DCIT CC 7(2), MUMBAI vs. MAN INDUSTRIES (INDIA) LIMITED, MUMBAI

IN THE INCOME TAX APPELLATE TRIBUNAL “D” BENCH MUMBAI BEFORE SHRI PAWAN SINGH, JUDICIAL MEMBER & SHRI MAKARAND VASANT MAHADEOKAR, ACCOUNTANT MEMBER

Assessee by Shri K. Gopal and Ms. Neha Paranjpe, Ld. ARs Revenue by Shri Annavaram Kosuri, Ld. DR Date of Hearing 22.04.2026 Date of Pronouncement 27.04.2026

2 ITA No. 8639 & 8641/Mum/2025 Man Industries (India) Limited Merino Shelters Private Limited आदेश / ORDER PER MAKARAND VASANT MAHADEOKAR, AM: These two appeals filed by the Revenue are directed against two separate orders passed by the learned Commissioner of Income Tax (Appeals)-49, Mumbai [hereinafter referred to as "CIT(A)"], both dated 31.10.2025, for the Assessment Year 2018– 19, arising out of penalty orders passed by the Assessing Officer under section 270A of the Income Tax Act, 1961.Since the issues involved, facts, and grounds raised are identical in nature, both appeals were heard together and are being disposed of by this common order for the sake of convenience. The appeal in the case of Man Industries (India) Limited (ITA No. 8639/Mum/2025) is taken as the lead case, and the facts are being narrated accordingly. The decision shall apply mutatis mutandis to the connected appeal. Common Factual Background 2. The record reveals that original returns of income were filed under section 139(1) and assessments were completed under section 143(3). Subsequently, based on information received through the risk management strategy of the Department, which emanated from search and investigation proceedings conducted in the case of Oneworld Group on 06.11.2019, it was noticed that certain entities controlled and managed by Shri Rajesh Gunwantrai Mehta were engaged in providing accommodation entries in the nature of bogus purchases, sales and financial

3 ITA No. 8639 & 8641/Mum/2025 Man Industries (India) Limited Merino Shelters Private Limited transactions without actual movement of goods or rendering of services. During the course of search proceedings, statement of Shri Rajesh Mehta was recorded on oath, wherein he admitted that the entities controlled by him were engaged in providing accommodation entries and that commission income was earned for facilitating such transactions. It was further stated that such entries were provided to various beneficiaries and the same were not backed by genuine business activities. 3. Based on the aforesaid information, the Assessing Officer initiated proceedings under section 148A(b) of the Act by issuing show cause notices after obtaining prior approval of the specified authority. In the notices issued under section 148A(b), it was stated that the Assessing Officer was in possession of information suggesting that income chargeable to tax had escaped assessment within the meaning of section 147 and the assessees were called upon to explain as to why notice under section 148 should not be issued. The Annexures to such notices contained specific details of transactions entered into by the assessees with entities controlled by Shri Rajesh Mehta, which were identified as accommodation entry providers. The Assessing Officer recorded that such entities were not carrying out genuine business and were only engaged in providing accommodation entries to beneficiaries. 4. After considering the replies filed by the assessees, the Assessing Officer passed orders under section 148A(d), holding that the material available on record, including the statements

4 ITA No. 8639 & 8641/Mum/2025 Man Industries (India) Limited Merino Shelters Private Limited recorded and information gathered during investigation, indicated that the transactions were not genuine. The Assessing Officer further recorded that commission income is ordinarily earned in such accommodation entry transactions and, based on the statement on oath, where commission was stated to be in the range of approximately 0.5% to 1%, the Assessing Officer adopted a reasonable estimate of 5% of the transaction value as income attributable to such activities. On this basis, the Assessing Officer quantified escapement of income in the form of commission and held that it was a fit case for issuance of notice under section 148. The orders under section 148A(d) were passed after obtaining prior approval of the Principal Commissioner of Income Tax (Central), Mumbai. 5. Pursuant thereto, notices under section 148 were issued. In response, the assessees filed returns of income wherein additional income computed at 5% of the impugned transactions was offered to tax, stated to have been disclosed to buy peace and avoid protracted litigation, without admitting the transactions as non-genuine. The reassessment proceedings were thereafter carried out under section 147 r.w.s. 143(3).The Assessing Officer thus treated the commission income as income arising from accommodation entry transactions and concluded that the assessees had under-reported income in consequence of misreporting within the meaning of section 270A(9). Accordingly, penalty proceedings were initiated and penalty orders under section 270A were passed.

