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Facts
The appeals were filed by the Assessee against penalty orders under Section 270A of the Income Tax Act for Assessment Years 2018-2019 and 2019-2020. The penalties were levied based on additions made for alleged bogus purchases, which were initially confirmed by the Assessing Officer and later restricted by the CIT(A).
Held
The Tribunal held that the penalty orders were not sustainable because the Assessing Officer failed to specify the exact limb of Section 270A(9) under which penalty was being levied. Additionally, the findings of the Tribunal in the quantum proceedings supported the Assessee's contention that the purchase expenses were substantiated by some documentary evidence.
Key Issues
Whether the penalty under Section 270A was rightly levied without specifying the exact sub-clause of misreporting and whether the grounds for penalty were established based on the evidence.
Sections Cited
270A, 270A(2), 270A(8), 270A(9), 153A, 69C
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “E” BENCH, MUMBAI
[ Per Rahul Chaudhary, Judicial Member:
These are two appeals preferred by the Assessee pertaining to Assessment Years 2018-2019 and 2019-2020. Since the appeals involved identical issues arising from identical factual matrix the same were heard together and are, therefore, being disposed off by way of a common order.
ITA No.3166/Mum/2025 [Assessment Year 2019-2020]
First we would take up appeal preferred by the Assessee for the Assessment Year 2019-2020 against the Order, dated 31/03/2025,
ITA No.3165&3166/Mum/2025 Assessment Year 2018-2019 & 2019-2020 passed by the Commissioner of Income Tax (Appeals) – 53, Mumbai [hereinafter referred to as the ‘CIT(A)’], whereby the Ld. CIT(A) had dismissed the appeal of the Assessee against the Penalty Order, dated 29/11/2023, passed under Section 270A of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’).
The Assessee has raised following grounds of appeal in ITA No.3166/Mum/2025 [Assessment Year 2019-2020] :
“1. The Ld. Commissioner of Income Tax (Appeals) – 53, Mumbai [“Ld. CIT(A)”] erred in confirming the penalty of Rs.2,93,956/- levied by the Assessing Officer („the A.O.‟) under Section 270A of the Income Tax Act, 1961 („the Act‟).
While confirming the penalty levied by the A.O., the Ld. CIT(A) failed to appreciate that neither in the assessment order dated 30th September 2021 nor in the penalty notices dated : 30th September 2021 and 23rd November 2023, the A.O. had specified as to whether penalty is proposed for any of the conditions mentioned in section 270A(2)(a) to 270A(2)(g) of the Act by virtue of which the income of the Appellant is considered to have underreported its income or in Section 270A(9)(a) to Section 270A(9)(f) by virtue of which the Appellant had misreported it‟s income.
The CIT(A) failed to appreciate that no penalty under section 270A of the Act was imposable on estimated addition because the factum of either under reporting of income or mis-reporting of income, is not proved. Thus, no penalty would be imposable in case of trading addition on estimate basis.
The Ld. CIT(A) failed to appreciate that the A.O. passed the penalty order under Section 270A of the Act without affording sufficient, proper, adequate and effective opportunity of being heard to the Appellant.
The Ld. CIT(A) failed to appreciate that additions which are based on estimates or which do not conclusively show that assessee had under reported or misreported its income as per the provisions of section 270A(2) or 270(9) of the Act so as the constitute the basis for Assessment Year 2018-2019 & 2019-2020 imposition of penalty.
The Ld. CIT(A) failed to appreciate that in the case of Appellant the assessment had been completed the addition stood confirmed on mere estimate basis up to Tribunal stage, this fact cannot be conclusive so far as penalty proceedings are concerned.
The Appellant submits that in the facts and circumstances of the case and in law no such penalty was leviable.
The Appellant prays that penalty of Rs.2,93,956/- levied under Section 270A of the Act be canceled/deleted.”
The relevant facts in brief are that the assessment for the Assessment Year 2019-2020 was framed on the Assessee, a partnership firm, under Section 153A of the Act vide Assessment Order, dated 30/09/2021, whereby addition of INR.70,93,473/- was made in the hands of the Assessee under Section 69C of the Act holding that the aforesaid amount represented bogus purchases from the following six parties:
Sr. No. Name Amount (INR)
Hitesh Kantilal Shah HUF 9,11,140
Rushabh Corporation 10,82,928
Rushabh Trading Co. 11,12,818
V. H. Enterprises 12,45,495
Mahavir Enterprises 2,86,600
Vimalanath Associates 12,34,457
Vimalnath Corporation 12,20,035 Total 70,93,473 The Assessing Officer also initiated penalty proceedings under Section 270A of the Act for misreporting of income.
