JAFAR ALI ANWARULLAH KHAN,MUMBAI vs. INCOME TAX OFFICER, MUMBAI

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ITA 2711/MUM/2026Status: DisposedITAT Mumbai21 July 2026AY 2009-104 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 leviable when the addition is sustained solely on an estimated profit element of alleged bogus purchases, following a jurisdictional High Court decision. The ingredients for penalty, such as concealment or inaccurate particulars, are not established in such cases.

What were the facts?

The assessee's assessment was reopened based on information about accommodation purchase bills. The Assessing Officer added estimated profit on these purchases, which was later restricted by the Tribunal to 12.5%. Subsequently, a penalty under section 271(1)(c) was levied and confirmed by the CIT(A).

What were the issues?

Whether penalty under section 271(1)(c) is leviable when the addition to income is based solely on an estimated profit element of alleged bogus purchases.

Which sections of the Income-tax Act were involved?

Section 271(1)(c)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, “F” BENCH, MUMBAI

Before: SHRI NARENDER KUMAR CHOUDHRY & SHRI JAGADISH

For Appellant: Ms. Neha Paranjpe, Adv
For Respondent: Shri Amit Gurav, SR. DR
Hearing: 21.05.2026Pronounced: 21.07.2026

Per: SHRI JAGADISH, A.M.:

1.

This appeal by the assessee is directed against the order dated 25.02.2026 passed by the learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi, confirming the penalty levied under section 271(1)(c) of the Income-tax Act, 1961 for the Assessment Year 2009-10. 2. The assessee has challenged the confirmation of penalty of ₹2,41,082/- levied under section 271(1)(c) of the Act in respect of the addition made on account of alleged bogus purchases. 3. Brief facts of the case are that the assessment was reopened on the basis of information received from the Sales Tax Department alleging

ITA No.2711/M/2026 Jafar Ali Anwarullah Khan that the assessee had obtained accommodation purchase bills. The Assessing Officer estimated the profit element embedded in the alleged bogus purchases at 25% and made an addition of ₹7,40,365/-. In further appeal, the Coordinate Bench of the Tribunal restricted the addition to 12.5% of the alleged bogus purchases after observing that the sales were not doubted and only the profit element embedded in such purchases could be brought to tax. Consequent thereto, the Assessing Officer levied penalty of Rs 2,41,082/- under section 271(1)(c) of the Act, which came to be confirmed by the learned CIT(A). 4. Before us, the learned Authorised Representative submitted that the issue is squarely covered by the judgment of the Hon'ble Jurisdictional High Court in PCIT vs. Colo Colour (P.) Ltd. (2025) 178 taxmann.com 458 (Bom.) [ITA No.48 of 2022, dated September 2025], wherein the Hon'ble High Court held that where addition on account of bogus purchases is sustained only by estimating the profit element at 12.5%, penalty under section 271(1)(c) is not leviable. It was submitted that the facts of the present case are identical inasmuch as the quantum addition itself survives only on estimation of profit. 5. The learned Departmental Representative relied upon the orders of the lower authorities. 6. We have heard the rival submissions and perused the material available on record. It is an admitted position that the quantum addition in the present case has ultimately been sustained only to the extent of 12.5% of the alleged bogus purchases. The Coordinate Bench while deciding the quantum appeal has categorically observed that the sales have not been doubted and only the profit element embedded in the purchases was liable to be brought to tax. Thus, the addition sustained is purely on estimation basis.

ITA No.2711/M/2026 Jafar Ali Anwarullah Khan 7. We find that the issue involved is squarely covered by the decision of the Hon'ble Bombay High Court in PCIT vs. Colo Colour (P.) Ltd. (178 taxmann.com 458), wherein the Hon'ble High Court held that where the addition on account of alleged bogus purchases is sustained merely by estimating the profit element, penalty under section 271(1)(c) is not leviable, as the addition is based on estimation and not on any conclusive finding of concealment or furnishing of inaccurate particulars of income. 8. The facts of the present case are identical. The Revenue has accepted the sales declared by the assessee and the addition ultimately sustained is only an estimated percentage of the alleged purchases. Once the income itself is determined on estimate, the necessary ingredients for levy of penalty under section 271(1)(c), namely concealment of income or furnishing of inaccurate particulars of income, cannot be said to have been established. Respectfully following the binding decision of the Hon'ble Jurisdictional High Court in PCIT vs. Colo Colour (P.) Ltd. (supra), we hold that the penalty levied under section 271(1)(c) is unsustainable. 9. Accordingly, we set aside the impugned order of the learned CIT(A) and direct the Assessing Officer to delete the penalty levied under section 271(1)(c) of the Act.

10.

In the result, the appeal of the assessee is allowed.

Order pronounced in the open court on 21/07/2026.

Sd/- Sd/- (NARENDER KUMAR CHOUDHRY) (JAGADISH) Accountant Member Judicial Member

Mumbai, Dated: 21/07/2026 Ashwani Rao Sr. Private Secretary

ITA No.2711/M/2026 Jafar Ali Anwarullah Khan Copy of the order forwarded to: 1. Appellant 2. Respondent 3. The CIT 4. The CIT (Appeals) 5. The DR, I.T.A.T. By order

(Assistant Registrar) ITAT, Mumbai

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