(Tax Case No.60/2022) 2025:CGHC:42527-DB NAFR HIGH COURT OF CHHATTISGARH AT BILASPUR TAXC No. 60 of 2022 {Arising out of order dated 25-10-2021 passed by the Income Tax Appellate Tribunal, Raipur Bench, Raipur in ITA No.253/RPR/2014} (Assessment Year 2010-11) 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 : Mr. Ajay Kumrani, Advocate on behalf of Mr. Amit Chaudhari, Standing Counsel for the Income Tax Department. For Respondent : Mr. Sumit Nema, Senior Advocate with Mr. Anand Dadariya, Advocate. Division Bench: - Hon'ble Shri Sanjay K. Agrawal and Hon'ble Shri Sachin Singh Rajput, JJ. Judgment on Board (20/08/2025) 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 17-1-2023 by formulating the following substantial question of law: - SISTA SOMAYAJULU Digitally signed by SISTA SOMAYAJULU Date: 2025.08.22 15:02:32 +0530 (Tax Case No.60/2022) “1. Whether on the facts and in law, the ITAT was justified in deleting the addition of Rs. 11,68,88,700/- by the AO 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 27-3-2014 and order was passed under Section 153A read with Section 143(3) of the IT Act for the assessment year 2010-11. 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 ₹ 11,68,88,700/- by recording following finding:- “9.7 Thus based on the evidences found during the search and seizure action, following conclusions can be drawn: - (i) that in the SMS Division, there is wide variation in the consumption of electricity vis-a-vis production of finished goods in different months of a year. (ii) that in the SMS Division, there is wide variation in the consumption of Sponge Iron vis-a-vis production of finished goods in different months of a year. (iii) that in the SMS Division, there is no direct correlation between the consumption of raw material, electricity and (Tax Case No.60/2022) finished goods whereas, by and large the production process, the production set-up & the sources of raw material supplies remain the same. (iv) that the figures of production and consumption of SMS division shown in the books of account of the assessee company do not reflect its true state of affairs. (v) that in the Rolling Mill Division, there is wide variation in the consumption of electricity vis-a-vis production of finished goods in different months of a year. (vi) that in the Rolling Mill Division, there is wide variation in the consumption of furnace oil vis-a-vis production of finished goods in different months of a year. (vii) that in the Rolling Mill Division, there is variation in the consumption of raw material vis-a-vis production of finished goods in different months. (viii) that in the Rolling Mill Division, there is no direct correlation between the consumption of raw material, electricity & furnace oil with the finished goods whereas, by and large the production process, the production set-up & the sources of raw material supplies remain the same. (ix) During search operation it was found that input of raw material is not properly measured and burning loss reported are based on estimation. The entry of the burning loss in the books of account is based on the information given by the production department, and the information available with the production department is based on estimation. (x) During physical verification of stock, excess stock totalling to Rs. 1,41,43,989/- was found out of which Rs. 57,21,115/- has been admitted by the assessee. (xi) During F.Y. 2008-09 to 2010-11, the SMS Division shows yield which is quite low as compared to the yield being shown by other manufacturers of C.G.” 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 21-7-2014 allowed (Tax Case No.60/2022) the appeal and set-aside the addition of unaccounted sales by recording findings in paragraphs 9 to 9.60 of the appellate order which the ITAT has summarised in its order (para 27.2) as under: - “(i) The AO has failed to establish the nexus between the mathematical calculations of highest and lowest consumption of power, sponge iron (raw material) etc. with yield of 89% adopted by the AO. (ii) The basis for arriving at the standard yield of 89% has not been disclosed despite repeated requests on behalf of the assessee. The CIT(A) himself attempted to work out the average yield in the industry based on data available from the department but failed to arrive at this so called standard figure of 89%. (iii) Comparison of yield declared by the other assessee engaged in the similar line of business was carried out as tabulated in para 9.4 of the first appellate order. On the basis of such comparison, arithmetical mean of yield stands at 81.35% in respect of other parties vis-a-vis 83.94% shown by the assessee. It was also found by the CIT(A) that yield declared by the different parties in the same year is not uniform and every party has declared a different yield. Likewise, there is a wide variation in the yield of one year with another year in other cases as well. Not even a single comparable instance was found declaring yield of 89% adopted by the AO. The yield achieved by the assessee is generally more than average industry yield. (iv) Financial results of the assessee as well as other parties engaged in similar line of business was also compared as discussed in para 9.7 & para 9.8 of the order. On analysis of factual data tabulated in the first appellate order, it was observed that the gross profit & net profit declared by the assessee is stronger than its competitors despite marginally lower yield at some instances. It was thus noted by the CIT(A) that the percentage of yield cannot be said to be sole decisive factor while assessing reliability of books of accounts and merely low yield cannot lead to an indefeasible presumption that books of accounts of the assessee are unreliable and true profit earned by the assessee cannot be deduced therefrom. In para 9.9 of its order, the CIT(A) has made reference to the elaborate excise records maintained by the