The above addition was challenged by the Assessee in appeal before the Commissioner of Income Tax (Appeals) [hereinafter referred to as the ‘First Appellate Authority’ or ‘FAA’]. Vide order, dated 21/07/2022, the First Appellate Authority partly allowed the appeal preferred by the Assessee and restricted the addition on account of alleged bogus purchases to INR.1,99,328/- being 5% of the alleged Assessment Year 2018-2019 & 2019-2020 bogus purchases of INR.39,86,587/- made from the following four parties: Sr. No. Name Amount (INR)
V. H. Enterprises 12,45,495
Mahavir Enterprises 2,86,600
Vimalanath Associates 12,34,457
Vimalnath Corporation 12,20,035 Total 39,86,587
Being aggrieved by the relief granted by the First Appellate Authority. The Revenue also filed Cross Objections. Vide Common Order, dated 27/02/2023, appeals and cross objections pertaining to Assessment Year 2018-2019 and 2019-2020 were disposed off by the Tribunal. While deciding ITA No.2713/Mum/2022 & Cross Objection No.08/Mum/2023 pertaining to Assessment Year 2019- 2020 (taken as a lead matters), the Tribunal confirmed the order passed by the Ld. CIT(A) restricting the disallowance to 5% of purchase made from the four parties giving separate reasoning.
Subsequent to the above decision of the Tribunal, show cause notice dated 23/11/2023 was issued to the Assessee in the penalty proceedings. The Assessing Officer concluded that the Assessee had under-reported income in consequence of misreporting income since the claim of expenditure was not substantiated by any evidence. Therefore, as per provision of Section 270A(9) of the Act, penalty equal to 200% of the amount of tax payable on misreported income as leviable on the Assessee. Accordingly, the Assessing Officer levied a penalty of INR.1,39,306/- on the Assessee vide Penalty Order, dated 29/11/2023 passed under Section 270A of the Act.
Being aggrieved by the above Penalty Order the Assessee preferred appeal before the CIT(A) which was dismissed vide Order, dated 30/03/2025. 8. Being aggrieved, the Assessee has now preferred the present appeal before the Tribunal on the grounds reproduced at Paragraph 2 Assessment Year 2018-2019 & 2019-2020 above.
During the course of hearing it was contended on behalf of the Assessee that (a) the Assessee had furnished on relevant documents and details in relation to purchase; (b) the Assessing Officer had failed to carry out any independent inquiry to show that the purchases were bogus and had merely related upon the report of the Investigation Wing; and (c) that the additions were made on estimate basis. It was further submitted that in the penalty notices dated 30/09/2021 and 23/11/2023, the Assessing Officer had specified whether penalty was leviable for under-reporting of income in terms of Section 270A(2)(a) to 270A(2)(g) of the Act or for misreporting of income in terms of Section 270A(9)(a) to Section 270A(9)(f) of the Act. In the Penalty Order, the Assessing Officer had also failed to specify the limb Section 270A(2)/(9) of the Act under which penalty was to be levied on the Assessee. It was contended that on account of aforesaid, penalty levied under Section 270A of the Act could not be sustained.
Per contra the Learned Departmental Representative relied upon the findings of the Assessing Officer in the quantum proceedings and also placed reliance upon the Penalty Order and the order passed by Ld. CIT(A) in support of the contention that the Assessee had misreported the income. It was submitted that the both the quantum as well as penalty proceedings the Assessee had failed to bring on record supporting documents to show that purchases made by the Assessee were genuine. It was submitted that in the quantum proceedings the Tribunal had confirmed disallowance to the extent of 5% of alleged bogus purchases and therefore, the Assessing Officer was justified in levying penalty for misreporting of income. Referring to Paragraph 10 to 13 of the Penalty Order the Learned Departmental Representative submitted that the claim of deduction made by the Assessee was not supported by documentary Assessment Year 2018-2019 & 2019-2020 evidence or explanation and therefore, there was clear misreporting of income on the part of the Assessee.
