DEPUTY COMMISSIONER OF INCOME TAX, CC 1, LUDHIANA V. ROSHA ALLOYS PVT. LTD., MANDI GOBINDGARH

CO 6/CHANDI/2025

AI Insights

The case involves multiple appeals and cross-objections by both the assessee, Rosha Alloys P Limited, and the Revenue, concerning the reassessment orders for the assessment years 2018-19, 2019-20, and 2020-21. The primary issues revolved around the legality of the approvals granted under Sections 148B and 151 of the Income Tax Act for reopening the assessments, the application of gross profit rates on alleged bogus purchases, and the estimation of unaccounted production based on electricity consumption. The tribunal examined the procedural adherence in granting approvals for reassessment and the substantive findings related to the alleged discrepancies in production and purchases.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 397037 (ITAT-CHANDIGARH)
• Appeal Type: Cross Objection
• Pronouncement Date: 28-05-2025
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2020-2021
• Other Referred Cases: ACIT Vs Teleperformance Global Service Pvt. Ltd., Principal Commissioner of Income-tax vs. Shiv Kumar Nayyar, Serajuddin vs. CIT, GKN Driveshafts (India) Ltd. v. ITO, Divya Capital One Private Limited vs. ACIT, Vodafone India Ltd. vs. Deputy Commissioner of Income-tax, Angelantoni Test Technologies SRL vs. ACIT, M/s Bhoday Steel Rolling Mills vs ITO, ACIT vs M/s Prinik Steels Pvt Ltd, ACIT vs M/s Nilesh Steel & Alloys Pvt Ltd, ACIT vs M/s Ganesh Builders, ACIT vs M/s Apple Commodities Limited, ACIT vs M/s Airwill Infra Ltd., ACIT vs M/s Kavita Jain, ACIT vs M/s Gulzar Ahmed, ACIT vs M/s SP Singla Construction Company, ACIT vs M/s Serajuddin & Co., ACIT vs M/s Teleperformance Global Service (P.) Ltd., ACIT vs M/s Vasanthi Ramdas Pai, ACIT vs M/s Shree Krishna (P) Ltd., ACIT vs M/s Divya Capital One Private Limited, ACIT vs M/s Angelantoni Test Technologies SRL, ACIT vs M/s Mohd. Shafiq Cement Store, ACIT vs M/s Floyd Filandro Linhares, ACIT vs M/s SBC Minerals (P.) Ltd., ACIT vs M/s Central India Electric Supply Co. Ltd., ACIT vs M/s WSFX Global Pay Ltd.
• Laws Referred To: Income Tax Act
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: KUSUM BA NSAL; VIRTUAL MODE
• Assessee Lawyers: SUDHIR SEHGAL
• Keywords: Condonation of delay; Set aside; Reassessment proceedings; Depreciation; Rejection of books of accounts; Bogus purchase; Bonafide belief; Reopening of assessment; Capital Gains; Earning of tax free income; Reason to believe; Bogus
• Section: 147; 148; 56; 132; 153A; 139

Judgement Text

"आयकर अपीलीयअिधकरण,चǷीगढ़ Ɋायपीठ “बी” ,चǷीगढ़ IN THE INCOME TAX APPELLATE TRIBUNAL, CHANDIGARH BENCH “B”, CHANDIGARH HEARING THROUGH: HYBRID MODE ŵी राजपाल यादव , उपाȯƗ एवं ŵी क ृणवȶ सहाय , लेखा सद˟ BEFORE: SHRI . RAJPAL YADAV, VP &SHRI. KRINWANT SAHAY, AM आयकर अपील सं/. ITA No. 888/Chd/ 2024 िनधाŊरण वषŊ / Assessment Year : 2018-19 Rosha Alloys P Limited Amloh Road, Village Turan, Mandi Gobindgarh, Punjab बनाम The DCIT Central Circle I, Ludhiana, Punjab ˕ायी लेखा सं/.PAN NO: AACCR5503N अपीलाथŎ/Appellant ŮȑथŎ/Respondent आयकर अपील सं/. ITA No. 921/Chd/ 2024 िनधाŊरण वषŊ / Assessment Year : 2018-19 The DCIT Circle I, Ludhiana, Punjab बनाम Rosha Alloys P Limited Amloh Road, Village Turan, Mandi Gobindgarh, Punjab ˕ायी लेखा सं/.PAN NO: AACCR5503N अपीलाथŎ/Appellant ŮȑथŎ/Respondent आयकर अपील सं/. ITA No. 922/Chd/ 2024 िनधाŊरण वषŊ / Assessment Year : 2019-20 The DCIT Circle I, Ludhiana, Punjab बनाम Rosha Alloys P Limited Amloh Road, Village Turan, Mandi Gobindgarh, Punjab ˕ायी लेखा सं/.PAN NO: AACCR5503N अपीलाथŎ/Appellant ŮȑथŎ/Respondent Cross Objection No. 5/Chd/2025 In (आयकरअपीलसं/. ITA No. 922/Chd/ 2024) िनधाŊरणवषŊ / Assessment Year : 2019-20 Rosha Alloys P Limited Amloh Road, Village Turan, Mandi Gobindgarh, Punjab बनाम The DCIT Circle I, Ludhiana, Punjab ˕ायी लेखा सं/.PAN NO: AACCR5503N अपीलाथŎ/Appellant ŮȑथŎ/Respondent आयकर अपील सं/. ITA No. 923/Chd/ 2024 िनधाŊरण वषŊ / Assessment Year : 2020-21 The DCIT Circle I, Ludhiana, Punjab बनाम Rosha Alloys P Limited Amloh Road, Village Turan, Mandi Gobindgarh, Punjab 2 ˕ायी लेखा सं/.PAN NO: AACCR5503N अपीलाथŎ/Appellant ŮȑथŎ/Respondent Cross Objection No. 6/Chd/2025 आयकर अपील सं/. ITA No. 923/Chd/ 2024 िनधाŊरण वषŊ / Assessment Year : 2020-21 Rosha Alloys P Limited Amloh Road, Village Turan, Mandi Gobindgarh, Punjab बनाम The DCIT Circle I, Ludhiana, Punjab ˕ायी लेखा सं/.PAN NO: AACCR5503N अपीलाथŎ/Appellant ŮȑथŎ/Respondent िनधाŊįरती की ओर से/Assessee by : Shri Sudhir Sehgal, Advocate and Shri Rohit Kapoor, CA राजˢ की ओर से/ Revenue by : Smt. Kusum Bansal, CIT, DR (Virtual Mode) सुनवाई की तारीख/Date of Hearing : 13/05/2025 उदघोषणा की तारीख/Date of Pronouncement : 28/05/2025 आदेश/Order PER KRINWANT SAHAY, AM: These are the appeals filed by the assessee and the department as under: i. ITA No. 888/Chd/2024, Assessment Year 2018-19 (A) Cross Appeal by the Department bearing ITA No. 921/Chd/2024 ii. ITA No. 922/Chd/2024, Assessment Year 2019-20 (D) Cross Objection filed by the assessee in ITA No. 05/Chd/2024 (A) iii. ITA No. 923/Chd/2024, Assessment Year 2020-21 (D) Cross Objection filed by the assessee in ITA No. 06/Chd/2024 (A) 2. The facts in all appeals are common and both the Ld. Counsel of the assessee and the Ld. CIT, DR agreed to that and the Ld. Counsel of the assessee, thereafter, took up the appeal for Assessment Year 2018- 19 as the lead case. 3. At the outset, the Ld. Counsel of the assessee argued that multiple grounds of appeal have been filed by the assessee and, 3 thereafter, finally, vide letter dated 12.05.2025, the fresh grounds of appeal have been filed and vide letter dated 10.05.2025 as filed during the course of hearing, the Ld. Counsel sought to withdraw the original grounds of appeal as filed along with the Form No.36, revised grounds of appeal filed on 27.02.2025 vide letter dated 22.02.2025 and additional grounds of appeal filed on 10.05.2025.For the sake of convenience, the revised grounds of appeal as filed by the appellant vide letter dated 12.05.2025 are being reproduced as under: 1. On the facts and in law, the approval granted by the ld. Addl. CIT under Section 148B is illegal and unsustainable, as a single approval order dated 30.03.2023 was issued for all three assessment years—AYs 2018-19 to 2020-21 vide letter no.2384. 2. That the approval granted under Section 151 of the Income Tax Act is bad in law, void ab initio and without proper application of mind, as there exists not only a material discrepancy between the amount mentioned in the reasons recorded for reopening and the amount mentioned in the Annexure appended to the approval under Section 151 but also the Approving Authority did not approve the basis as mentioned in the reasons recorded by AO. This variance indicates non-application of mind by the approving authority and renders the sanction mechanical, invalid, and unsustainable in law, vitiating the entire reassessment proceedings as per binding judgement of Hon’ble Apex Court in the case of ACIT Vs Teleperformance Global Service Pvt. Ltd., reported in 170 taxman.com 81. 3. Without prejudice to the above grounds, the learned CIT (A) has erred in law and on facts in applying a Gross Profit (GP) rate of 4% on the alleged bogus purchases, without appreciating that the disputed purchase amount includes vat input credit amounting to Rs. 7,34,299/- and Cenvat Credit amounting to Rs. 29,99,030, which were never claimed as an expenditure in the Profit & Loss account. The action of the CIT(A) in applying the GP rate on the gross amount (inclusive of VAT and Cenvat Credit) has resulted in an inflated and arbitrary addition, which is not sustainable either in fact or in law. 3.1 The CIT(A) erred in appreciating the fact that the discount of Rs.1,85,383/- had already been considered as income by the assessee. The CIT(A) did not take this into account, resulting in an incorrect addition of Rs. 7,70,048/- to the income 4. The CIT(A) erred in partly sustaining the arbitrary estimation of excess production at 379 MT and unaccounted sales of Rs.1,13,70,000, based solely on an assumed average power consumption of 737.50 units/MT. The estimation was made without any incriminating material found during the search and relied merely on statements of the accountant and chemist, which were later clarified by the chemist’s affidavit explaining that electricity consumption varies due to multiple factors. 5. That The Ld. CIT(A) has erred in confirming the action of the Assessing Officer in rejecting the books of accounts u/s 145(3) on alleged bogus purchases as per finding given at page 68 of the order.” 4 3.1 The grounds of appeal as taken by the Department are reproduced as under bearing ITA No. 921/Chd/2024: 1. Whether upon facts and circumstances of the case and in law, the Ld. CIT (A) was justified to restricted the addition made by the A.O on account of suppression of sales of Rs.11,77,50,000/- to 1,13,70,000/- by directing AO to consider average annual power consumption per MT for six years by ignoring the fact that authenticity of average annual power consumption data before the date of search was not established/authenticated and also ignoring the statement of Sh. Kunwar Vijyant, factory chemist and Sh. Santokh Singh, Accountant in which they had described the consumption of electricity units for the production of 1 tonne of metal of finished products? 2. Whether upon facts and circumstances of the case and in law, the Ld. CIT (A) was justified in deleting the addition of Rs. 10,63,80,000/- by applying the average of annual power consumption for the six years instead of monthly average calculated by the A.O. on the basis of seized material and made addition u/s 69A of the Act accordingly? 3. Whether upon facts and circumstances of the case and in law, the Ld. CIT (A) was justified in deleting the addition of Rs. 10,63,80,000/- by applying the average of annual power consumption for the six years and by failing to obtain the reasons for substantial increase in the turnover and decrease in average annual power consumption after the period of search i.e. for AY 2021-22 & AY 2022-23? 4. Whether on facts and circumstances of the case and in law, the Ld. CIT (A) was justified in deleting the addition of Rs. 1,92,51,910/- on account of bogus purchases and directing the AO to apply the G.P. rate @ 4% on the bogus purchases of Rs. 1,92,51,910/- made from M/s Neelkanth Steel & Allied Industries, without any basis and completely ignoring the facts of the case? Whether on facts and circumstances of the case and in law, the (A) was justified in deleting the addition of Rs. 1,92,51,910/- on account of bogus purchases and in holding that in case of bogus purchases only profit embedded in the transaction can be brought to tax without co- relating the bogus purchases to corresponding sales? 6. Whether on facts and circumstances of the case and in law, (A) was justified in deleting the addition of Rs. 1,92,51,910/- on account of bogus purchases and in holding that in case of bogus purchases only profit embedded in the transaction can be brought to tax without considering the fact that in the absence of quantitative details like stock register, the quantity of good sold and purchased, kanda receipts, the bogus purchases could be used to decrease the profit element? 7. Whether on facts and circumstances of the case and in law, the Ld. CIT (A) was justified in deleting the addition of Rs. 1,92,51,910/- on account of bogus purchases and directing the AO to apply the G.P. rate @ 4% on the bogus purchases of Rs. 1,92,51,910/- by incorrectly relying on the judgment in the case of M/s Pooja Paper Trading Co (P.) Ltd. [264 Taxman 260] - High Court of Bombay and Geolife Organics Vs. ACIT [58 ITR(T) 297)-ITAT Mumbai. 8. The appellant craves leave to add, amend, modify, vary, omit or substitute any of the aforesaid grounds of appeal at any time before or at the time of hearing of the appeal. 5 4. It was stated before us that the sub and substance of the ground of appeal as filed vide letter dated 12.05.2025 remains the same and no new facts are required to be investigated. By relying upon the judgment of Hon’ble Apex Court in the case of National Thermal Plant vs. CIT reported in 229 ITR 383, it was requested for admission of additional grounds of appeal as per letter dated 12.05.2025. The Ld. CIT(DR) did not raise any objection to the same and, accordingly, the appeal of the assessee is being decided on the basis of the grounds of appeal filed on 12.05.2025. 5. The facts, in brief, as borne out from the order of the AO and Ld. CIT(A), are that there was search & seizure operation u/s 132 on the assessee 08.09.2021 and the cases for all the three years were reopened u/s 148.In response to the said notice u/s 148, the return was filed at the same income as per the original return. The assessee is engaged in the business of Rolling Mill and the modus operandi of the manufacturing activities is that the purchases are mode of iron scrap of different qualities and sizes and the steel ingots are the finished product. 