Facts of the Case

The Revenue filed appeals against orders of the CIT(A) deleting additions made by the Assessing Officer on account of alleged suppression of production for Assessment Years 2011-12 and 2012-13.

The Assessing Officer observed a shortfall between raw material consumption and finished goods output and, assuming a higher production yield, treated the difference as suppressed production. Additions of ₹2.75 crore (AY 2011-12) and ₹5.77 crore (AY 2012-13) were made accordingly.

Issues Involved

  1. Whether suppressed production can be inferred solely from estimated yield differences.
  2. Whether additions are sustainable without rejecting books of account under section 145(3).
  3. Whether absence of evidence of unaccounted sales defeats such additions.
  4. Whether statutory records maintained under excise laws have evidentiary value in income-tax proceedings.

 Petitioner’s Arguments (Revenue)

The Revenue contended that the CIT(A) erred in deleting the additions and argued that the Assessing Officer had correctly quantified suppressed production based on discrepancies between raw material consumption and output.

 Respondent’s Arguments (Assessee)

The assessee submitted that the production process of chewing tobacco inherently involved wastage due to dust, evaporation, and processing losses. It emphasized that the business dealt with excisable goods, and all production, clearance, and sales were subject to strict supervision by excise authorities.

The assessee maintained statutory records regularly checked by excise officials, and no discrepancies had ever been reported. It argued that the Assessing Officer had neither found excess stock nor evidence of sales outside the books and had not rejected the books of account.

 Court Order / Findings (ITAT Allahabad)

The Tribunal noted that the Assessing Officer estimated yield arbitrarily without considering the nature of raw materials, process losses, or historical data. The assessee’s records showed that production figures were consistent with earlier years accepted by the Department.

It was emphasized that no evidence of unaccounted production, excess stock, or undisclosed sales had been brought on record.

On Books of Account and Statutory Records

  • Books of account were not rejected under section 145(3)
  • Opening stock, purchases, sales, and closing stock were accepted
  • Production and clearance were subject to excise control
  • No discrepancy was found by excise or sales tax authorities

In such circumstances, additions based purely on theoretical calculations were unsustainable.

On Earlier Judicial Precedents

The Tribunal rejected the Revenue’s contention that prior ITAT orders had been overruled by the High Court, clarifying that the High Court decision related only to the scope of section 153A and not to the merits of suppressed production.

Important Clarification

The Tribunal reaffirmed that suppression of production cannot be presumed merely from yield variations. Additions require concrete evidence such as unaccounted sales, excess stock, or rejected books. Where statutory records of excisable goods are maintained and verified, theoretical estimates cannot substitute proof.

Link to download the order - https://www.mytaxexpert.co.in/uploads/1771062848_DY.COMMISSIONEROFINCOMETAXCENTRALCIRCLEALLAHABADVS.MSKESARWANIZARDABHANADARALLAHABAD.pdf

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