5 ITA No. 8639 & 8641/Mum/2025 Man Industries (India) Limited Merino Shelters Private Limited 6. During penalty proceedings, the assessees submitted that the additions were based on estimation of commission income and there was no direct evidence of actual receipt of such income. It was contended that the transactions were duly recorded in books, all primary facts were disclosed, and no case of misreporting as envisaged under section 270A(9) was made out. It was further contended that penalty cannot be levied on additions made on estimated basis and that the disclosure in return filed under section 148 was made to avoid litigation. 7. The Assessing Officer rejected the explanations and held that the assessees had suppressed true income and recorded transactions in a manner that concealed the real nature thereof. The Assessing Officer thus concluded that the case falls within the ambit of “misreporting of income” and levied penalty under section 270A. 8. Before the learned CIT(A), the assessees reiterated that the additions were based on estimation and that no conclusive evidence existed to establish misreporting. It was submitted that all relevant details were furnished during assessment proceedings and the explanation offered was bona fide. The learned CIT(A), after considering the submissions, held that the additions made by the Assessing Officer were based on estimation of commission income by applying a standard rate of 5% and that there was no conclusive material to establish that the assessees had misreported income within the meaning of section 270A(9). The learned CIT(A) further held that such cases fall within the

6 ITA No. 8639 & 8641/Mum/2025 Man Industries (India) Limited Merino Shelters Private Limited exclusion provided under section 270A(6), which excludes income determined on estimation basis from the ambit of under-reported income. Accordingly, the learned CIT(A) deleted the penalty levied under section 270A in both cases.

Particulars Man Industries (India) Merino Shelters Private Limited Limited Return u/s 139(1) 30.11.2018 31.10.2018 Returned Income Rs. 94,20,19,470/- Nil (Book profit u/s 115JB: Rs. 29,27,640/-) Assessment u/s 10.06.2021 10.06.2021 143(3) Notice u/s 148A(b) 12.03.2022 (after PCIT 11.03.2022 (after PCIT approval) approval) Transactions VRB Capital - Rs. Aneri Fincap Ltd – Rs. Identified – Loans to - 7,50,00,000/-, 33,11,45,687/- Aneri Fincap - Rs. 7,66,33,315/-, Basant Marketing – Rs. 8,00,00,000/- Total Transaction Rs. 23,16,33,315/- Rs. 33,11,45,687/- Amount Order u/s 148A(d) 13.04.2022 13.04.2022 Escapement Rs. 1,15,00,000/- Rs. 1,65,00,000/- Quantified Return filed u/s 148 16.06.2022 16.07.2022 on Reassessment u/s 147 r.w.s. 143(3) u/s 147 r.w.s. 143(3) dated 31.03.2024 dated 31.03.2024 Penalty Order u/s 270A dated u/s 270A dated 28.09.2024 28.09.2024 Penalty Amount Rs. 79,59,838/- Rs. 1,09,78,240/- CIT(A) Order dated 31.10.2025 31.10.2025

7 ITA No. 8639 & 8641/Mum/2025 Man Industries (India) Limited Merino Shelters Private Limited 10. Aggrieved by the orders of CIT(A), the Revenue filed appeals before us raising following grounds of appeal:

In ITA No. 8639/Mum/2025 1. On the facts and in the circumstances of the case, the learned CIT(A) erred in law in deleting the penalty levied u/s 270A on misreported income, without appreciating that the assessee had offered the additional income only after the Assessing Officer confronted him with concrete evidence of accommodation entries unearthed through Investigation Wing enquiries. 2. The learned CIT(A) erred in holding that the addition made by the Assessing Officer represented “estimated income” covered by Section 270A(6)(b), even though the addition was based on specific, verifiable and conclusive evidence of bogus loan entries, and not on any ad-hoc or estimation basis. 3. The learned CIT(A) failed to appreciate that Section 270A(6)(b) is applicable only where income is estimated due to absence of proper records or rejection of books, and not where false entries, bogus transactions or accommodation entries are detected based on definite information and inquiry. 4. The CIT(A) ignored the fact that the assessee had misreported income within the meaning of Section 270A(9) by recording false entries of bogus loans, suppressing true facts, and failing to record the actual commission expenditure embedded in such entry- providing transactions. 5. The learned CIT(A) erred in ignoring that the assessee’s disclosure of income in the return filed u/s 148 was not voluntary, but was made only after detection by the Department, thereby constituting a clear case of misreporting attracting mandatory penalty u/s 270A(8). 6. The CIT(A) misdirected himself by treating the application of a standard rate (5%) on detected bogus entries as an estimation, whereas such rate is merely a recognized method of quantification of concealed commission income and does not convert an evidenced- based addition into an estimation. 7. The learned CIT(A) failed to appreciate that penalty u/s 270A is mandatory for misreporting of income, and the statutory scheme does not grant discretion to the appellate authority to extend immunity contrary to the provisions of Section 270A(6) & 270A(9).

