SPARSH EXPORTS PRIVATE LIMITED,MUMBAI vs. INCOME TAX OFFICER- 4(3)(1), MUMBAI, MUMBAI

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “G” MUMBAI

BEFORE SHRI OM PRAKASH KANT (ACCOUNTANT MEMBER) AND SHRI PAWAN SINGH (JUDICIAL MEMBER)

ITA No. 4579, 4580, 4581, 4582, 4583 and 4584/MUM/2026 Assessment Years: 2009-10, 2010-11, 2011-12, 2012-13, 2013-14 and 2014-15

Sparsh Exports Private Limited, C/o CA Income Tax Officer - 4(3)(1), Room Himanshu Gandhi, 16th Floor, D Wing No.648, 6th Floor, Aayakar Vs. Trade World Building, Kamala Mills Bhawan, Maharshi Karve Road, Compound, Lower Parel, Mumbai – Mumbai - 400020, Maharashtra. 400013, Maharashtra. PAN NO. AAKCS 0761 R APPELLANT RESPONDENT

Assessee by : Shri Himanshu Gandhi, CA : Shri Rajgopal Parthasarathi - (SR. Department by DR). : 10.07.2026 Date of Hearing : 15.07.2026 Date of pronouncement ORDER u/s 254(1) of Income Tax Act, 1961 PER BENCH

These appeals preferred by the assessee are directed against separate orders, all dated 19.02.2026, passed by the learned Commissioner of Income-tax (Appeals)-51, Mumbai [hereinafter referred to as "the Ld. CIT(A)"] for the Assessment Years 2009-10 to 2014-15, whereby the penalty levied by the Assessing Officer under section 271(1)(c) of the Income-tax Act, 1961 ("the Act") has been

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confirmed. Since a common issue arises in all these appeals, they were heard together and are disposed of by this consolidated order for the sake of convenience. By consensus of both sides, the appeal for Assessment Year 2. 2009-10 was treated as the lead case. Accordingly, the facts and adjudication in the said appeal shall govern the remaining appeals mutatis mutandis. Accordingly, we take up the appeal of the assessee for AY 2009-10 for adjudication. The grounds raised by the assessee are reproduced as under: -

“1. On the facts and circumstances of the case and law, the Ld. CIT(A) erred in confirming penalty u/s 271(1)(c) of the Income Tax Act, 1961 on the basis of invalid penalty notice in which the limb of levy of penalty under section 271(1)(c) of Income Tax Act, 1961 not mentioned. 2. On the facts and circumstances of the case and law, the Ld. CIT(A) erred in confirming penalty of Rs.4,72,331/- on estimation basis under section 271(1)(c) of Income Tax Act, 1961.” 3. The material facts are that the assessee filed its return of income declaring a total income of Rs.3,37,960/-. Subsequently, pursuant to a search under section 132 conducted on 03.10.2013 in the case of the Rajendra Jain Group, incriminating material comprising computer backups, mobile data, pen drives and statements recorded under section 132(4) revealed that several concerns of the group, including the assessee-company, were allegedly engaged in providing accommodation entries in the guise of bogus purchases, sales, import transactions and unsecured loans. On the basis of the seized material and statements of key persons of the group, the

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Assessing Officer rejected the books of account under section 145(3) and completed the assessment under section 144 read with section 153C by estimating commission income earned from providing accommodation entries at Rs.15,28,578/-. Simultaneously, penalty proceedings under section 271(1)(c) of the Act were initiated.

“11.3 I have carefully considered the submission of the appellant, the assessment order, the penalty order, and the judicial precedents relied upon. 11.4 At the outset, it is noted that the assessment order contains a clear and categorical finding that the appellant had inflated expenses by obtaining bogus purchase bills and thereby suppressed its true income. The AO has discussed in detail the modus operandi, the rejection of books of account U/s 145(3), and the computation of commission income earned through accommodation entries. While initiating penalty proceedings, the AO has recorded satisfaction that the appellant furnished inaccurate particulars of income and concealed income within the meaning of section 271(1)(c). 11.5 It is settled law that the satisfaction for initiation of penalty must be discernible from the assessment order. In the present case, the assessment order clearly spells out the nature of default, namely, suppression of real income through bogus transactions. Therefore, the charge is neither ambiguous nor uncertain. The appellant was fully aware of the basis on which penalty was initiated. 11.6 The reliance placed by the appellant on decisions such as CIT v. Manjunatha Cotton & Ginning Factory and CIT v. SSA’s Emerald Meadows is distinguishable on facts. In those cases, the assessment order itself did not

