Loading judgment…
Facts
The Revenue filed an appeal against the CIT(A)'s order deleting penalty under Section 271(1)(c). The assessee had declared income, but the case was reopened, leading to an addition for alleged bogus purchases. The addition was initially substantial but was reduced in appeal.
Held
The Tribunal held that since the addition was ultimately sustained on an estimated basis and not due to concealment or furnishing of inaccurate particulars, no penalty could be levied. The penalty was deleted as it was unsustainable.
Key Issues
Whether penalty under Section 271(1)(c) can be levied when additions are made on an estimated basis and not on account of concealment or inaccurate particulars of income?
Sections Cited
143(3), 147, 271(1)(c), 250, 44AD
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “G” BENCH, MUMBAI
Before: SHRI SAKTIJIT DEY&
(Assessment Year: 2007-08) Income Tax Officer, Mumbai Suresh Maneklal Sheth Room No. 126, 1st Floor, Kautilya 1 Kusum Niwas, Irla Vile Parle (W), Bhavan, G Block, Bandra Kurla Vs. Mumbai 400056 Complex, Bandra East, Mumbai 400051 PAN: AJMPS0119H Appellant) : Respondent) : Shri Prateek Jain Assessee by : Shri. Swapnil Choudhary Sr. AR Revenue by : 30.10.2025 Date of Hearing : 11.11.2025 Date of Pronouncement O R D E R
Per Padmavathy S, AM:
This appeal by the revenue is against the order of the Commissioner of Income Tax Appeals/National Faceless Appeal Centre (NFAC), Delhi passed u/s. 250 of the Income Tax Act, 1961 (the 'Act') dated 08.07.2024 for AY 2007-08. The grounds raised by the revenue pertain to deletion of penalty u/s. 271(1)(c) by the ld. CIT(A).
The assessee is an individual and is a proprietor of M/s. Namrta Paper Agencies. The assessee filed the return of income for AY 2007-08 on 21.08.2024 declaring a total income of Rs. 6,63,520/-. The case was reopened and the Suresh Maneklal Sheth reassessment u/s. 143(3) r.w.s. 147 was completed on 27.03.2015 wherein the AO made an addition amounting to Rs. 53,56,525/- towards alleged bogus purchases from two parties. Aggrieved the assessee filed further appeal before the ld. CIT(A) who reduce the amount of addition to 12.5% of the alleged bogus purchases amounting to Rs. 6,69,566/-. The AO subsequently, initiated penalty proceedings u/s. 271(1)(c) to levy penalty of 100% on the tax that worked out to Rs. 2,27,584/-.
Aggrieved the assessee filed further appeal before the ld. CIT(A) against the levy of penalty. Before the ld. CIT(A) the assessee submitted that the Tribunal has further restricted the addition to the extent of 6% on the alleged bogus purchases vide order dated 29.11.2023. The assessee further submitted that the addition sustain is based on estimation and therefore there cannot be an instance of concealment of income or furnishing of inaccurate particulars of income. Accordingly, the assessee submitted that no penalty can be levy. The assessee placed reliance on the decision of the coordinate bench in the case of Shri. Sanjay Lalchand Bathija vs ITO [ITA No. 7141/Mum/2017]. The ld. CIT(A) after considering the submissions of the assessee deleted the penalty by holding that-
DISCUSSION, REASON & DECISION: I have carefully gone through the grounds of appeal
