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Facts
The assessee firm declared a total income, which was later reassessed at a significantly higher amount due to additions on account of bogus purchases. Penalty proceedings were initiated under Section 271(1)(c) for concealment of income.
Held
The Tribunal held that since the additions were made on an estimated basis, penalty under Section 271(1)(c) is not leviable. The Tribunal followed its own previous decisions and the decisions of the jurisdictional High Courts.
Key Issues
Whether penalty under Section 271(1)(c) can be levied when additions are made on an estimated basis for bogus purchases.
Sections Cited
271(1)(c), 147, 143(3), 250
AI-generated summary — verify with the full judgment below
Before: MS. KAVITHA RAJAGOPAL & SHRI PRABHASH SHANKAR
Date of Hearing 21.07.2025 Date of Pronouncement 15.09.2025 आदेश / O R D E R PER PRABHASH SHANKAR [A.M.] :- The present appeal is filed by the assessee against the order passed by the Learned Commissioner of Income-tax (Appeals)/National Faceless Appeal Centre, Delhi [hereinafter referred to as “CIT(A)”] pertaining to a penalty order passed u/s. 271(1)(c) of the Income-tax Act, 1961 [hereinafter referred to as “Act”] dated 21.03.2024 for the Assessment Year [A.Y.] 2012-13.
A.Y. 2012-13 Trustar Diamonds, Mumbai 2. The grounds of appeal are as under:-
1. The Hon’ble CIT (Appeal) has erred in law and in facts in not mentioning the limb under which he is initiating penalty u/s 271(1)(c) and hence it is bad in law and void ab initio.
2. The Hon’ble CIT(Appeal) erred in law and in facts to levy penalty u/s 271(1)(c) of Income Tax Act, 1961 ignoring the fact that the additions were made on mere estimations and presumptions and ignoring the decisions of Jurisdictional of ITAT on levy of penalty u/s 271(1)(c).
3. The Hon’ble CIT(Appeal) erred in law and in facts in not considering case laws of Jurisdictional Mumbai Income Tax Appellant Tribunal in the case of M/s. Chempure vs. ITO-14(3)(1) [ITA nos. 451, 452, 453/M/2006], though the facts of Chempure vs. ITO and appellant facts are identical and the case law was submitted before the Ld. AO.
3. At the very outset, the assessee submitted that it did not wish to press ground no. 1 as filed in Form 36. The said ground reads as under: “The Hon’ble CIT(A) has erred in law and in facts in not mentioning the limb under which he is initiating penalty u/s 271(1)(c) and hence it is bad in law and void ab initio.” 3.1 It is further stated that the assessee is not pressing the above ground since the instant appeal is squarely covered by the appellant’s own appeal for A.Y. 2009-10 [ITA No. 1542/MUM/2025], wherein the Hon’ble ITAT - “E” Bench had decided the matter in favour of the appellant. A copy of the said ITAT order was placed on record during the course of hearing.
5. With regard to the ground no.2 and 3,facts in brief are that the assessee firm had filed return declaring total income of Rs. 70,23,920/-. Later on, assessment order u/s 147/143(3) of the Act was completed on assessed income of Rs. 7,32,72,363/- after addition of Rs. 6,62,48,443/- on account of bogus purchase of diamond being accommodation entries. Consequently, penalty proceedings under section 271(1)(c) were initiated for concealment of particulars of income and furnishing inaccurate particulars of income. The assessee preferred an appeal before ld.CIT(A) against the above addition made who vide order u/s 250 of the Act confirmed the addition to the extent of 12.5% of disallowance. Aggrieved by the order of the ld.CIT(А), the assessee preferred an appeal before the Hon'ble ITAT, Mumbai wherein the ITAT vide order dated 23.10.2023 restricted the addition to only 3% of the alleged purchases thereby confirming addition of only Rs. 19,87,453/-.
5.1 The above penalty order was passed levying penalty of Rs. 6,14,123/- i.e.100% of tax sought to be evaded. While levying the above said penalty, the AO has taken view that the issue of addition has already A.Y. 2012-13 Trustar Diamonds, Mumbai been considered in the subsequent two appellate proceedings. Even though the quantum addition had been reduced in appeals, the nature of addition had not been questioned in the two appellate orders. The ld.CIT(A) observed that the addition were reduced by both the appellate authority considering the rationale that only profit component of the transaction can be added in the income thus addition is restricted to the extent of fair estimation of profit arising from bogus purchases. Thus, the appellate authorities have not absolved the assessee from the default of bogus purchases. The AO, while levying the impugned penalty has clearly mentioned this reason in his penalty order. Therefore, he held that the levying of penalty by the AO in this case in order as per law. Hence, this ground of appeal was dismissed.
