OVERSEAS EXPORTS,MUMBAI vs. THE DCIT, CIRCLE 19(1), MUMBAI., MUMBAI

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ITA 2197/MUM/2026Status: DisposedITAT Mumbai08 July 2026AY 2013-144 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) cannot be levied when the addition is purely on an estimated basis, as it does not constitute concealment of income. Furthermore, a defective notice under section 274 read with section 271(1)(c), which fails to specify the exact charge, renders the penalty proceedings unsustainable.

What were the facts?

The Assessing Officer levied a penalty under section 271(1)(c) on the assessee for alleged concealed income. This penalty was based on an addition sustained by the CIT(A) after estimating the Gross Profit rate on alleged bogus purchases. The assessee appealed the penalty order, which was affirmed by the CIT(A).

What were the issues?

Whether penalty under section 271(1)(c) can be levied on an addition based on estimated gross profit rate? Whether a defective penalty notice under section 274 read with section 271(1)(c) invalidates the penalty proceedings?

Which sections of the Income-tax Act were involved?

Section 271(1)(c),Section 274

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, MUMBAI BENCH “C”, MUMBAI

Before: SHRI NARENDER KUMAR CHOUDHRY & SHRI ARUN KHODPIA

For Appellant: Mr. Rajesh Shah {Virtually appeared}
For Respondent: Mr. Ajay Soneji, Ld. SR. DR
Hearing: 01.07.2026Pronounced: 08.07.2026

Per : Narender Kumar Choudhry, Judicial Member:

This appeal has been preferred by the Assessee against the order dated 16.12.2025, impugned herein, passed by the National Faceless Appeal Centre(NFAC)/Ld. Commissioner of Income Tax (Appeals) (in short Ld. Commissioner) u/s 250 of the Income Tax Act, 1961 (in short ‘the Act’) for the A.Y. 2013-14.

ITA Nos. 2197/M/2026 Overseas Exports

2.

In the instant case, the AO, vide penalty order dated 12.03.2025 passed under section 271(1)(c) of the Act, levied a penalty of Rs.1,14,500/-, being 100% of the tax sought to be evaded, on the alleged concealed income of Rs.3,70,540/-. The penalty was levied after giving effect to the order dated 16.05.2023 passed by the NFAC, Delhi, whereby the appeal filed by the Assessee against the addition of Rs.60,84,575/- was partly allowed and the Ld. CIT(A) restricted the addition by estimating the Gross Profit rate.

3.

Thus, the Assessee being aggrieved by the said penalty order, filed the first appeal before the Ld. Commissioner, who vide the impugned order, affirmed the penalty levied by the AO. Thus, the Assessee being aggrieved by the impugned order affirming the penalty levied, has preferred instant appeal.

4.

We heard the parties and considered the rival submissions and perused the material available on record. We observe that the Hon'ble Jurisdictional High Court, in the recent decision of Principal Commissioner of Income Tax vs. Colo Colour Pvt. Ltd. [(2025) 178 taxmann.com 458 (Bom.)], while dealing with an identical issue, has held that where the AO estimates the income by applying a Gross Profit rate of 12.5% on alleged bogus purchases, such addition, being purely on an estimated basis, cannot be regarded as concealment of income or furnishing of inaccurate particulars of income, so as to attract penalty under section 271(1)(c) of the Act.

5.

We further find that the notice dated 17.02.2018 issued under section 274 read with section 271(1)(c) of the Act contains both the limbs, namely, " concealing the particulars of your income" and " furnishing inaccurate particulars of such income",

ITA Nos. 2197/M/2026 Overseas Exports

without striking off the inapplicable portion. Thus, the AO failed to specify the exact charge, for which the penalty proceedings were initiated, thereby depriving the Assessee of a proper opportunity to defend its case. Consequently, even on this count, the penalty levied by the AO cannot be sustained specifically in view of the judgment of the Hon'ble Jurisdictional High Court in the case of Mohd. Farhan A. Shaikh vs. DCIT [(2021) 125 taxmann.com 253 (FB) (Bom.)], wherein the Hon’ble Full Bench held that failure to specify the exact charge in the notice issued under section 274 read with section 271(1)(c) of the Act, renders the consequent penalty proceedings unsustainable in law.

6.

Thus, considering the aforesaid facts and circumstances, as the penalty has been levied on an addition sustained merely on estimation of Gross Profit and the notice issued under section 274 read with section 271(1)(c) of the Act is defective for not specifying the exact limb or charge, under which the penalty proceedings were initiated, and respectfully following the aforesaid judgments of the Hon'ble Jurisdictional High Court, we are of the considered view that the penalty levied by the AO and affirmed by the Ld. Commissioner, vide the impugned order, cannot be sustained in law. Accordingly, the same is directed to be deleted.

7.

In the result, the appeal filed by the Assessee is allowed.

Order pronounced in the open court on 08.07.2026.

Sd/- Sd/- (ARUN KHODPIA) (NARENDER KUMAR CHOUDHRY) ` ACCOUNTANT MEMBER JUDICIAL MEMBER

Sharath Kumar Private Secretary.

ITA Nos. 2197/M/2026 Overseas Exports

Copy to: The Appellant The Respondent The CIT, Concerned, Mumbai The DR Concerned Bench

//True Copy// By Order

Dy/Asstt. Registrar, ITAT, Mumbai.

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