, statement of facts and the Penalty Order passed by the AO. Ld. In the case, CIT(A) passed the order confirming addition of Rs 6,69,566/- being 12.5% of total bogus purchases i.e. 53,56,525/-. Subsequently, penalty proceedings were initiated by issuing notice u/s 271(1)(c) and finally passed penalty order u/s. 271(1)(c) of the Income Tax Act, 1961 on 29.03.2019. The AO levied penalty of Rs 2,27,548/- @ 100% of the tax sought to be evaded on the addition and confirmation by the CIT(A) amounting to Rs. 6,69,566/- on account of bogus purchases. Being aggrieved by the aforesaid action of the A.O. in levying the above penalty, the appellant prefers the present appeal along with the accompanying grounds of appeal. 6.2 The appellant filed appeal against the order of the AO dated 29.03.2019 raising as many as 03 grounds. Ground No.01 & 03 are general in nature Suresh Maneklal Sheth and hence no separate pronouncement is required, whereas ground no. 2 is specific against the penalty imposed amounting to Rs. 2,27,584/- while passing the penalty order under section 271(1)(c) of the Income Tax Act,1961. In the assessment order passed u/s 143(3) r.w.s 147 of the I.T Act, addition of Rs. 53,56,525/- was made being the accommodation entries taken by the appellant during the F.Y. 2006-07 from the following entities: Sr. No. Name of the entities which TIN Amount provided accommodation entries
1. Bigwin Paper 2718052 32,29,062/- Distributors Pvt. Ltd 9954V
2. Arun Paper and Iron 2702001 21,27,463/ Traders 6621V Subsequently, CIT(A)-37, Mumbai vide its order dated 15.03.2018 confirmed the addition of the AO to the extent of 12.5% of the bogus purchases which comes to Rs. 6,69,566/-. Accordingly, the AO after considering the submission of the assessee-imposed penalty of Rs. penalty of Rs 2,27,548/- @ 100% of the tax sought to be evaded. 6.3 Now the appellant submitted that against the order passed by the Ld. CIT(A), the appellant preferred an appeal before Hon’ble ITAT, Mumbai – wherein the said addition was restricted by estimating it to the extent of 6%. The order of the Ld. ITAT vide dated 21.11.2022 for Assessment Year 2007–08 is perused. The observation of Ld. ITAT is as under: “In the present case also, corresponding sales made by the assessee out of the disputed purchases have not been doubted by the Revenue. Thus, in absence of purchases, the assessee could not have affected corresponding sales. Therefore, respectfully following the judicial precedent in the assessee’s own case cited supra, we direct the Assessing Officer to restrict the addition to 6% of the bogus purchases. Accordingly, ground No. 2 raised in the assessee’s appeal is partly allowed”.
Suresh Maneklal Sheth From the above-mentioned order of the ITAT, it is seen that total disallowance has been made @ 6% on non-genuine purchases (Rs. 53,56,525/-) which comes to Rs. 3,21,392/-only. 6.4 It is settled position that when the additions made in the assessment order, on the basis of which penalty for furnishing inaccurate particulars is levied, are deleted, there remains no basis at all for levying the penalty. Accordingly, no penalty can survive and the same is liable to be cancelled. In the case of K.C. Builders vs. ACIT [2004] 165 ITR 562 (SC),and several other courts of Law pronounced that the deletion of quantum addition would obviously result in deletion of penalty. Once the quantum itself has been deleted, then penalty levied under Section 271(1)(c) of the Act is unsustainable and does not survive. As the Ld. ITAT has restricted the addition by estimating the profit @6% of the non-genuine purchase and the profit has been estimated on the basis of reasonableness without any concreate evidence, in my opinion, no penalty should be levied on the addition made on estimation basis. In the cases cited by the appellant as well as in the following cases similar views has been taken where it was held that penalty u/s.271(1)(c) could not be levied where addition has been made on estimate basis: • Surat Fashions Ltd. vs. ACIT [ITA No.3368/Ahd/2008, dated 27/05/2011] • Narayansingh J. Deora vs. ACIT [ITA No.5895/Mum/2010 dated 09.12.2011] As such, this ground of appeal is allowed, and penalty-imposed u/s.271(1)(c) for Rs.2,27,584/- by order dated 29.03.2019 is hereby deleted. As a result, the appeal of the appellant is “Allowed”.
