Loading judgment…
Facts
The Revenue filed an appeal against the CIT(A)'s order deleting a penalty imposed under section 271(1)(c) for AY 2009-10. The addition, initially 20% of bogus purchases, was reduced to 15% by the Tribunal. The penalty was levied based on this estimated addition.
Held
The Tribunal held that penalty under section 271(1)(c) cannot be levied solely on the basis of an estimated addition. Relying on various High Court judgments, the Tribunal confirmed that if additions are purely based on estimates without concrete evidence of concealment, no penalty is leviable.
Key Issues
Whether penalty under section 271(1)(c) of the Act can be levied solely on the basis of an estimated addition?
Sections Cited
271(1)(c), 250, 147, 148, 143(3), 69
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “C” BENCH, MUMBAI
Before: SHRI VIKRAM SINGH YADAVSHRI SANDEEP SINGH KARHAIL
Date of Hearing – 12/02/2026 Date of Order - 18/02/2026
O R D E R PER SANDEEP SINGH KARHAIL, J.M. The Revenue has filed the present appeal against the impugned order dated 10.09.2025, passed under section 250 of the Income Tax Act, 1961 (“the Act”) by the learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi, [“learned CIT(A)”], which in turn arose from the penalty order passed under section 271(1)(c) of the Act, for the assessment year 2009-10.
The only grievance of the Revenue, in the present appeal, is against the deletion of penalty under section 271(1)(c) of the Act.
We have considered the submissions of both sides and perused the material available on record. The brief facts of the case are that for the year under consideration, the assessee filed its return of income on 23.09.2009, declaring a total income of Rs.9,18,450/-. On the basis of the information received from the office of DGIT (Inv.) Mumbai, and the Sales Tax Authority that the assessee is a beneficiary of an accommodation entry transaction of bogus purchases, proceedings under section 147 were initiated, and notice under section 148 of the Act was issued. Vide order dated 13.03.2014 passed under section 143(3) read with section 147 of the Act, the Assessing Officer (“AO”) made an addition of Rs. 98,103/- under section 69 of the Act, on an estimated basis of 20% of the total purchases found to be bogus. In further appeal, the learned CIT(A) upheld the addition made by the AO. The Coordinate Bench of the Tribunal, in a further appeal by the assessee in quantum proceedings, vide order dated 03.02.2017 passed in for the assessment year 2009-10, reduced the disallowance from 20% to 15% and granted partial relief to the assessee.
In the meanwhile, penalty proceedings under section 271(1)(c) of the Act were initiated separately. After considering the submissions of the assessee, the AO vide order dated 05.03.2018 passed under section 271(1)(c) of the Act levied a penalty of Rs. 2,12,851/-. The learned CIT(A), vide impugned order, allowed the appeal filed by the assessee and deleted the penalty levied under section 271(1)(c) of the Act.
Thus, it is evident from the record that the AO made the addition on account of bogus purchases on an estimated basis of 20%, which was further reduced by the Tribunal to 15%. Therefore, the entire addition for the year under consideration has been made solely on the basis of estimates.
We find that the Hon'ble Rajasthan High Court in CIT v/s Krishi Tyre Retreading and Rubber Industries, reported in [2014] 360 ITR 580 (Raj.), held that where an addition is made purely on an estimate basis, no penalty under section 271(1)(c) of the Act is leviable. Similar view has been expressed by the Hon'ble Punjab & Haryana High Court in CIT v/s Sangrur Vanaspati Mills Ltd., reported in [2008] 303 ITR 53 (P&H), wherein the Hon'ble High Court held that when the addition has been made on the basis of estimate and not on any concrete evidence of concealment, penalty under section 271(1)(c) of the Act is not leviable. Further, the Hon'ble Gujarat High Court in CIT v/s Subhash Trading Co. Ltd., reported in [1996] 221 ITR 110 (Guj.) has taken a similar view in respect of levy of penalty under section 271(1)(c) of the Act on estimated additions. Therefore, it is evident that the issue about the justification for the imposition of a penalty where the addition is made on the basis of an estimate is no longer res integra.
Thus, respectfully following the aforesaid decisions, we are of the considered view that the penalty under section 271(1)(c) of the Act cannot be levied merely on the basis of an estimated addition. Accordingly, the grounds raised by the Revenue are dismissed, and the decision of the learned CIT(A) in deleting the penalty is upheld.
In the result, the appeal by the Revenue is dismissed. Order pronounced in the open Court on 18/02/2026
Sd/- Sd/- VIKRAM SINGH YADAV SANDEEP SINGH KARHAIL ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 18/02/2026 Prabhat