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Facts
The assessee's assessment for AY 2007-08 was completed with an addition of Rs. 5,41,503/- on account of suspicious purchases. Penalty proceedings were initiated and the AO imposed a penalty of Rs. 1,62,450/-. The CIT(A) upheld the penalty, holding that the assessee furnished inaccurate particulars.
Held
The Tribunal held that penalty u/s. 271(1)(c) of the Act cannot be levied on additions made on an estimated basis. Disallowance of purchases on an ad-hoc/estimated basis does not tantamount to furnishing inaccurate particulars of income.
Key Issues
Whether penalty under section 271(1)(c) can be levied on additions made on an estimated basis, specifically for unverifiable purchases.
Sections Cited
271(1)(c), 250, 143(3), 147, 144
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Before: SHRI AMIT SHUKLA & SMT. RENU JAUHRI
निर्ााररती की ओर से /Assessee by: Shri. M Subramnaim /Revenue by: Mr. Virabhadra S. Mahajan (SR DR) Date of Hearing 24.07.2025 Date of Pronouncement 29.08.2025 आदेश / O R D E R PER RENU JAUHRI [A.M.] :- This appeal is filed by the assessee against the order of the National Faceless Appeal Centre (NFAC), Delhi [hereinafter referred to as “CIT(A)”] dated 31.03.2025 passed u/s. 250 of the Income-tax Act, 1961 [hereinafter referred to as “Act”] for Assessment Year [A.Y.] 2007-08.
The assessee has raised the following grounds of appeal:
1. The Learned Commissioner of Income Tax (Appeals) ("Learned CIT(A)) erred in upholding the penalty of ₹1,62,450/- imposed under Section 271(1)(c) of the Income Tax Act, 1961, which represents 100% of the tax payable on the addition of ₹5,41,503/- to the total income for Assessment Year 2007-08, without duly considering all the submissions and arguments advanced by the Appellants. Further while doing so, the Learned CIT(A) erred in relying on judicial precedents which are factually distinguishable and not applicable to Your Appellant's case. Your Appellants submit that the penalty levied of Rs. 1,62,450/- be ordered to be deleted.
2. Your Appellants crave leave to add, alter or amend or withdraw the ground of Appeal
and submit such statements, documents and papers as may be considered necessary either at or before hearing of the appeal.”
3. Brief fact of the case state that the assessment was completed u/s. 143(3) r.w.s 147 at total income of Rs. 36,02,390/- after making an addition of Rs. 5,41,503/- on account of suspicious purchases made by the assessee. This amount was computed after applying the rate of 12.50% on total suspicious purchases of Rs. 43,32,020/- being the profit element embedded in the unverifiable purchases. Penalty proceedings u/s. 271(1)(c) of the Act were also initiated in respect of this addition. Subsequently, vide order dated 24.02.2022, Ld. AO imposed a penalty u/s. 271(1)(c) of Rs. 1,62,450/- computed @ 100% on the tax sought to be evaded. Aggrieved with the order, the assessee preferred an appeal before the Ld. CIT(A). The assessee’s appeal was, however, dismissed by Ld. CIT(A) holding that the assessee had furnished inaccurate particulars of income within the meaning of section 271(1)(c) of the Act, since it had failed to produce credible and verifiable evidence in support of the purchases which were held to be bogus. Aggrieved with the order of Ld. CIT(A), the assessee has filed an appeal before the Tribunal.
We have heard the rival submission and perused the material available on record. Ld. AR has argued that in a number of cases the co-ordinate benches have decided the issue in favour of the assessee holding that penalty u/s. 271(1)(c) of the Act cannot be levied on additions made on estimate basis. He has placed on record several decisions of the co-ordinate benches wherein penalty u/s. 271(1)(c) in respect of estimated income has been deleted. Some of the cases relied upon by the assessee as under: i. “Sandeep Kewalchand Mehta Vs. ACIT -31(3) ii. ITO-26(2)(1) Vs. Sunil Bhagwandas Vorani (HUF) iii. Shri Poonam K. Prajapati Vs. ITO – 19(2)(5) ITA NO. 1953/mum/2022 ”
Ld. DR, on the other hand, has relied on the orders of lower authority and vehemently argued that since the assessee had shown bogus purchases and the addition on account of estimation of profit element related to these purchases has been upheld by the Ld. CIT(A), the penalty u/s. 271(1)(c) for furnishing inaccurate particulars of income deserves to be also upheld.
We have carefully considered the facts and circumstances of the case as well as the judicial citations on the issue. We note that this issue has been decided in several cases in favour of the assessees by the co-ordinate benches. In this regard in Shri Poonam K. Prajapati V. ITO the co-ordinate bench has held has under: “6. We heard the rival submissions and perused the material on record. The sole crux of the disputed issue is with respect to levy of penalty u/s 271(1)(c) of the Act by the A.O based on the assessment order under section 144 r.w.s 147 of the Act. We find the A.O has made adhoc disallowance of bogus purchases and has accepted the sales in the books of accounts. On appeal, the CIT(A) has restricted the addition considering the profit element @25% and on further appeal the Honble Tribunal has restricted the addition to the extent of 9%. We are of the opinion, that where the addition is sustained on the estimated basis no penalty u/s 271(1)(c) of the Act can be levied. The disallowance of purchases on ad-hoc/estimated basis does not tantamount to furnishing inaccurate particulars of income under the provisions of Section 271(1) (c) of the Act. The A.O. has not doubted the sales and made disallowance of bogus purchases and we rely on the ratio of the Honorable Jurisdictional High Court in the case of M/s Nikunj Eximp Enterprises Vs Cit (W.P.No 2860 dated 18-06-2014). Further the assessing officer made an addition based the information received from Sales department Maharashtra. Further we are of the on tax opinion that once the revenue accepts that penalty is levied on the basis of information from the outside agency/ department, the penalty is not sustained. Accordingly, we considering the facts, circumstances and judicial decisions set aside the order of the CIT(A) and direct the assessing officer to delete the penalty and allow the grounds of appeal
in favour of the assessee”
7. Respectfully following the decision of the co-ordinate bench, we hold that no penalty is leviable u/s. 271(1)(c) of the Act in case of additions made on estimated basis. Accordingly, the penalty of Rs. 1,62,450/- u/s. 271(1)(c) is hereby deleted.