4. We heard the parties and perused the material on record. It is observed that the penalty in the present case has been levied merely on the basis of estimation of gross profit on alleged bogus purchases. In the quantum appeal the revenue has accepted the various submissions of the assessee with regard to the alleged bogus purchases and accordingly made the addition only on the profit element embedded Suresh Maneklal Sheth in the said purchases. The quantum addition was restricted to 6% of the alleged bogus purchases as against 12.5% by the CIT(A) by the coordinate bench. In our considered view once the quantitative details of purchases and sales stand accepted, the addition made merely on an estimated gross profit cannot form the basis for levy of penalty under section 271(1)(c) of the Act. In this regard it is relevant to take note of the following observations of the coordinate bench in the case of Narayansingh J. Deora (supra) – 7. We have care fully considered the submissions of the rival parties and perused the material available on record. We find that there is no dispute that the AO after re jecting the books of accounts estimated the assessee’s income by applying 12% of the total contract receipt o f Rs.1,98 ,75,956/- and estimated the assessee’s income at Rs.23 ,87,869/-. On appeal , the ld. CIT(A) reduced the percentage of profit to 5% of the total contract receipt. On further appeal by the Revenue , the Tribunal , in view of the provisions of section 44AD directed the AO to apply net rate of profit at 8% o f the gross receipts . Thus, there is no dispute that the assessee’s income was assessed on estimate basis. It is settled law that the penalty is not leviable on estimate o f income.
In order to apply the provisions o f section 271(1)(c) there has to be concealment o f particulars of income , secondly the assessee must have furnished inaccurate particulars of income .
In the recent judgment of the Hon’ble Apex Court in CIT V/s Reliance Petroproducts Pvt. Ltd. (2010) 322 ITR 158(SC) Their Lordships, a fter considering various decisions including Dilip N . Shrof f vs . JCIT (2007) 291 ITR 519(SC), Union o f India V/s Dharamendra Textile Processors (2008) 306 ITR 277(SC) and Sree Krishna Electricals Vs. State of Tamil Nadu (2009) 23 VST 249 (SC) have observed and held (page 158 headnotes) as under: “A glance at the provisions of section 271(1)(c) of the Income- tax Act, 1961, suggests that in order to be covered by it, there has to be concealment o f the particulars o f the income of the assessee. Secondly, the assessee must have furnished inaccurate particulars o f his income . The meaning o f the word “particulars” used in section 271(1)(c) would embrace the details o f the claim made . Where no information given in the return is found to be incorrect or inaccurate , the assessee cannot be held guilty of furnishing inaccurate particulars. In order to expose the assessee to penalty, unless the case is strictly covered by the provision, the penalty Suresh Maneklal Sheth provision cannot be invoked. By no stretch of imagination can making an incorrect claim tantamount to furnishing inaccurate particulars. There can be no dispute that everything would depend upon the return filed by the assessee , because that is the only document where the assessee can furnish the particulars o f his income . When such particulars are found to be inaccurate , the liability would arise. To attract penalty, the details supplied in the re turn must not be accurate, not exact or correct, not according to the truth or erroneous. Where there is no finding that any details supplied by the assessee in its return are found to be incorrect or erroneous or false there is no question of inviting the penalty under section 271(1)(c). A mere making of a claim, which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars regarding the income of the assessee . Such a claim made in the return cannot amount to furnishing inaccurate particulars.”
Respectfully following the ratio of the above decisions and keeping in view that it is not the case of the Revenue that the gross receipts shown by the assessee are not correct or it is not a case of estimation o f income we are of the view that there is no concealment on the part o f the assessee which may call for levy o f penalty u/s 271(1)(c) o f the Act and accordingly , the penalty imposed by the AO and sustained by the ld. CIT(A) is deleted. The grounds taken by the assessee are , therefore , allowed.
The ratio laid down is that when purchases and sales are accepted to make an addition on estimated basis, then there is no concealment of income on the part of the assessee and therefore no penalty could be levied u/s.271(1)(c). It is well settled that penalty proceedings are distinct from assessment proceedings and the assessee is entitled to explain, on the same set of facts, that there was neither concealment of income nor furnishing of inaccurate particulars. The explanation and evidences furnished by the assessee have not been disputed in the quantum appeal and therefore, the penalty levied by the AO on such estimated addition is unsustainable. Accordingly we see no infirmity in the decision of the CIT(A) in deleting the penalty levied under section 271(1)(c) of the Act.
Order pronounced in the open court on 11-11-2025.