HEMANG H DOSHI,MUMBAI vs. INCOME TAX OFFICER WARD 27(1)(3), MUMBAI

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ITA 1395/MUM/2026Status: DisposedITAT Mumbai03 September 2026AY 2010-116 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 proceedings under Section 271(1)(c) are distinct from quantum proceedings and an addition based on estimation does not automatically imply concealment of income. Following the jurisdictional High Court's decision, the penalty was deleted.

What were the facts?

The Assessing Officer (AO) made an addition of Rs. 16,86,640/- on account of estimated profit from purchases, which was later reduced by the Tribunal based on the assessee's declared gross profit. Subsequently, penalty proceedings were initiated under Section 271(1)(c) for furnishing inaccurate particulars of income.

What were the issues?

Whether penalty under Section 271(1)(c) can be levied when the addition is based on an estimation of profit from purchases, and whether the penalty order was valid without prior approval of the Joint Commissioner.

Which sections of the Income-tax Act were involved?

Section 271(1)(c),Section 69C,Section 147,Section 274(2)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, MUMBAI

Before: SHRI AMIT SHUKLA & SHRI GIRISH AGRAWAL

For Respondent: Smt. Sujatha Iyyanger, Sr. DR
Pronounced: 03.09.2026

INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCHES, MUMBAI BENCH: E BEFORE SHRI AMIT SHUKLA, JUDICIAL MEMBER AND SHRI GIRISH AGRAWAL, ACCOUNTANT MEMBER ITA 1395/MUM/2026 िनधा�रण वष�/Assessment Year: 2010-11) Hemang H Doshi Income Tax Officer Ward 27(1)(3) D-405, Kailash Esplanade LBS Road, 408, 4th Floor, Tower No. 6, Opp. Shreyas Cinema Ghatkopar(W), Vashi Station Complex, Vashi Vs. Mumbai-400086, Mumbai-400703, Maharashtra Maharashtra अपीलाथ� Appellant ��थ� Respondent

Permanent Account Number of Assessee: AABPD2752R

अपीलाथ� �ारा/Appellant represented by: Ms. Priya Jain, Advocate ��थ� �ारा/Respondent represented by: Smt. Sujatha Iyyanger, Sr. DR

सुनवाई की तारीख / Date of conclusion of hearing: 24.06.2026 घोषणा की तारीख / Date of pronouncement: 03.09.2026 O R D E R PER GIRISH AGRAWAL, ACCOUNTANT MEMBER: This appeal filed by assessee is against the order of the ld. Commissioner of Income Tax (Appeals)/National Faceless Appeal Centre [‘NFAC’], Delhi, Order No. ITBA/NFAC/S/250/2024-25/1073385656(1) dated 18.02.2025 passed against the penalty order by Income Tax Officer, Ward-27(1)(3), Mumbai u/s 271(1)(c) of the Income-tax Act, 1961 (‘the Act’) dated 27.02.2020 for Assessment Year 2010-11.

2.

Grounds taken by the assessee are reproduced as under: 1. In the facts and circumstances of the case and in law, the Ld. Commissioner of Income Tax (Appeals) [through the National Faceless. Appeals Centre] has erred in confirming the action of the Ld. Assessing Officer to pass a penalty order u/s. 271(1)(c) of the Act without obtaining prior approval of Joint commissioner of Income tax thereby violating the provisions of section 274(2) of the Act. 1

2.

In the facts and circumstances of the case and in law, the Ld. Commissioner of Income Tax (Appeals) (through the National Faceless Appeals Centre) has erred in upholding the action of the Ld. Assessing Officer in levying impugned penalty of Rs.5,62,737/ u/s. 271(1)(c) disregarding the factual and legal matrix of the case.

3.

There is a delay of 285 days in filing the present appeal before the Tribunal as noted by the Registry. Assessee has placed on record a petition for condonation of delay along with notarized affidavit explaining the reasons for the said delay. We have considered the submissions so made and find it appropriate to condone the said delay and take up the matter for adjudication.

4.

Brief facts as emanating from the material on record are that assessee filed the return of income, reporting total income at Rs.3,79,656/-. Assessment was reopened u/s. 147 pursuant to information received from the Sales Tax Department regarding alleged accommodation entries/bogus purchases. In the reassessment proceedings, ld. Assessing Officer made an addition of Rs.16,86,640/- u/s. 69C, being 12.5% of purchases, amounting to Rs.1,34,93,113/-. Assessee had furnished, inter alia, purchase invoices, ledger accounts of the suppliers, details of payments through banking channels, relevant bank statements and stock records evidencing movement of goods and corresponding sales. However, ld. Assessing Officer, relying upon the information received from the Sales Tax Department and the enquiries conducted, treated the purchases as not genuine and estimated the profit element therein at 12.5%, resulting in the aforesaid addition of Rs.16,86,640/-. Aggrieved, assessee went in appeal before the ld. CIT(A), who confirmed the addition so made. Subsequently, the matter travelled before this Tribunal in quantum proceedings.

4.1. During the course of proceedings before us, assessee stated that the Coordinate Bench in its quantum order in ITA No.1394/Mum/2026, order dated 28.02.2020, reduced the addition by the gross profit rate already declared by assessee. The gross profit declared by assessee for the relevant assessment year was 6.28%.

