MAGAN VADHAJI PRAJAPATI ,MUMBAI vs. ITO WARD 19(2)(2), MUMBAI

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ITA 5212/MUM/2025Status: DisposedITAT Mumbai06 October 2025AY 2011-12Bench: SHRI PAWAN SINGH (Judicial Member), SHRI GIRISH AGRAWAL (Accountant Member)4 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 sustainable when the addition itself is made merely on an estimation basis, relying on a Bombay High Court decision. The penalty levied was accordingly deleted.

What were the facts?

The assessee challenged a penalty levied under section 271(1)(c) of the Income Tax Act, following an ad-hoc addition of 12.5% of alleged bogus purchases made by the Assessing Officer (AO). The addition was made on estimation basis and confirmed by the CIT(A).

What were the issues?

Whether penalty under section 271(1)(c) can be levied on additions made solely on estimation basis when the primary addition itself is not sustainable.

Which sections of the Income-tax Act were involved?

Section 271(1)(c),Section 147,Section 254,Section 144B,Section 271(c)

AI-generated summary — verify with the full judgment below

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Order under section 254(1) of Income Tax Act PER PAWAN SINGH, JUDICIAL MEMBER:

1. 1. This appeal by the assessee is directed against the order of Learned Commissioner of Income Tax (Ld. CIT(A)) dated 08.08.2025 for A.Y. 2011-12. In the present appeal the assessee has challenged the validity of penalty levied under section 271(c) vide order dated 26.07.2024.

2. Rival submissions of both the parties have been heard and record perused. The Ld. Authorized Representative (Ld.AR) of the assessee submits that assessment was completed under section 147 r.w.s. 254 and 144B of the Income Tax Act (Act) on 26.02.2024. The assessing officer while passing the assessment order made adhoc addition @12.5% of purchases allegedly shown from various entities managed by Bhanwarlal Jain. The assessing officer made total addition of Rs. 5,83,848/- being 12.5@ of aggregate disputed purchase of Rs. 46,70,785/-. The assessing officer levied penalty under section 271(1)(c) at Magan Vadhaji Prajapati the rate of 100% tax shout to be evaded. The assessing officer levied penalty of Rs. 2,17,386/-. The Ld. CIT(A) confirmed the action of the assessing officer. The Ld.AR of the assessee submits that it is settle position under Income Tax proceeding that no penalty under section . 271(1)(c) is liable on addition made merely on estimation basis. Admittedly assessing officer made addition on estimation only thus, penalty order dated 26.07.2024 is not sustainable. To support his estimation he relied upon the decision of Bombay High Court in the case of PCIT vs Colo Colour (P.) Limited [2025] 178 taxman.com 458 (Bombay).

3.

On the other hand learned Senior Departmental representative (Ld. Sr. DR) on the revenue supported the order of assessing officer and Ld. CIT(A).

4.

We have considered the rival submission of both the parties and had gone through the orders of lower authorities carefully. On perusal of assessment order, we find that assessing officer made adhoc addition/disallowances on account of purchases shown from entities/parties which were allegedly managed by Bhanwarlal Jain. Admittedly the assessing officer made addition of 12.5% of purchases shown from such parties. We find it Hon’ble Bombay High Court in the case of PCIT vs Colo Colour (P.) Limited (Supra) on similar facts held that were assessing officer made addition of alleged bogus purchased merely on estimation basis and on relying upon sales tax department information, levy penalty under section 271(1)(c) is not sustainable. Considering the aforesaid factual and legal position penalty levied under section 27191)(c) vide order dated 26.07.2024 is set aside, thereby entire Magan Vadhaji Prajapati penalty levied under section 271(1)(c) is deleted. In the result, the ground of appeal

raised by the assessee is allowed.

5. In the result, the appeal of the assessee is allowed. Order was pronounced in the open court while hearing the appeal.

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