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Facts
The assessee's assessment was completed under section 144 r.w.s. 147, leading to additions for non-genuine purchases. The assessing officer initially made an addition of Rs. 1.86 crores, which was restricted to 3% by the CIT(A). A penalty under section 271(1)(c) was levied, initially at 100% of the tax sought to be evaded.
Held
The Tribunal held that penalty under section 271(1)(c) is not leviable when the addition is made on an estimation or ad-hoc basis. Following established legal precedents, the penalty sustained by the CIT(A) to the extent of Rs. 5,59,500/- was deleted.
Key Issues
Whether penalty under Section 271(1)(c) can be levied on additions made on an estimation or ad-hoc basis.
Sections Cited
144, 147, 271(1)(c)
AI-generated summary — verify with the full judgment below
PER PAWAN SINGH, JUDICIAL MEMBER;
This appeal by assessee is directed against the order of ld. CIT(A)/NFAC, Delhi dated 05.02.2025 for A.Y. 2007-08. The assessee has raised following grounds of appeal:
“1. In the facts and circumstances of the case and in law, the learned CIT(A) erred in holding that penalty @ 100% of tax sought to be evaded u/s 271(1)(c) was justified qua the GP addition of Rs. 559,500/- sustained by the learned CIT(A) in quantum appeal.
2. The learned CIT(A) erred in not appreciating that in quantum appeal there was a huge reduction in addition made from Rs. 1,80,90,500/- to Rs. 559,500/- and that no penalty was justified on small addition made on estimated basis.”
Rival submissions of both the parties have been heard and record perused.
The ld. AR of the assessee submits that assessment was completed under section 144 r.w.s. 147 on 30.03.2015. The assessing officer while passing the assessment order made addition on account of disallowances of non- genuine purchases / bogus purchases by taking view that assessee is beneficiary of purchases shown from hawala operators. The assessing officer made addition of Rs. 1.86 crores, being 100% of purchases shown from Jewel Diam and Daksh Diamonds. However, on appeal before ld. CIT(A), such disallowances were restricted to 3.00% of the disputed purchases/ alleged bogus purchase. In the meantime, the assessing officer levied penalty under section 271(1)(c) at 100% of tax sought to be evaded. The assessing officer levied on the penalty of Rs. 63,39,135/- vide order dated 28.09.2015. On further appeal before ld. CIT(A) against the penalty order, the ld. CIT(A) restricted the penalty to the extent of addition/disallowances sustained by ld. CIT(A) in quantum assessment.
The ld. AR of the assessee submits that it is settled position in the law that no penalty under section 271(1)(c) is leviable on the addition/disallowances made or sustained on estimation basis. To support his submission, the ld. AR relied upon the decision the following decision: Mukesh Shaligram Sharda vs ITO (ITA No. 1907 & 1908/Mum/2021) Orient Fabritech Pvt. Ltd. vs ITO (ITA No. 1425/Mum/2021) Dombivali Paper Mfg. Co. Pvt. Ltd. vs ACIT (ITA No. 2734/Mum/2023)
On the other hand, learned Commissioner of Income Tax – Departmental Representative (ld. CIT-DR) for the revenue supported the order of lower authorities.
We have considered the rival submissions of both the parties and perused the orders of lower authorities carefully. We have also deliberated on various case laws relied by ld. AR of the assessee. We find that there is no dispute that addition in the quantum assessment was ultimately restricted to 3.00 % of the impugned purchases. Such fact is duly accepted by ld. CIT(A) in his order dated 05.02.2025, which is impugned before us. We find that it is settled position under the income tax proceedings that no penalty under section 271(1)(c) is leviable when the addition is made on estimation/adhoc basis. Similar view was taken in the case laws relied by ld. AR of the assessee. Thus, respectfully following such decisions of penalty levied by assessing officer and confirmed by ld. CIT(A) to the extent of Rs. 5,59,500/- is also deleted. In the result, grounds of appeal of assessee are allowed.
In the result, the appeal of the assessee is allowed.
Order was pronounced in the open Court on 26/08/2025 at the time of hearing.