MANAV TRADING (INDIA) PVT LTD,SURAT vs. INCOME TAX OFFICER, WD-1(1)(4), SURAT

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ITA 109/SRT/2026Status: DisposedITAT Rajkot16 October 2026AY 2008-094 pages

In favour of the assessee: the assessee's appeal was allowed. From the AI summary of this appeal.

AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that the penalty under Section 271(1)(c) cannot be levied in cases where additions are made on an estimated basis. The Tribunal noted that the addition was restricted to 6% of the disputed purchase, which cannot be construed as furnishing inaccurate particulars or concealment of income, as the definite accuracy of the particulars was not determined by the AO. Furthermore, the Tribunal found merit in the assessee's contention that the notice under Section 274 invoked both charges ('concealment of income' and 'furnishing inaccurate particulars of income') without specifying which limb was applicable, and the penalty was ultimately finalized on one limb. This indicated that the AO was not clear about the specific charge to be imposed or initiated. Therefore, the penalty under Section 271(1)(c) does not survive. The appeal of the assessee was allowed.

What were the facts?

The assessee, Manav Trading (India) Pvt. Ltd., filed an appeal against the order of the Commissioner of Income Tax (Appeals) - National Faceless Appeal Centre (NFAC), Delhi, dated 30.12.2025, for Assessment Year 2008-09. The assessee's original return declared an income of Rs.1,63,224. The assessment was finalized at Rs.3,01,600 under Section 143(3). Subsequently, based on information regarding accommodation entries for purchases, the case was re-opened under Section 147. The reassessment proceedings concluded on 30.09.2015 with an addition of Rs.50,00,082 on account of undisclosed income. Simultaneously, penalty proceedings under Section 271(1)(c) were initiated. The Assessing Officer (AO) imposed a penalty of Rs.15,45,025. The CIT(A) partly allowed the assessee's appeal.

What were the issues?

1. Whether the levy of penalty under Section 271(1)(c) is valid when the assessment order and the notice under Section 274 did not specify a distinct charge of 'concealment of income' or 'furnishing inaccurate particulars of income'? (Question of law) 2. Whether the penalty under Section 271(1)(c) is sustainable when the notice under Section 274 was issued in a mechanical, pre-printed format without specifying the exact charge? 3. Whether the CIT(A) erred in confirming the penalty of Rs.92,701 levied under Section 271(1)(c) concerning a disallowance of Rs.3,00,004 (6% of disputed purchase) sustained on an estimated basis by the ITAT? Assessee's Contentions: - The penalty is bad in law as the initiation in the assessment order and notice under Section 274 did not specify a distinct charge. Penalty proceedings are quasi-criminal and must be strictly construed. Reliance was placed on Mohd. Farhan A. Shaikh vs. DCIT, Shri Samson Perinchery, Deepak Banwarilal Agarwal vs. ITO, and Yogendra Raj U. Sanghvi vs. ITO. - The penalty cannot be levied on income determined on an estimation basis, especially when the ITAT restricted the disallowance to 6% after the AO initially proposed 100%. - All material facts were disclosed, and the disputed purchases were recorded in audited books with documentary evidence. Revenue's Contentions: - The penalty was rightly imposed as the assessee had not disclosed income and furnished inaccurate particulars. Reliance was placed on the assessment order, penalty order, and CIT(A)'s order.

Which sections of the Income-tax Act were involved?

Section 271(1)(c),Section 274,Section 143(3),Section 147,Section 148

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 Respondent: Shri Ashish Kumar, Sr. DR
Pronounced: 16.10.2026

IN THE INCOME TAX APPELLATE TRIBUNAL SURAT BENCH, SURAT BEFORE MS. SUCHITRA KAMBLE, JUDICIAL MEMBER AND SHRI B.M. BIYANI, ACCOUNTANT MEMBER ITA No.109/SRT/2026 (निर्धारण वर्ा/Assessment Year: 2008-09) MANAV TRADING (INDIA) PVT INCOME TAX OFFICER, LTD., WD-1(1)(4) 103, DEVSAGAR, NEAR HDC AAYAKAR BHAWAN, NEAR BUILDING, DALAGIYA STREET, Vs. MAJURA GATE, OPP. NEW MAHIDHARPURA, CIVIL HOSPITAL, SURAT SURAT-395003, GUJARAT SURAT-395001, GUJARAT अपीलधर्थी Appellant प्रत्यर्थी Respondent

Permanent Account Number of Assessee: AADCM2991E

अपीलधर्थी द्वारा/Appellant represented by: Shri Saiprasad Ghosh, CA प्रत्यर्थी द्वारा/Respondent represented by: Shri Ashish Kumar, Sr. DR

सुनवाई की तारीख / Date of conclusion of hearing: 29.07.2026 घोषणा की तारीख / Date of pronouncement: 16.10.2026

O R D E R PER : SUCHITRA KAMBLE, J M: The appeal filed by the assessee is against the order passed by the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi [in short “CIT(A)”] dated 30.12.2025 for the Assessment Year (in short “AY”) 2008-09.

2.