We have given thoughtful consideration to rival submissions and have perused the material on record including the orders passed by Income Tax Authorities.
There is no dispute as to the fact that in the quantum proceedings a disallowance of 5% of alleged bogus purchases aggregating to INR.39,86,587/- made from four parties was confirmed by the Tribunal vide Common Order, dated 27/02/2023, whereby appeals [ITA No.2712&2713/Mum/2012] and Cross Objections [C.O.No.09&08/Mum/2023] pertaining to Assessment Year 2018- 2019 and 2019-2020 were disposed off by the Tribunal. The relevant extract of the aforesaid common order pertaining to appeal preferred by the Revenue for the Assessment Year 2019-2020 [ITA No.2713/Mum/2012] and the Cross Objections filed by the Assessee [C.O.No.08/Mum/2023] reads as under:
“7. After hearing both the parties, we note that out of eleven (11) parties out of whom assessee had made purchases, four (4) parties namely i.e. M/s. Rushabh Corporation, M/s. Rushabh Trading Co., Hitesh Kantilal Shah HUF and M/s. Vimalnath Traders appeared before the AO during the remand report proceedings and their statements were recorded and the AO in the remand report did not point out any adverse observation against those by parties; and coming to other six (6) parties namely M/s. R. K. Madhani & Co., M/s. Vimalnath Associates, M/s. Vimalnath Enterprises, M/s. Vimalnath Corporation, M/s. Mahavir Enterprises and M/s. Bhavya Enterprises, undisputedly they did not appear before the AO, but the inspector of the department visited the premises of the six parties and found all of them existing at addresses except the party M/s. V. H. Enterprises Ltd. which neither attended nor submitted any details or correct address. Therefore, the AO could not further verify with respect to M/s. V.H. Enterprises. Thus, it is noted that out of eleven (11) parties, ten (10) parties identity/address were correct and transaction with them had been through banking channel. The Ld CIT(A), in the light of the statement recorded of four (4) Assessment Year 2018-2019 & 2019-2020 parties who had appeared before AO as well as taking note of the aforesaid facts that six (6) parties address was correct (Inspector Report); and the important fact that the assessee had executed the Contract work on behalf of Government agencies like BMC & MCGM etc; and the project undertaken by assessee have been completed as certified by the Competent Engineers; and the fact that the assessee firm has received the payment from the Government agencies; and that the AO has not disturbed the sales (work executed & payment thereto), therefore, the Ld. CIT(A) directed the AO to restrict disallowance of purchases to 5% of the total purchases made from seven (7) parties namely R. K. Madhani & Co., Vimalnath Associates, Vimalnath Enterprises, Vimalnath Corporation, Mahavir Enterprises and Bhavya Enterprises and V. H. Enterprises. And the Ld. CIT(A) was pleased to delete the disallowance of 100% purchase made from M/s. Hitesh Kantilal Shah HUF, M/s Rushabh Corporation, M/s. Rushabh Trading Co., and M/s. Vimalnath Traders (since they had appeared and the statement was given before the AO during the remand proceedings which have been recorded and no adverse view has been given by AO in the remand report). The Ld DR, could not point out any infirmity in the action of Ld CIT(A) which is based on material and cannot be termed as perverse, so we uphold the impugned order. Even though, we uphold the action of the Ld. CIT(A), it is not on the reason given by the Ld. CIT(A) but on the ground that since the sale figure have not been disturbed by the AO, and the Ld. CIT(A) has given a finding of the fact that the assessee was Government contractor and has completed the projects namely undertaken by it for BMC & MCGM and on successful completion of work/contract has received the payments from them, the presumption drawn is that the assessee might have procured the material [for execution of work] from the grey market and have approached these accommodation entry providers-(seven parties) for accommodation bills by giving commission to them, for saving some money. Therefore, the gross profit (GP) only need to be added (profit embedded in the bills procured from entry providers which is prevalent in the line of business). Therefore, we uphold the action of the Ld. CIT(A) and dismiss the appeal of the revenue” (Emphasis Supplied)