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clearly record satisfaction as to the specific limb of section 271(1)(c), leading to ambiguity regarding the charge. In the present case, however, the assessment order contains a detailed discussion of the concealment and furnishing of inaccurate particulars arising from bogus purchases and estimated commission income. Thus, the ratio of those decisions does not advance the appellant’s case. 11.7 It is also pertinent to note that penalty proceedings are to be examined on the basis of substance rather than technicalities. The purpose of notice U/s 274 is to afford reasonable opportunity to the assessee. In the present case, the appellant has filed elaborate replies during penalty proceedings, contesting both the factual and legal basis of the penalty. This itself demonstrates that the appellant was fully aware of the nature of the charge and has not suffered any prejudice. The Hon’ble Courts have consistently held that unless prejudice is shown to have been caused, mere non-striking of a portion in a printed notice would not invalidate penalty proceedings. 11.8 Further, in cases involving bogus purchases and accommodation entries, the act of inflating expenditure necessarily results in furnishing inaccurate particulars and concealment of income. The two limbs in such factual matrix are intrinsically connected. Therefore, even if both expressions are used, it does not render the proceedings invalid where the factual foundation is clearly established. 11.9 In view of the above discussion, I hold that the penalty notice issued under section 274 read with section 271(1)(c) is valid in law, the charge is clearly discernible from the assessment order, and no prejudice has been caused to the appellant. Accordingly, this argument challenging the validity of the notice is dismissed. 11.10 The appellant filed the return of income for the relevant assessment year wherein the transactions were depicted as regular trading and the net profit was offered for tax. Pursuant to search and survey action carried out in the case of Rajendra Jain group it became clear that the appellant is only an accommodation entry provider. The reasons for coming to this finding has been elaborately discussed in the quantum assessment order and also in the preceding paragraphs of this order. Accordingly, the books of accounts of the appellant were rejected and the income was estimated at a certain percentage of the accommodation entry provided by the appellant. This finding of fact has been confirmed not only by the CIT(A) but also by the ITAT. 11.11 Before me, the appellant has contended that penalty is not leviable as the commission addition is based purely on estimation, that there is no direct documentary evidence of commission and the quantum addition is based on assumptions and presumptions. These submissions have been carefully considered but are not found acceptable. The present case is not one of routine estimation arising from rejection of books, application of a gross profit rate or difference of opinion. The appellant has been conclusively held to be an

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accommodation entry provider, and payment of commission in such transactions is a normal, inescapable and well-recognised market practice, as established through investigation findings in similar cases. Such commission receipts are invariably in cash, outside the books of account, and are deliberately kept undocumented, being part of a clandestine arrangement. Consequently, the precise quantum of commission received is within the exclusive knowledge of the beneficiary, i.e. the appellant, and not capable of exact determination by the AO in the absence of voluntary disclosure. The estimation of commission income, therefore, became inevitable and unavoidable, not because the existence of payment was doubtful, but because the appellant failed to disclose the true particulars of such payment. In such circumstances, the AO was constrained to adopt a reasonable rate based on the prevailing market practice in accommodation entry transactions, which was subsequently subjected to appellate scrutiny and confirmed by the ITAT. The absence of documentary evidence is thus a direct consequence of the deliberate and covert nature of the transaction and cannot be used by the appellant as a shield either against the addition or against the levy of penalty. The estimation of commission income was necessitated solely due to the appellant’s failure to disclose true and complete particulars of income. 11.12 In the present case, the appellant has failed to offer a satisfactory and bona fide explanation in respect of non-disclosure of commission income, and has also failed to demonstrate that all material facts relating to the computation of income were disclosed. Accordingly, the provisions of Explanation 1 to section 271(1)(c) are clearly attracted, under which the amount added is deemed to represent income in respect of which particulars have been concealed. The plea that penalty cannot be levied merely because the quantum of income has been estimated is not acceptable, particularly when the existence of deemed income in the form of commission income in cash stands established and estimation is resorted to only for the purpose of quantification. 11.13 In view of the above discussion, I am of the considered opinion that this is not a case of mere difference of opinion or ad hoc estimation, but a case where the appellant failed to disclose commission income arising from a transaction found to be not genuine. The appellant has furnished inaccurate particulars of income leading to concealment within the meaning of section 271(1)(c). Accordingly, the penalty levied by the AO of Rs.4,72,331/- U/s 271(1)(c) is hereby confirmed. The grounds of appeal are dismissed.” 5. Before us, the learned counsel for the assessee confined his arguments primarily to Ground No.1, assailing the very validity of the penalty proceedings. It was submitted that while the assessment order recorded satisfaction for initiating penalty for