8 ITA No. 8639 & 8641/Mum/2025 Man Industries (India) Limited Merino Shelters Private Limited 8. The order of the CIT(A) is perverse and contrary to the settled legal position, and therefore the penalty u/s 270A as levied by the Assessing Officer deserves to be restored. 9. The appellant craves leave to add, modify, alter or delete any ground of appeal at the time of hearing. In ITA No. 8641/Mum/2025 1. On the facts and in the circumstances of the case, the learned CIT(A) erred in law in deleting the penalty levied u/s 270A on misreported income, appreciating that the Assessing Officer confronted him with concrete evidence of accommodation entries unearthed through enquiries. 2. The learned CIT(A) erred in holding that the addition made by the Assessing Officer represented “estimated income” covered by Section 270A(6)(b), even though the addition was based on specific, verifiable and conclusive evidence of bogus loan entries, and not on any ad-hoc or estimation basis. 3. The learned CIT(A) failed to appreciate that Section 270A(6)(b) is applicable only where income is estimated due to absence of proper records or rejection of books, and not where false entries, bogus transactions or accommodation entries are detected based on definite information and inquiry. 4. The CIT(A) ignored the fact that the assessee had misreported income within the meaning of Section 270A(9) by recording false entries of bogus loans, suppressing true facts, and failing to record the actual commission embedded in such entry-providing transactions. 5. The CIT(A) misdirected himself by treating the application of a standard rate (5%) on detected bogus entries as an estimation, whereas such rate is merely a recognized method of quantification of concealed commission income. 6. The learned CIT(A) failed to appreciate that penalty u/s 270A is mandatory for misreporting of income, and the statutory scheme does not grant discretion to the appellate authority to extend immunity contrary to the provisions of Section 270A(6) & 270A(9). 7. The order of the CIT(A) is perverse and contrary to the settled legal position, and therefore the penalty u/s 270A as levied by the Assessing Officer deserves to be restored. 8. The appellant craves leave to add, modify, alter or delete any ground of appeal at the time of hearing.

9 ITA No. 8639 & 8641/Mum/2025 Man Industries (India) Limited Merino Shelters Private Limited 11. During the course of hearing, the Ld. Authorised Representative (AR) for the assessee reiterated the factual matrix as borne out from the orders of the lower authorities and submitted that the entire addition forming the basis of penalty proceedings emanates from the estimation made by the Assessing Officer in the order passed under section 148A(d) of the Act. It was submitted that pursuant to issuance of notice under section 148, the assessee filed return of income offering additional income computed at 5% of the impugned transactions, strictly in line with the estimation made by the Assessing Officer in the order passed under section 148A(d). The Ld. AR contended that such disclosure was made to buy peace and avoid protracted litigation, without admitting that the underlying transactions were non-genuine or represented accommodation entries. 12. The Ld. AR further submitted that in such circumstances, the case of the assessee is squarely covered by the provisions of section 270A(6) of the Act, inasmuch as the income has been determined on an estimated basis and the explanation offered by the assessee is bona fide and all material facts were disclosed. It was contended that once the case falls within the exclusion provided under section 270A(6), the same cannot be treated as “under-reported income” so as to attract penalty. 13. The Ld. AR placed reliance on the findings recorded by the learned CIT(A) and submitted that the first appellate authority has correctly appreciated both the factual and legal position while deleting the penalty. The Ld. AR also placed reliance on the