On perusal of the above extract of the decision of the Tribunal, it becomes clear that while concurring with the conclusion arrived at by the First Appellate Authority/FAA in the quantum proceedings, the Assessment Year 2018-2019 & 2019-2020 Tribunal did not approve the reasoning given by the FAA. The Tribunal specifically recorded that the findings given by FAA could not be termed as perverse. The Tribunal took note of the fact that the Assessee had executed works contract for Government agencies, projects undertaken by the Assessee were certified as completed by the competent engineers, the payment for such projects were received by the Assessee from the Government agencies and that the Assessing Officer had not disturbed the receipts disclosed by the Assessee. Therefore, the Tribunal concluded that only the Gross Profit embedded in the alleged bogus purchases could be added in the hands of the Assessee. While affirming the conclusion drawn by the FAA, the Tribunal had observed that a presumption can be drawn that the Assessee had procured the material for execution of work, and that some of the purchases might have been made by the Assessee from the grey market after obtaining purchase bills by giving commission for saving some money. The aforesaid presumption has been drawn by the Tribunal on the basis of findings given by the CIT(A) in favour of the Assessee which were not disturbed by the Tribunal. Therefore, in view of the aforesaid findings/observations of the Tribunal the submissions advanced on behalf of the Revenue that the Assessee had failed to provide any supporting documents or explanation regarding genuineness of the purchases under consideration cannot be accepted.
On the other hand we find merit in the contention advanced on behalf of the Assessee that the Assessing Officer has not specified the limb of Section 270A(9) of the Act under which the Assessee can be said to have misreported income. On co-joint reading of various provisions contained in Section 270A of the Act it becomes clear that on occurrence of the instance of under-reporting of income specified in Section 270A(2)(a) to 270A(2)(g) of the Act. In case the Assessing Officer arrives at a conclusion that the under-reporting of income is in consequence of misreporting, Assessing Officer is Assessment Year 2018-2019 & 2019-2020 required to exhibit that the aforesaid misreporting falls within the ambit of the cases of misreporting specified in Section 270A(9)(a) to 270A(9)(g) of the Act before the Assessing Officer can levy penalty at a higher rate of 200% of the amount of tax on under-reported income by invoking provisions of Section 270A(8) of the Act. Accordingly, while levying penalty under Section 270A of the Act for under-reporting income in consequence of misreporting, the Assessing Officer is required to establish that there is misreporting and that such misreporting falls within the cases of misreporting specified in Section 270A(9)(a) to 270A(9)(g) of the Act. Therefore, we hold that while passing the penalty order under Section 270A(1) read with Section 270A(8) of the Act the Assessing Officer is required to specify the specific limb of Section 270A(9) of the Act under which the Appellant was held to have misreported its income leading to under-reporting of income. The invocation of specific limb of Section 270A(9)(a) to 270A(9)(g) of the Act should either be apparent from the express provisions stated in the penalty order or should be unambiguously discernable from the reading of the penalty order as a whole; and in absence of the same penalty levied under Section 270A of the Act cannot be sustained. In the case before us, on perusal of Penalty Order, dated 29/11/2023, we find that the Assessing Officer has not specified the specific limb of Section 270A(9) of the Act which has been invoked. Further, even on perusal of the penalty order as a whole it is not clearly discernible whether the Assessing Officer has invoked provisions contained in Section 270A(a)/(c)/(d) of the Act. Though the Assessing Officer has alleged that the Assessee has not filed any supporting evidence, the findings recorded by the Tribunal support the contention of the Assessee that the claim for deduction for purchase expenses was substantiated by some documentary evidence.
In view of the above, we hold that in the facts of the present case, the Penalty Order, dated 29/11/2023, levying penalty under Section Assessment Year 2018-2019 & 2019-2020 270A of the Act cannot be sustained. Accordingly, the order passed by the CIT(A) is set aside and the penalty of INR.1,39,306/- levied under Section 270A of the Act is deleted. Thus, in terms of aforesaid, Ground No. 1 raised by the Assessee is allowed, while all the other grounds raised by the Assessee are dismissed as having been rendered infructuous.
In terms of Paragraph 12.3 above, the appeal preferred by the Assessee is allowed.
