ITO WARD 17(2)(1), MUMBAI, MUMBAI vs. BHUPESH SEVANTILAL SHAH, MUMBAI

This appeal by the revenue is preferred against the order dated 29/05/2025 by NFAC, Delhi [hereinafter the ‘ld. CIT(A)’] pertaining to AY 2010-11.

The sum and substance of the grievance of the revenue is that the ld. CIT(A) erred in deleting the penalty levied by the AO u/s 271(1)(c) of the Act on the confirmed quantum addition to the extent of 7.5% of bogus purchases. 3. The roots for the levy of penalty lie in the assessment order framed u/s 143(3) r.w.s. 147 of the Act by which the returned income of the assessee at Rs. 75,04,580/- was assessed at Rs. 81,62,012/- after making addition on account of bogus purchases of Rs. 5,29,672/-. 4. Briefly stated the facts of the case are that during the course of scrutiny assessment proceedings, the AO noticed that the assessee has 2 shown purchases of Rs. 42,37,376/- from Shree Ram Steel. The assessee was asked to substantiate the genuineness of the purchases as the information received in respect of such purchases was that the assessee is a beneficiary of accommodation entry. The assessee was asked to furnish the seller along with his books of accounts for verification. Since the assessee failed to produce the seller Shree Ram Steel and also failed to produce the books of accounts of Shree Ram Steel, the AO added the entire purchases as bogus and added 12.5% i.e., Rs. 5,29,672/- as income of the assessee. 4.1. The assessee carried the matter before the ld. CIT(A) and the ld. CIT(A) reduced the addition by 5% thereby sustaining 7.5% of the alleged bogus purchases. The AO levied penalty on such confirmed alleged bogus purchases amounting to Rs. 98,200/- which was deleted by the ld. CIT(A) who, relying upon the decision of the Co-ordinate Bench in the case of M/s. V. K. Ispat & Alloys Vs. ITO [ITA No. 2326 & 2326 /Mum/2022) and ACIT vs. M/s.Fancy Diamonds India Pvt. Ltd. ITA No.5384/Mum/2019, held that in case where an addition is based on estimate basis, penalty u/s 271(1)(c) of the Act cannot be levied. 5. Before us, the ld. D/R vehemently argued that 7.5% has been confirmed on account of the alleged purchases, therefore, there is concrete evidence to show that the assessee has filed inaccurate particulars and, therefore, levy of penalty is justified. The ld. Counsel relied upon the decision of the ld. CIT(A). 6. We have carefully perused the orders of the authorities below. It is true that purchases of Rs. 42,47,376/- from Shree Ram Steel have been treated as bogus. But nowhere the AO has given any reasoning for estimating the profit at 12.5%, no comparable cases have been brought I.T.A. No. 4051/Mum/2025 3