6. The Ld. Counsel started his argument as per the grounds of appeal filed on 12.05.2025.The first ground of appeal relates to the approval as granted by the Ld. Addl. CIT u/s 148B, which was stated to be illegal and unsustainable as single approval order dated 30.03.2023 was granted for all the three years i.e. AY 2018-19 to 2020-21 vide letter number 2384 as is borne out from order of the Assessing Officer page 32. 7. The Ld. Counsel of the assessee argued that approval have been accorded in ‘mechanical manner’ referred to the letter dated 29.03.2023 vide letter number 895, which was forwarded by the Assessing Officer to the Addl. CIT, Central Range, Ludhiana which was 6 received in the office of Addl. CIT on the same day and on 30.03.2023, vide letter number 2384, the approval for all the years was granted by the Addl. CIT, Central Range, Ludhiana. Similarly, the assessee further filed evidences that, in the case of another concern M/s. Trimurti Homes Pvt. Ltd., the Ld. AO sought approval from the Addl. CIT, by way of a letter dated 29.03.2023 vide letter number 896.The said letter was received in the office of the Ld. Addl. CIT on 29.03.2023 and on 30.03.2023, the approval was granted. It was also the case in respect of ‘Smt. Pushpa Devi’ and ‘Sh. Ashish Aggarwal’ where on 29.03.2023, the same AO had forwarded letter for the approval in the above two cases and on 30.03.2023, the Ld. Addl. CIT had granted the approval vide letter dated 30.03.2023, bearing number 2385. It was further argued that the Ld. AO had issued show-cause notice in all the three years on 23.03.2023 for compliance by 26.03.2023 and another show cause notice was issued for applying corresponding GP rate on the alleged bogus purchases vide notice dated 28.03.2023 for compliance on 29.03.2023 at 7:00PM.Similarly notices were issued for AY 2019-20 & 2020- 21 as per common paper book pages 28 to 45 submitted before us, and, thus, it was argued that the reply to the 2ndshow cause notices was to be submitted on 29.03.2023 by 7:00PM. The Ld. Counsel for the assessee further pointed out how it could be possible that the order was prepared by the AO on 29th March, 2023 and transferred to Addl. CIT on the same day which reached the office of Addl. CIT on 30th March, 2023 and, then, the Ld. Addl. CIT would have applied his mind on them. Voluminous record was there for all the three years, since it was a search case and, also, all other cases as stated above were also search cases. Thus, it was argued that there was hardly any time for judicious application of mind by the Addl. CIT and, thus, it was merely a mechanical approval. 7 8. The Ld. Counsel submitted in his brief synopsis on this issue as under: 1) It is respectfully submitted that the approval granted by the Additional Commissioner of Income Tax under section 148B (or 153D, as applicable) is vitiated in law as it was accorded in a mechanical manner without due application of mind. The scheme of the Act mandates the Additional CIT to discharge a quasi-judicial function by independently evaluating the issues raised in the draft assessment order, examining the material relied upon by the Assessing Officer, and considering the explanations and documents submitted by the assessee in response. The Additional CIT is not bound by the conclusions drawn in the investigation wing’s appraisal report or the draft order, and is required to apply his own mind to determine the sustainability of proposed additions. The fact that approvals for multiple assessment years were granted on the very same day on which the draft orders were received clearly indicates a perfunctory process, defeating the legislative intent behind the statutory safeguard of prior approval. Such mechanical approval renders the consequential assessment order bad in law and unsustainable. 2) It is respectfully submitted that the approval granted by the Additional Commissioner of Income Tax under section 148B (or 153D, as applicable) is vitiated in law as it was accorded in a mechanical manner without due application of mind. The scheme of the Act mandates the Additional CIT to discharge a quasi-judicial function by independently evaluating the issues raised in the draft assessment order, examining the material relied upon by the Assessing Officer, and considering the explanations and documents submitted by the assessee in response. The Additional CIT is not bound by the conclusions drawn in the investigation wing’s appraisal report or the draft order, and is required to apply his own mind to determine the sustainability of proposed additions. The fact that approvals for multiple assessment years were granted on the very same day on which the draft orders were received clearly indicates a perfunctory process, defeating the legislative intent behind the statutory safeguard of prior approval. Such mechanical approval renders the consequential assessment order bad in law and unsustainable.In view of the above, it is respectfully submitted that the entire assessment is vitiated due to mechanical and non-judicious approval under Section 148B, and the same deserves to be quashed as being bad in law. 9. Further, reliance was placed on the following cases and copies have been enclosed in the judgment set before us as under: a) ACIT vs. Serajuddin and Co. [2024] 163 taxmann.com 118 (SC)[28-11-2023] b) ACIT vs. Serajuddin & Co. [2023] 150 taxmann.com 146 (Orissa) [15-03-2023] 8 c) Principal Commissioner of Income-tax vs. Shiv Kumar Nayyar [2024] 163 taxmann.com 9 (Delhi)[15-05-2024] d) 2025 (3) TMI 994 - ITAT DELHI KEHAR SINGH VERSUS DCIT, CIRCLE- 27, NEW DELHI. e) 2025 (1) TMI 970 - ITAT DELHI INDER CHAND BAJAJ AE -17 VERSUS DCIT CENTRAL CIRCLE-32 DELHI f) 2025 (4) TMI 1132 - ITAT DELHI APPLE COMMODITIES LIMITED VERSUS DCIT, CENTRAL CIRCLE II, NOIDA g) 2024 (12) TMI 1107 - ITAT DELHI M/S AIRWILL INFRA LTD. VERSUS DY. COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE, NOIDA. h) 2025 (1) TMI 175 - ITAT DELHI KAVITA JAIN, BIJENDER KUMAR JAIN, SANDEEP JAIN, SMT. RAKHI JAIN, NARENDER KUMAR JAIN, SURINDER KUMAR JAIN, JAGDISH PRASHAD JAIN VERSUS DCIT CENTRAL CIRCLE KARNAL i) 2025 (2) TMI 915 - ITAT DELHI GULZAR AHMED VERSUS DCIT, CENTRAL CIRCLE, DEHRADUN j) 2024 (12) TMI 1553 - ITAT MUMBAI NILESH SHAMJI BHARANI VERSUS DCIT, CC-4 (1), MUMBAI k) SP SINGLA CONSTRUCTION COMPANY VS. CIT, ITA No. 140 to 145/Chd/2024, AY 2013-14 to 2018-19 l) Ganesh Builders vs. DCIT, ITA No. 422/CHD/2022 AY 2012-13 & 452/CHD/2022 AY 2012-13 (Relevant discussion in this case have been given starting from para 16, page 37 and by relying upon various judgments final finding has been given in para 16.19. page 48 & 49 of the order) 10. It was further argued that the judgment of Hon’ble Orrisa High Court in the case of Serajuddin vs. CIT as cited above has been approved by the Hon’ble Apex Court, where in the SLP of the department have been dismissed as per the decision reported in [2024] 163 taxmann.com 118. Our attention was also drawn to the judgment of the ‘Orissa High Court’ about the “CBDT Manual of Office Procedure in Feb, 2003” in exercise the power u/s 109 of the Act and para 9 of the Chapter-III of Volume-II (Tech.) of the said Manual. It was also submitted before us that the said judgment of the Orissa High Court in para 13,, wherein, the guidelines for granting approval have been issued by the CBDT for granting approval by the Jt./Addl. CIT, it has been mentioned that the “approving authority must grant hearing to the assessee and 9 the AO should place draft order at-least one month barring date” and only then the final order should be passed and the same finding have been recorded in the Chandigarh Bench Judgment of the ITAT in the case of ‘Ganesh Builders’ as cited ‘supra’ at page 45 to page 49 of the said order. Similar reliance have been placed on the judgement of Chandigarh Bench of the ITAT, in the case of ‘SP Singla Construction Pvt. Ltd.’ as cited ‘supra’ and, thus, it was vehemently stressed that the said approval being mechanical, the sanction as given by the Ld. Addl. CIT u/s 148B, which corresponds to the approval granted u/s 153D, the assessment as framed by the AO deserves to be quashed. 11. It was further argued by the Ld. Counsel by way of ground of appeal no. 2 that the approval as granted u/s 151 by the Ld. PCIT is without any application of mind, as there is not only material discrepancy between the amount mentioned in the reasons recorded for reopening, and the amount mentioned in the ‘annexure appended’ in the approval u/s 151.Further, that the approving authority did not approve the basis as per the proposal sent by the AO and, thus, it was stressed upon by relying on the judgment of the Hon’ble Apex Court in the case of“Tele Performance Global Services Pvt. Ltd.” 170 taxmann.com 81,copy placed in the judgment set, at pages 81 to 85, that, the approval as granted by the Ld. PCIT us 151, if it was in variance in respect of the reasons as recorded by the AO, then, the approval was held to be ‘mechanical’ and the notice u/s 148 was quashed and the assessment wassetaside. 12. Our attention was drawn to the copy of reasons u/s 148 as placed in the common paper book at page 1 to 6, wherein, the AO had recorded the reasons of discrepancy in production, on account of excessive electricity consumption of units, consequently out of book sales and less raw material found, as compared to the stock in the 10 books of accounts in the year of search and evasion of GST. Our attention was also drawn to the approval as granted by the Ld. PCIT as per page no. 7 of the common paper book and it was argued that no approval has been granted on account of the facts mentioned in the reasons as recorded by the AO for unaccounted production or outside book sale and for that, it was argued by the counsel as under: \"Mechanical Approval: The approval granted under Section 151 of the Income Tax Act by the Principal CIT (Central) is mechanical and devoid of any application of mind. The approval order dated 22.03.2022 merely states, “I am satisfied that it is a fit case for grant of approval,” without mentioning the quantum or nature of the alleged income escaping assessment. The annexure enclosed with the sanction is limited solely to a credit entry—specifically, a Cenvat credit of Rs.29,99,030—and makes no reference to the alleged unaccounted production or undisclosed sales, which purportedly form the primary basis in the reasons recorded for reopening. Thus there is a variation in reasons recorded and approval. The significant component relating to undisclosed sales and alleged unaccounted production finds no mention in the approval, evidencing that the authority failed to examine the key issue at all Cenvat Credit Never Claimed as an expense in profit & loss account: The credit of Rs.29,99,030 was never claimed by the assessee in the profit and loss account and, therefore, could not have resulted in any escapement of income. The approving authority failed to appreciate that if the Cenvat credit was not debited to the profit and loss account, there could be no question of income escaping assessment. That even the corresponding purchases have not been mentioned in the annexure enclosed with the sanction u/s 151. No Independent Application of Mind: The absence of reference to vital facts and figures in the approval shows that the Principal CIT did not apply independent judgment as required under law before granting sanction under section 151.Since the approval is granted without due consideration of the reasons recorded or application of mind, it is invalid in the eyes of law.An assessment order passed on the basis of such invalid and mechanical approval is bad in law and deserves to be set aside. Your Honours’ kind attention is respectfully drawn to Para 73 of the judgment of Rajeev Bansal as reported in (2023) 301 Taxman 238 (SC), wherein the Hon’ble Apex Court has categorically held that the purpose of obtaining sanction under Section 151 of the Act is to safeguard the assessee from mechanical reopening of assessments, and to ensure that the higher authority applies its mind to the reasons recorded by the Assessing Officer before granting approval. The Hon’ble Supreme Court in the above judgment has relied upon the decision in Shri Krishna (P) Ltd. v. ITO [1996] 221 ITR 53 (SC), wherein it 11 was held that grant of approval must not be a mere formality, but a judicial function to be exercised with due care, application of mind, and examination of relevant material. This legal position has been consistently upheld by various High Courts and reaffirmed by the Hon’ble Supreme Court in multiple cases, reinforcing that mechanical or cryptic approvals, without proper consideration of facts or reasons recorded, vitiate the proceedings and render the consequential assessment orders invalid in law, whether there is factual error in the amount of alleged ascapement. In this regard reliance is being placed on following case laws- a) Assistant Commissioner of Income-tax vs. Teleperformance Global Service (P.) Ltd. [2025] 170 taxmann.com 832 (SC)[10-01-2025] b) Vodafone India Ltd. vs. Deputy Commissioner of Income-tax [2024] 161 taxmann.com 609 (Bombay)/[2024] 464 ITR 385 (Bombay)[19-03-2024], c) Samiksha Gour vs. Income-tax Officer [2024] 162 taxmann.com 903 (Bombay)[22-04-2024] d) S. V. JADHAV vs. INCOME TAX OFFICER & ORS. HIGH COURT OF BOMBAY Source (2024) 8 NYPCTR 562 (Bom) e) Mohd. Shafiq Cement Store vs. Income-tax Officer [2024] 168 taxmann.com 72 (Amritsar - Trib.)