INCOME TAX OFFICER, WARD-1(1)(3), SURAT, SURAT vs. KRIYA IMPEX PRIVATE LIMITED, SURAT

The Registry has noted that there is a delay of 22 days in filing the above appeals. The Revenue explained that originally appeals were filed on 28-11-2025 which were well within the time and the 60 days expires on 30-11-2025. Due to technical fault in ITAT Portal, no acknowledgement was created on 28-11-2025. It is thereafter physically appeals were filed on 22-12-2025. Thus, actually there is no delay and delay if any, be condoned. We are satisfied with the above explanation and delay of 22 days in filing the above appeals are hereby condoned.

We will first take IT(SS)A No.101/SRT/2025 relating to Assessment Year 2009-10 as the lead case. Brief fact of the case are that the assessee company is engaged in business of diamond trading and filed its return of income declaring total income of Rs. 3,02,920/-. A search action u/s.132 of the Act was conducted at the premises of Rajendra Jain, Dharmichand Jain, Sanjay Choudhary and their group concerns including the assessee M/s. Kriya Impex Pvt. Ltd., wherein Rajendra Jain is a director.

During the search and subsequent enquiry, it was found that the group was not engaged in any real or physical trading of diamonds. The business activities mainly involved providing accommodation entries through various companies and the assessee company is one of them. Statements were recorded from key persons who admitted that their income was commissioned from paper transaction and not from actual diamond trading. It was found through emails and evidences that the actual importers/ exporters benefited from these accommodation entries and book

During the course of penalty proceedings, the AO observed that the quantum appeal filed by the assessee against the assessment order was dismissed by the Ld CIT(A). Therefore the AO relying on the findings detailed in the assessment order about providing of accommodation entries and commission income derived on the same held that the assessee has furnished “inaccurate particulars of income” amounting to Rs.22,90,454/- [25,93,374 (assessed income) less 3,02,920/- (returned income)]. Accordingly, the Ld AO levied penalty u/s 271(1)(c) of the Act of Rs.7,07,751/- vide order dated 27.03.2019. 3. 3. Aggrieved against the penalty order, the assessee filed appeals before Ld. CIT(A) who deleted the levy of penalty by observing as follows:

The facts of the case in brief are that the assessee filed its return of income u/s 139(1) of the Act, declaring total income of Rs.3,02,920/- on 21.09.2012. A search and seizure action u/s 132 of the Act was conducted in case of Rajendra Jain and other groups on 03.10.2013. The seizure made at the premises of Rajendra Jain at C- 805, Oberoi Splendor Building, JVL Road, Andheri(E), Mumbai comprises of computer back-up, mobile and two pen drives, which contains detail of group companies including details of Moulimani Impex Pvt. Ltd, the appellant of the instant appeal. The appellant was engaged in the business of providing accommodation entries by way of name of bogus sales, purchases and unsecured loans. Accordingly, notice u/s 153C of the Act was issued and the appellant was treated as an accommodation entry provider. It was held that assessee was not doing any actual business and earned only commission income on sales, import and loan entries. Hence, the books of account of the assessee were not found to be reliable and were accordingly rejected u/s 145(3) of the Act. Thereafter, assessment was completed by assessing income on estimated commission basis. The Assessing Officer (in short, 'AO) estimated the total commission income at Rs.25,93,374/-. He allowed

1 Aggrieved by the order of AO, the assessee filed appeal before the CIT(A), the CIT(A) dismissed the quantum appeal filed by the assessee. It may be mentioned that the ITAT has also dismissed the appeal of the assessee against the order of CIT(A). During the pendency of appeal before the Tribunal, the AO levied penalty, which was also confirmed by the CIT(A). The AO levied the penalty by observing that the assessee had not carried out any business activity and, hence, various data, such as purchases, sales, loans etc. disclosed in the return of income were bogus. Therefore, assessee had furnished inaccurate particulars of income. During penalty proceedings, the assessee requested to keep the proceedings in abeyance because appeal had been filed before ITAT. The AO did not accept the request of the assessee. He referred to Explanation 1 below section 271(1), which raises a presumption that the amount added or disallowed in computing the total income shall be deemed or represents the income in respect of which particulars have been concealed or inaccurate particulars have been furnished. Hence, he levied minimum penalty of Rs. 7,07,751/- u/s.271(1)(c) of the Act. In the appeal before the CIT(A), the appellant submitted that the issue is already decided by the Juri ictional Surat Tribunal in case of its sister concern, M/s Nazar Impex Pvt. Ltd. vide order in ITA Nos. 132 & 133/SRT/2021, dated 30.03.2022. The appellant also submitted that penalty cannot be levied just because assessed income is higher than there turned income. Further, the AO himself is not sure whether income is assessable in the hands of the appellant or Shri Rajendra Jain. It was also submitted that when commission income was computed on estimation basis penalty cannot be levied. The appellant relied on various decisions, which are reproduced at pages 6 to 10 of the appellate order. It was also submitted that the penalty notice itself was bad in law, therefore, no penalty can be imposed. However, the contention of the assessee was not accepted and the CIT(A), primarily on the basis of the reasons given by the AO, upheld the penalty levied u/s 271(1)(c) of the Act."

