VALARAM MEHRAJI CHOUDHARY ,MUMBAI vs. I.T.O 19(3)(1), MUMBAI, MUMBAI

In the instant case, the AO vide penalty order dated 29.03.2019 passed under section 271(1)(c) of the Act, levied a penalty of Rs.11,17,420/- in respect of the estimated profit element computed at 12.5% on the alleged accommodation purchase bills/accommodation entries.

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.

We observe that the Hon'ble Jurisdictional High Court, in the recent decision of Principal Commissioner of Income Tax Vs. Colo Colour P. 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 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.

We further find that the notice dated 19.02.2015 issued under section 274 read with section 271 of the Act contains both the limbs, namely, " have concealed the particulars of your income" and "have furnished inaccurate particulars of such income", 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. Thus, even on this count, the penalty levied by the AO cannot be sustained 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 Full Bench held that failure to specify the exact charge in the notice issued under section 274 read with

As the penalty has been levied on an estimated addition 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 therefore respectfully following the judgments (supra) 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.

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