PANKAJ M PATEL LEGAL HEIR OF MOHANLAL M. PATEL,MUMBAI vs. CIT (A) - 51 , MUMBAI

ITSSA 6106/MUM/2025Status: DisposedITAT Mumbai13 February 2026AY 1996-976 pages
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What were the facts?

This appeal by the legal heir of the assessee, Pankaj M Patel, concerns an order dated 04.08.2025 passed by the CIT(A)-51, Mumbai, which upheld a penalty order under section 158BFA(2) of the Income Tax Act, 1961, for the block period 01.04.1996 to 11.04.2002. A search action on 11.04.2002 in the Patel Group revealed the assessee was engaged in draft discounting business from 51-Bibijan Street, Mumbai. The assessee claimed this business belonged to his nephew, who died in 2006, and provided no evidence. A seized diary showed credit entries of Rs. 105.49 crore for the block period. The AO initially added Rs. 91,10,788/- as commission income after applying a 1% gross profit rate. The CIT(A) reduced this to 0.25%. Subsequently, a Coordinate Bench of the Tribunal directed the AO to adopt a gross commission rate of 0.2137%, resulting in a taxable commission of Rs. 22,54,400/-. A penalty of Rs. 5,13,970/- was levied under section 158BFA(2).

What did the Tribunal hold?

The Tribunal first noted that Ground No. 1 was not pressed and dismissed it. Regarding Grounds Nos. 2 and 3, the Tribunal observed that the addition on account of commission income from the draft discounting business was ultimately determined at 0.2137% of the credited amount by a Coordinate Bench of the Tribunal. The Tribunal found that the Assessing Officer had levied a penalty under section 158BFA(2) based on this estimated addition. Citing the decision in Bagga Distillery Hyderabad Pvt. Ltd. v. DCIT, which was upheld by the Hon’ble High Court of Andhra Pradesh and Telangana, and the decision in Smt. Bitoli Devi vs. ACIT, the Tribunal held that a penalty under section 158BFA(2) cannot be levied merely on the basis of an estimated addition. The Tribunal reasoned that the determination of undisclosed income on an estimated basis does not automatically result in the imposition of penalty, as the Assessing Officer has discretion. Therefore, the Tribunal directed the Assessing Officer to delete the penalty. Grounds Nos. 2 and 3 were allowed.

What were the issues?

1. Whether the Commissioner of Income Tax (Appeals) erred in passing the impugned order in the name of the deceased assessee and if the order is bad in law (Section 250 of the Income Tax Act, 1961). 2. Whether the Commissioner of Income Tax (Appeals) erred in confirming the penalty order passed by the Assessing Officer of Rs. 5,13,970/- under section 158BFA(2) of the Income Tax Act, 1961. 3. Whether the Commissioner of Income Tax (Appeals) erred in confirming the penalty order passed by the Assessing Officer wherein the Assessing Officer treated the business of draft discounting carried on by the nephew of the assessee as the business of the assessee. Assessee's contentions: Ground No. 1 was not pressed. For Grounds 2 and 3, the assessee argued that the penalty under section 158BFA(2) cannot be levied when the undisclosed income is determined purely on an estimated basis. The assessee relied on the decision in Bagga Distillery Hyderabad Pvt. Ltd. v. DCIT (IT(SS)A No. 28/HYD/2011) and Smt. Bitoli Devi vs. ACIT ([2009] 31 SOT 30 (Lucknow) (URO)). Revenue's contentions: The revenue did not record any specific contentions against the assessee's arguments regarding the penalty being based on estimation, but supported the CIT(A)'s order confirming the penalty.

Which sections of the Income-tax Act were involved?

Section 132,Section 158BFA(1),Section 158BFA(2),Section 250

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, “C” BENCH, MUMBAI

Before: SHRI VIKRAM SINGH YADAVSHRI SANDEEP SINGH KARHAIL

For Appellant: Shri Vimal Punmiya
For Respondent: Shri Virabhadra Mahajan, Sr. DR

PER SANDEEP SINGH KARHAIL, J.M. The legal heir of the assessee has filed the present appeal against the impugned order dated 04.08.2025, passed under section 250 of the Income Tax Act, 1961 (“the Act”) by the learned Commissioner of Income Tax (Appeals)-51, Mumbai, [“learned CIT(A)”], which in turn arose from the penalty order passed under section 158BFA(2) of the Income Tax, for the block period from 01.04.1996 to 11.04.2002. 2. In this appeal, the assessee has raised the following grounds: -

IT(SS)A No. 6106/Mum/2025 (A.Y. 1996-97) 2

“1. On the facts of the appellant's case and under the l

The order continues below.

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