10 ITA No. 8639 & 8641/Mum/2025 Man Industries (India) Limited Merino Shelters Private Limited decision of the co-ordinate bench of the Tribunal in the case of Hi-Tech Engineers vs. ACIT in(ITA No.3165 & 3166/Mum/2025), wherein under similar circumstances penalty levied under section 270A was deleted. Relying on this judicial precedent, the Ld. AR submitted that where the addition itself is based on estimation of income and not on conclusive evidence, the same cannot form the basis for levy of penalty under section 270A, particularly under the limb of misreporting. 14. The Ld. Departmental Representative controverted the arguments advanced on behalf of the assessee and submitted that the reliance placed on section 270A(6) is wholly misplaced. It was contended that the present is not a case where the Assessing Officer has independently resorted to estimation in the absence of proper records. Rather, the addition of commission income at 5% was made on the basis of material gathered during investigation and was subsequently accepted by the assessee itself in the return of income filed in response to notice under section 148. Therefore, according to the Ld. DR, the same cannot be characterized as a unilateral or ad hoc estimation by the Assessing Officer so as to fall within the ambit of section 270A(6)(b) or (c). The Ld. DR further submitted that the assessee had, in effect, agreed to the commission element embedded in the transactions, and therefore the addition cannot be treated as a mere estimate but as income admitted by the assessee. It was argued that once the assessee has accepted the income in the return filed under section 148, the same constitutes under-

11 ITA No. 8639 & 8641/Mum/2025 Man Industries (India) Limited Merino Shelters Private Limited reported income, particularly when such disclosure has been made only after detection by the Department. 15. It was thus contended that the exception carved out under section 270A(6) is not applicable in the present case, as the conditions prescribed therein are not satisfied. According to the Ld. DR, the learned CIT(A) has erred in treating the addition as falling within the exclusion clause, ignoring the fact that the disclosure was not voluntary but was a consequence of proceedings initiated under section 148A. 16. The Ld. DR, therefore, submitted that the Assessing Officer has rightly treated the case as one of under-reporting in consequence of misreporting and levied penalty under section 270A, and the order of the learned CIT(A) deleting the penalty deserves to be reversed. 17. We have considered the rival submissions and perused the material available on record. The short controversy before us is whether, on the facts of the present case, penalty under section 270A of the Act could have been levied at the rate applicable to misreporting, when the income in question represents commission computed at 5% of the impugned loan transactions. 18. The undisputed factual position emerging from the record is that the reassessment was triggered on the basis of information relating to alleged accommodation entries. The Assessing Officer, in the order passed under section 148A(d), quantified the alleged commission at 5% of the transactions, which worked out to Rs.

12 ITA No. 8639 & 8641/Mum/2025 Man Industries (India) Limited Merino Shelters Private Limited 1,15,00,000/-. The said figure is admittedly not based on any direct evidence of actual payment but is purely an estimation.

“7.4. From the facts on record, it is quite evident that the addition made to the income is based on estimation. The commission amount that the appellant could have paid for advancing the loans as been considered as additional income of the appellant. The books of accounts have not been rejected. The additional income has not been exactly quantified but has been estimated at the rate of 5% of the loans advanced. Since the addition is determined on the basis of an estimate without the rejection of the books of account, the amount falls within the ambit of Section270A(6)(b) and, consequently, shall not be treated as under- reported income for the purpose of penalty.” 20. Further, it is evident from the appellate record that the assessee, without accepting the allegation of non-genuine transactions, offered the said amount in the return filed under section 148 to buy peace and avoid protracted litigation. The learned CIT(A) has also taken note of this conduct as –

“7.5. Furthermore, the appellant's submission that the amount was offered to buy peace of mind' is corroborated by the facts that the appellant voluntarily included the amount in the return filed in response to the Section 148 notice and refrained from challenging the addition in the appellate forums. This conduct supports the inference that the addition was accepted to bring finality to the assessment proceedings rather than an admission of a deliberate misreporting of facts.” 21. At this stage, it is necessary to examine the statutory framework of section 270A. Sub-section (6) specifically excludes

13 ITA No. 8639 & 8641/Mum/2025 Man Industries (India) Limited Merino Shelters Private Limited certain categories of income from the ambit of “under-reported income”. Clause (b) and clause (c) thereof, as reproduced in the impugned order, provide that where the addition is determined on the basis of estimate, such income shall not be regarded as under-reported income, subject to fulfillment of prescribed conditions. 22. In the present case, the addition is admittedly based on estimation. There is no material on record to establish the exact quantum of commission paid or received. Even the Assessing Officer, in the order under section 148A(d), has applied a flat rate of 5% without bringing any independent evidence on record. Therefore, the case squarely falls within the exclusion contemplated under section 270A(6). 23. Once the income itself is excluded from the definition of “under-reported income”, the further question of treating such income as under-reported income in consequence of misreporting does not arise. 24. The contention of the learned DR that the assessee had agreed to the addition and therefore the same constitutes misreporting cannot be accepted. The offering of income by the assessee was subsequent to the estimation already made by the Assessing Officer and was specifically stated to be without admitting the allegation and to avoid litigation. Such conduct cannot be equated with admission of misreporting.

