivision. It appears that AO has proceeded on misconceptionof facts. Thus, on this point too, the action of the AO is notjustifiable. In consonance with the view taken in the matter,we see no merit in the appeal of the Revenue. ...” 10. However, at this stage, it would be appropriate to notice the decision of the Supreme Court in Dhakeswari Cotton MillsLimited(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 without “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 without reference 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].” 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 the (Tax Case No.9/2022) addition made by the Assessing Officer for the assessment year2016-17 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.Accordingly, we proceed to dismiss the appeal and the substantialquestion 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