Suspicion alone cannot be Basis for Income Tax Additions: Supreme Court Dismisses ₹16.61 Cr Unaccounted Sales Claim [Read Order]

In a recent ruling, the Supreme Court of India dismissed the Revenue’s special leave petition challenging the Chhattisgarh High Court’s decision that had upheld the deletion of a ₹16.61 crore addition made on account of alleged unaccounted production and sales.

The dispute arose after a search and seizure at the Mahamaya Steel Industries Ltd premises in June 2011. The Assessing Officer (AO) concluded that the firm had suppressed its yield in the Steel Melting Shop (SMS) division, estimating production at 89 % and treating the shortfall as unrecorded sales. The AO rejected the books of account under Section 145(3) of the Income Tax Act, 1961.

On appeal, the Commissioner of Income Tax (Appeals) found the AO’s conclusions speculative, noting that yield variations were within industry norms (80–86%) certified by a registered valuer. The Income Tax Appellate Tribunal (ITAT) affirmed, observing that the AO had relied on mathematical assumptions without any document proving suppressed yield or unaccounted sales.

The high court upheld the Tribunal’s findings, stressing that the addition was “baseless and without evidence.” Citing the Supreme Court’s landmark precedent in Dhakeswari Cotton Mills Ltd. v. CIT (1954), the bench reiterated that tax assessments cannot rest on pure guesswork or conjecture.

Finally, the Supreme Court bench of Justices Manoj Misra and Manmohan refused to interfere under Article 136, stating that no valid ground existed to reopen the matter.

Accordingly, the special‑leave petition was dismissed.

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