ITA No.3165/Mum/2025 [Assessment Year 2018-2019]
We would now take up appeal preferred by the Assessee for the Assessment Year 2018-2019 against the Order, dated 31/03/2025, passed by the Ld. CIT(A) whereby the Ld. CIT(A) had dismissed the appeal of the Assessee against the Penalty Order, dated 29/11/2023, passed under Section 270A of the Act.
The Assessee has raised following grounds of appeal in ITA No.3165/Mum/2025 [Assessment Year 2018-2019] :
“1. The Ld. Commissioner of Income Tax (Appeals) – 53, Mumbai [“Ld. CIT(A)”] erred in confirming the penalty of Rs.2,93,956/- levied by the Assessing Officer („the A.O.‟) under Section 270A of the Income Tax Act, 1961 („the Act‟).
While confirming the penalty levied by the A.O., the Ld. CIT(A) failed to appreciate that neither in the assessment order dated 30th September 2021 nor in the penalty notices dated : 30th September 2021 and 23rd November 2023, the A.O. had specified as to whether penalty is proposed for any of the conditions mentioned in section 270A(2)(a) to 270A(2)(g) of the Act by virtue of which the income of the Appellant is considered to have underreported its income or in Section 270A(9)(a) to Section 270A(9)(f) by virtue of which the Appellant had misreported it‟s income. Assessment Year 2018-2019 & 2019-2020
The CIT(A) failed to appreciate that no penalty under section 270A of the Act was imposable on estimated addition because the factum of either under reporting of income or mis-reporting of income, is not proved. Thus, no penalty would be imposable in case of trading addition on estimate basis.
The Ld. CIT(A) failed to appreciate that additions which are based on estimates or which do not conclusively show that assessee had under reported or misreported its income as per the provisions of section 270A(2) or 270(9) of the Act so as the constitute the basis for imposition of penalty.
The Ld. CIT(A) failed to appreciate that the A.O. passed the penalty order under Section 270A of the Act without affording sufficient, proper, adequate and effective opportunity of being heard to the Appellant.
The Ld. CIT(A) failed to appreciate that in the case of Appellant the assessment had been completed the addition stood confirmed on mere estimate basis up to Tribunal stage, this fact cannot be conclusive so far as penalty proceedings are concerned.
The Appellant submits that in the facts and circumstances of the case and in law no such penalty was leviable.
The Appellant prays that penalty of Rs.2,93,956/- levied under Section 270A of the Act be canceled/deleted.”
For the Assessment Year 2018-2019, in facts and circumstances identical to Assessment Year 2019-2020, penalty of INR.2,93,956/- was levied upon the Assessee under Section 270A of the Act. During the course of hearing both sides had agreed that our findings and adjudication pertaining to appeal for the Assessment Year 2019- 2020 shall apply mutatis mutandis to appeal for the Assessment Year 2018-2019. Accordingly, for the Assessment Year 2018-2019, we hold that in the facts of the present case, the Penalty Order, dated 29/11/2023, levying penalty under Section 270A of the Act Assessment Year 2018-2019 & 2019-2020 cannot be sustained. Accordingly, the order passed by the CIT(A) is set aside and the penalty of INR.2,93,956/- levied under Section 270A of the Act is deleted. Thus, in terms of aforesaid, Ground No. 1 raised by the Assessee is allowed, while all the other grounds raised by the Assessee are dismissed as having been rendered infructuous.
In terms of Paragraph 15 above, the appeal preferred by the Assessee is allowed.
In conclusion, both the appeals preferred by the Assessee are allowed.
Order pronounced on 10.10.2025. (Omkareshwar Chidara) Judicial Member म ुंबई Mumbai; दिन ुंक Dated : 10.10.2025 Milan,LDC Assessment Year 2018-2019 & 2019-2020
आदेश की प्रतितिति अग्रेतिि/Copy of the Order forwarded to : अपील र्थी / The Appellant 1. प्रत्यर्थी / The Respondent. 2. आयकर आय क्त/ The CIT 3. 4. प्रध न आयकर आय क्त / Pr.CIT दिभ गीय प्रदिदनदध ,आयकर अपीलीय अदधकरण ,म ुंबई / DR,
ITAT, Mumbai ग र्ड फ ईल / Guard file. 6. आिेश न स र/ BY ORDER, सत्य दपि प्रदि //// उप/सह यक पुंजीक र /(Dy./Asstt.