/[2025] 210 ITD 1 (Amritsar - Trib.)[18- 10-2024] f) Floyd Filandro Linhares vs. Income-tax Officer [2024] 166 taxmann.com 125 (Bombay)/[2025] 473 ITR 587 (Bombay)[07-08-2024] g) SBC Minerals (P.) Ltd. vs. Assistant Commissioner of Income-tax [2024] 167 taxmann.com 113 (Delhi)[20-08-2024] h) CENTRAL INDIA ELECTRIC SUPPLY CO. LTD. vs. INCOME TAX OFFICER & ANR. 333 ITR 237, i) WSFX Global Pay Ltd Vs ACIT Bombay High Court (2023) 7 NYPCTR 1771 (Bom) 13. It was, thus, stressed upon by the Counsel that the approval has been granted u/s 151 by the Ld. PCIT in a mechanical manner, and particularly, referred to the judgment of Hon’ble Bombay High Court, in the case of Vodafone India Limited reported in 161 taxman 609in which, the notice u/s 148 was quashed for the reason, in as much as, in the notice stating escaping of income was mentioned as 42858.47 crore, whereas, in the order u/s 148A(d), it was mentioned as 12431.99 crore and, there was no explanation about such variance. It was further argued that since, only mechanical approval has been granted 12 by the Ld. PCIT u/s 151 in a casual manner. It is always expected from the senior officer to verify the facts before granting the approval Our attention was further drawn to the Annexure attached with the approval at page 9 to 10 of the ‘Common Paper’ wherein only approval granted to the Assessing Officer is of ‘Cenvat Credit’ by the PCIT. Thus, in the present case, since the approval as granted u/s 151 is in variance with the reasons as recorded by the AO, therefore, it was stressed before us that the notice u/s 148 deserved to be quashed. It was also pointed out that since no approval has been granted for alleged unaccounted production as per stocks, the assessment as framed by AO be quashed. 14. Along with the above, the Ld. Counsel referred to Ground No. 4 wherein the arbitrary estimation of excess production of 379 metric tons on alleged unaccounted sale of Rs. 1,13,70,000/- was done based solely on the assumed power consumption of 737.50 units/metric tons by the CIT(A).It was argued that during the course of search no material with regard to the unaccounted purchases or sales or any production outside the books have been found and nothing have been mentioned in the order of the AO/CIT(A).The whole basis have been drawn by the AO on the basis of presumptions and estimation of production on the consumption of electricity units and, thus, it was stressed, that without their being any incriminating material found during the course of search, which is a basic condition for escapement of income u/s 147, the issuance of notice u/s 148 for the last three years cannot be the automatic. Thus, both the AO and the Ld. PCIT have resorted to the reopening of the case u/s 148 and further, PCIT has given the approval, on the basis, that, since the search have been conducted on the assessee on 08.09.2021, the reopening for the past three years is automatic. The Ld. Counsel of the assessee referred to the 13 provisions of the Finance Act, 2021 and Explanation 2 to Section 148 as introduced by Finance Act, 2021 and submitted as under: i. Submissions to Additional Ground No.4: 1) It is a matter of record that in cases where a search was conducted up to 31st March 2021, the applicable scheme under the Income Tax Act, as it then stood, provided for automatic initiation of assessment proceedings under Section 153A for six assessment years preceding the year of search. Similarly, reopening of assessments under Section 153C was also automatic in respect of “other persons” based on seized material. However, the legal position has now been settled by the Hon’ble Supreme Court in the landmark judgment of Principal CIT v. Abhisar Buildwell Pvt. Ltd., reported in 150 Taxmann.com 257, wherein it was categorically held that:- “In respect of completed or non-pending assessment years as on the date of search, no addition can be made under Section 153A in the absence of any incriminating material found during the course of search relatable to the assessee and the assessment year in question.” 2) Where an assessment has been completed under section 143(1) or 143(3), and no incriminating material was found during the search pertaining to the searched person for the relevant assessment year, and the time period for issuance of notice under section 143(2) has expired, any addition made in such completed assessments is beyond jurisdiction and liable to be quashed. 3) Statutory Scheme Post-Finance Act, 2021:- a) The Finance Act, 2021 has overhauled the reassessment regime under sections 147 and 148 of the Income Tax Act. Pursuant to the amendments, even search cases are now governed by the provisions of section 147, with requisite safeguards introduced under section 148, proviso to section 148 and explanation 2 to section 148. b) Twin Conditions under Section 148: Before issuance of a notice under section 148, the following two mandatory preconditions must be satisfied:-  Existence of Information suggesting that income chargeable to tax has escaped assessment for the relevant year.  Prior approval of the specified authority for issuance of the notice. c) Explanation 2 to Section 148:- (As introduced by Finance Act 2021) Explanation 2(i) to Section 148 deems that in cases involving a search initiated under section 132, the Assessing Officer (AO) shall be deemed to have information suggesting escapement of income. However, this 14 deeming fiction only facilitates initiation of proceedings, not the making of addition per se. d) Requirement of Incriminating Material:- i. Despite the deeming provision in Explanation 2, to 148 that no addition can be made in the absence of incriminating material found during the search, particularly for completed assessments as by combined reading of section 147 read with first proviso to section 148. In the present case, the assessee is a searched person. However, no incriminating material was found during the search relevant to the assessment year under consideration. Therefore, although the deeming fiction under Explanation 2 may justify issuance of the notice under section 148, the absence of incriminating material makes any addition unsustainable. ii. It is respectfully submitted that under the amended scheme of reassessment as introduced by the Finance Act, 2021, particularly in the context of search cases covered under Section 147/148, two statutory conditions must be satisfied before issuing a notice under Section 148. Firstly, there must exist “information which suggests that income chargeable to tax has escaped assessment” for the relevant assessment year. Secondly, such issuance must be preceded by the prior approval of the specified authority. In this regard, Explanation 2 to Section 148 provides a deeming fiction wherein the conduct of a search is treated as “information” suggesting escapement of income. However, this deeming fiction has been inserted by way of an Explanation 2 and not through a Proviso. It is a settled principle of statutory interpretation that while a Proviso operates as an exception or condition altering the main provision, an Explanation only clarifies and cannot override or expand the primary statutory requirement. Therefore, the Explanation deeming a search as information must be read in conjunction with the main provision and the first proviso, which mandates that the information must relate to the specific assessment year in question. In the assessee’s case, no incriminating material pertaining to the relevant assessment year was found during the course of search. Hence, the reliance solely on Explanation 2, without demonstrating that the information pertains to escapement of income for the relevant year, is misplaced and renders the initiation of proceedings under Section 148 legally unsustainable. The relevant first proviso to section 148 and explanation 2 to section 148 is reproduced as under:- 1st Proviso to section 148 as amended by Finance Act 2021:- Provided that no notice under this section shall be issued unless there is information with the Assessing Officer which suggests that the income chargeable to tax has escaped assessment in the case of the assessee for the relevant assessment year and the Assessing Officer has obtained prior approval of the specified authority to issue such notice. Explanation 2.-For the purposes of this section, where,- 15 (i) a search is initiated under section 132 or books of account, other documents or any assets are requisitioned under section 132A, on or after the 1st day of April, 2021, in the case of the assessee; or (ii)………….. (iii)…………. (iv)………….. the Assessing Officer shall be deemed to have information which suggests that the income chargeable to tax has escaped assessment in the case of the assessee for the three assessment years immediately preceding the assessment year relevant to the previous year in which the search is initiated or books of account, other documents or any assets are requisitioned or survey is conducted in the case of the assessee or money, bullion, jewellery or other valuable article or thing or books of account or documents are seized or requisitioned in case of any other person. (Emphasis Supplied) e) From the above legal position, it is respectfully submitted that a notice under Section 148 cannot be issued automatically to a searched person, unlike the earlier regime applicable to searches conducted prior to 1st April 2021.Under the revised framework, the Assessing Officer is now mandatorily required to apply his independent mind while seeking approval under Section 151 from the specified authority. Such approval must be based on the satisfaction that the information discovered during the course of search pertains to and suggests escapement of income for the relevant assessment year for which the notice under Section 148 is sought to be issued. The deeming fiction created by Explanation 2 to Section 148—treating a search as information suggesting escapement of income—must be interpreted harmoniously with the first proviso to Section 148, which requires that such information be specific to the assessment year in question. This condition can only be fulfilled if the Assessing Officer has duly examined the seized materials, records, documents, and any assets in writing, and formed a reasoned belief that such material is relevant to the year for which notice is being proposed. Therefore, despite the deeming fiction applicable to searched persons, the issuance of notice under Section 148 still requires the Assessing Officer to demonstrate that the information unearthed during search leads to escapement of income in the specific assessment year. The mere fact of search, in itself, is not sufficient reason to issue a notice. Failure to establish this connection would render the issuance of notice without proper approval under Section 151 as bad in law and unsustainable. f) The interpretation outlined above is further supported by the legislative change brought about by the Finance Act, 2021, wherein the phrase “reasons to believe” — which previously formed the jurisdictional foundation for reopening under Section 147 — has been consciously omitted. The substituted scheme clearly reflects a shift in legislative intent, whereby the jurisdiction to initiate reassessment proceedings now arises only when there is income that has actually escaped assessment, as evidenced by information as defined under 16 the Explanation to Section 148. This structural change reinforces the principle that the mere occurrence of a search or survey, without a direct nexus to escapement of income for a particular assessment year, does not confer jurisdiction upon the Assessing Officer. It is therefore imperative that the information relied upon must suggest escapement of income specific to the assessment year in question, and must be substantiated through a reasoned and independent application of mind before issuance of notice under Section 148. Finance Act 2021 Up to Finance Act 2020 “147. If any income chargeable to tax, in the case of an assessee, has escaped assessment for any assessment year, the Assessing Officer may, subject to the provisions of sections 148 to 153, assess or reassess such income or recompute the loss or the depreciation allowance or any other allowance or deduction for such assessment year (hereafter in this section and in sections 148 to 153 referred to as the relevant assessment year). 