(Tax Case No.38/2022) 2025:CGHC:44606-DB NAFR HIGH COURT OF CHHATTISGARH AT BILASPUR TAXC No. 38 of 2022 {Arising out of order dated 25-10-2021 passed by the Income Tax Appellate Tribunal, Raipur Bench, Raipur in ITA No.255/RPR/2014} (Assessment Year 2012-13) The Deputy Commissioner of Income Tax (Central), Aaykar Bhawan, Central Revenue Building, Civil Lines, Raipur, Chhattisgarh ... Appellant versus M/s Abhishek Steel Industries Ltd., Mahamaya Tower, 3rd & 4th Floor, In front of Anupam Nagar, Near Varun Honda, G.E. Road, Raipur, Chhattisgarh ... Respondent For Appellant / Revenue : Mr. Amit Chaudhari, Senior Standing Counsel for the Income Tax Department and Mr. Ajay Kumrani, 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 (02/09/2025) 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 23-1-2023 by formulating the following substantial questions of law: - SISTA SOMAYAJULU Digitally signed by SISTA SOMAYAJULU Date: 2025.09.03 15:07:34 +0530 (Tax Case No.38/2022) “1. Whether on the facts and in law, the Income Tax Appellate Tribunal (ITAT) was justified in deleting addition of Rs. 3,80,00,000/- made by the Assessing Officer (AO) on account of unexplained cash credit under Section 68 of the Act of 1961? 2. Whether on the facts and in law, the ITAT was justified in deleting the addition of Rs. 6,29,85,300/- made by the AO on the ground that the assessee had suppressed its yield and had indulged in unaccounted production and sales?” 2. The aforesaid questions of law arise on the following factual backdrop: - 3. The respondent/assessee incorporated on 23-5-1988 is engaged in the business of manufacture of re-rolled products such as heavy steel structural, joist and girder. A search and seizure operation under Section 132 of the IT Act was conducted at the premises of the assessee on 21-6-2011, pursuant thereto, assessment proceedings were carried out and assessment order was passed on 27-3-2014 under Section 153A read with Section 143(3) of the IT Act for the assessment year 2012-13, wherein the Assessing Officer made addition on the following issues: - 1. Unexplained cash credit under Section 68 of the IT Act to the tune of ₹ 3,80,00,000/- on account of alleged failure of the assessee to offer satisfactory explanation on the nature and source of share application money credited in its books of accounts. 2. On account of alleged unaccounted sales, by estimating a production yield of 89% in the assessee’s SMS Division. Relying on such estimated yield ratio, the Assessing Officer (Tax Case No.38/2022) computed purported unaccounted production and corresponding sales, thereby making substantial additions across multiple years. Specifically, for the assessment year 2012-13, the Assessing Officer made an addition of ₹ 6,29,85,300/-. 4. Being aggrieved and dissatisfied with the order dated 27-3-2014 passed by the AO, the assessee preferred appeal before the Commissioner of Income Tax (Appeals) and the CIT (Appeals) by order dated 21-7-2014 allowed the appeal and set-aside the impugned addition of alleged unexplained cash credit to the tune of ₹ 3,80,00,000/- and unaccounted sales made by the Assessing Officer to the tune of ₹ 6,29,85,300/- against which the Revenue preferred appeal before the Income Tax Appellate Tribunal (ITAT) which was dismissed concurring with the finding of the CIT (Appeals) leading to filing of this appeal in which three substantial questions of law have been framed which have been catalogued in the opening paragraph of this judgment. 5. Mr. Ajay Kumrani, learned counsel appearing on behalf of the appellant herein/Revenue, would submit that both the authorities i.e. the CIT (Appeals) and the ITAT were absolutely unjustified in setting aside the order passed by the AO by recording a finding perverse to the record and therefore the appeal be allowed and the orders impugned be set-aside. Page 4 of 10 (Tax Case No.38/2022) 6. Mr. Sumit Nema, learned Senior Counsel appearing on behalf of the respondent herein/assessee, would oppose the appeal and support the impugned orders passed by the CIT (Appeals) and the ITAT. 7. 