Before us, the ld.AR has made oral as well as written submission in support of the grounds of appeal
. Copy of relevant order of ITAT was also furnished. The ld.DR on the other hand relied on the orders of the authorities below.
7. On perusal of the relevant records as also the order of the coordinate bench for AY 2009-10(supra), we find that facts are identical in the instant year as well and the Tribunal sustained the addition in respect of alleged bogus purchases to the extent of 3%, and the AO had evaded on the said addition. However, considering that the addition was made purely on an estimated basis, the ITAT deleted the penalty by following the decisions in the case of Atul Properties vs. ACIT, Circle 24, Mumbai [ITA No. 4967/MUM/2024] and M/s. Chempure vs. ITO- 14(3)(1) [ITA Nos. 451, 452, 453/Mum/2006]. We reproduce the relevant parts of the said order for the sake of clarity as under:
“9. On perusal of the case in hand we have noticed that the initial return was filed u/s 143 of the Act and the same was processed and accepted u/s 143(1) of the Act. The case was selected for scrutiny assessment on the basis of information received from DGIT (Inv.), Mumbai, who on the basis of search action upon Bhanwarlal Jain group was of the opinion that the assessee was beneficiary of accommodation entries of bogus purchases provided by Bhanwarlal Jain group. During the course of scrutiny the assessee supplied all necessary documents showing the genuineness of the purchases and the documents find mentioned in para 4.3 of the assessment order. The AO was of the view that the genuine ness of the purchase parties are doubted but the genuineness of the purchases on a whole cannot be doubted in this case, therefore only the profit margin embedded in such a transaction could be taxed. He further observed that this is a fairly accepted principle and the same would apply in the case of the assessee. The AO after analyzing the entire material was of the opinion that the profit margin embedded in the ses transaction is taken at 3% of the value of the purchases made from the 7 parties mentioned in para no. 4 of the assessment order. Accordingly, the said amount is added to the total income of the assessee for the year under consideration and penalty proceedings were initiated.
The 100% penalty of Rs. 3,74,900/- was levied vide penalty order dated 29.03,2019. Against which the assessee filed appeal which was dismissed by the Ld. CIT(A) vide impugned order dated 10.02.2025 confirming the penalty so imposed at Rs. 3,74,900/- and did not agree with the contention of the assessee and distinguished the case relied by Ld. AR including the ITAT Mumbai Benches cases. In this given background, it was argued before us by the Ld. AR that addition has been made on estimation basis, therefore penalty u/s 271(1)(c) cannot be levied. The Ld. AR has relied upon the recent order of Jurisdictional ITAT Mumbai Bench in the case of Atul Properties vs. ACIT Circle 24, Mumbai (ITA No. 4967/Mum/2024, 4968/Mum/2024 order dated 06.11.2024) also reported 2024 (11) TMI 366-ITAT Mumbai and one of us was Member of the Bench which decided this appeal an d the para no. 5 and 5.1 containing the finding of the Tribunal which supports the contention of Ld. AR are extracted below:- 5.1. In the instant case, the AO has added 100% value of bogus purchases. However, the Ld.CIT(A) has restricted the addition to the extent of 12.5%, meaning thereby the addition has been sustained by the Ld.CIT(A) on estimated basis. The Hon ‟ble Rajasthan and Punjab & Haryana High Courts have expressed the view that the penalty u/s. 271(1)(c) of the Act is not leviable when the addition is made on estimation basis. Accordingly, following the above said decision, we hold that the penalty u/s.271(1)(c) of the Act is not leviable in the present cases. Accordingly, we set aside the order passed by the Ld.CIT(A)
A.Y. 2012-13 Trustar Diamonds, Mumbai in both the years under consideration and direct the AO to delete the penalties levied in both the years.
Moreover, the facts and circumstances of the present case are squarely covered by the judgment of the Coordinate Bench referred and relied by the Ld. AR and we respectfully follow the Ld. Coordinate Bench in (supra) and are of considered opinion that the revenue has failed to show that the assessee has concealed the particulars of income or has furnished inaccurate particulars of such income and thus the case of the assessee is not covered u/s 271(1)(c) of the Act . Accordingly the penalty imposed on accepting addition made on estimation basis is not sustainable. The grounds of appeal are accordingly decided in favour of the assessee. We accordingly direct the Ld. AO to delete the penalty amount.”
8. In the present appeal, the facts are identical wherein the addition in respect of alleged bogus purchases has similarly been sustained at 3% by the Tribunal in quantum appeal and the AO has levied penalty of Rs. 6,14,123/-being 100% of tax sought to be evaded. In view of the parity of facts and legal position, respectfully following the above order, we allow the ground no.2 and 3 of the assessee cancelling the impugned penalty order.
In the result, the appeal is partly allowed.
Order pronounced in the open court on 15/09/2025.