147. If the 5 [Assessing] Officer 6[has reason to believe7] that any income chargeable to tax has escaped assessment7 for any assessment year, he 7may, subject to the provisions of sections 148 to 153, assess or reassess7 such7 income 7and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings7 under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in sections 148 to 153 referred to as the relevant assessment year) : Provided that where an assessment under sub-section (3) of section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year8, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure8 on the part of the assessee to make a return under section 139 or in response to a notice issued under sub-section (1) of section 142 or section 148 or to disclose fully and truly all material facts8 necessary for his assessment, for that assessment year: 17 g) Reference may kindly be drawn to the judgment of the Hon’ble Karnataka High Court in the case of Vasanthi Ramdas Pai reported in 470 ITR 536, wherein it has been categorically held that a conjoint reading of Sections 147 and 148 makes it unequivocally clear that escapement of income is a sine qua non for the initiation of proceedings under Section 147. The Court emphasized that the availability of information suggesting escapement of income is a mandatory precondition for issuance of notice under Section 148. The phraseology employed in Section 148 post-amendment mandates that such information must be objective in nature, and not merely speculative or inferential. It must specifically indicate that income chargeable to tax has escaped assessment. The Hon’ble Court further clarified that merely invoking the deeming fiction under Explanation 3 to Section 148, without any supporting material to correlate the alleged escapement to the relevant assessment year, would be inadequate. Explanation 2 is merely a facilitative provision, and the Assessing Officer is still required to independently evaluate whether the information gathered during the course of the search is sufficient to establish escapement of income warranting reassessment. Para F Ramdas Pai reported in 470 ITR 536 (Refer page no. 150 to 151 of case law index book) (Placed in PB pages 139 to 157) (a) Now, to say that the Assessing Officer can invoke Section 147 without any reason would, apart from being contrary to the aforestated rule of law, also fall foul of Article 14 as he is expected to act reasonably. The requirement to act reasonably being in-built into the amended provision, an act in variance with the same is unsustainable. Therefore, I am of the considered view that the Assessing Officer should have information as defined in Explanation 1 to section 148 that suggests escapement of income and only thereafter, the provisions of Section 148 can be invoked. Further, such an exercise should be reasonable and not fanciful or roving as pointed out in ITO vs LAKHMANIMEWAL DAS (1976) 3 SCC 757, (103 ITR 457). Though this decision was rendered long before the amendment to the subject section was effected, its inner voice animates the Division Bench decision of Delhi High Court in DIVYA CAPITAL ONE PRIVATE LIMITED vs. ACIT [2022] 445 ITR 436 (Del), (Refer page no. 158 to 165 of case law index book) that has been rendered post- amendment. (b) If one looks at the reasons given in the notices in question, as also in the impugned orders that followed the said notices, it becomes evident that they merely mention that, information was received in line with the risk management strategy. They do not disclose what kind and content of information it was. While the notice does not state anything more, the annexure to the notice talks of Section 56 and long term capital gains versus short term capital gains. An Assessing Officer functioning under the statute cannot employ jugglery of words in notices of the kind and let the assessee keep guessing why is his assessment being re-opened. The order clearly sets out that the Assessees have already disclosed the said transactions in the Return, 18 though arguably they could have been taxed differently. It is very intriguing to note paragraph 3 of the impugned orders issued under Section 148A(d) of the Act which has the following text: ‘On going through return of income filed by the assessee for AY 2018- 19, it is noticed that the assessee has not disclosed the above transaction and the income there upon in the Return of Income for the relevant AY 2018-19. As per the return of income, the assessee has claimed exempt income of Rs. 298,96,71,235/- as Long Term Capital Gain from sale of shares.’ In the similar notice issued to another petitioner, everything is verbatim except the amounts involved. The first sentence in the said paragraph that the Assessee has not disclosed the transactions in question for the Assessment Year 2018-19, is falsified by the second sentence which states that the Assessee has claimed exempt income as long term capital gain from the sale of shares, which manifests the contradiction. Nothing more is necessary to specify as the matter is as apparent as can be. Therefore, this is a clear case of issuing notices based on disclosure in the existing Return of Income filed by the Assessee but on incorrect premise of nondisclosure. There was no new information whatsoever that has come into his domain suggestive of escapement of income. (c) It is pertinent to mention that the definition of information given under Explanation I to Section 148 is a ‘means definition’ as distinguished from ‘means and includes definition’. This Explanation enumerates only two [upto 31.3.2022] and five [from 1.4.2022] categories and the information even if it be true, unless is the one relatable to any of these categories, the jurisdiction cannot be assumed by the Assessing Officer. It hardly needs to be stated that where the legislature employs ‘means definition’, it is exhaustive and therefore, nothing can be added vide P.KASILINGAM vs. P.S.G. COLLEGE OF TECHNOLOGY, 1995 Supp (2) SCC 348. h) Further reliance is placed on the decision of the Hon’ble Delhi High Court in the case of Divya Capital One Pvt. Ltd. reported in 445 ITR 436, wherein the Court has categorically held that even under the amended scheme of reassessment under Sections 147 and 148 of the Act, the existence of information suggesting escapement of income continues to be a foundational jurisdictional requirement. The Hon’ble Court clarified that the benchmark under the amended law remains aligned with the earlier threshold of “reason to believe,” and that the power under Section 147 cannot be invoked in the absence of specific, credible, and relevant information that points toward escapement of income. The relevant portion of the judgment is reproduced hereunder for ready reference: COURT’S REASONING 19 NEW RE-ASSESSMENT SCHEME WAS INTRODUCED BY THE FINANCE ACT, 2021 WITH THE INTENT OF REDUCING LITIGATION AND TO PROMOTE EASE OF DOING BUSINESS. 7. This Court is of the view that the new re-assessment scheme (vide amended Sections 147 to 151 of the Act) was introduced by the Finance Act, 2021 with the intent of reducing litigation and to promote ease of doing business. In fact, the legislature brought in safeguards in the amended re-assessment scheme in accordance with the judgment of the Supreme Court in GKN Driveshafts (India) Ltd. v. ITO, (2003) 259 ITR 19 (SC) before any exercise of jurisdiction to initiate re- assessment proceedings under Section 148 of the Act. 8. This Court is further of the view that under the amended provisions, the term “information” in Explanation 1 to Section 148 cannot be lightly resorted to so as to re-open assessment. This information cannot be a ground to give unbridled powers to the Revenue. Whether it is “information to suggest” under amended law or “reason to believe” under erstwhile law the benchmark of “escapement of income chargeable to tax” still remains the primary condition to be satisfied before invoking powers under Section 147 of the Act. Merely because the Revenue-respondent classifies a fact already on record as “information” may vest it with the power to issue a notice of re- assessment under Section 148A(b) but would certainly not vest it with the power to issue a re-assessment notice under Section 148 post an order under Section 148A(d). i) Similarly, in the case of Angelantoni Test Technologies SRL reported in 463 ITR 139 (Refer page no. 166 to 170 of case law index book), the Hon’ble Delhi High Court reiterated that under the amended reassessment regime, the existence of “information which suggests that income chargeable to tax has escaped assessment” remains the sine qua non for invoking jurisdiction under Section 147 of the Act. The Court emphasized that the threshold requirement of escapement of income has not been diluted by the amendment, and that such information must be objective, specific, and relevant to the assessee and the assessment year in question. The following observation of the Court is noteworthy: 9. Further, this Court in Divya Capital One Private Limited (Earlier Known as Divya Portfolio Private Limited) vs. Assistant Commissioner of Income Tax Circle 7(1) Delhi & Anr., 2022 SCC OnLine Del 1461 held that ‘Whether it is “information to suggest” under amended law or “reason to believe” under erstwhile law the benchmark of “escapement of income chargeable of tax” still remains the primary condition to be satisfied before invoking powers under Section 147 of the Act’. 10. Consequently, the impugned orders under Section 148A (d) of the Act and the notices passed under Section 148 of the Act and all consequential action taken thereto are set aside. It is clarified that if any material becomes subsequently available with the Revenue, it shall be open to it to take proceedings in accordance with law. The challenge to the vires to Explanation 1 to Section 148 of the Act is left 20 open. With the aforesaid directions, the present batch of writ petitions is disposed of. j) From the above legal framework and factual matrix, it is evident that Explanation 2 to Section 148 merely provides a deeming fiction to the effect that the Assessing Officer (“AO”) shall be deemed to have information suggesting that income chargeable to tax has escaped assessment in the case of a search. However, this deeming fiction alone does not suffice for issuance of a notice under Section 148. The AO is still required to pass the substantive test under Section 147, i.e., he must independently establish that income chargeable to tax has actually escaped assessment for the relevant assessment year. This is reinforced by the first proviso to Section 148, which lays down a negative condition, stating that no notice under Section 148 shall be issued unless there is information suggesting escapement of income. Importantly, Section 147 is not merely an enabling provision for issuing a notice under Section 148 based solely on deemed information. Rather, the precondition of escapement of income under Section 147 must be judicially satisfied, and the information under Explanation 2 can only assist, but not replace, this statutory requirement. 15. It was argued that the latest judgment by the Hon’ble ‘Karnataka High Court’ in the case of Vasanthi Ramdas Rai as cited above for which, a copy has been placed in the judgment set, wherein, it has been held that escapement of income is a prerequisite for issuance of notice u/s 148 and without their being any escapement of income, or any incriminating material relating to such escapement having been found, there cannot be any escapement of income automatically, as there has to be some material on record for such reopening u/s 148. It was further argued by the Ld. Counsel by drawing our attention to proviso to the Section 148 which read as under: “Provided that no notice under this section shall be issued unless there is information with the Assessing Officer which suggests that the income chargeable to tax has escaped assessment in the case of the assessee for the relevant assessment year and the Assessing Officer has obtained prior approval of the specified authority to issue such notice.” 