1 Further, the Hon'ble Income Tax Appellate Tribunal, Surat Bench, Surat in the judgment dated 29/08/2025 given in the case of Moulimani Impex Pvt. Ltd. as referred above has held as under: “..

We have heard both the parties and perused the materials available on record. We have also deliberated upon the decisions relied upon by the Id. AR. The assessment order was passed u/s 144 r.w.s. 153C of the Act by estimating commission income on sales, import and loan entries. The addition on account of estimated commission was Rs.22,90,454/-, which was upheld by both CIT(A)and ITAT. Thus, it is clear that the additions all through have been made /sustained on estimation basis. The penalty u/s 271(1)(c) of the Act has been levied on the estimated addition by the AO, which has been sustained by the CIT(A). The Id. AR submitted that similar penalty imposed in case of its sister concern, M/s Nazar Impex Pvt. Ltd. was deleted by the ITAT in ITA Nos. 132 &133/SRT/2021 (supra). Further, the ITAT in case of Sanjay Kumar Chaudhary (HUF), which was also part of the Rajendra Jain group, deleted the penalty in ITANo.618/SRT/2023 (supra). The ITAT in case of Nazar Impex Pvt. Lid. (supra) has deleted the addition with the following observation:

We have considered the rival submission of both the parties and perused the material available on record. We have also gone through the orders of the lower authorities. We find that there is no dispute that the addition in the assessment order under Section 143(3) r.w.s. 147 dated 29/01/2016 was made on estimation basis, which we have recorded above. It is settled law that no penalty is leviable on estimated addition. In this regard, we draw strength from the following decisions: Manish Dhirajlal Mehta Vs ACIT in Tax Appeal No.461 & 464 of 2000 and 833 & 836 of 2005 dated 05.02.2014 (Gujarat High Court); of 1996), (Gujarat High Court); No.4784/Mum/2018) Mumbai Tribunal and DCIT Vs Anil J Kothari (2048/Ahd/2010), Surat Tribunal.

Considering the fact that addition in the assessment order, on the basis of which the penalty was levied, is I.T(SS).A Nos. 101 to 105//SRT/2025 and Ors. A.Ys. 2009-10 to 2014-15 8

1 Following the above decision, the ITAT deleted similar penalty levied u/s. 271(1)(c) in case of Sanjay Kumar Chaudhary (HUF) (supra). The relevant para is reproduced below for ready reference:

I note that penalty on estimation addition should not be levied and this issue is no longer res integra and has been decided by the Co-ordinate Bench of ITAT, Surat in the case of Nazar Impex Pvt. Ltd. (supra), wherein the penalty levied on estimation was deleted by the Tribunal, therefore respectfully following the binding precedent of Co-ordinate Bench in the case of Nazar Impex Pvt. Ltd. (supra), I delete the penalty."

We also find that the Hon'ble juri ictional High Court in cases of CIT vs. Subhash Trading Co., (1996) 221 ITR 110 (Guj.) and CIT vs. Whitelene Chemicals, (2013) 214 Taxman 93 (Guj.) and Hon'ble Rajasthan High Court in case of CIT vs. Krishi Tyre Retreading & Rubber Industries, (2014) 360 ITR 580 (Raj.) have held that penalty u/s.271(1)(c) of the Act could not be levied where addition was on estimated basis. Since the facts are similar, following the above decisions, the AO is directed to delete the penalty levied u/s 271(1)(c) of the Act. Accordingly, the ground of the appellant is allowed.

5 The appellant company is one of the companies which was controlled by Shri Rajendra Jain and therefore the facts and circumstances of the appellant company with regard to estimation of income from commission and thereafter levy of penalty u/s 271(1)(c) of the Act on such estimated income are seen to be exactly similar to the case of the company Moulimani Impex Pvt. Ltd. In view of above, respectfully following the ratio of the judgment of the juri ictional Hon'ble Income Tax Appellate Tribunal, Surat Bench, Surat dated 29/08/2025 in the case of Moulimani Impex Pvt. Ltd. as given above, it is held that in the case of the appellant for the impugned AY 2012-

Aggrieved against the appellate orders, Revenue is in appeal before us raising the following Grounds of Appeal (for other Asst. Years also, same ground except change in figure of penalty):

The Ld. Sr. DR Shri Ajay Uke, appearing for the Revenue submitted that the assessee is a bogus accommodation entry provider; Addition is based on search evidence and admission is not mere estimation and Ld. CIT(A) failed to apply Explanation 1 to section 271(1)(c) and therefore requested to confirm the penalty levied u/s. 271[1][c] of the Act.