4.2. In the meanwhile, penalty proceedings u/s. 271(1)(c) were initiated. Ld. Assessing Officer passed the impugned penalty order imposing a penalty of Rs.5,62,737/-, being 100% of the tax sought to be evaded with reference to the addition of Rs.16,86,640/-. Ld. Assessing Officer concluded that assessee had furnished inaccurate particulars of income. Assessee challenged the levy of penalty before the ld. CIT(A) who confirmed the penalty, primarily observing that the quantum appeal had been dismissed by the CIT(A) and that the addition had attained finality. Aggrieved, assessee is in appeal before the Tribunal.

5.

We have heard both the parties and perused the material placed on record. We find that the issue before us is required to be considered in the light of the nature of addition which formed the basis of the impugned penalty. It is undisputed from the assessment order that ld. Assessing Officer did not make an addition of the entire purchases of Rs.1,34,93,113/-. The addition was restricted to Rs.16,86,640/-, being 12.5% of the purchases. Thus, the assessment itself proceeded on the basis of an estimation of the profit element allegedly embedded in the purchases. The subsequent development in the quantum proceedings is also material. Coordinate Bench in its quantum order had reduced the addition by giving credit for the gross profit already declared by the assessee. The gross profit declared by the assessee for the relevant year was 6.28%. Therefore, what ultimately survived in the quantum proceedings was not an established instance of concealment of the entire purchase expenditure, but an estimated profit element in respect of the purchases.

5.1. In our considered view, penalty proceedings u/s. 271(1)(c) stand on a different footing from the quantum proceedings. An addition made in assessment does not, by itself, lead to an automatic conclusion that assessee has either concealed particulars of income or furnished inaccurate particulars of income. The nature and basis of the addition has to be examined for the purpose of levy of penalty. In the present case, the very basis of the addition was estimation of profit from the purchases. Ld. Assessing Officer adopted 12.5% as a reasonable profit margin. This position assumes greater significance in view of the subsequent order of the Coordinate Bench in quantum proceedings whereby the addition was further reduced by the gross profit already declared by assessee.

5.2. In the given set of facts narrated above, decision of Hon’ble jurisdictional High Court of Bombay in the case of PCIT v. ColoColour (P.) Ltd. [2025] 178 taxmann.com 458 (Bom) is relevant wherein also addition was sustained on alleged bogus purchases by adopting rate of 12.50% and penalty was imposed thereupon. Hon'ble Court after detailed deliberation on the provisions of section 271(1)(c) and considering several judicial precedents, upheld the order passed by the Tribunal who had deleted the penalty so imposed. Relevant paragraphs from the said judgement are extracted below for ready reference:-

“20. We also find that the reliance on behalf of the assessee on the decision of the Gujarat High Court in Vijay Proteins Ltd. Vs. Commissioner of Income-tax7 is quite apt. In such decision the Division Bench while referring to the decision in Commissioner of Income Tax vs. Krishi Tyre Retreading and Rubber Industries8 held that penalty could not have been imposed under Section 271(1)(c) of the Act, when the addition was sustained purely on estimate basis or when the addition was made which was on a pure guess work, hence, no penalty under Section 271(1)(c) of the Act could be said to be leviable on such guess work or estimation. The Court accordingly answered the question in favour of the assessee, rejecting levy of penalty under Section 271(1)(c).

21.

The aforesaid discussion would make us conclude, that the Assessing Officer could not have come to a conclusion of the present case attracting proceedings for levy of penalty, when the Assessing Officer had already taken a position on materials which were available before him in the course of assessment proceedings, in computing the amount of tax payable by the assessee, by making appropriate additions on the basis of estimates derived in passing of the assessment order. In other words, for the purpose of assessment proceedings, the relevant materials were accepted, to be not amounting to concealment of particulars of income or furnishing of inaccurate particulars of income. In such circumstances, under the garb of penalty proceedings, there ought not to be an occasion that such material again be labelled as amounting to concealment of income or furnishing of inaccurate particulars of income. If such approach is accepted, it would result in taking away the very basis of the assessment, apart from dragging the assessee into unwarranted penalty proceedings. There cannot be two opinions that Section 271(1)(c) of the Act, would be required to be strictly construed, hence in the absence of such clear position of a concealment of particulars of income or furnishing of inaccurate particulars of income, in the facts of the present case, penalty proceedings could not have been initiated. This more particularly when the penalty proceedings are initiated clearly on the basis of additions made in the re-opening proceedings thereby leaving no room for a doubt of the disclosures made by the assessee, warranting penalty proceedings. In the present case such material essentials were completely lacking.”

6.

In the given set of facts and respectfully following the above judicial precedent, penalty imposed by the ld. AO under section 271(1)(c) of the Act is deleted. Ground no. 2 raised by the assessee is allowed.

7.

In the result, appeal of the assessee is allowed.

Order pronounced in the open court on 03rd September, 2026.

Sd/- Sd/- [Amit Shukla] [Girish Agrawal] Judicial Member Accountant Member Dated: 03rd September, 2026 MP, Sr. PS Copy to : 1. The Appellant 2. The Respondent 3. DR, ITAT, Mumbai 4. Guard File 5. CIT BY ORDER, (Dy./Asstt.Registrar) ITAT, Mumbai

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