16. Further, it was stressed before us by the Ld. Counsel that for each of the assessment year, the escapement has to be proved, because in the proviso, the word is “Relevant Assessment Year” and, further, by referring to Section 147, it was argued before us that in place of the 21 word “Reason to Believe”, it has been brought by way of Finance Act, 2021, “that there is an escaped income for the relevant assessment” year and, thus, there cannot be any automatic reopening of the three assessment years immediately preceding the AY relevant to previous year, in which, the search has been initiated there being any material and thus, in nutshell, there being no evidence of the ‘escapement of income’ relating to unaccounted production or of stocks, following the judgments of Hon’ble Karnataka High Court, Delhi High Court as cited ‘supra’, the very issuance of notice u/s 148 deserves to be quashed as the PCIT while granting the approval has accorded the same as it the moment search has taken place, the 148 can be issued as per approval wherein he has mentioned as under:- “The assessee is connected to a search action conducted on 08.09.2021 u/s 132 of the Act, on Rosha and Shree Ganesh Group. Thus, the assessee is covered under clause (a) of proviso to the section 148A of the Act. Hence, the Assessing Officer is not required to pass an order /s 148A(d) before issuing notice u/s 148 of the Act.” 17. The Ld. Counsel referring to the Ground No. 3, which relates to the alleged bogus purchases of Rs. 1,92,51,910/- from M/s. Neelkanth Steel & Allied Industries wherein, the AO has made a total addition of Rs. 1,92,51,910/- on account of bogus purchases from the above said party on the basis of information received from GST. It was alleged that there is a passing of wrong ‘Canvet credit’ and, though, the Ld. Counsel of the assessee during the course of assessment proceedings filed the copy of account of Neelkanth Steel and Allied Industries in his books of accounts, where all such purchases have duly been recorded and payments have been made through banking channel and placed before the AO, the copy of the bank account statement of the assessee term where payment towards purchases have been made. The copies of the invoices as raised by the Neelkanth Steel And Allied mentioning the vehicle numbers, evidence, from the ‘Excise and 22 Taxation Department of Punjab’, certifying movement of goods and above all, the day to day stock register have been filed, wherein, the said purchases of the scrap team above party and other have been recorded and corresponding consumption have also been recorded therein, which shows that the such purchases have been utilized for manufacture of finished goods and no doubt has been cast on the sales by the AO. 18. It was further argued before us that the books of accounts of the assessee have been accepted and, thus, if the books of accounts have not been rejected u/s 145(3), no addition could be made in the case of the assessee. The reliance was placed on the number of judgments, particularly of Hon’ble Punjab &Haryana High Court in the case of Om Overseas reported in 315 ITR 185 for the said preposition. It was further argued that even the CIT(A) has discussed this issue and given a finding at page 72 to 73 of his order and applied a gross profit rate of 4% on the alleged bogus purchases of Rs. 1,92,51,910/-for which, it was argued that the same was not in order as the rates of the purchases from the doubtful parties were same or less than the parties, whose purchases have not been doubted by the Department. Thus, there was no justification for making the addition of Rs. 7,70,048/- as sustained by the CIT(A). 19. With regard to the part addition of Rs. 1,13,70,000/- as sustained by the CIT(A) by taking an average power consumption for the last five years at 737.50 units metric tonnes and during the year under consideration, the per metric power consumption was 755 and, thus, the CIT(A) calculated the excess production and by adopting rate of sale and assuming that the sales have been made, calculated the addition of Rs. 1,13,70,000/- and against which, the department is in cross appeal. It was argued by the Ld. Counsel before us that there is 23 no incriminating material found during the course of search with regard to the production, outside the books of accounts or any purchases and sales outside the books of accounts. merely on the basis of the alleged higher consumption of the units and on the basis of the statement of the '“Chemist” during the course of search, about the method of calculating the consumption of unit also on account of the subsequent years, consumption of units in AY 2021-22, which was calculated on average basis at 606 units per metric tonnes, the AO went ahead with the estimation of unaccounted production and sales outside the books of accounts without their being any incriminating evidence found during the course of search. The Ld. Counsel referred to the reply filed during the course of assessment proceedings at page 10 & 11 of the order of CIT(A) that there were difference of qualities of scrap and there was no fast & hard rule for the consumption of electricity units considering the fact that at times, there was a breakdown or switching off of electricity, due to which, it takes more time in heating of the material and that merely on the basis of the consumption of electricity on an average basis for AY 2021-22, no adverse view could be taken against the assessee. 20. It was further argued by the Ld. Counsel that even the basis adopted by the Ld. CIT(A) by taking into consideration the average consumption of units per metric ton comes to 737.5 unit per metric tonnes and thus, the part addition as sustained by the Ld. CIT(A) is against the facts & circumstances of the case, since no evidence of any unaccounted production have been found during the course of search. It was further argued as under: 20. The entire process of manufacturing of the Assessee was duly explained to the AO. It was duly explained that the consumption of electricity would depend upon several factors. The consumption of electricity would rather change in every round of manufacturing process. 24 21. The furnace is charged with all combinations of scraps such as pig iron, heavy melting scrap, shredded scrap or sheet metal. When the machine is loaded with different types of scraps, the power consumption would naturally differ each time. 22. Even as per studies, electric furnaces are considered as being one of the worst source of fluctuations on a power supply system. 23. Even high quality and low quality of aluminium scrap is mixed with the scrap in the plant in order to get the final product as per the requirement of the buyer and as per order. The said combination also requires different power consumption. 24. It is also a matter of fact that, when ever there is power failure, a time of around 1-2 hours is again required for the furnace to again reach the same level. So naturally the power consumption would be more in such a case. 25. The seized annexure-6 (page-214-244 of PB), which is actually the power consumption reading of the furnace for every heat for a particular period also proves the vast variations in the consumption of electricity. For example- power consumption is 575 units also for a particular heat on 03.09.2021 (page-232 of PB) and it is 848 units also for a particular heat on 30.08.2021 (page-223 of PB). 26. The Copy of monthwise details of Power consumption for the years FY 2015-16 to FY 21-22 is also enclosed in the PB at pages-254- 260. In the said consumption details also there is huge variation. Further the fact that the unit of the Assessee being an excisable unit also puts weight on the stand of the Assessee. 27. Even for the AY 2017-18, the case of the Assessee was finalised under scrutiny vide order dated 17.06.2019 and no adverse inference has been drawn on the Power Consumption issue. It is also worth to mention here that the average yearly consumption for the said year was 845 units. 28. Further, the department itself has accepted that there are wide fluctuations in power and had issued a internal circular dated 25.05.2016, wherein it was stated that 15% variation are possible and permissible in consumption of electricity per metric tonne production. 21. Reliance was also placed on the judgment of Hon’ble “Apex Court” dated 31.01.2011 in the case of Commissioner of Central Excise, Meerut vs. RA Casting Pvt. Ltd. wherein, the Hon’ble Apex Court have held that there cannot be any universal/ uniformly acceptable standard of electricity consumption for calculating the excise duty liability, that too on the basis of imaginary production assumed by the revenue with no other supporting record, evidence or document to justify the allegation. Similar reliance have been placed on the number 25 of other judgments of Jurisdictional Bench of Chandigarh ITAT in the following cases: a) Hon'ble Supreme Court of India dated 31/1/2011 in the case of Commissioner of Central Excise, Meerut Vs. R.A Casting (P) Ltd. wherein the Hon'ble Apex Court has upheld the order of Custom, Excise and Service Tax Appellate Tribunal and held that the findings of the Tribunal were based on material on record. The Hon'ble Apex Court recorded as under:- \"Being aggrieved by the impugned orders, the respondents filed appeals before the customs, Excise & Service Tax Appellate Tribunal, New Delhi . The Tribunal by the impugned orders allowed the appeals, The Tribunal observed that it is settled principle of law that the electricity consumption can not be the only factor or basis for determining the duty liability, that too on imaginary basis, especially when Rules 173E mandatory requires the Commissioner to prescribe/fix norm for electricity consumption first and notify the same to the manufactures and thereafter ascertain the reasons for deviations, if any, taking also into account the consumption of various inputs, requirements of labour, material, power supply and the conditions for running the plant together with the attendant facts and circumstances. The Tribunal further observed that no experiments have been conducted in the factories of the appellants for devising the consumption norms of electricity norms of electricity for producing one MT of steel ingots. Tribunal also observed that the electricity consumption varies from one units to another and from one date to another and even from one heat to another within the same date. Therefore, no universal and uniformly acceptable standard of electricity consumption can be adopted for determining the excise duty liability that too on the basis of imaginary production assumed by the ' Revenue with no other supporting record, evidence or document to justify its allegations. The Tribunal has also considered the report of Dr. Batra, which has been relied upon for making the allegations that there was higher electricity consumption. It appears that Dr. Batra in his report has observed that for the production of 1 MT of steel ingots, 1046 units electricity required.\" b) Vishal Paper Industries vs JCIT in ITA No. 348/Chandi/2011 order dated 23.03.2012 “15. In the present case, the ld. CIT(A) presumed that consumption of higher electricity would directly and invariably lead to the higher production, not accounted for by the assessee in his books of account. There is fundamental fallacy in the conclusions and findings of the ld. CIT(A) in attributing unaccounted production, to such sole factor. The ld. CIT(A), failed to bring on record, to demonstrate that the assessee indulged in the purchases of raw material outside the books of account and sales of the manufactured goods outside the books of account allegedly produced by way of higher consumption of electricity. In the real manufacturing world, there is hardly any direct and uniform correlation with consumption of electricity and production of manufactured goods. Having regard to the above legal 26 and factual discussions, we do not find any substance and merit, in the findings of the ld. CIT(A). Therefore, such findings cannot be sustained. Consequently, this ground of appeal of the assessee-appellant is allowed.” c) The ITO vs M/s Arora Alloys Ltd. In ITA No. 78/Chd/2012 order dated 01.03.2012 (27 taxmann.com 140) “The perusal of judgement of Hon'ble Apex Court as detailed above shows that electricity consumption can not be taken to be a reliable basis for estimating the production of a particular unit for the purposes of imposition of Excise Duty. The main reason for the same is that the consumption of electricity depends upon various factors like type quality of scrap used, number of break downs, quality of the labour / supervisory staff, diligence of the management etc. Therefore, the Assessing Officer's action in estimating Assessee company's production on the basis of alleged excessive consumption of electricity is erroneous and fallacious. The addition made is therefore, deleted.” d) ACIT vs M/s Prinik Steels Pvt Ltd in ITA No. 245/CTK/2017 order dated 04.11.2019 “We also find that there is allegation of the Assessing Officer regarding suppressed production, which were sold in the market. In our considered opinion, the Ld CIT(A) was also quite correct in taking the cognizance of proposition rendered by ITAT Hyderabad Bench in the case of Balaji Steel Rolling Mills (P) ltd (supra), wherein, the Co-ordinate Bench of the Tribunal referring to the order of ITAT Chandigarh Bench held that the electricity consumption depends upon various factors like type of quality of scrap used, number of break downs, quality of labour/supervisory staff, diligence of management etc and thus, it was held that the action of the AO estimating the production of assessee on the basis of alleged excessive consumption of electricity is erroneous and fallacious. We also further note that ITAT Ahmedabad Bench in the order in the case of Eastern Enterprises vs ACIT (supra), as relied by the ld AR before the ld CIT(A) as well as before us, the Co- ordinate Bench held that consumption of electricity may rise due to hundreds of factors or reasons, therefore, addition based on only such allegation was not found to be sustainable.” e) ACIT