SHARAD JAIN,SURAT vs. INCOME TAX OFFICER, WARD-3(3)(4), SURAT

आदेश / O R D E R Per B.M. Biyani, A.M.: Feeling aggrieved by the order of first appeal dated 30.01.2026 passed by learned Commissioner of Income-tax-NFAC, Delhi [“Ld. CIT(A)”], which in turn arises out of the penalty-order dated 29.03.2019 passed by learned ITO, Ward-3(3)(4), Surat [“Ld. AO”] u/s 271(1)(c) of Income-tax Act, 1961 [“the Act”] for assessment-year [“AY”] 2007-08, the assessee has filed this appeal on following grounds:

“1. In passing penalty order u/s 271(1)(c) imposing penalty of Rs. 37,30,939/- vide order dated 29-03-2019 and CIT(A) erred in confirming the same vide order dated 30-01-2026, it is said that the penalty is illegal, unwarranted and contrary to settled legal position. 2. In passing and upholding penalty orders u/s 271(1)(c) in light of the fact that the issue of penalty in the case of ad-hoc additions is settled by jurisdictional ITAT Surat bench in case of Ramprakash Vijayvergia ITA No. 125/Srt/2024 and in the case of Borda Brothers in ITA 1062 of 2024 of Surat. Hence, penalty being illegal, may be deleted and the impugned order be quashed. 3. The appellant craves leave to add, amend, alter or delete any of the grounds in the interest of justice."

(i) The assessee-individual is engaged in the business of diamond.

(ii) For AY 2007-08 under consideration, the assessee filed return u/s 139 which was assessed. Subsequently, the case of assessee was re- opened for assessment u/s 147 based on the information collected by tax authorities in a search conducted upon “Bhanwar Lal Jain Group” revealing that the said group was involved in providing accommodation by issuing non-genuine bills. The assessee was also identified as one of the beneficiaries of such accommodation. During assessment proceedings, the Ld. AO observed that the assessee made bogus purchases of Rs. 8,93,53,079/-. Ultimately, while completing re-opened assessment, the AO made an addition of Rs. 2,23,38,270/- equivalent to 25% of the amount of bogus purchases. The assessee carried matter in first-appeal whereupon the Ld. CIT(A) reduced the rate of addition from 25% to 12.50%. Accordingly, the Ld. CIT(A) granted part-relief to assessee while sustaining addition to the extent of Rs. 1,11,69,135/-. Ld. AR for assessee pointed out that the assessee went in next appeal to ITAT in ITA No. 1390/Ahd/2017; the said appeal stands disposed off by ITAT, Surat Bench vide order dated 18.07.2022 in which the addition made by AO has been further reduced from 12.5% to 6%.

(iii) Simultaneous with completion of assessment as aforesaid, the Ld. AO also initiated penalty proceeding u/s 271(1)(c) against assessee. Ultimately, the AO passed penalty-order dated 29.03.2019 imposing a penalty of Rs. 37,30,939/- qua the addition of Rs. 1,11,69,135/- sustained by Ld. CIT(A). Aggrieved by penalty so imposed, the assessee filed appeal to Ld. CIT(A) but did not get any success. Now, the assessee has come in present appeal challenging the penalty imposed by AO and upheld by CIT(A).

“4. We have heard the submissions of the learned Authorised Representative (ld. AR) of the assessee and the learned Senior Departmental Representative (ld. Sr. DR) for the revenue. The Id. AR of the assessee submits that the assessee has neither concealed the income nor furnished inaccurate particulars thereof. The Assessing Officer merely made disallowances of purchases on the basis of allegation of bogus purchases which were based on the information about the search carried out on Bhanwarlal Jain Group in Mumbai. The Assessing Officer made 100% of disallowance of purchases shown from Ankita Exports and Megha Gems. However, on appeal before the ld. CIT(A), the addition was restricted to Rs.62,34,360/- which is 12.5% of the disputed/bogus purchases. The ld. AR of the assessee submits that on further appeal by revenue before the Tribunal, th addition was restricted to 5% of Gross profit. The ld. AR of the assessee submits that it is settled position under law that no penalty under Section 271(1)(c) of the Act is leviable on the addition made on estimated/ ad hoc basis. The entire penalty is to be deleted. 5. On the other hand, the Id. Sr. DR for the revenue supported the orders of lower authorities. The Id. Sr. DR for the revenue submits that the penalty to the extent of bogus purchases confirmed by the ld. CIT(A) may be upheld. 6. We have considered the submissions of both the parties and perused the record carefully. There is no dispute that initially, the Assessing Officer made disallowances / addition of Rs. 4.98 crores on the basis of information of Investigation Wing, Mumbai that the assessee is one of the beneficiaries of purchases shown from Ankita Exports and Megha Gems which are managed by Bhanwarlal Jain Group. There is no further dispute that on appeal before the ld. CIT(A), the quantum addition was restricted to 12.5%. We find that on further appeal before the Tribunal, the addition instead of restricting to the bogus purchases, the gross profit of assessee was restricted to 5%. Thus, admittedly, the ultimate addition was restricted on ad hoc basis. It is settled position under law that no penalty on the addition made on ad hoc basis, is to be levied. Similar view has been taken by Hon'ble Jurisdictional High Court in CIT Vs Subhash Trading Co. (1996) 86 Taxman 30 (Guj), Navjivan Oil Mills Vs CIT (2002) 124 Taxman 392 (Guj), CIT Vs Valimkbhal H Patel (2006) 280 ITR 487 (Guj) and in ITO Vs Bombaywala Readymade Stores (2015) 55 taxmann.com 258 (Guj). So far as reliance on various case laws relied by Id CIT(A) in his order, we find that the facts in all such case laws are at variance and the decisions of all such cases are not at all applicable as far as facts of the present case is concerned. Thus, we do not find any justification in levying such penalty under section 271(1)(c). 7. Thus, we direct the Assessing Officer to delete the entire penalty levied vide order dated 09/03/2018. In the result, the grounds of appeal raised by the assessee are allowed. 8. In the result, this appeal of assessee is allowed.” 5. Per contra, Ld. DR for revenue submitted that it is not a simple case of adhoc/estimated addition, it is a case of bogus purchases made by assessee by obtaining non-genuine bills from suppliers although the addition has been made on estimation basis. Therefore, the penalty u/s 271(1)(c) is certainly triggered and the lower authorities are right in imposing/upholding penalty. Ld. DR submitted even if there are favourable decisions of Co-ordinate Benches as relied by Ld. AR, this bench should give a considerate thought and uphold the action of lower-authorties.

Order pronounced in open court on 13/07/2026

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(SUCHITRA KAMBLE) (B.M. BIYANI) JUDICIAL MEMBER ACCOUNTANT MEMBER Surat दिन ांक /Dated : 13/07/2026 *a.k. Copies to: (1) The appellant (2) The respondent (3) CIT (4) CIT(A) (5) Departmental Representative (6) Guard File By order Assistant Registrar Income Tax Appellate Tribunal Surat Bench, Surat