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Facts
The assessee, an HUF engaged in manufacturing/trading HDPE pipes, had an addition for alleged bogus purchases (Rs.68,08,698/-) restricted by CIT(A) to 12.5% and by ITAT to 10% (Rs.6,80,869/-) on an estimated basis. Subsequently, the AO levied a penalty of Rs.2,13,699/- under Section 271(1)(c) for tax evasion, which the assessee challenged on appeal. The assessee contended that penalty could not be levied for estimated additions.
Held
The Tribunal, relying on judicial precedents, ruled that penalty under Section 271(1)(c) cannot be imposed when additions are sustained purely on an estimated basis, as such additions do not imply concealment of income or furnishing inaccurate particulars. Consequently, the penalty order levied by the AO was quashed, and the assessee's appeals were allowed.
Key Issues
Whether penalty under Section 271(1)(c) is leviable for additions made purely on an estimated basis without specific findings of concealment or furnishing inaccurate particulars of income.
Sections Cited
250, 271(1)(c), 143(3), 147, 274
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Income Tax Appellate Tribunal, MUMBAI BENCH “E”, MUMBAI
Before: SHRI ANIKESH BANERJEE & SHRI PRABHASH SHANKAR
O R D E R Per Bench: A bunch of 3 appeals are filed by the same assessee against the order of the National Faceless Appeal Centre (NFAC), Delhi[(hereinafter called ‘Ld.CIT(A)] passed under section 250 of the Income-tax Act, 1961 ( in short, ‘the Act’) for the Assessment Years 2009-10 to 2011-12, date of order 16/07/2025. The impugned 5819 & 5847 /Mum/2025 Etesh P Jain, HUF orders were emanated from the orders of the Ld. Income-tax Officer, Ward 1(1), Mumbai (in short, ‘Ld AO’), order passed U/S 271(1)(c) of the Act, date of orders 30/03/2018.
All the appeals have same nature of facts and a common issue. Therefore, all the appeals were taken together, heard together and are disposed of by this common order. is taken as lead case.
The brief facts of the case are that the assessee is a Hindu Undivided Family (HUF), engaged in the business of manufacture and trader of HDPE pipes. The assessments were framed u/s 143(3) r.w.s. 147, date of order 29/03/2024. In the assessment order, the Ld.AO observed that the assessee had purchases amount to Rs.68,08,698/- which was treated by Ld. AO as non-genuine purchase. Accordingly, the Ld.AO added back the entire alleged purchase with the total income of the assessee. The assessee filed an appeal before the Ld.CIT(A). The Ld.CIT(A), in support of the evidence of assessee restricted the addition @12% of the bogus purchases which came to Rs.8,51,087/- as against the addition of Rs.68,08,698/- made by the Ld.AO. The assessee further filed an appeal before the ITAT, Mumbai Bench by challenging the appellate order. The ITAT,Mumbai Bench while deciding the case has further restricted the addition to 10% of the bogus purchases thereby restricting the addition to the extent of Rs.6,80,869/-. Penalty notice was issued u/s 274 r.w.s. 271(1)(c) by the Ld.AO and finally the Ld.AO levied penalty @100% of the tax sought to be evaded, which comes to amount to Rs.2,13,699/-. Being aggrieved, assessee filed an appeal before us.
5819 & 5847 /Mum/2025 Etesh P Jain, HUF 4. `The Ld.AR argued and filed a paper book which is containing pages 1 to 181. The Ld.AR challenged the legal ground before the Bench related to penalty on estimated addition. The Ld. AR invited our attention in appellate order para 6 which is extracted as below:-
“6. The Appellant therefore with reference to levy of penalty respectfully submit that there is neither any concealment of income nor furnishing of particulars of income. The addition / disallowances made by the AO are only estimated addition and same can only be termed as difference of opinion on the same set of facts. This is evident from the fact that the AO made addition of Rs. 68,08,698/-ie 100% of alleged bogus purchases, which was restricted by CIT(A) to Rs. 8,51,087/- i.e. 12.5% of alleged bogus purchases. On farther appeal to ITAT the Hon'ble ITAT estimated the disallowance to Rs.6,80,365/- i.e 10% of alleged bogus purchases. Thus it is submitted that the CIT(A) and the Hon'ble ITAT has accepted the fact that purchases are genuine purchases but confirmed the part addition on estimate basis as the concerned parties were not available for verification of the purchase price. Thus, it is respectfully submitted that the additions/disallowances made are only an estimated disallowance without any cogent basis. The Appellant submit that it is a settled position in law that no penalty u/s 271(1)(c) can be levied where the additions are made on the basis of estimation and not on the basis of any cogent evidence. The Appellant submits that in the following cases, it has beenheld that no penalty can be levied on estimated addition disallowances: 1) CIT Vs. Aarkay Saree Museum [1991] 187 ITR 147 (Bom.)
2) CII Vs. Juhu Construction Co. [295 CTR 316) (Bombay) 3) CIT Vs. Aero Traders (P) Ltd (322 ITR 316) (Delhi) 4) Shiv Lal Tak Vs. CIT [2001] 251 ITR 373 (Raj) 5) CIT Vs. Metal Products of India, 150 ITR 714 (P&H) 6) Harigopal Singh Vs. CIT [2002] 258 ITR 85 (P&H)
Accordingly, the Appellant submit that it has neither concealed its income nor furnished any inaccurate particulars of such income, and in the facts and circumstances of the case of the Appellant, penalty levied by the AO u/s 271(1))(c) of the Act shall be deleted.”
We have heard the rival submissions and perused the documents placed on record. We note that the Ld. AO made an addition towards alleged bogus purchases amounting to Rs.68,08,698/-. The Ld. CIT(A) subsequently restricted the said addition to 12.5%, and the ITAT further reduced it to 10% of the alleged bogus purchases. It is evident that the addition has been sustained purely on an estimated basis. We respectfully rely upon the judgment of the Hon’ble Bombay High Court in PCIT v. Colo Colours Pvt. Ltd., reported in [2025] 178 taxmann.com 458 (Bombay), dated 16 September 2025, wherein similar issues were adjudicated. A consistent view has also been taken by the co-ordinate bench of the ITAT-Mumbai in Kamal H. Shah v. ITO, pronounced on 21 January 2025. The issue, therefore, stands squarely covered by the aforesaid binding precedents. The addition made by the revenue authorities was based on alleged bogus purchases, and ultimately, the ITAT restricted the disallowance to 10% on an estimated basis. The Ld. DR has not raised any substantive objection to the assessee’s contentions. In these circumstances, the penalty levied under the provisions of the Act cannot be sustained, as an estimated addition does not give rise to any concealment of income or furnishing of inaccurate particulars. Accordingly, we have no hesitation in quashing the penalty order. In the result, the appeal in stands allowed.
5819 & 5847 /Mum/2025 Etesh P Jain, HUF & 5847/Mum/2025 7. The facts and circumstances in these appeals are identical to which we have already decided above. Therefore, the decision arrived at above shall apply mutatis mutandis to these appeals also.
In the result, all the three appeals filed by the assessee are allowed.