AVANCE TECHNOLOGIES LIMITED,MUMBAI vs. DCIT, CENTRAL CIRCLE -2(1), MUMBAI, MUMBAI

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ITA 4885/MUM/2025Status: DisposedITAT Mumbai30 October 2025AY 2007-08Bench: SHRI PAWAN SINGH (Judicial Member), SMT. RENU JAUHRI (Accountant Member)1 pages

In favour of the assessee: the assessee's appeal was allowed. From the AI summary of this appeal.

AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that penalty under section 271(1)(c) is not leviable when additions are made on an estimation or ad-hoc basis. Relying on various case laws, the Tribunal deleted the penalty.

What were the facts?

The assessee's appeal is against the penalty confirmed by the CIT(A) for AY 2007-08. The penalty was levied under section 271(1)(c) based on an addition made on a peak basis, which the assessee argued was an estimation.

What were the issues?

Whether penalty under section 271(1)(c) is leviable on additions made on estimation or peak basis, and if the show cause notice was specific enough.

Which sections of the Income-tax Act were involved?

Section 271(1)(c),Section 274

AI-generated summary — verify with the full judgment below

Cases cited in this judgment(4)Show list

Detected automatically from the text. Citations are also linked where they appear in the judgment. The count shows how many other judgments on BharatTax rely on the same authority.

PER PAWAN SINGH, JUDICIAL MEMBER;

1.

This appeal by assessee is directed against the order of ld. CIT(A)/NFAC, Delhi dated 15.07.2025 in confirming penalty of Rs. 26,02,441/-, levied under section 271(1)(c) dated 28.02.2023 for A.Y. 2007-08. The assessee has raised multiple grounds of appeal however substantial grounds of appeal relates to validity of penalty levied under section 271(1)(c) being illegal and not tenable under the law.

2. Rival submissions of both the parties have been heard and record perused. The ld. AR of the assessee submits that he has three fold submissions, (i) that assessing officer has not specified charge in the show cause notice issued under section 274 r.w.s. 271(1)(c), copy of such show cause notice dated 27.03.2025 is filed on record at page No. 1 of paper book. In absence of specific charge, the order of penalty is not valid. The invalidity of notice is not rectifiable mistake. The Hon’ble Bombay High Court in Mohd. Farhan A. Shaikh vs DCIT (2021) 125 taxmann.com 253 (Bombay) also held that assessee is not required to substantiate prejudice caused to him. Further, the assessing officer initiated penalty on one limb that the furnished inaccurate particular of income and held guilty on another limb that is concealed income. Secondly, the assessing officer made addition on the basis of peak theory by taking a view that assessee indulged in arranging bogus bills of Rs. 5.13 crores to Empower Industry India Ltd. The assessing officer made addition of Rs. 84,22,139/- being peak balance and treated the same as unexplained expenditure. Such addition is based on estimation. It is an admitted position under the law that penalty is not leviable on addition made on estimation basis and thirdly, the penalty proceedings are separate and independent, finding recorded in assessment proceeding would not operate as res judicata. The claim made by assessee in return of income, if not acceptable to the assessing officer, which by itself would not attract penalty. The ld. AR submits that each of his submissions are without prejudiced to each other and the assessee has good case on merit on each and every such submission.

3.

The ld. AR for the assessee fairly submits that addition in the quantum assessment has been upheld upto the stage of Tribunal. Even such confirmation of addition per se cannot be a basis to uphold the penalty as penalty proceedings are separate and independent. To support his submission, the ld. AR of the assessee relied upon the following case laws:  Mohd. Farhan A. Shaikh vs DCIT (supra)  CIT vs State Bank of India (2025) 302 Taxman 365 (SC)  PCIT vs Unitech Reliable Prujects (P) Ltd. (2024) 166 taxmann.com 135 (SC)  ACIT vs Dipesh M Panjwani in  Dr. Sarita Milind Davare vs ACIT (2017) 88 taxmann.com 902 (Mumbai).  Kapil Sharma (Executor of the Estate) vs ITO in ITA No. 97/Agr/2019. • CIT vs Reliance Petro Products (P) Ltd. (2010) 189 Taxman 322 (SC).

4.

On the other hand, learned Senior Departmental Representative (ld. Sr. DR) for the revenue supported the order of lower authorities. The assessing officer made addition on reasonable basis.

5.

We have considered the rival submissions of both the parties and perused the orders of lower authorities carefully. We have also deliberated on various case laws relied by ld. AR of the assessee. We find that there is no dispute that addition in the quantum assessment was made on peak basis. Generally, the peaks additions are made by AO, when cash deposits and withdrawals, or other transactions are owned up by the assessee as undisclosed, are placed in chronological order, the balances are drawn against each deposit and withdrawal or transactions. The deposit in the first entry becomes closing balance against that first entry. This closing balance of first entry becomes opening balance for subsequent entry. Then, deposit or withdrawal of the second entry is adjusted to the opening balance. Then closing balance against the second entry is drawn.

This closing balance of second entry becomes opening balance of the third entry and so on. Highest closing balance against any entry in the accounting period, 3 arising after such adjustment of deposit/withdrawal becomes the peak in the accounting period. Thus, the additions in other way are estimation. We find that Hon’ble Madras High Court in CIT Vs Soundara Pandian & Brothers (1983) 13 Taxman 47 (Mad) confirmed the order of Tribunal in deleting the penalty levied on peak additions.

6.

We find that it is settled position under the income tax proceedings that no penalty under section 271(1)(c) is leviable when the addition is made on estimation/adhoc basis. Similar view was taken in the case laws relied by ld. AR of the assessee. Similar view was taken by this combination in Khodiyar Impex in dated 26.08.2025. Thus, respectfully following such decisions of penalty levied by assessing officer and confirmed by ld. CIT(A) is deleted. Considering the facts that we have accepted one of the plea of ld AR of the assessee and deleted the penalty, thus, all other alternative submissions raised by him have become academic. In the result, grounds of appeal of assessee are allowed.

7.

In the result, the appeal of the assessee is allowed.

Order was pronounced in the open Court on 30/10/2025.

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