(Tax Case No.9/2022) 2025:CGHC:45165-DB NAFR HIGH COURT OF CHHATTISGARH AT BILASPUR TAXC No. 9 of 2022 {Arising out of order dated 22-10-2021 passed by the Income Tax Appellate Tribunal, Raipur Bench, Raipur in ITA No.5/RPR/2020} (Assessment Year 2016-17) Dy. Commissioner of Income Tax-2(1), 1st Floor, Civil Lines, Raipur, Chhattisgarh. ... Appellant versus Mahamaya Steel Industries Ltd., B-8 & B-9, Sector-C, Urla Industries Area, Sarora, Raipur, District Raipur, Chhattisgarh. ... Respondent For Appellant / Revenue : Mr. Amit Chaudhari, Senior Standing Counsel for the Income Tax Department through Video Conferencing and Mr. Vijay Chawla, Advocate. For Respondent / Assessee : Mr. Sumit Nema, Senior Advocate with Mr. Anand Dadariya, 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 29-8-2023 by formulating the following substantial question of law: - SISTA SOMAYAJULU Digitally signed by SISTA SOMAYAJULU Date: 2025.09.06 13:09:59 +0530 (Tax Case No.9/2022) “Whether on the facts and in law, the Income Tax Appellate Tribunal was justified in deleting the addition of Rs. 15,94,08,394- by the Assessing Officer on the ground that the assessee had suppressed its yield and had indulged in unaccounted 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 of re-rolled products such as heavy steel structural, joist and girder. Search and seizure on the premises of the assessee was conducted on 21-6-2011, assessment was completed on 27-12-2018 and order was passed under Section 153A read with Section 143(3) of the IT Act for the assessment year 2016-17. The Assessing Officer has made an addition on account of unaccounted sales based on an estimated production yield of 89% in the assessee’s SMS Division. The Assessing Officer adopted an estimated yield ratio and proceeded to calculate alleged unaccounted production and consequential sales, resulting in substantial additions over multiple years. 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 is not acceptable. For a better comparison across parties dealing with the same manufacturing business, enquiries were done into the yield percentage being offered by other assessee being assessed during the same year. On perusal of Audit Reports and Balance Sheets of various other parties in the same business, it was seen that yield percentage of as high as 97% has been furnished for the manufacturing of MS Ingot/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 are (Tax Case No.9/2022) hereby rejected and assessment is framed in the manner provided in Section 144 of the Income Tax Act, 1961. 11. Before making the estimation of income of assessee firm, reference is also invited to the following judgments in favour of revenue. The Hon’ble Supreme Court of India in its decision dated 31-1-2007 (Case No. Appeal (Civil) 373 of 2007) in the case of Melton India. The Commissioner Trade Tax, 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 the production and enhanced the turnover based on the principle of Preponderance of probabilities as the revenue authorities are 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 the average yield across the business, taken at 89%, which comes to Rs. 15,94,08,394/- as per the table above. Accordingly, an addition 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 Assessing Officer making addition under Section 153A of the IT Act, the assessee preferred an appeal before the Commissioner of Income Tax (Appeals) and the CIT (Appeals) by order dated 22-10-2019 allowed the appeal and set-aside the addition of unaccounted sales made by the Assessing Officer. The CIT (Appeals) has summarised the allegations made by the AO in paragraph 10.9 of its order as under: - “10.9 In the appellant’s own case for A.Y. 2013-14 in Appeal No.CIT(A)-II/RPR/A.No.104/17-18 dated 02.02.2018 on same facts and circumstances the appeal was allowed by me by holding when there is no material for adopting 89% even during the search assessments there is no basis for relying on the search assessments in adopting 89% yield for the AY 2013-14. In accordance with maintaining c0nsistency and uniformity on same set of facts and circumstances and legal position as discussed above I find no basis for adopting 89% (Tax Case No.9/2022) yield and hence the addition of Rs. 15,94,08,394/- is unwarranted. Accordingly, grounds no.2 & 3 are allowed.” 5. Questioning legality, validity and correctness of the order passed by the CIT (Appeals) deleting the addition made by the AO, the Revenue preferred an appeal before the ITAT and the learned ITAT concurred with the findings of the CIT (Appeals) and dismissed the appeal by the impugned order resulting into filing of appeal before this Court. 6. Mr. Amit Chaudhari, learned Senior Standing Counsel for the Income Tax Department i.e. the appellant herein/Revenue appearing through Video Conferencing, would submit that both the authorities were absolutely unjustified in deleting the addition of unaccounted sales based on an estimated production yield of 89% which is based on the evidence available on record as a result of search and seizure conducted and the assessment order has rightly been passed under the provisions contained in Section 153A read with Section 143(3) of the IT Act which could not have been reversed by the CIT (Appeals) and could not have been affirmed by the ITAT, therefore, the appeal be allowed. 