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Facts
The Revenue filed appeals against the deletion of penalties levied under Section 271(1)(c) of the Income Tax Act. The penalties were related to disallowances made on account of bogus purchases, where accommodation entries were obtained. The additions, initially 100%, were restricted to 12.5% by appellate authorities and were based on estimation.
Held
The Tribunal held that penalty under Section 271(1)(c) of the Act cannot be levied on additions made on an estimated basis, especially when the assessee had made payments through account payee cheques and had corresponding sales. The order of the CIT(A) in deleting the penalty was upheld.
Key Issues
Whether penalty under Section 271(1)(c) is leviable on additions made on an estimated basis concerning bogus purchases, particularly when the addition itself was restricted by appellate authorities.
Sections Cited
271(1)(c), 143(1), 143(3), 147, 69C, 143(3) r.w.s. 147
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Before: SHRI SAKTIJIT DEY, VICE- & SHRI BIJAYANANDA PRUSETH
आदेश / O R D E R PER BIJAYANANDA PRUSETH, AM: These two appeals emanate from the orders dated 10.01.2025 passed by the Commissioner of Income-tax (Appeals)/National Faceless Appeal Centre, Delhi [in short “CIT(A)”], for the Assessment Years (AYs) 2009-10 to 2010-11 respectively. Since facts of the cases and the grounds taken up in the appeals are similar except variation in the amount, these appeals were heard together and a common order is passed for the sake of convenience and brevity.
is taken as the ‘lead case’.
The grounds of appeal raised by the revenue in (AY.2009-10) are as under:
ITA Nos.2100 & 2101/MUM/2025/AYs.2009-10 & 2010-11 Chetan Pravin Chitalia “1. Whether on the facts and circumstances of the case and in law, Ld. CITYA) has erred in deleting the penalty levied of Rs.3,91,799/- being @12.5% on alleged bogus purchases, by ignoring the fact that the Maharashtra Sales Tax Department thru DGIT(Investigation Wing). Mumbai has proved beyond doubt that M/s. Reliance Steel Traders and M/s. CR Enterprises, were paper companies, controlled and operated by various hawala traders, who were involved in providing accommodation entries of bogus purchases and the assessee was involved in obtaining accommodation entries from hawala traders, to inflate the expenses and thereby suppress true profit and this act of the assessee itself established deliberate failure to furnish accurate particulars of the income, which attracts for imposition of penalty u/s 271(1)(c) of the Act, for concealment of income? 2. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the penalty levied of Rs. 3,91,799/-, by ignoring the fact that the disallowance of purchase on ad-hoc basis were not arbitrary but based on undisputed fact that the assessee has taken accommodation entries in the form of bogus purchase. The quantification of income out of bogus purchases were made but it does not alter the fact that the assessee has concealed the particulars of his income by way of non-genuine purchases through the bogus parties. The assessee cannot get away with the penalty levied on estimation of undisclosed income when the fact of undisclosed income is beyond doubt and in the absence of exact determination of undisclosed income the knowledge of which is within the domain of the assessee, an estimation of undisclosed income was made which was held by the judicial authorities to be proper? 3. Whether on the facts and circumstances of the case and in law, the decision of the Ld. CIT(A) is right in deleting the penalty u/s 271(1)(c) of the Act, in view of the decision of the Hon'ble High Court Mumbai, in the case of Pr. Commissioner of Income-Tax-5, Mumbai Vs. Kanak Impex(India) Ltd (2025)172 Taxmann.com 283 (Bombay) 03.03.2025, wherein the decision of 100% addition has been allowed, by rejecting the ITAT's decision of estimating the profit rate @12.5% on bogus purchases and thereby impliedly grant deduction of such unexplained expenditure incurred u/s. 690 of the Act, even though the assessee failed to discharge its onus to prove the genuineness of alleged purchases and has offered no explanation of the sources of expenditure incurred on account of such purchases ? 4. Whether on the facts and circumstances of the case and in law, Ld. CIT(A) has erred in deleting the penalty levied, uithout considering the fact that AO has clearly stated his reason for levying the Penalty @ 12.5%, which is on reduced profit percentage of unproven bogus purchases of Rs. 1,01,43,657/-, and this view was confirmed by Hon'ble ITAT in the case of CIT Vs. Simit P Seth in while restricting only GP% ? 5. Whether on the facts and circumstances of the case and in law, Ld. CITIA) has erred in deleting the penalty levied, by ignoring the fact that there was a conscious concealment of particulars of income and a deliberate failure to 2 & 2101/MUM/2025/AYs.2009-10 & 2010-11 Chetan Pravin Chitalia furnish accurate particulars of the income and relevant evidences by the assessee, even at the penalty proceedings, which attracts the provision of section 271(1)(c) and explanation thereto, as held in the case of K.P. Madhusudhan Vs. CIT reported in 251 ITR 99 (SC) ? 6. Whether on the facts and circumstances of the case and in law, Ld. CIT(A) has erred in deleting the penalty levied, by ignoring the observations of Hon'ble High Court in the CIT VS Chanchal Katiyal 173 Taxman 71(all), which is relevant in the facts and circumstances of this case, that if the assessee did not furnish particulars or inaccurate explanation for the concealed income, penalty is justified? 