Per contra Ld. Counsel Shri Himanshu Gandhi appearing for the assessee supported the orders passed by the Ld CIT[A] who has followed juri ictional Surat Bench Tribunal decisions in other group cases, the same does not require any interference and dismiss the appeals filed by the Revenue.

We have heard the rival submissions and perused the material available on record. The sole issue for consideration is whether the Ld. CIT(A) was justified in deleting the penalty levied under section 271(1)(c) of the Act.

1 Nature of Addition – Foundational Issue: The Ld. CIT(A) has proceeded on the premise that the impugned addition is based on estimation and therefore, penalty is not leviable. In our considered view, this foundational assumption is factually and legally unsustainable. From the record, it is evident that:

Thus, the existence of undisclosed income and falsity of recorded transactions stand established by direct evidence. The estimation carried out by the Assessing Officer is only with respect to quantification of such income, and not for determining its existence.

Distinction from “Pure Estimation” Cases. It is necessary to distinguish between:

The present case squarely falls in the second category. Judicial precedents relied upon by the Ld. CIT(A), including those in group cases, pertain to situations of pure estimation without conclusive evidence of falsity of transactions. In contrast, in the present case, the very substratum of the assessee’s business has been found to be sham/bogus. Accordingly, those decisions are distinguishable on facts, and their ratio cannot be mechanically applied.

Examination of Coordinate Bench Decisions. The Ld. CIT(A) has

We have carefully examined the said decisions carefully and It is observed that:

Further, in the present case, the Revenue has specifically demonstrated:

Moreover the addition is confirmed by the Tribunal and assessee filed Tax Appeal under section 260A before the Hon’ble Gujarat High Court in TA Nos. 486-488/2022 and 492-94/2022 but not obtained any Stay of operation of the Tribunal order. Therefore, pendency of Tax case appeal is not binding on the Tribunal to follow its own assessee’s case in the penalty proceedings. Further, the estimation of income is only a method of quantification, whereas the foundation of addition is concrete evidence. Various Judicial precedents have consistently held that where the underlying transactions are found to be bogus, penalty u/s 271(1)(c) is clearly attracted, even if income is determined by estimation. Courts have consistently held that entities engaged in accommodation entries cannot escape penalty in the case of PCIT vs. NRA Iron & Steel Pvt. Ltd. (412 ITR 161) (SC) and CIT vs. Nova Promoters & Finlease Pvt. Ltd. (342 ITR 169) (Del). These decisions establish that where transactions are not genuine, penalty is justified. Thus, this ground of the assessee is rejected.

Applicability of Explanation 1 to Section 271(1)(c) which provides that where:

1 In the present case: The assessee has disclosed income on the basis of purported diamond trading activities. However, the search has conclusively established that such activities were non-genuine and merely accommodation entries. The assessee has not brought any material to substantiate that the transactions recorded in its books represent real business. The explanation offered is a general denial and does not rebut the specific findings arising from search and statements. Thus, the explanation of the assessee is neither substantiated nor bona fide, and the case squarely falls within the ambit of Explanation 1. 11. Furnishing of Inaccurate Particulars

This is not a case of: Mere difference of opinion; or Incorrect claim based on disclosed facts. Rather, it is a case where false particulars have been furnished by way of non-genuine entries. The above view is supported by the following principles laid down by the Hon’ble Courts:

Independence of Penalty Proceedings. The levy of penalty in the present case is not merely consequential to the quantum addition. It is based on: Independent findings arising from search; Falsity of transactions recorded in books; Failure of the assessee to offer a credible and substantiated explanation.

In view of the above detailed reasonings: The Ld. CIT(A) erred in treating the case as one of mere estimation; The additions are rooted in concrete evidence establishing non-genuine transactions; The assessee has failed to discharge the burden under Explanation 1 to section 271(1)(c); The case clearly falls within the ambit of “furnishing inaccurate particulars of income”.

Therefore, we hold that this is not a case of innocent estimation and it is a case of systematic accommodation entry operation. For all these above reasons the Penalty is rightly levied u/s. 271[1][c] of I.T(SS).A Nos. 101 to 105//SRT/2025 and Ors. A.Ys. 2009-10 to 2014-15 16

In the result the appeals filed by the Revenue in IT [SS]A Nos.101 to 105/SRT/2025 and ITA No. 1415/SRT/2025 are hereby allowed.