Case Law Details
Diagold Vs ACIT (ITAT Jaipur)
The ITAT Jaipur considered an appeal against the order of the Commissioner of Income Tax (Appeals), Jaipur-04 dated 29.10.2025 confirming the levy of penalty of ₹8,36,406 under Section 271(1)(c) of the Income-tax Act, 1961. The assessee contended that the quantum addition had been sustained only on an estimated basis by applying a gross profit rate and that there was no material establishing concealment of income or furnishing of inaccurate particulars.
The assessment was completed under Section 147 read with Section 143(3). The Assessing Officer treated purchases of ₹1,18,37,500 from two entities as alleged bogus purchases, rejected the books of account under Section 145(3), disallowed 25% of such purchases, and made an addition of ₹47,83,920. The CIT(A) subsequently applied a gross profit rate of 14.13% based on the assessee’s past history and restricted the addition to ₹27,06,815, which was affirmed by the ITAT.
The Revenue relied on information received from the Investigation Wing regarding accommodation entries allegedly provided by certain groups and on statements recorded during search and seizure proceedings. The Revenue contended that the assessee had furnished inaccurate particulars of income and that the case was covered by Explanation 1 to Section 271(1)(c).
The Tribunal noted that the assessee had produced purchase bills, evidence of payments made through cheques, and confirmations in support of the purchases. It further observed that throughout the quantum proceedings, including before the ITAT, there was no categorical finding that the purchases from the two entities had been conclusively established as bogus. The Tribunal also noted that there was no finding that the assessee’s explanation was false or unsatisfactory. Instead, the addition was ultimately sustained after rejection of the books of account and estimation of profit by applying a profit rate consistent with the assessee’s preceding years.
The Tribunal held that the addition sustained was merely an estimated addition and did not establish concealment of income or furnishing of inaccurate particulars within the meaning of Section 271(1)(c) or Explanation 1 thereto. It disagreed with the CIT(A)’s conclusion that Explanation 1(A)/(B) to Section 271(1)(c) justified the penalty and directed deletion of the penalty of ₹8,36,406. The appeal was accordingly allowed.
FULL TEXT OF THE ORDER OF ITAT JAIPUR
The present appeal has been filed by the assessee against the order passed by the Office of the Commissioner of Income Tax, Appeal CIT(A), Jaipur-04 (hereinafter referred to as “Ld. CIT(A)”), dated 29.10.2025 confirming the levy of penalty under Section 271(1)(c) of the Income Tax Act, 1961 (hereinafter referred to as “the Act”).
2. The assessee in this appeal has taken following grounds of appeal:-
1. The Ld. CIT(A) has erred in law and on facts in confirming the penalty of Rs. 8,36,406/- levied u/s 271(1)(c) of the Act, despite the fact that the addition sustained in quantum proceedings is purely on an estimated basis by applying a GP rate, and no material was brought on record to establish concealment or furnishing of inaccurate particulars.
2. The Ld. CIT(A) has erred in law and facts in upholding the penalty even though the Ld. AO did not specify the exact limb of section 271(1)(c), to identify whether it is a case of “concealment of income” or “furnishing inaccurate particulars”, either in the notice issued u/s 274 or in the penalty order, rendering the penalty proceedings invalid for non-application of mind. Hence, the penalty imposed deserves to be deleted.
3. The Ld. CIT(A) has erred in holding that the defect in the penalty notice is a mere procedural irregularity, whereas settled judicial precedents require that the specific charge must be clearly communicated, failing which the penalty order becomes unsustainable.
4. The appellant craves leave to add, amend, or modify any of the above grounds during the course of hearing.
3. The argument of the ld. Counsel for the assessee was that, addition in the facts of the present case was made and confirmed right upto the ITAT level on estimation basis and thereafter, there was no case made out of the assessee having either concealed or furnished any particulars of income, so as to attract levy of penalty u/s. 271(1)(c) of the Act. Reliance was placed on the decision of Hon’ble Jurisdictional High Court in the case of CIT Vs. Krishi Tyre Retreading and Rubber Industries, reported in [2014] 360 ITR 580 (Raj.) wherein the Hon’ble High Court held that where an addition is made on an estimate basis, no penalty u/s. 271(1)(c) of the Act is leviable.
4. Drawing my attention to the facts of the case, it was pointed out that in the assessment framed in the case of the assessee for impugned year u/s 147 r.w.s. 143(3) of the Act, the assessee was found to have allegedly made bogus purchases from the group concern of one Sh. Rajendra Kumar Jain to the tune of Rs.1,18,37,500/-. Consequently, the assessee’s books were rejected u/s 145(3) of the Act and 25% of the purchases so made were disallowed and added back to the total income of the assessee amounting to Rs.47,83,920/-. The Ld. CIT(A) however, applied a gross profit rate of 14.13% based on the past history of the assessee and restricted the addition to Rs.27,06,815/-, this decision was affirmed by the ITAT.