7. Whether on the facts and circumstances of the case and in law, Ld. CIT(A) has erred in deleting the penalty levied, without appreciating the decision of the Hon'ble Supreme court in case of Union of India Vs Dharmendra Textiles Processors & ors/ 306 ITR 277). wherein it was held that explanation appended to occ. 271(1)(o) of the Act, entirely indicate the element of strict liability on the assessee for concealment or for giving inaccurate particulars while filing return and that the said section has been enacted to provide for a remedy for loss of revenue? 8. Whether on the facts and circumstances of the case and in law, Ld. CIT(A) has erred in directing the AO to delete the penalty levied, without appreciating judgment on the decision of Hon'ble Delhi High Court in the case of CIT Vs Atul Kumar Gupta in which reinforces the Revenue Authority to impose penalties under section 271(1)(c), in the cases where the assessee fails to provide accurate and satisfactory explanations for discrepancies in their accounts even if the addition is made of estimate basis? 9. The Tax- Effect involved in the instant case is Rs.3,91,799/-, which is below the prescribed limit as per CBDT's Circular F.No.279/Misc. 142/2007-ITJ(Pt) amended vide No. 09/2024 dated 17.09.2024 However, the case fall under one of the exceptions laid down in CBDT Circular No. 05/2024 Dated. 15.03.2024, wherein it is stated that in cases involving “organized tax evasion" the decision to file appeal/SLP shall be taken on merit without regard to the tax effect and the monetary limit.
The appellant craves leave to amend or alter any grounds or add a new ground which may be necessary.”
The facts of the case in brief are that the assessee filed his return of income for AY.2019-20 on 22.09.2009, declaring total income of Rs.36,89,180/-. The return of income was processed u/s 143(1) of the Act and no regular scrutiny order u/s 143(3) of the Act was passed. Based on & 2101/MUM/2025/AYs.2009-10 & 2010-11 Chetan Pravin Chitalia information from DGIT(Inv.), Mumbai, who had received information from Sales Tax Department that parties were providing accommodation/hawala entries for purchases, the Assessing Officer (in short, ÁO’) reopened the case of the assessee. The assessee had availed accommodation entries for purchases of Rs.1,01,43,657/- from M/s Reliance Steel Trades and M/s CR Enterprises. During the re-assessment proceedings, the AO asked assessee to furnish details of purchases from the above hawala parties. He also required the assessee to produce the said parties for verifications. The assessee did not comply with the requirement of the AO. Hence, AO added the entire purchases of Rs.1,01,43,657/- from the above two parties. He also initiated penalty proceedings u/s 271(1)(c) of the Act for furnishing inaccurate particulars of income and thereby concealing particulars of income. The penalty proceedings were kept in abeyance as the assessee has filed appeal against the assessment order. On appeal by the assessee, the CIT(A) restricted the addition to 12.5% of the said purchases, i.e., Rs.12,67,957/- and deleted the remaining amount of Rs.88,75,670/-. On further appeal, the Tribunal confirmed the order of CIT(A) in disallowing 12.5% of the bogus purchases vide & 3027/Mum/2018, dated 15.05.2019. After receiving the appellate order of the CIT(A) dated 05.02.2018, the AO restarted the penalty proceedings u/s 271(1)(c) of the Act, which had been kept in abeyance. He issued show cause notice dated 07.03.2019, which was replied to by the assessee vide submission dated 27.03.2019. Thereafter, the AO held that case of the assessee squarely falls within the ambit of furnishing 4 ITA Nos.2100 & 2101/MUM/2025/AYs.2009-10 & 2010-11 Chetan Pravin Chitalia inaccurate particulars of income for the purpose of levy of penalty u/s 271(1)(c) read with Explanation 1 thereto. He, therefore, levied minimum penalty of Rs.3,91,799/- u/s 271(1)(c) of the Act, being 100% of the tax sought to be evaded.
Aggrieved by the order of AO, the assessee filed appeal before CIT(A). The CIT(A) has reproduced the submission of the assessee during the appellate proceedings, which are at pages 2 to 9 of the appellate order. In the said submission, the assessee has raised various issues including the jurisdiction to initiate penalty proceedings u/s 271(1)(c) of the Act in absence of precise nature and default committed by the assessee. The appellant also relied upon various decisions of Hon’ble Supreme Court, High Court and ITAT. The CIT(A) has reproduced the findings of ITAT, Mumbai in case of Elcon Pipe and Fittings Pvt. Ltd. vs. ITO, dated 11.02.2018, wherein under similar facts and circumstances, the levy of penalty on ad hoc disallowance was deleted. In the said case, information was received from Sales Tax Department that the said assessee was one of the beneficiaries who had taken accommodation entries from hawala dealers. The AO made addition of the entire purchases which was restricted to 12.5% by the CIT(A) and ITAT. The AO subsequently levied penalty u/s 271(1)(c) of the Act. The ITAT deleted the penalty by observing that no penalty u/s 271(1)(c) of the Act is leviable on ad hoc disallowance. Since facts were similar, the penalty levied by the AO was deleted by the CIT(A).