vs M/s Nilesh Steel & Alloys Pvt Ltd. (ITAT Pune) in ITA No. 1636 & 1637 and 1589 & 1590 of 2012 order dated 30.11.2015 “Addition for alleged suppression of production based on mere variation in electricity consumption not sustainable” f) M/s Bhoday Steel Rolling Mills vs ITO in ITA No. 248/Chd/2019 order dated 05.07.2021 22. It was thus, argued before us that, since the consumption of electricity depends upon number of factors such as, quality of labor, supervisory staff, diligence of the management and, thus, no case could be made out of the excessive production and, thus, part 27 sustaining of the addition by the Ld. CIT(A), is not proper and deserves to be deleted. It was further stressed before us that merely on the basis of some statements of the employees during search, which stood retracted later on, no addition could be made as per the judgment of the Hon’ble Chandigarh Bench of ITAT in the case of Jagbir Singh Nehra vs. DCIT in ITA No. 687/Chd/2023 in which the judgement of Hon’ble Apex Court in the case of CIT vs. Mantri Share Brokers Pvt. Ltd. reported in 96 taxmann.com 290 (SC) and other judgments of the different benches of ITAT have been relied upon that no adverse view can be drawn on the basis of statement recorded during search and it was further pointed out that the said statement was not cross verified, either during the course of assessment proceedings or later on during appellate proceedings. Thus, is was concluded by the Ld. Counsel that reopening of the case u/s 148 was bad in law as there was no incriminating material found during the course of search & approval u/s 151 was granted in a mechanical manner. It is in variance with the search recorded by the AO and appeal granted by him and no finding of escapement of income recorded as per proviso to Section 148 and further, on merits of the case and mechanical approval as granted by the PCIT, the notice u/s 148 deserves to be quashed on merit also and the part addition as sustained by the CIT(A) also deserves to be deleted. 23. The Ld. CIT DR relied upon the order of the AO and argued that reopening was made u/s 148 on the basis of the reasons as recorded and which have been duly approved by the Ld. PCIT there is no discrepancy in the same and further stated that since, it was a case of search, the last three years preceding the year of search had to be reopened u/s 148 and, thus, relied upon the finding of the CIT(A) also in this respect. It was further argued by the Ld. DR that there was variation in the consumption of the electricity units and he relied upon the order 28 of the AO wherein, the addition have been made on the basis of higher consumption of electricity by applying the consumption of electricity unit in the AY 2021-22.Since the same business was being carried out, there cannot be so much variation. Regarding the bogus purchases, it was argued by the Ld. DR that since wrong Canvet Credit have been claimed, therefore, the addition of bogus purchases as made by the AO was fully justified. Accordingly, the addition as sustained by the Ld. CIT(A), to the tune of Rs. 7,70,048/- by applying GP rate of 4% on the bogus purchases of Rs. 1,92,51,910/- was not justified. 24. In rejoinder, the Ld. Counsel argued that no evidence of the purchases and sales or any other raw material or other inputs have been found and, therefore, the calculation of unaccounted production based on the average consumption of unit or on the basis of average consumption of unit in AY 2021-22 was not justified at all and the action of the Ld. CIT(A) in sustaining the part addition of unaccounted production and alleged unaccounted sales was wholly unjustified as there was no incriminating material found during course of search. The partial addition sustained on the basis of average electricity unit consumption was baseless in light of the binding judgment of the Hon’ble Apex Court, the jurisdictional bench of the Chandigarh ITAT, and the guidelines issued by the PCIT, Patiala, regarding electricity consumption—reproduced in the order of the Ld. CIT(A). Moreover, the affidavits of the chemist, as reproduced on page 24 of the CIT(A)'s order, were not taken into consideration. As regard the bogus purchases, all such documentary evidence with regard to the purchases remittance of the payments through banking channel of the partners made from the appellant, day to day stock register and the scrap as purchased having been consumed in the production process and the sales against the scrap purchased from “Neelkanth Steel and Allied Industries” and above all the movement of goods have 29 been proved beyond any iota of doubt from the Excise and Taxation Barrier and, thus, under such circumstances, any addition on account of total purchases or addition as sustained by the Ld. CIT(A) by applying a 4% gross profit rate was not justified. 25. We have considered the arguments of the Ld. Counsel of the assessee along with the paper books and judgments set filed before us and also the brief synopsis, arguments of the Ld. CIT DR, assessment order and the order of the CIT(A). The facts are not disputed that there was a search & seizure operation on 08.09.2021 which has led to be issuance of notice u/s 148, for which, the reasons have been recorded by the AO and the approval has been granted by the Ld. PCIT u/s 151 as per the copies placed before us in the common paper book. The AO during the course of assessment proceedings was of the view that there had been excessive consumption of electricity and then by comparing the electricity units consumed in the assessment year 2021- 22 which gave an average of 606 units consumed per metric tonnes of production, applied that basis during the year under consideration and then calculated the unaccounted production in metric tonnes. Then by applying an average rate of sale calculated the suppression of sales outside the books of accounts and made the addition of unaccounted sales. The Ld. CIT(A) agreed with the method of calculating the unaccounted production based on the method adopted by the AO, but he calculated the consumption of units for the year under consideration based on the average consumption of units starting from AY 2016-17 to 2020-21 as per page 67 to the order of the CIT(A) and arrived at average power consumption at 737.50 units per metric tonnes based on five year average and calculated the production accordingly and sustained the part addition. Both the department and the assessee are in cross appeal for the same. 30 26. Another addition as made by the AO was of bogus purchases made from Neelkanth Steel and Allied Industries amounting to Rs. 1,92,51,910/- on the basis of wrong Canvet Credit availed by the assessee. Though the assessee furnished copies of the invoices of the said party along with the proof of movement of the goods, payment through banking channel, day to day stock and consumption register but the AO was not satisfied and he made the entire addition. The CIT(A) discussed this issue at length on the basis of the detailed submissions made by the assessee and came to the conclusion that only profit embedded in such purchases of Rs. 1,92,51,910/-from Neelkanth Steel and Allied Industries could be added and accordingly sustained an addition of Rs. 7,70,048/- by applying GP rate 4% on the purchases of Rs. 1,92,51,910/- from M/s Neelkanth Steel and Allied Industries, for which, both the parties are in cross appeal. 27. The assessee has also challenged the reopening of the case u/s 148 and the approval as granted by the Ld. PCIT u/s 151 and since, it goes to the very assumption of the jurisdiction by the AO, the same is being adjudicated first. 28. We have gone through the reasons as recorded by the AO for AY 2018-19 wherein, the issue of wrong “Canvet Credit” on account of purchases made from Neelkanth Steel and Allied Industries had been mentioned by the AO along with the issue of excessive consumption of electricity units have been discussed. Statement of Chemist,Sh. Vijyand, who has elaborated the calculation of consumption of electricity units and based on that, a view have been formed by the AO about the unaccounted production and then, the consumption of unit has sought to be adopted at an average of 620 units per metric tonnes. It has been stated therein, that the production as disclosed in the books of account was less. The Ld. PCIT has accorded his approval as under: 31 29. We have also gone through the annexure to the approval as granted by the Ld. PCIT which is being reproduced as under: 32 33 34 30. Thus, from the approval as granted by the PCIT, we find that whereas, as per annexure, the only issue mentioned is regarding the bogus purchase transaction viz. a viz. the alleged bogus Canvet Credit in the same process and no other issue of the unaccounted production based on the excessive consumption of electricity units as mentioned in the reasons recorded by the AO have been approved by the PCIT. Besides that, the issue of minuscule amount of stock viz a viz the stock as per the books of accounts which have been recorded in the reasons have not been approved by the PCIT. Further, we find that, in the approval granted, the PCIT has accorded the approval by referring to the clause (a) to Section 148A and which reads as under: “(a) A search is initiated under section 132 or books of account, other documents or any asset are requisitioned under section 132A in the case of the assessee on or after the 1st day of April, 2021; or” 31. From a bare reading of such approval granted by the PCIT, it is seen that the basic requirement with regard to the escapement of income which is sine qua for the purpose of initiating the proceedings u/s 148 as per first proviso to Section 148 have not been fulfilled and the said proviso to Section 148 have been reproduced above in the body of the order for the purpose of clarity of the facts. We have also carefully gone through the recent order of the Hon’ble High Court of Karnataka in the case of Smt. Vasanthi Ramdas Pal & Ors reported at 159 taxmann.com 392 as cited supra, in which, it has been held as under: ■ One of the jurisdictional issues which would arise for consideration is, whether there is 'information suggesting escapement of income' so as to invoke section 147 and issue notice under section 148. Should this jurisdictional fact be absent, the question of issuing notices or making orders under section 148A would not arise. It is pertinent to delve into the history of sections 147 and 148 as they stood both before the amendment. [Para B] ■ Under the old section, the opening words were 'If the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year'. As against that, in the 35 amended section, the opening words are: 'If any income chargeable to tax, in the case of an assessee, has escaped assessment for any assessment year'. So, what is conspicuously missing from the new section is the term 'reason to believe'. In other words, under the new provisions, section 147 can be invoked only if any income chargeable to tax has 'escaped assessment'. Thus, the Assessing Officer has to be prima facie satisfied that there is 'escapement of income', unlike earlier law which permitted action based on mere reason to believe. Now mere reason to believe, cannot be a ground for carrying out assessment under section 147. [Para IV(B)(b)] ■ As per section 148, firstly, the Assessing Officer should have information; secondly, such information should suggest that there is an escapement of income. The phrase 'information with the Assessing Officer which suggests that the income chargeable to tax has escaped assessment' is explained in Explanation 1 to section 148. [Para IV(B)(c)] Meaning Of Words: 'Suggest' And 'Information' Employed In The Subject Provisions: ■ The word 'suggest' is not defined in the 1961 Act and therefore, one has to ascertain its meaning from other sources. As per Advanced Law Lexicon - The word 'suggest', either in its meaning as ordinarily employed or as affected by the context of the will, that can be regarded as expressive of confidence, or belief, or desire, or hope, or will, or as the equivalent of a word of entreaty or recommendation: is in fact, and a precatory word at all, in the ordinary sense. As per Black's Law Dictionary - To introduce indirectly to the thought; to propose with difference or modesty; to hint; to intimate. As per Merriam-Webster - 'to call to mind by thought or association'. [Para D(a)] ■ Information': The expression 'information' in the context in which it occurs must, mean instruction or knowledge derived from an external source concerning facts or particulars, or as to law relating to a matter bearing on the assessment vide: CIT v. A. RAMAN & CO. [1968] 67 ITR 11 (SC)]. Therefore, section 148 would point out to concrete information which could be facts which point out to a case of income having escaped assessment. [Para D(b)] ■ On a conjoint reading of section 147 and section 148, it is clear that the escapement of income is a sine qua non for initiating proceedings under section 