ITO Vs Spark Diamonds (ITAT Mumbai)
ITAT Mumbai Deletes Penalty on Estimated Bogus Purchase Addition; Revenue Appeal Dismissed
The Mumbai Bench of the Income Tax Appellate Tribunal dismissed the Revenue’s appeal in the case of Spark Diamonds for AY 2007–08, thereby upholding the order of the CIT(A) which had deleted the penalty levied under Section 271(1)(c).
During the assessment, the Assessing Officer had made an estimated addition of 6% (₹1.35 lakh) on alleged bogus purchases of ₹22.61 lakh, and consequently levied a penalty of ₹41,940 (100% of tax sought to be evaded) for furnishing inaccurate particulars of income. The CIT(A) deleted the penalty by relying on settled ITAT jurisprudence that penalty cannot be sustained on estimated additions.
The Tribunal observed that the penalty was purely consequential to an estimated addition, without any conclusive finding of concealment or furnishing of inaccurate particulars. It reiterated the well-settled legal position that where income is determined on estimation basis, penalty under Section 271(1)(c) is not leviable, as estimation involves an element of guesswork and does not establish deliberate concealment.
Relying on the coordinate bench decision in Ajay Loknath Lohia v. ITO, the Tribunal found no infirmity in the CIT(A)’s order. The Revenue was unable to cite any contrary authority to displace the settled position.
Accordingly, the Tribunal dismissed the Revenue’s appeal, reaffirming that penalties cannot be imposed merely because an estimated disallowance or addition has been made.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