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furnishing inaccurate particulars of income, the penalty ultimately came to be levied for concealment of income. Further, the statutory notice issued under section 274 did not specify the exact limb of section 271(1)(c) under which penalty was proposed, as the irrelevant portion of the printed notice had not been struck off. It was, therefore, contended that the Assessing Officer himself was uncertain regarding the precise charge, thereby vitiating the entire penalty proceedings. Reliance was placed upon the Full Bench judgment of the Hon'ble Bombay High Court in Mohd. Farhan A. Shaikh v. DCIT [(2021) 125 taxmann.com 253 (Bom.)]. The learned Departmental Representative, on the other hand, supported the orders of the authorities below.

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Shaikh v. DCIT (supra), after an exhaustive consideration of the earlier judgments, including CIT v. Manjunatha Cotton & Ginning Factory (supra) and CIT v. SSA's Emerald Meadows,(supra) framed, inter alia, the following substantial question:

"If the assessment order clearly records satisfaction for imposing penalty on one or the other, or both grounds mentioned in section 271(1)(c), does a mere defect in the statutory notice by not striking off the irrelevant portion invalidate the penalty proceedings?" 6.1 The Hon'ble Full Bench answered the question unequivocally in favour of the assessee. The Hon'ble High Court held that the assessment proceedings and penalty proceedings operate in distinct statutory fields. Although the assessment order may provide the foundation for initiation of penalty proceedings, the jurisdiction to levy penalty is triggered only through the statutory notice issued under section 274. Such notice must clearly communicate the precise charge against the assessee. An omnibus notice, which fails to specify whether the allegation is one of concealment of income or furnishing inaccurate particulars of income, suffers from incurable vagueness and violates the principles of natural justice. The Hon'ble Court further held that ambiguity in a penal provision must necessarily enure to the benefit of the assessee. The relevant observations of the Hon'ble Full Bench read thus:

"The primary burden lies on the Revenue... the assessee must be informed of the grounds of the penalty proceedings only through the statutory notice. An omnibus notice suffers from the vice of vagueness." and further, "A

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penal provision, even with civil consequences, must be construed strictly. Ambiguity, if any, must be resolved in the affected assessee's favour." 6.2 Applying the aforesaid binding principles to the facts of the present case, we find that the statutory notice issued under section 274 does not specify the precise limb of section 271(1)(c) under which penalty was proposed. The Assessing Officer also appears to have shifted the basis between initiation and levy of penalty. Such ambiguity goes to the very root of the jurisdiction to impose penalty and is not a mere procedural irregularity capable of being cured by reference to the assessment order or the subsequent penalty order.

6.2 The reasoning adopted by the Ld. CIT(A) that no prejudice was caused to the assessee cannot override the law declared by the Hon'ble jurisdictional High Court. Once the statutory notice itself is found to be fundamentally defective, the consequential penalty proceedings cannot be sustained irrespective of the merits of the quantum addition. Respectfully following the binding decision of the Hon'ble Bombay High Court in Mohd. Farhan A. Shaikh v. DCIT (supra), we hold that the penalty proceedings initiated under section 271(1)(c) are vitiated in law. Consequently, the penalty levied by the Assessing Officer and sustained by the Ld. CIT(A) deserves to be quashed. We, accordingly, set aside the impugned orders of the Ld. CIT(A) and direct the deletion of the penalty.

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Order pronounced in the open Court on 15/07/2026.

Sd/- Sd/- (PAWAN SINGH) (OM PRAKASH KANT) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai; Dated: 15/07/2026 M. Ranganath Vittal , Sr. P.S. Copy of the Order forwarded to :

BY ORDER, //True Copy// (Assistant Registrar) ITAT, Mumbai