The assessee has raised the following grounds of appeal: “1.0 On facts and circumstances of the case and in law, Ld. CIT(A) erred in confirming the levy of penalty u/s 271(1)(c), though the initiation of penalty, in the assessment order, had been made without intimating a specific charge of 'Concealment of income' or 'Furnishing inaccurate particulars of income';

2.0 On facts and circumstances of the case and in law, Ld. CIT(A) erred in confirming the levy of penalty u/s 271(1)(c), though the notice u/s 274 had been issued in mechanical manner in pre-printed form, without intimating the specific charge of 'Concealment of income' or 'Furnishing inaccurate particulars of income';

3.0 On facts and circumstances of the case and in Law, Ld. CIT(A) erred in confirming the penalty levied u/s 271(1)(c) of Rs.92,701/-, in respect of disallowance of purchase sustained by Hon'ble ITAT, on estimation basis, of Rs.3,00,004/- [@ 6% of disputed purchase];

4.0 The Ld. CIT(A), before confirming the penalty u/s 271(1)(c), ought to have considered the bonafide explanation of the appellant, being;

a) The penalty cannot be levied on income determined on estimation basis, since Ld. AO had made the disallowance @ 100% of disputed purchase, whereas Hon'ble ITAT had sustained the disallowance @ 6% of disputed purchase of traded goods;

b) There is complete disclosure of all material facts on record, since the disputed purchase of traded goods had been recorded in audited books of accounts and exhaustive documentary evidences to justify the genuineness of disputed purchase had been filed on record.” 3. The assessee filed its return of income for A.Y. 2008-09 on 25.09.2008 declaring total income at Rs.1,63,224/-. The case was selected for scrutiny and assessment was finalized u/s. 143(3) of the Income Tax Act, 1961 (in short “the Act”) on 03.12.2010 determining total income at Rs.3,01,600/-. Further, an information was received from DIT(Inv.), Ahmedabad that the assessee company has taken accommodation entry from Shri Pravin Jain Group in the form of purchase during A.Y 2008-09 and the case of the assessee was re-opened and notice u/s 148 was issued on 29.03.2014. Reopened assessment proceedings u/s147 of the Act was completed u/s 143(3) r.w.s 147 of the Act on 30.09.2015 after making addition of Rs.50,00,082/- on account of undisclosed income. Simultaneously, penalty proceeding u/s 271(1)(c) of the Act was initiated for filing inaccurate particulars of income, by issuing notice u/s. 274 r.w.s 271(1)(c) of the Act on 30.09.2015. The assessee has not filed any reply to the notices issued by the Assessing Officer (in short “the AO”) in respect of initiation of penalty u/s 271(1)(c) of the Act, and therefore the AO imposed penalty of Rs.15,45,025/- in respect of inaccurate particulars of u/s 271(1)(c) of the Act.

4.

Being aggrieved by the penalty order, the assessee filed appeal before the CIT(A). The CIT(A) partly allowed the appeal of the assessee.

5.

The Ld. Authoritised Representative (in short “the Ld. AR”) for the assessee submitted that in the quantum appeal, the Tribunal held that the addition of entire non-genuine purchase is unjustified, since the assessee made corresponding sales of goods, and once the sales are accepted as genuine, then the disallowance can be only made of suppressed profit on such non-genuine purchase and accordingly estimated the disallowance of purchase at 6% of non-genuine purchase of traded goods at Rs.3,00,004/- (at 6% of Rs.50,00,082/-). The Ld. AR submitted that the penalty levied u/s 271(1)(c) of the Act is bad in law, since initiation of penalty in the assessment order and in the notice u/s 274 had been made under duly charge of furnishing inaccurate particulars of income or concealment of income. The law is well settled that the penalty proceedings are quasi- criminal in nature and has to be strictly construed. The Ld. AR relied upon the decision of the Hon'ble Bombay High Court in case of Mohd. Farhan A. Shaikh vs. DCIT 125 taxmann.com 253 and Shri Samson Perinchery (ITA No.1154 of 2014). The Ld. AR also relied upon the decision of Tribunal in case of Deepak Banwarilal Agarwal vs. ITO (ITA No.827/SRT/2023, dated 27.02.2024 and Yogendra Raj U. Sanghvi vs. ITO (ITA No.459/SRT/2023 dated 19.10.2023.)

6.

The Ld. Departmental Representative (in short “Ld. DR”) relied upon the assessment order, the penalty order and the order of the CIT(A). The Ld. DR further submitted that the penalty was rightly imposed as the assessee has not disclosed and furnished inaccurate particulars of income.

7.

We have heard both the parties and perused all the relevant materials available on record. It is pertinent to note that the Tribunal has determined addition to the extent of 60% on the estimated basis. The said estimation cannot be calculated as furnishing of inaccurate particulars of income or concealment of income in assessee's case. Ultimately, we find that the addition was restricted to 6%. The penalty u/s 271(1)(c) of the Act cannot be levied in the cases where estimation of addition has been done, as the definite accuracy of particulars of income was not at all determined by the AO as well. Thus, the limb of inaccurate particulars of income furnished by the assessee does not satisfy in the present assessee's case. Besides this, the contention of the assessee that the notice has not given the specific charge but has invoked both the charges and the penalty was finalized on only one limb also makes the contention of the assessee right, that the AO was not aware of which limb has to be imposed or initiated. Thus, the penalty u/s 271(1)(c) does not survive.

8.

In result, appeal of the assessee is allowed.

Order pronounced in the open court on 16.10.2026

Sd/- Sd/- (B.M. BIYANI) (SUCHITRA KAMBLE) ACCOUNTANT MEMBER JUDICIAL MEMBER Surat; Dated: 16.10.2026 * Kishore, Sr. P.S. Copy of the Order forwarded to: 1. The Appellant 2. The Respondent 3. CIT- concerned 4. DR, ITAT, Surat 5. Guard File By order,

Assistant Registrar/Sr.PS/PS ITAT, Surat Bench

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