SPHERE,SURAT vs. ITO, WARD-1(3)(1), SURAT

ITA 95/SRT/2026Status: DisposedITAT Rajkot23 September 2026AY 2008-097 pages
AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that the penalty imposed under Section 271(1)(c) is unsustainable in law. The Tribunal noted that the addition on account of alleged bogus purchases had undergone a series of estimations at all levels of appeal. Initially, the AO made a 100% addition, which was reduced to 5% by the CIT(A). The Tribunal referred to its own prior decisions in ITA No. 159/SRT/2026 (Sharad Jain Vs. ITO), ITA No. 125/SRT/2024 (Shri Ramprakash Vijayvergia Vs. ITO), and ITA No. 655/SRT/2025 (Santosh Singh Hukam Singh Vs. Income-tax Officer). These decisions, dealing with identical facts of estimated additions on account of alleged bogus purchases, held that penalty under Section 271(1)(c) is not leviable on ad-hoc or estimated additions. The Tribunal found no distinguishing features or contrary judicial pronouncements presented by the revenue. Following the principle of judicial discipline and consistency, the Tribunal directed the deletion of the penalty. The issue of penalty on the entire amount of alleged unverified purchases was implicitly decided by holding that no penalty is leviable on estimated additions.

What were the facts?

The assessee, Sphere, engaged in the diamond business, is in appeal before the Income Tax Appellate Tribunal (ITAT), Surat Bench, against the order of the Commissioner of Income-tax (Appeals) - National Faceless Appeal Centre (NFAC), Delhi. The NFAC had confirmed a penalty of Rs. 9,43,420/- levied by the National Faceless Assessment Centre (NFAC), Delhi (Assessing Officer - AO) under Section 271(1)(c) of the Income-tax Act, 1961. This penalty arose from re-opened assessment proceedings for Assessment Year (AY) 2008-09, initiated based on information from a search on the 'Rajendra Jain Group' suggesting the assessee received accommodation entries. The AO initially added Rs. 30,53,137/- representing 100% of alleged bogus purchases. The CIT(A), in quantum appeal, reduced this addition to 5% of the impugned purchases, amounting to Rs. 1,52,656/-. The penalty was then imposed on the original addition.

What were the issues?

1. Whether the learned Commissioner of Income Tax (Appeals), NFAC erred in confirming the penalty of Rs. 9,43,420/- levied under Section 271(1)(c) of the Income-tax Act, 1961, by the Assessing Officer. 2. Whether the learned Commissioner of Income Tax (Appeals), NFAC erred in confirming the penalty on the entire amount of alleged unverified purchases of Rs. 30,53,137/-, when the quantum addition was restricted to 5% (Rs. 1,52,656/-) by the CIT(A). Assessee's Contentions: The assessee argued that the penalty was imposed on an ad-hoc/estimated addition, which was further reduced by the CIT(A). It contended that penalty under Section 271(1)(c) cannot be imposed on ad-hoc or estimated additions, relying on certain decisions. Revenue's Contentions: The revenue argued that this was not a simple ad-hoc/estimated addition but a case of bogus purchases made by obtaining non-genuine bills, even though the addition was made on an estimation basis. Therefore, the penalty under Section 271(1)(c) was rightly triggered and upheld by the lower authorities.

Which sections of the Income-tax Act were involved?

Section 271(1)(c),Section 139,Section 147,Section 250

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, SURAT BENCH, SURAT

Before: MS. SUCHITRA KAMBLE & SHRI B.M. BIYANI

For Appellant: Shri Sapnesh Sheth, Advocate
For Respondent: Shri Ashish Kumar, Sr.DR
Hearing: 21.09.2026Pronounced: 23.09.2026

Per B.M. Biyani, A.M.: Feeling aggrieved by the order of first appeal dated 04.11.2025 passed by learned Commissioner of Income-tax-National Faceless Appeal Centre, Delhi [“Ld. CIT(A)”], which in turn arises out of the penalty-order dated 25.03.2022 passed by learned National Faceless Assessment Centre, Delhi

Sphere ITA No. 95/SRT/2026 - AY 2008-09

[“Ld. AO”] u/s 271(1)(c) of Income-tax Act, 1961 [“the Act”] for assessment- year [“AY”] 2008-09, the assessee has filed this appeal on following grounds:

“1. On the facts and circumstances of the c

The order continues below.

Read the full judgment

A free account opens 10 full judgments a month. Re-reading one you have already opened does not count again.

Create a free accountSign in

See plans and prices

The summary, the parties, the sections and the citations above are open to everyone and always will be. Only the text of the order and the PDF are metered.

More judgments on Section 271(1)(c)

All 25,141 judgments and leading authorities on Section 271(1)(c) →

Recent GST High Court judgments

Search GST case law →