& 2101/MUM/2025/AYs.2009-10 & 2010-11 Chetan Pravin Chitalia 5. Aggrieved by the order of CIT(A), the revenue filed appeal before the Tribunal. The learned Senior Departmental Representative (ld. Sr. DR) for the revenue supported the order of AO. She submitted that the case of revenue right from the beginning is that the assessee has shown bogus purchases and thus, furnished inaccurate particulars of income. The stand of revenue is upheld by the ITAT in restricting the addition to the extent of 12.5%. Therefore, the penalty u/s 271(1)(c) of the Act should be upheld qua the addition upheld in the quantum assessment proceedings.
On the other hand, the learned Authorized Representative (ld. AR) of the assessee submitted that in case of the appellant, the assessment order u/s 143(3) r.w.s. 147 of the Act was passed on 18.03.2016, wherein 100% of the bogus purchase of Rs.1,01,43,657/- from M/s Reliance Steel Traders and M/s CR Enterprises was disallowed and added to the total income u/s 69C of the Act. In appeal, the CIT(A) upheld the said disallowance to the extent of Rs.12,67,957/-, being 12.50% of total purchase. The appellant filed appeal before ITAT, Mumbai, which restricted the addition to 12.5% of bogus purchases as against 100% of purchase made by the AO and 12.5% by CIT(A). The ld. AR of the assessee submitted that the additions in quantum assessment was restricted to 12.5% in the appellate proceedings before the CIT(A) and the ITAT, which was on estimation basis. He submitted that it is now fairly well settled that in Income-tax proceedings, no penalty is leviable on addition made on estimated addition. Therefore, the penalty levied by the AO is liable to be deleted. 6 & 2101/MUM/2025/AYs.2009-10 & 2010-11 Chetan Pravin Chitalia 7. We have heard both the parties and perused the materials available on record. We have also deliberated upon the decisions relied upon by the parties. Though the revenue has raised 10 grounds of appeal
, they are either inter-connected or are general in nature. Hence, the grounds are decided together in terms of the discussion made hereafter. The re-assessment order was passed u/s 143(3) r.w.s. 147 of the Act by disallowing 100% of the purchases of Rs.1,01,43,657/- from M/s Reliance Steel Traders and M/s CR Enterprises. The disallowance was restricted to 12.5% of the impugned purchase by CIT(A) and ITAT. Thus, it is clear that the additions all through have been made on estimation basis. The penalty u/s 271(1)(c) of the Act has been levied on the estimated addition by the AO, which has been deleted by the CIT(A). The ld. AR has argued that different ITATs, Hon’ble Supreme Court and High Courts have held that penalty u/s 271(1)(c) of the Act could not be levied where addition was on estimated basis. The Co-ordinate Bench of ITAT, Mumbai in cases of Elcon Pipe and Fittings (supra) and Mun Gems vs. ACIT, 155 taxmann.com
1. (Bom.) and ITAT, Surat in cases of Yogendra Raj U Sanghvi, dated 19.10.2023 and DCIT vs. M/s Opulent Jewels Pvt. Ltd., dated 15.11.2018, have also held that no penalty is leviable on estimated addition. The ITAT, Mumbai in case of Mun Gems (supra) has held that where AO treated entire purchase as bogus based on findings of investigation wing and levied penalty u/s 271(1)(c) of the Act, since payment for purchases had been made through account payee cheques and there were corresponding sales, ad hoc GP rate applied 7 ITA Nos.2100 & 2101/MUM/2025/AYs.2009-10 & 2010-11 Chetan Pravin Chitalia on alleged bogus purchases to factor in suppression of alleged gross profit could not be basis of levying penalty u/s 271(1)(c) of the Act for furnishing of inaccurate particulars of income or concealing particulars of income. Since the facts are similar, following the above decisions, the order of CIT(A) in deleting the penalty levied u/s 271(1)(c) of the Act is upheld. Accordingly, the grounds of the revenue are dismissed.
In the result, appeal of the revenue is dismissed.
(AY.2010-11): 9. The facts and grounds taken up by the revenue in this appeal are similar as in for AY.2009-10, decided above. Following the reasons given in the said appeal, the order of the CIT(A) is upheld and grounds are dismissed. 10. In the result, the appeals of the revenue are dismissed. Order pronounced on 16/05/2025.