147. Therefore, availability of the 'information which suggests that there is an escapement of income' is a pre-requisite for issuing notice under section 148. The argument that omission of phrase 'reason to believe' has gotten away and has given way to 'information with the Assessing Officer which suggests that the income chargeable to tax has escaped assessment' would mean that there should be no need for any reason seems incorrect. The phraseology of amended section 148 makes in unmistakable terms clear that there should be a concrete information as defined in Explanation 1 to section 148. Such information should be suggestive of income escaping assessment and such information should be 36 objective in nature. In other words, the arguable subjectivity in the pre- amendment provision is given a go-by. For conducting assessment under section 147, there should be not only escapement but also the reason to believe that there is such escapement, the reason being the information itself. Hence, a plausible view could be taken that post- amendment of the provision, the escapement has to be established with concrete information. Section 148A would only assist the Assessing Officer in coming to a conclusion whether such information is good enough to allow a notice to be issued under section 148. This is how, the new provisions should be interpreted so as to make them workable in accord with the intent to achieve the purpose for which statutory change was brought about. An argument to the contrary would hijack the statutory object. [Para F] ■ Now, to say that the Assessing Officer can invoke section 147 without any reason would, apart from being contrary to the aforestated rule of law, also fall foul of article 14 as he is expected to act reasonably. The requirement to act reasonably being in-built into the amended provision, an act in variance with the same is unsustainable. Therefore, it is opined that the Assessing Officer should have information as defined in Explanation 1 to section 148 that suggests escapement of income and only thereafter, the provisions of section 148 can be invoked. [Para F(a)] 32. Further, we find that the PCIT has accorded the approval only as per the proviso (a) to Section 148A, without their being any positive finding about the escapement of income. We also find that there is no incriminating material seized during the course of search with regard to any purchases & sale outside the books of accounts. Therefore, we hold that, despite the deeming fiction applicable to searched persons, the issuance of notice under Section 148 still requires the Assessing Officer to demonstrate that the information unearthed during search leads to escapement of income in the specific assessment year. The mere fact of search, in itself, is not sufficient reason to issue a notice. Failure to establish this connection would render the issuance of notice without proper approval under Section 151 as bad in law and unsustainable. The same view has been upheld by the Hon’ble Delhi High Court in the case of Divya Capital One Pvt. Ltd. reported in 445 ITR 436, wherein the Court has categorically held that even under the amended scheme of reassessment under Sections 147 and 148 of the Act, the existence of information suggesting escapement of income 37 continues to be a foundational jurisdictional requirement. The Hon’ble Court clarified that the benchmark under the amended law remains aligned with the earlier threshold of “reason to believe,” and that the power under Section 147 cannot be invoked in the absence of specific, credible, and relevant information that points toward escapement of income. The copy of judgment has been placed before us in the judgment set at page 158 to 165. The relevant portion of the above judgment has been reproduced above in this order. 33. Further, we find that there is a variance in the reasons as recorded by the AO, copy of which have been placed in the common paper book pages 1 to 6 and approval as granted by the PCIT as reproduced above, in as much as, in the approval along with the Annexure as accorded by the PCIT, there is only approval granted is on account of the information suggesting that the assessee had entered into bogus purchase transaction as per Annexure to the approval as reproduced above and further, the approval granted by the PCIT have been accorded on the ground that, if the search is initiated on or before 01.04.2021 as mentioned in clause (a) to Section 148A, then automatically, the case would be reopened u/s 148 is not a correct view taken by the PCIT. Further, the PCIT never accorded the approval on account of the unaccounted production based on the consumption of electricity units or on account of the stocks as found during the course of search. We have also gone through the judgment of the Hon’ble Supreme Court in the case of Assistant Commissioner of Income-tax vs. Tele performance Global Service (P.) Ltd. [2025] 170 taxmann.com 832 (SC) [10-01-2025] wherein, the Hon’ble Supreme Court has held that the approval has been granted without any application of mind and there is a variance in the reasons recorded by the AO and approval granted by the PCIT, then the notice as issued u/s 38 148 deserves to be quashed. Relevant finding of the Hon’ble Supreme Court is reproduced as under: “Section 151, read with sections 147 and 148, of the Income-tax Act, 1961 - Income escaping assessment - Sanction for issue of notice (Approval) - Assessment year 2019-20 - For assessment year 2019-20, order under section 148A(d) and a consequent notice under section 148, both approved by Principal Commissioner under section 151, were issued against assessee - Assessee contended that sanction/approval under section 151 had been obtained and granted without application of mind as quantum of income which had escaped assessment as mentioned in approval and in draft order varied from each other - In reply, department mentioned it as a typographical error - High Court by impugned order held that said explanation could not be accepted because a typographical error could have been committed by Assessing Officer, who was seeking approval, but if only Additional/Joint Commissioner or Principal Commissioner had read approval application and draft of order to be issued under section 148A(d), they would have certainly noticed discrepancy and they should have either refused approval or sent application back to Assessing Officer for filing correct form for approval - Thus, in such circumstances, order under clause (d) of section 148A as well as consequent notice issued under section 148 was to be quashed and set aside” 34. Further, the judgment of Hon’ble High Court of Bombay in the case of Vodafone India Limited as relied upon by the Ld. Counsel is also relevant. The sanction for approval seems to had been granted without any application of mind as there was a variance in the figure of escapement of income and in the present case also. We find from the copy of the reasons and the approval as granted by the PCIT, there is a variance. 35. We have deliberated upon the detailed arguments of both the sides and gone through the number of judgments cited by the Ld. Counsel of the assessee on the issue of notice u/s 148. without their being any finding specifically which is required to be recorded as per proviso to Section 148 about the escapement of income which is a first necessary step for initiating the proceedings u/s 148, the approval granted by the PCIT that the reopening is automatic as per proviso (a) to Section 148A is misplaced. There is also a variance in the approval 39 granted by the PCIT and the reasons as recorded by the AO as described above, and, thus, we have no hesitation in holding that the issuance of notice u/s 148 without their being any finding about the escapement of income is bad in law in view of the judgment of the Hon’ble Karnataka High Court in the case of Vasanthi Ramdas and of the Delhi High Court in the case of Divya Capital One Pvt. Ltd. following the judgment of Hon’ble Supreme Court in the case of Teleperformance Global about the variance in the reasons as recorded by the AO and approval granted by the PCIT, the issuance of notice u/s 148 is quashed and, thus, the assessment as framed by the AO vide order dated 31.03.2023 deserves to be quashed as well. 36. Regarding the ground of approval as granted by the Worthy Addl. CIT, detailed arguments have been given by the Ld. Counsel of the assessee. Though the second show-cause notice, for which, the reply was to be submitted by 29.03.2023, all the three cases of the assessee were forwarded to the Addl. CIT vide single letter number 895 dated 29.03.2023 and on the next day i.e. 30.03.2023, the approval was granted by the Addl. CIT along with the approval in other cases of Pushpa Devi and Trimurti Homes. A number of judgments have been cited by the Ld. Counsel of the assessee of the Chandigarh Bench of ITAT in the case of Ganesh Builders and of the Hon’ble Supreme Court in the case of Serajuddin, in which, the judgment of the Hon’ble High Court of Orrisa has been approved. Judgment of Delhi Bench of ITAT and of the Chandigarh Bench of ITAT in the case of SP Singla Construction Co. have also been cited. We find that that proviso of Section 153D is paramateria with the provisions of Section 148B of the Income Tax Act, 1961 since, both deals with the approval of the draft order by the Senior Supervisory Authority. 40 37. We have gone through the arguments of both the sides and also the judgments as cited supra by the Ld. Counsel. We find that the two show-cause notices one dated 23.03.2023 for 26.03.2023 and another show cause notice dated 28.03.2023 for compliance on 29.03.2023 was issued. By way of single letter, the AO forwarded the approval to the Addl. CIT by the single approval, by the Ld. Addl. CIT granted the approval to the AO. In the present case, since, the show-cause-notice dated 28.03.2023 was issued for compliance on 29.03.2023 by 7:00PM and then on the same day, the AO forwarded the letter for approval and on 30.03.2023, the Addl. CIT granted the approval. As per the judgment of the Ganesh Builders wherein, the judgment of the Orrisa High Court has been considered and followed. In that judgment, which have been upheld by the Hon’ble Supreme Court, wherein, it has been held that the draft order should be placed by the AO before the Addl. CIT one month before time barring date. Therefore, in the above facts & circumstances of the case, following the judgment of jurisdictional Bench of ITAT and judgment of Hon’ble Supreme Court as cited supra, and also the judgment of Hon’ble Supreme Court in the case of Shree Krishna Pvt. Ltd. reported in 221 ITR 53 wherein, it was held that the grant of approval must not be mere formality but a judicial function to be exercised with due care, application of mind and examination of the relevant material. Thus, we hold that the approval as granted by the Addl. CIT seems to be in a mechanical manner, accordingly, we hold that the approving authority u/s 148B had granted approval in a mechanical manner without any application of mind. Thus, consequently the assessment order as passed by the AO on such approval deserves to be set-aside as the order has not been passed according to the mandate statue and laid down jurisprudence. 38. The next ground of appeal is on merits is of sustaining the part addition as sustained by the CIT(A) by applying average power 41 consumption of 737.50 units per metric tons on the basis of five year average consumption unit by the assessee. He calculated the production in metric tons and applying a sale rate, the addition of Rs. 1,13,70,000/- has been sustained and both the sides are in cross appeal against the part addition sustained by the CIT(A). The department is in appeal against the addition deleted by the CIT(A). The facts are not disputed in as much as no evidence of unaccounted purchase or sales or production have been found during the course of search and it is also a fact that during the course of search, one annexure-6 was seized wherein, day and night heat had been recorded for the period starting for few days for the Financial Year 2021-22 and this consumption of units is as per the books of accounts. There is a variation of the units because on some days, i.e. on 30.08.2021, copy placed at page 223, there is a consumption of unit of 848 against the consumption of 700 and 650 units on various dates. Thus, by way of the seized record also, we find that there is a variation in the electricity units and variation is because of a number of reasons which have been dealt with by the Ld. Counsel of the assessee by way of reply filed before the AO/ CIT(A). Simply on the basis of the variation, no addition on account of the unaccounted production can be sustained and coupled with the facts that no evidence of the purchase and sale outside the books of accounts have been found. The judgment of Hon’ble Supreme Court in the case of RA Casting as cited above is relevant to the facts & circumstances of the case. Besides the judgment of the ITAT Bench of Chandigarh in the case of Vishal Paper Company and other judgments and above all, the PCIT, Patiala in respect of such variation, had himself given direction that fluctuation in the consumption of electricity units upto 15% can be considered to be reasonable as per order of the CIT(A), page 55. Thus, we hold that the AO was not justified in assuming the production outside the books of accounts and consequent sales 42 outside the books of accounts on the basis of the consumption of electricity units @ 606 units per metric tons. Further, we also hold that the adoption of 737.50 units per metric tons on the basis of the average annual power consumption for the different years by the CIT(A) is also not proper. Thus, we have no hesitation in dismissing the appeal of the Department by way of ground of Appeal No. 1 to 3 and allowing the appeal of the assessee as per Ground of Appeal No. 4. 