Facts of the Case

A search and seizure operation under section 132 of the Income Tax Act, 1961 was conducted on 27/08/2009 at the business and residential premises of the assessee, a partnership firm engaged in the manufacture and sale of chewing tobacco (Zarda), an excisable commodity. Pursuant to the search, assessment for assessment year 2010-11 was completed under section 143(3) read with section 153A, determining total income at ₹16.17 crore as against returned income of ₹1.66 crore.

The Assessing Officer made substantial additions, primarily on account of alleged suppressed production by adopting an estimated yield based on mathematical and theoretical assumptions regarding consumption of raw materials, evaporation, wastage, and process loss. The books of account were not rejected under section 145(3). The learned Commissioner of Income Tax (Appeals) partly allowed the appeal by deleting a major portion of the addition while sustaining the balance. Both the assessee and the Revenue filed cross-appeals before the Tribunal.

 

Issues Involved

Whether additions for alleged suppressed production could be sustained in a search assessment under section 153A when:

  • no incriminating material relating to suppression was found during search,
  • books of account were not rejected under section 145(3),
  • production and sales were excise-controlled and supported by statutory records, and
  • similar yield had been consistently accepted in earlier assessment years by the Tribunal.

 

Petitioner’s (Assessee’s) Arguments

The assessee contended that the entire addition was based on conjectures and hypothetical calculations without any incriminating search material. It was submitted that the manufacturing process, consumption norms, and yield had already been examined and accepted by the Tribunal for assessment years 2004-05 to 2009-10. The assessee emphasized that its books were audited, production was subject to excise control, and no discrepancy in stock or production was found during search. Reliance was placed on earlier coordinate bench decisions in the assessee’s own case and judicial precedents holding that estimation of income without rejection of books is impermissible.

 

Respondent’s (Revenue’s) Arguments

The Revenue supported the assessment order and argued that non-maintenance of stage-wise consumption details, improbability of transportation of certain raw materials, and variations in yield justified estimation of higher production. It was contended that the learned CIT(A) erred in granting relief by relying on earlier years and by substituting his own estimation for that of the Assessing Officer.

 

Court Order

The Hon’ble Income Tax Appellate Tribunal, Allahabad Bench, observed that the issue of alleged suppressed production and yield estimation in the assessee’s case had already been examined in detail by a coordinate bench for earlier assessment years, wherein the declared yield was accepted and similar additions were deleted.

The Tribunal held that:

  • no incriminating material relating to suppressed production was found during the search,
  • the Assessing Officer did not invoke or satisfy the conditions of section 145(3),
  • production and sales were duly supported by excise records and audited books, and
  • arbitrary mathematical estimations could not substitute concrete evidence.

Applying the principle of consistency and following earlier binding decisions in the assessee’s own case, the Tribunal upheld the deletion of additions relating to alleged suppressed production and dismissed the Revenue’s appeal. The assessee’s appeal was allowed on this issue.

 

Important Clarification

The Tribunal reiterated that search assessments under section 153A cannot be used to re-examine concluded matters in the absence of incriminating material. Estimated additions based on assumptions, without rejection of books and contrary to consistently accepted past results, are legally unsustainable. The ruling reinforces limits on best-judgment assessments and strengthens the doctrine of consistency in income-tax proceedings.

Link to download the order -  https://www.mytaxexpert.co.in/uploads/1770876469_MSKESARWANIZARDABHANDARALLAHABADVS.JT.CITALLAHABAD.pdf 

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