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. Answer to Substantial Question of Law No.1 8. The Assessing Officer made addition on the issues of unexplained cash credit under Section 68 of the IT Act to the tune of ₹ 3,80,00,000/- on account of alleged failure of the assessee to offer satisfactory explanation on the nature and source of share application money credited in its book of accounts and secondly, on account of alleged unaccounted sales, by estimating a production yield of 89% in the assessee’s SMS Division relying on such estimated yield, the Assessing Officer computed purported unaccounted production and corresponding sales, thereby making substantial additions across multiple years, specifically, for the assessment year 2012-13, the AO made an addition of ₹ 6,29,85,300/-, which the CIT (Appeals) deleted by holding that the assessee has discharged the onus under Section 68 of the IT Act by producing comprehensive documentary evidence including ITRs, audit reports, bank statements, affidavits, Memorandum of Association/Articles of Association, board minutes and (Tax Case No.38/2022) assessments of investors. The CIT (Appeals) further held that there is no incriminating material linking share money to undisclosed income and it was also held that the AO’s case was based on conjectures. The CIT (Appeals) upheld genuineness and creditworthiness supported by scrutiny assessments of investor companies and also held that suspicion or returned notices were not sufficient to reject bona fide transactions relying upon the decision of the Supreme Court in the matter of Commissioner of Income-tax v. Lovely Exports (P.) Ltd.1 in which it has been held that once identity and receipt are proved, source of funds with investor is not the onus of the assessee. The CIT (Appeals) further relied upon the decision of the M.P. High Court in the matter of Principal Commissioner of Income-tax (1) Indore v. Chain House International (P.) Ltd.2 in which it has been held that genuineness once established precludes addition on share application money at premium which has been upheld by the Supreme Court in the matter of Principal Commissioner of Income-tax v. Chain House International (P.) Ltd.3. 9. On appeal being preferred by the Revenue, the ITAT concurred with the findings of the CIT (Appeals) and upheld the deletion of additions made by the AO and it was held by the ITAT that the AO had failed to bring on record any independent incriminating material to establish a nexus between the impugned share capital 1 [2008] 216 CTR 195 (SC) 2 [2019] 408 ITR 561 (MP) 3 [2019] 262 Taxman 207 (SC) (Tax Case No.38/2022) and the assessee’s undisclosed income. It was further held by the ITAT that the assessee had produced sufficient documentary evidence establishing the identity, creditworthiness and genuineness of the investor entities. The ITAT also held that once the assessee has discharged the initial onus under Section 68 of the IT Act, the burden shifts upon the Revenue to disprove the same, which in the present case was not discharged, and observed as under: - “19.3. Apart from the factual position on absence of any incriminating material as noted by the CIT(A) reproduced in preceding para, the CIT(A) has also analyzed and delineated the facts and circumstances in proper perspective while dealing on merits of additions. The CIT(A) found that primary onus placed upon the assessee under s.68 of the Act was satisfactorily discharged by the assessee. The CIT(A) has examined the factual matrix in relation to each and every subscriber individually, as extracted in para 9 of this order, and found that the subscribers were duly assessed and payments have come through banking channels. It was further found that the tangible net worth of the subscribers company is sufficiently enough to meet the criteria of creditworthiness as understood in ordinary parlance. The bank statements, audited financial statement and confirmations were analyzed. The source of investment was thus found to be explained satisfactorily in the facts of the case. It was further noted that the credit for share application money was accepted in the regular assessment under s.143(3) of the Act concerning A.Y. 2006-07 prior to search after making due enquiries. The subscriber co. namely Antariksh Commerce Pvt. Ltd. and Escort Finvest Pvt. Ltd. were found to be group companies. The share application money Rs. 200 Lakhs received from Group co. namely Devi Iron & Power Ltd. was refunded in A.Y. 2009-10 through banking channel. The assessments of the subscriber companies carried out under S. 143(3) /S. 143(3) r.w.s. 147 were noted. A pertinent observation was made that the same AO in the case of other group concern (Mahamaya Steel Industries