7. Mr. Sumit Nema, learned Senior Counsel appearing on behalf of the respondent herein/assessee, would support the impugned orders passed by the CIT (Appeals) and the ITAT and submit that the aforesaid findings recorded by the two authorities deleting the addition of ₹ 15,94,08,394/- were made only on the basis of suspicion which was totally impermissible in law in light of the (Tax Case No.9/2022) decision of the Supreme Court in the matter of Dhakeswari Cotton Mills Limited v. Commissioner of Income Tax, West Bengal1. Therefore, the aforesaid findings are totally findings of fact and there is no demonstrable perversity or error apparent on the face of record cited by the appellant/Revenue warranting interference by this Court. As such, the findings with regard to unaccounted sales based on estimated production yield have rightly been set-aside by the CIT (Appeals) which has rightly been affirmed by the ITAT and therefore the present appeal deserves to be dismissed. 8. We have heard learned counsel for the parties and considered their rival submissions made herein-above and also went through the record with utmost circumspection. 9. The Assessing Officer, for the reasons noticed herein-above, made an addition of ₹ 15,94,08,394/- on account of alleged unaccounted sales based on an estimated production yield of 89% in the Steel Melting Shop (SMS) Division of the assessee. However, for the reasons mentioned above, finding that the Assessing Officer has proceeded on the basis of suspicion and conjectures, the CIT (Appeals) has set-aside that addition, which the ITAT has concurred with by holding as under: - “9. We have carefully considered the rival submissions. We straightway find that the issue is squarely covered in favour of the assessee by the decision of the co-ordinate bench 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 1 (1954) 2 SCC 602 (Tax Case No.9/2022) the Tribunal dismissed the appeal of the Revenue against the order of CIT(A) in identical factual and legal matrix. The Revenue has failed to show the departure in substantial facts. The whole basis for addition on account of alleged suppression of production in SMS/ Furnace division is merely relying upon the conclusion drawn by the predecessor AO in the search assessment of the assessee, which was found to be unsustainable both by the CIT(A) as well as the ITAT in earlier years. We simultaneously note of the fact that the yield percentage of 97% referred by the AO in the assessment year with which comparison has been made does not relate to SMS division as the billets have been mentioned in the table as raw material whereas billets are finished products of SMS division. It appears that AO has proceeded on misconception of facts. Thus, on this point too, the action of the AO is not justifiable. 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 Mills Limited (supra) in which their Lordships of the Constitution Bench of the Supreme Court dealing with the jurisdiction while making order under Section 23(3) of the Income Tax Act, 1922 and also considering the scope of power under Section 23(3) and limits thereon, held that while making the assessment under sub-section (3) of Section 23 of the Act, the Income Tax Officer is not entitled to make a pure guess and make an assessment without reference to any evidence or any material at all, and observed as under:- “9. As regards the second contention, we are in entire agreement with the learned Solicitor General when he says that the Income Tax Officer is not fettered by technical rules of evidence and pleadings, and that he is entitled to act on material which may not be accepted as evidence in a court of law, but there the agreement ends; because it is equally clear that in making the assessment under sub-section (3) of Section 23 of the Act, the Income Tax Officer is not entitled to make a pure guess and make an assessment without (Tax Case No.9/2022) reference to any evidence or any material at all. There must be something more than bare suspicion to support the assessment under Section 23(3). The rule of law on this subject has, in our opinion, been fairly and rightly stated by the Lahore High Court in Gurmukh Singh v. CIT2.” 11. Reverting to the facts of the present case in light of the principles of law relating to Section 145(3) of the IT Act and also considering the principles of law laid down by their Lordships of the Supreme Court in Dhakeswari Cotton Mills Limited (supra), it is quite vivid that the CIT(Appeals) and the ITAT, both, after objectively analysing the factual situation, found complete absence of any adverse material against the assessee which can support the allegation of the AO towards unaccounted production presumed on the basis of alleged low yield declared by the assessee. Thus, in complete absence of any adverse material, both the authorities have concurrently reached to the conclusion that the addition made by the AO is baseless and without any evidence, therefore, the rejection of books of accounts is invalid and addition made by the AO on account of alleged suppression of yield is based upon mere guess work. It was further held by the two authorities that the yield declared by the assessee is neither low nor the books maintained by the assessee could be impeached by some tangible evidence/material on record and therefore the ITAT has rightly confirmed the order of the CIT (Appeals) and proceeded to dismiss the appeal filed by the Revenue. In our considered opinion, the concurrent finding recorded by the two authorities holding that the 2 1944 SCC OnLine Lah 38 : (1944) 12 ITR 393 (Lah) (Tax Case No.9/2022) addition made by the Assessing Officer for the assessment year 2016-17 is baseless and without any evidence/material, is a pure and simple finding of fact based on the evidence available on record, which is neither perverse nor contrary to the record. Accordingly, we proceed to dismiss the appeal and the substantial question of law is answered in favour of the assessee and against the Revenue. 12. In the result, the appeal stands dismissed leaving the parties to bear their own cost(s). Sd/- Sd/- (Sanjay K. Agrawal) (Sanjay Kumar Jaiswal) Judge Judge Soma