assessee and the returns filed with the Central Excise Authority on monthly (Tax Case No.60/2022) basis and daily basis. On analysis of such records, it was found to be tallying with the financial records. (v) The CIT(A) also took cognizance of the fact that capacity utilization in an industry depends on number of working days and in the case of assessee where the production process for manufacturing of billets and blooms need to be shut down periodically, the production operation consequently halts and effect the yield. The CIT(A), thereafter, observed (para 9.37) that no infirmity in the details furnished by the assessee has been found by the AO in this regard and AO has not brought any adverse material on record. (vi) The statements of various witnesses were analyzed in para 9.17 of the CIT(A) order and observed that the adverse inferences on such statement is totally misplaced. (vii) The AO has proceeded to estimate higher yield on the basis of mathematical and mechanical calculations. The AO has laid too much emphasis on statistics which cannot be said to have been gathered as a result of search alone. The statistics relied upon by the AO are those which are quite routinely called for even during the regular assessment proceedings under s.143(3) of the Act. The AO has not stated what according to him should have been the average consumption of coal iron ore etc. (viii) From the statement of Shri Rishikesh Dixit recorded on 21.06.2011, it was gathered that the aforesaid Director stated in clear terms that the quantity recorded in the loose slips tallies with the quantity recorded in the regular books of accounts and excise records. These loose slips are destroyed after it becomes redundant with the passage of time. The CIT(A) further observed that neither in the show cause notice nor in the assessment order, there is any whisper of any such loose papers which bears the figure of production and which the appellant failed to reconcile with the entries in the regular books of accounts and excise records/returns. (ix) The alleged low yield in comparison to benchmark of 89% adopted by the AO, the basis whereof is still in dark and not known, cannot in itself provide a ground to reject the books of accounts without showing any defect in books by tangible evidence. (x) The AO has merely proceeded on the basis of suspicion and conjunctures. It is trite that suspicion howsoever strong cannot take place of proof. Page 6 of 10 (Tax Case No.60/2022) (xi) The CIT(A) in para 9.22 onwards analyzed the decision rendered by the co-ordinate bench in similar factual matrix to find that addition on account of low yield as made by the AO is not sustainable in law in the absence of tangible material.” 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. Ajay Kumrani, Advocate, appearing on behalf of Mr. Amit Chaudhari, learned Standing Counsel for the Income Tax Department i.e. the appellant herein/Revenue, 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 ₹ 11,68,88,700/- were made only on the basis of suspicion which was totally impermissible in law in light of the (Tax Case No.60/2022) 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 ₹ 11,68,88,700/- 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: - “27.3 Significantly, in para 9.2 of the first appellate order, the CIT(A) noted while the AO has made discussions on mathematical calculations pertaining rolling material division, the additions have been made towards low yield in SMS Division. 1 (1954) 2 SCC 602 (Tax Case No.60/2022) 27.4 In conclusion, the CIT(A) observed that assessee has furnished explanation on all the documents seized during the course of search and the explanation of the assessee were test checked with reference to seized material, books of accounts, bills/invoices and other evidences and found to be satisfactory. It was further noted that the AO has not pointed out any infirmity in the explanation of the Assessee. 27.5 The CIT(A) in our mind has analysed the factual matrix threadbare. Without repeating all the observations of the CIT(A), we find ourselves in complete agreement with the conclusion drawn by the CIT(A). The CIT(A) has objectively analyzed the factual situation and 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. On facts, the CIT(A) has found that the yield declared by the assessee is neither low nor the book results could be impeached by some tangible material to indulge in rejection of books of accounts. We see no discernible error whatsoever in the process of reasoning adopted by the CIT(A) while reversing the totally untenable action of the AO based on extraneous considerations. 27.6 Significantly, it is also pertinent here to note that identical issue cropped in the case of a group co. ( Mahamaya Steel Industries Ltd.) in the same search and engaged in the same business. The standard yield of 89% adopted in that case was set aside by the CIT(A) and book results were accepted in the identical factual matrix. The Revenue challenged the reversal of additions on account of lower yield. The Co- ordinate bench in DCIT vs. Mahamaya Steel Industries Ltd. ITA No. 232-235/RPR/2014 order dated 7/11/2019 in strikingly similar factual matrix involving same issue and arising from same search, endorsed the order of CIT(A) in relation to AY 2009-10-2013 and struck down the additions made by the AO. Hence, the issue, in any case, is not res integra any more in the light of decision of the co-ordinate bench.” 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 (Tax Case No.60/2022) 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 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 2 1944 SCC OnLine Lah 38 : (1944) 12 ITR 393 (Lah) (Tax Case No.60/2022) 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 addition made by the Assessing Officer for the assessment year 2010-11 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) (Sachin Singh Rajput) Judge Judge Soma