Ltd.) accepted the creditworthiness of the investor company namely ‘Escorts Finvest Pvt. Ltd.’ for subscription (Tax Case No.38/2022) in Pref. Share Capital. The CIT(A) essentially noted that a substantial part of application money has been received from group cos. and a part of it also stood eventually returned. The adverse inference drawn by the AO was found by the CIT(A) to be unsubstantiated and in the realm of suspicion, surmises and conjectures. On legal position, the CIT(A) has referred to large number of judicial pronouncements. Without reiterating the different facets analyzed by the CIT(A), We find complete force in his view. After detailed and objection scrutiny of factual & legal position, the CIT(A) set aside and reversed the additions carried out without any iota of incriminating material to support the allegation of accommodation entries in the abated as well as unabated search assessments. The order of the CIT(A) on merits is self speaking and does not need any reiteration. We completely endorse the action of the CIT(A) action on merits without demur. The objection of the Revenue is, in our view, unsubstantiated and dehors the tell-tale evidences and hence not sustainable. We thus decline to interfere with the view expressed by the CIT(A). 24.5 In essence, the facts in the instance are speaking for itself. We are fully convinced with the process of reasoning and the objective analysis by the CIT(A) and conclusion derived therefrom. We do not intend to repeat each and every observations. The action of CIT(A) is in consonance with the binding precedents of Jurisdictional High Court. Hence, we see no reason to depart from the rationale of the decision of the CIT(A) on reversal of additions under s.68 of the Act pertaining to A.Y. 2012-13 in question. We thus decline to interfere.” 10. As such, the finding recorded by the CIT (Appeals) has been duly affirmed by the ITAT observing that the assessee has discharged the initial onus under Section 68 of the IT Act and the burden shifted upon the Revenue to disprove the same, which has not been discharged competently by the Revenue. Therefore, we find that the concurrent findings recorded by the two authorities that the Revenue has failed to discharge the burden is the correct finding of fact based on evidence available on record, it is neither perverse (Tax Case No.38/2022) nor contrary to the record. Thus, we endorse the findings recorded by the CIT (Appeals) upheld by the ITAT on the issue with regard to unexplained cash credit under Section 68 of the IT Act. Accordingly, the first substantial question of law is answered in favour of the assessee and against the Revenue. Answer to Substantial Question of Law No.2 11. The second substantial question of law is with regard to the addition of ₹ 6,29,85,300/- made by the AO for the assessment year 2012-13 on account of alleged unaccounted sales based on estimated production yield of 89% in the assessee’s SMS Division, which the AO has proceeded on the basis of conjectures and surmises and which the CIT (Appeals) set-aside and the ITAT has concurred with the findings of the CIT (Appeals). 12. In this regard, the decision of the Supreme Court in the matter of Dhakeswari Cotton Mills Limited v. Commissioner of Income Tax, West Bengal4 may be noticed herein 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:- 4 (1954) 2 SCC 602 (Tax Case No.38/2022) “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 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. CIT5.” 13. 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 5 1944 SCC OnLine Lah 38 : (1944) 12 ITR 393 (Lah) (Tax Case No.38/2022) 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 addition made by the Assessing Officer for the assessment year 2012-13 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. 14. Similar view has been taken by this Court in the matter of The Deputy Commissioner of Income Tax (Central) v. M/s Abhishek Steel Industries Ltd.6 between same parties, but related to different assessment year (Assessment Year 2011-12). 15. In that view of the matter, the second substantial question of law is also answered in favour of the assessee and against the Revenue. 16. In the result, the present tax appeal stands dismissed leaving the parties to bear their own cost(s). Sd/- Sd/- (Sanjay K. Agrawal) (Sanjay Kumar Jaiswal) Judge Judge Soma 6 Tax Case No.30/2022, decided on 20-8-2025