14 ITA No. 8639 & 8641/Mum/2025 Man Industries (India) Limited Merino Shelters Private Limited 25. The Revenue has levied penalty at the rate applicable to misreporting. For invoking such higher rate, it is incumbent upon the Assessing Officer to demonstrate that the case falls within one of the specific clauses of section 270A(9). A general allegation of accommodation entry or non-voluntary disclosure cannot be a substitute for a clear finding as to the precise limb of misreporting. 26. In this context, it is pertinent to examine the finding recorded by the Assessing Officer in the penalty order, wherein it is stated that: “the assessee has misrepresented and suppressed the fact of payment of commission of Rs. 1,15,00,000/-… which falls under misreporting of income within meaning of section 270A(9).” 27. However, on a careful analysis, we find that the said observation is general in nature and not linked to any specific clause of section 270A(9). The Assessing Officer has neither specified whether the case falls under clause (a) relating to misrepresentation or suppression of facts, nor has he demonstrated how any of the other clauses are attracted. Further, the very premise of “payment of commission” is itself based on estimation and not on any concrete evidence. Thus, the essential jurisdictional requirement for invoking section 270A(9) is not satisfied.

15 ITA No. 8639 & 8641/Mum/2025 Man Industries (India) Limited Merino Shelters Private Limited 28. In this regard, the decision of the Co-ordinate Bench in the case of Hi-Tech Engineers (supra) is directly applicable. The Bench has held as under: “the Assessing Officer is required to exhibit that the aforesaid misreporting falls within the ambit of the cases of misreporting specified in section 270A(9)(a) to 270A(9)(g)… and in absence of the same penalty levied under section 270A cannot be sustained.”(para 12.2.) 29. The Co-ordinate Bench further noted that where the quantum addition itself is sustained on estimated basis, the penalty under section 270A cannot be levied. 30. Applying the above ratio to the facts of the present case, we find that the addition is purely on estimation, no direct evidence of actual commission payment is brought on record, the assessee has disclosed the amount in return filed under section 148and the Assessing Officer has failed to specify and establish the exact limb of section 270A(9). Therefore, the case falls within the exclusion under section 270A(6) and outside the ambit of misreporting under section 270A(9). 31. In view of the above discussion, we find no infirmity in the order of the learned CIT(A) deleting the penalty. The reasoning adopted by the learned CIT(A) is in consonance with the statutory provisions as well as judicial precedents. 32. Accordingly, we uphold the order of the learned CIT(A) deleting penalty of Rs. 79,59,838/- levied under section 270A in the case of Man Industries (India) Limited.

16 ITA No. 8639 & 8641/Mum/2025 Man Industries (India) Limited Merino Shelters Private Limited 33. Since the facts and issue involved in the case of Merino Shelters Private Limited are identical, except for the difference in transaction value, estimated commission and penalty amount, our findings in the lead appeal shall apply mutatis mutandis to the said appeal also. Accordingly, the order of the learned CIT(A) deleting penalty of Rs. 1,09,78,240/- levied under section 270A is also upheld.

Order pronounced in the open court on 27.04.2026.

Sd/- Sd/- (PAWAN SINGH) (MAKARAND VASANT MAHADEOKAR) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai, Dated 27/04/2026 Dhananjay, Sr.PS आदेश की प्रतितिति अग्रेतिि/Copy of the Order forwarded to : अपीलाथी / The Appellant 1. प्रत्यथी / The Respondent. 2. 3. संबंधधत आयकर आयुक्त / The CIT(A) 4. आयकर आयुक्त(अपील) / Concerned CIT धिभागीय प्रधतधनधध, आयकर अपीलीय अधधकरण, मुम्बई / DR, ITAT, Mumbai 5. 6. गार्ड फाईल / Guard file. आदेशानुसार/ BY ORDER, सत्याधपत प्रधत //True Copy// 1. उि/सहायक िंजीकार ( Asst. Registrar) आयकर अिीिीय अतिकरण, मुम्बई / ITAT, Mumbai