39. The Next Ground of appeal relates to addition on account of purchases made from the Neelkanth Steel & Allied Industries to the tune of Rs. 1,92,51,910/-. For that, we have gone through the arguments of both the sides and find that all the copies of the invoices of the said party along with the ledger accounts, documentary evidence of movement of goods from the Excise & Taxation Department and the payment through the banking channel have been submitted along with the day to day stock register showing the receipt of the scrap from Neelkanth Steel &Allied Industries and other parties and the consumption of the same for the production of the finished goods. Further, we find that the sales have not been doubted by the AO. Only on the basis of the wrong Canvet Credit as per the information received, the addition have been made by the AO. We have carefully gone through the evidences and arguments placed on the record before the Authorities below and also before us, various judgments on the basis of the bogus purchases as relied upon by the Ld. Counsel including of the Hon’ble Supreme Court in the case of Tejua Rohit Kumar reported in 94 taxmann.com 325 (SC) and judgment in the case of Century Plyboard Pvt. Ltd. reported in 103 taxmann.com 179 (SC) and also the judgment in the case of Odeon Builders Pvt. Ltd. reported in 110 taxmann.com 64 (SC) and many other judgment of the Chandigarh Bench of ITAT alongwith that of the Hon’ble Punjab & Haryana High Court in the case of Supertech Forgings India Pvt. Ltd. in 43 ITA 101-2022 (O&M) (P&H), wherein, on identical facts & circumstances, the addition on account of the bogus purchases have been deleted. We also hold that the gross profit rate of 4% as applied by the CIT(A) on the bogus purchases of Rs. 1,92,51,910/- is not justified, since the purchases from Neelkanth Steel & Allied Industries have been made at the same rates as per the rates of the parties which have not been doubted. Following the judgment of Chandigarh Bench of ITAT in the case of Prime Steel Industries bearing ITA No. 275/Chd/2024 wherein, similar facts were there and the CIT(A) had sustained the addition by applying a GP rate on the bogus purchases as doubted by the AO. When the matter was agitated by both the parties, the entire addition on account of bogus purchases and profit embedded on such bogus purchases was deleted. Thus, on the basis of above said facts & circumstances, we allow the appeal of the assessee wherein, the CIT(A) had sustained the addition of Rs. 7,70,048/- on the bogus purchases from the above said party and dismiss the ground of appeal of the department bearing 4 to 7. 40. The Last ground of appeal is with regard to the rejection of books of accounts u/s 145(3) which have been made by the AO and upheld by the CIT(A). Since, we have deleted the addition on account of the unaccounted production and allowed the appeal of the assessee on account of the bogus purchases, and, therefore, this ground of appeal of the assessee is academic in nature. 41. In ITA No. 922/Chd/2024, Assessment Year 2019-20 (D) & Cross Objection filed by the assessee in ITA No. 05/Chd/2024 (A) and in ITA No. 923/Chd/2024, Assessment Year 2020-21 (D) & Cross Objection filed by the assessee in ITA No. 06/Chd/2024 (A), there are grounds of appeal, which for reference are reproduced below: Grounds of Appeal of the Department for AY 2019-20 44 1. Whether upon facts and circumstances of the case and in law, the Ld. CIT (A) was justified in deleting the entire addition of Rs. 13,32,90,000/by the A.O on account of suppression of sales by directing AO to consider average annual power consumption per MT for six years by ignoring the fact that authenticity of average annual power consumption data before the date of search was not established/authenticated and also ignoring the statement of Sh. Kunwar Vijyant, factory chemist and Sh. Santokh Singh, Accountant in which they had described the consumption of electricity units for the production of 1 tonne of metal of finished products? 2. Whether upon facts and circumstances of the case and in law, the Ld. CIT (A) was justified in deleting the addition of Rs. 13,32,90,000/- by applying the average of annual power consumption for the six years instead of monthly average calculated by the A.O. on the basis of seized material and made addition u/s 69A of the Act accordingly? 3. Whether upon facts and circumstances of the case and in law, the Ld. CIT (A) was justified in deleting the addition of Rs. 13,32,90,000/- by applying the average of annual power consumption for the six years and by failing to obtain the reasons for substantial increase in the turnover and decrease in average annual power consumption after the period of search i.e. for AY 2021-22 & AY 2022-23? 4. The appellant craves leave to add, amend, modify, vary, omit or substitute any of the aforesaid grounds of appeal at any time before of at the time of hearing of the appeal. Grounds of appeal of the assessee in Cross Objection for AY 2019-20 1. That the re-opening of the case u/s 147 and completion of assessment by the Assessing Officer is void abinitio, since no satisfaction appears to have been recorded by the AO and as such approval as may have been granted by the Higher Authority is non-est and as such the assessment as framed by the AO deserves to be quashed. 2. That though the Ld. CIT(A) has deleted the addition, but never the less, the addition was not liable to be made as no incriminating evidence had been found during search and, thus, the very basis of making the addition is void abintio. 3. That the Ld. CIT(A) has failed to considered the judgement of the Hon'ble Apex Court in the case of PCIT vs. Abhisar Buildwell Pvt Ltd as reported in 150 Taxmann. com 257. 4. That the appellant craves leave to add or amend the grounds of appeal before the appeal is finally heard or disposed off. Grounds of Appeal of the Department for AY 2020-21 1. Whether upon facts and circumstances of the case and in law, the Ld. CIT (A) was justified in deleting the entire addition of Rs. 11,30,10,000/by the A.O on account of suppression of sales by 45 directing AO to consider average annual power consumption per MT for six years by ignoring the fact that authenticity of average annual power consumption data before the date of search was not established/authenticated and also ignoring the statement of Sh. Kunwar Vijyant, factory chemist and Sh. Santokh Singh, Accountant in which they had described the consumption of electricity units for the production of 1 tonne of metal of finished products? 2. Whether upon facts and circumstances of the case and in law, the Ld. CIT (A) was justified in deleting the addition of Rs. 11,30,10,000/- by applying the average of annual power consumption for the six years instead of monthly average calculated by the A.O. on the basis of seized material and made addition u/s 69A of the Act accordingly? 3. Whether upon facts and circumstances of the case and in law, the Ld. CIT (A) was justified in deleting the addition of Rs. 11,30,10,000/- by applying the average of annual power consumption for the six years and by failing to obtain the reasons for substantial increase in the turnover and decrease in average annual power consumption after the period of search i.e. for AY 2021-22 & AY 2022-23? 4. The appellant craves leave to add, amend, modify, vary, omit or substitute any of the aforesaid grounds of appeal at any time before of at the time of hearing of the appeal. Grounds of appeal of the assessee in Cross Objection for AY 2020-21 1. That the re-opening of the case u/s 147 and completion of assessment by the Assessing Officer is void ab-initio, since no satisfaction appears to have been recorded by the AO and as such approval as may have been granted by the Higher Authority is non-est and as such the assessment as framed by the AO deserves to be quashed. 2. That though the Ld. CIT(A) has deleted the addition, but never the less, the addition was not liable to be made as no incriminating evidence had been found during search and, thus, the very basis of making the addition is void abintio. 3. That the Ld. CIT(A) has failed to considered the judgement of the Hon'ble Apex Court in the case of PCIT vs. Abhisar Buildwell Pvt Ltd as reported in 150 Taxmann. com 257. 4. That the appellant craves leave to add or amend the grounds of appeal before the appeal is finally heard or disposed off. 42. There are amended/additional grounds of appeal which for reference is reproduced below: Additional Grounds of the assessee in Cross objection filed for AY 2019- 20 46 1. On the facts and in law, the approval granted by the ld. Addl. CIT under Section 1488 is illegal and unsustainable, as a single approval order dated 30.03.2023 was issued for all three assessment years-AYS 2018-19 to 2020- 21 vide letter no.2384. 2. That the reopening is bad in law in, as much as, neither in the reasons recorded by the AO nor in the approval granted by the Ld. PCIT u/s 151, there is reference to any escapement of income, which is mandatorily required as per provisions of the Act. Additional Grounds of the assessee in Cross objection filed for AY 2020- 21 1. On the facts and in law, the approval granted by the ld. Addl. CIT under Section 1488 is illegal and unsustainable, as a single approval order dated 30.03.2023 was issued for all three assessment years-AYS 2018-19 to 2020- 21 vide letter no.2384. 2. That the reopening is bad in law in, as much as, neither in the reasons recorded by the AO nor in the approval granted by the Ld. PCIT u/s 151, there is reference to any escapement of income, which is mandatorily required as per provisions of the Act. 43. At the outset, the Ld. Counsel of the assessee pointed out that the cross objection have been delayed by 136 days for both the AY 2019- 20 & 2020-21 for which, he had moved an application filed in the office on 11.03.2025 vide application dated 01.03.2025 and in this respect, the affidavit of Sh. Mohit Bains, employee of the assessee have been filed mentioning that, he was under a bonafide belief that since appropriate relief had been granted, there is no need of filing any cross objection. Thus, it was prayed that the delay in filing the cross objection may please be condoned. The Ld. CIT DR argued that the decision be taken on the merits on the application moved by the assessee. 44. We have considered the application for condonation of delay along with the affidavit and looking into the facts & circumstances, we condone the delay in filing the cross objection in the interest of justice and equity. 45. The facts & circumstances with regard to the issuance of notice u/s 148 and approval as granted by the PCIT u/s 151 and the approval 47 as granted by the Addl. CIT u/s 148B are common and both the sides also reiterated the same arguments as in the appeal of the assessee and the department for AY 2018-19. Thus, based on our finding, in the assessment year 2018-19, the reopening u/s 148 and consequent assessment as framed by the Assessing Officer is quashed as per finding given in the appeal of the assessee for AY 2018-19. 46. On merits, the Department is in appeal, for deletion by the Ld. CIT(A) of the addition on account of the unaccounted production based on the average annual power consumption for six years by the assessee. For which also, the facts & circumstances are the same as in the appeal of the assessee. and of the Department for AY 2018-19, Accordingly, following our order for AY 2018-19, we dismiss the appeal of the Department on this ground. 47. In the result, the appeals filed by the Revenue are dismissed, whereas the appeals of the assessee are allowed. Order pronounced in the open Court on 28/05/2025 Sd/- Sd/- राजपाल यादव क ृणवȶ सहाय (RAJPAL YADAV) (KRINWANTSAHAY) उपाȯƗ/VICEPRESIDENT लेखासद˟ /ACCOUNTANT MEMBER AG आदेश की Ůितिलिप अŤेिषत/ Copy of the order forwarded to : 1. अपीलाथŎ/ The Appellant 2. ŮȑथŎ/ The Respondent 3. आयकर आयुƅ/ CIT 4. आयकर आयुƅ ) अपील/( The CIT(A) 5. िवभागीय Ůितिनिध ,आयकर अपीलीय आिधकरण ,चǷीगढ़/ DR, ITAT, CHANDIGARH 6. गाडŊ फाईल/ Guard File आदेशानुसार/ By order, सहायक पंजीकार/ Assistant Registrar "