Case Law Details
DCIT 2 Vs Mahamaya Steel Industries Limited (Supreme Court of India)
In the matter before the Supreme Court of India and the Chhattisgarh High Court, the dispute concerned an addition of ₹15,94,08,394 made by the Assessing Officer (AO) on account of alleged unaccounted production and sales based on estimated production yield in the assessee’s Steel Melting Shop (SMS) Division.
The assessee was engaged in manufacturing re-rolled steel products such as heavy steel structural, joist, and girder. A search and seizure operation was conducted on 21 June 2011, following which assessment proceedings for Assessment Year 2016-17 were completed under Section 153A read with Section 143(3) of the Income Tax Act, 1961.
Read HC Judgment in this case: Chhattisgarh HC Deletes Income Tax Addition as Estimated Yield Was Based on Guesswork
The AO alleged suppression of production and unaccounted sales by adopting an estimated production yield of 89%. For comparison, the AO referred to audit reports and balance sheets of other businesses in the same industry where yield percentages as high as 97% were reported in manufacturing MS Ingots/Billets. Based on these comparisons, the AO rejected the assessee’s books of account under Section 145(3) and framed the assessment under Section 144. The AO concluded that the shortfall in declared yield represented unaccounted production and sales and accordingly made an addition of ₹15.94 crore.
While making the assessment, the AO relied upon the Supreme Court decision in Melton India v. Commissioner Trade Tax, U.P., observing that excessive power consumption could indicate suppression of production and justify enhancement of turnover on the principle of preponderance of probabilities.
The assessee challenged the addition before the Commissioner of Income Tax (Appeals) [CIT(A)]. The CIT(A), by order dated 22 October 2019, deleted the addition after noting that in the assessee’s own case for Assessment Year 2013-14, on identical facts and circumstances, similar additions based on adoption of 89% yield had already been deleted. The appellate authority held that there was no material justifying adoption of the 89% yield and therefore the addition was unwarranted.
The Revenue appealed before the Income Tax Appellate Tribunal (ITAT). The ITAT upheld the CIT(A)’s order and dismissed the Revenue’s appeal. The Tribunal observed that the issue had already been decided in favour of the assessee in earlier assessment years involving identical facts and legal issues. It held that the AO had relied upon conclusions drawn in earlier search assessments that had already been found unsustainable by the appellate authorities.
The ITAT also found factual errors in the AO’s comparison with other entities. It noted that the yield percentage of 97% referred to by the AO did not relate to the SMS division because billets had been treated as raw material in the comparison, whereas billets were actually finished products of the SMS division. According to the Tribunal, the AO had proceeded on a misconception of facts, making the addition unjustifiable.
Before the High Court, the Revenue argued that the additions were justified because they were based on evidence gathered during search and seizure proceedings. The assessee contended that the additions were founded only on suspicion and conjecture without supporting evidence, relying on the Supreme Court judgment in Dhakeswari Cotton Mills Ltd. v. Commissioner of Income Tax, West Bengal.
The High Court examined the principles laid down in Dhakeswari Cotton Mills Ltd., where the Supreme Court had held that although tax authorities are not bound by strict technical rules of evidence, they cannot make assessments based on pure guesswork or bare suspicion without supporting material.
Applying these principles, the High Court held that both the CIT(A) and the ITAT had objectively analysed the record and found complete absence of adverse material supporting allegations of unaccounted production or sales. The Court observed that the AO’s conclusions were based merely on conjectures arising from alleged low yield and not on any tangible evidence. It further held that the rejection of books of account and the addition for suppression of yield were invalid because they were unsupported by evidence and based only on guesswork.
The High Court concluded that the concurrent findings of the CIT(A) and the ITAT were findings of fact based on evidence on record and were neither perverse nor contrary to law. Accordingly, it dismissed the Revenue’s appeal and answered the substantial question of law in favour of the assessee.
The Revenue thereafter approached the Supreme Court by filing a Special Leave Petition. The Supreme Court condoned the delay but declined to interfere with the impugned order of the High Court. Consequently, the Special Leave Petition was dismissed and pending applications were also disposed of.
FULL TEXT OF THE SUPREME COURT JUDGMENT/ORDER
1. Delay condoned.
2. Having heard Mr. V Chandrashekhara Bharathi, learned advocate appearing for the petitioner, we are not inclined to interfere with the impugned order. The Special Leave Petition is, accordingly, dismissed.
3. Pending application shall also stand disposed of.
Author Bio
