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Facts
The assessee filed an appeal against the penalty order under section 271(1)(c) of the Income Tax Act, 1961. The penalty arose from an addition made by the AO on account of bogus purchases, which was partly reduced by the CIT(A) but the penalty was upheld. The assessee's appeal before the CIT(A) was dismissed.
Held
The Tribunal held that penalty under section 271(1)(c) cannot be levied merely on the basis of an estimated addition. Relying on various High Court decisions, the Tribunal found that the addition was made solely on estimation.
Key Issues
Whether penalty under section 271(1)(c) is leviable when the addition to income is based solely on estimation and not on concrete evidence of concealment.
Sections Cited
250, 271(1)(c), 143(3)
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Income Tax Appellate Tribunal, “G” BENCH, MUMBAI
Before: SHRI SANDEEP SINGH KARHAILSHRI PRABHASH SHANKAR
Date of Hearing – 13/10/2025 Date of Order - 15/10/2025
O R D E R PER SANDEEP SINGH KARHAIL, J.M.
The assessee has filed the present appeal against the impugned order dated 23.01.2023, passed under section 250 of the Income Tax Act, 1961 (“the Act”) by the learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi, [“learned CIT(A)”], which in turn arose from the penalty order passed under section 271(1)(c) of the Act, for the assessment year 2012-13.
The present appeal is delayed by 250 days. Alongwith the appeal, the 2. assessee has filed an application seeking condonation of delay, which is duly supported by his affidavit, submitting as follows: - “6. I being aggrieved by the said order has filed appeal before CIT(A) on 06.05.2019 contesting the levy of penalty. The Hon'ble CIT(A) NFAC has passed the Order u/s 250 of the Income Tax Act, 1961, dated 23rd August, 2024 under DIN reference no. ITBA/NFAC/S/250/2024 - 25/1067929078(1) confirming the levy of penalty by dismissing the appeal. I was not aware of the CIT(A)'s order as the same was sent on email of my part-time Accountant alongwith other quantum appeal order. The above facts I came to know only on 19th June, 2025 when another penalty notice bearing DIN reference no. ITBA/PNL/F/271(1)(c)/2025 - 26/1077170288(1) dated 18th June, 2025 received from NFAC in respect of subsequent reassessment proceedings and thereafter I contacted my Chartered Accountant for filing of this appeal hence the delay of 250 days in filing of this appeal from the date of email. Though I am filing this appeal well within the time from the date when I came know of the CIT(A)'s Order. However, to avoid any legal complications I am swearing this Affidavit confirming the above facts for submitting the same alongwith petition for condonation of delay.”
Having considered the submissions of the assessee, we are of the considered view that there was sufficient cause which prevented the assessee from filing the present appeal within the prescribed limitation period. Accordingly, we condone the delay and proceed to decide the present appeal on the merits.
The only grievance of the assessee, in the present appeal, is against the levy of penalty under section 271(1)(c) of the Act.
We have considered the submissions of both sides and perused the material available on record. The brief facts of the case are that the assessee is an individual and for the year under consideration filed his return of income on 28.09.2012, declaring a total income of Rs.23,39,510/-. On the basis of the information received from the office of DGIT (Inv.) Mumbai, the assessee is a beneficiary of accommodation entry transaction of bogus purchases from entities which are controlled by Bhanwar Lal Jain and Group, show cause notice was issued to the assessee regarding the tendered purchases. Vide order dated 27.03.2015 passed under section 143(3) of the Act, the Assessing Officer (“AO”) made an addition of Rs.8,96,442/- by treating the purchases as bogus and by applying the gross profit rate of 8%. In further appeal, the learned CIT(A), in quantum proceedings, directed that the profit margin already declared by the assessee in its books should be reduced from the profit margin of 8% adopted by the AO for the alleged bogus purchases. Accordingly, the learned CIT(A) granted partial relief to the assessee. Meanwhile, penalty proceedings under section 271(1)(c) of the Act were initiated separately. After considering the submissions of the assessee, the AO vide order passed under section 271(1)(c) of the Act levied a penalty of Rs.2,77,000/-. The learned CIT(A), vide impugned order, dismissed the appeal filed by the assessee and upheld the levy of penalty under section 271(1)(c) of the Act.
Thus, it is evident from the record that the AO made the addition on account of bogus purchases by applying the gross profit rate of 8%, which was further reduced by the learned CIT(A) by granting the benefit of profit margin already declared by the assessee in his books. Thus, the entire addition for the year under consideration has been made based solely on estimation.
We find that the Hon'ble Rajasthan High Court in CIT v/s Krishi Tyre Retreading and Rubber Industries, reported in [2014] 360 ITR 580 (Raj.) held that where an addition is made purely on an estimate basis, no penalty under section 271(l)(c) of the Act is leviable. Similar view has been expressed by the Hon'ble Punjab & Haryana High Court in CIT v/s Sangrur Vanaspati Mills Ltd., reported in [2008] 303 ITR 53 (P&H), wherein the Hon'ble High Court held that when the addition has been made on the basis of estimate and not on any concrete evidence of concealment, penalty under section 271(l)(c) of the Act is not leviable. Further, the Hon'ble Gujarat High Court in CIT v/s Subhash Trading Co. Ltd., reported in [1996] 221 ITR 110 (Guj.) has taken a similar view in respect of levy of penalty under section 271(l)(c) of the Act on estimated additions. Therefore, it is evident that the issue about the justification of the imposition of a penalty, where the addition is made on the basis of an estimate, is no longer res integra. We find that similar findings were rendered by the Co-ordinate Bench of the Tribunal in the assessee’s own case in ITA No.5662/Mum./2024, vide order dated 06.01.2025, for the assessment year 2013-14.
Thus, respectfully following the aforesaid decisions, we are of the considered view that the penalty under section 271(1)(c) of the Act cannot be levied merely on the basis of an estimated addition. Accordingly, we direct the AO to delete the same.
In the result, the appeal by the assessee is allowed. Order pronounced in the open Court on 15/10/2025