5. The Ld. DR, however, relied on the order of Ld. CIT(A), pointing out that the Ld. CIT(A), had categorically noted that, the AO had held the claim of purchases from bogus parties to constitute furnishing of inaccurate particulars of income and the explanation offered by the assessee was neither substantiated nor found to be bona fide, and therefore, the case fell within the purview of Explanation 1 to Section 271(1)(c) of the Act.
6. I have heard both the parties. The penalty in the present case has been levied on the assessee for furnishing inaccurate particulars of income/concealment of particulars of income relating to alleged bogus purchases made by it. The said bogus purchases were found to have been made to the tune of Rs.1.18 crores. However, I have noted that the AO made disallowance of only 25% of the same. The assessment order reveals that the entire case of the Revenue was based on information revealed from search and seizure action in the case of Shri Rajendra Jain Group, Shri Sanjay Choudhary Group and Shri Dharmich and Jain Group, who were all entry providers operating in Mumbai and indulging in providing accommodation entries in the nature of bogus sales and unsecured loans. During the course of search and seizure operation, the list of beneficiaries had been compiled and as per the same, it was observed that the assessee firm was one of the beneficiaries and had obtained accommodation entries in the form of bogus purchase transaction of Rs.1.18 crores operated by these Groups. The said concerns were, M/s Sun from whom purchases of Rs.59,66,400/- were made by the assessee and M/s Arihant from whom purchases of Rs.58,71,100/- was made by the assessee. Information was received from the Investigation Wing of the Department at Mumbai, which forwarded a statement of Sh. Rajendra Kumar Jain proprietor of the above firms, who stated to have never sold any goods and to have been involved only in issuing bogus sales invoices and charged commission. Sh. Rajendra Kumar Jain had explained the modus operandi of providing entries also, stating that diamonds were imported from outside India in the name of his Companies or proprietorship or HUF, but the actual order was placed by some other person. That when the consignment came in India, either at Mumbai or Surat, the actual delivery came to his office and he authorize the person, who had placed the order to collect the consignment on his behalf. That since the imports were made by his Company or proprietorship or HUF, against these imports, he would give bogus sale entries to other traders who were showing their business of diamond. That he would receive cheques from the parties to whom he had given bogus sale entries and against these cheques entries cash has been provided to the parties.
7. I have noted the assessee, to have furnished all evidences to prove that his purchases from the aforesaid parties were genuine. The assessee furnished copies of purchase bills and also the evidences of having made payment by cheques. He also furnished confirmations to substantiate the purchases.
8. The entire order passed in quantum proceedings right upto the ITAT, I have found, has given no finding of any falsity in the explanation of the assessee nor any reason for finding the explanation of the genuineness of the parties made by the assessee to be not satisfactory. I have noted that the addition has been confirmed by the Ld. CIT(A) whose order has been affirmed by the ITAT ,rejecting the books of accounts of the assessee and estimating net profit earned by the assessee by applying profit rate to the turnover of the assessee ,commensurate with that returned by the assessee in the preceding years. I have noted no categorical finding of fact right upto the ITAT of the assessee’s purchases made from the said two entities to be categorically established to have been bogus. Moreover, as noted earlier, no falsity in the explanation of the assessee has been pointed out nor any reason given for the explanation to be held to be unsatisfactory. In the light of the same, I have no doubt that the addition made is a mere estimate and I do not agree with Ld. CIT(A) that, there was any concealment of income with respect to the estimated addition made to the income of the assessee on account of alleged bogus purchases by virtue of Explanation 1(A)/(B) of Section 271(1)(c) of the Act which reads as under:-
…………
Failure to furnish returns, comply with notices, concealment of income, etc.
271. (1) If the Assessing Officer or the Joint Commissioner (Appeals) or the Commissioner (Appeals) or the Principal Commissioner or Commissioner in the course of any proceedings under this Act, is satisfied that any person—
………….
(c) has concealed the particulars of his income or furnished inaccurate particulars of such income, or
Explanation 1.—Where in respect of any facts material to the computation of the total income of any person under this Act,—
a. such person fails to offer an explanation or offers an explanation which is found by the Assessing Officer or the Joint Commissioner (Appeals) or the Commissioner (Appeals) or the Principal Commissioner or Commissioner to be false, or
b. such person offers an explanation which he is not able to substantiate and fails to prove that such explanation is bona fide and that all the facts relating to the same and material to the computation of his total income have been disclosed by him, then, the amount added or disallowed in computing the total income of such person as a result thereof shall, for the purposes of clause (c) of this sub-section, be deemed to represent the income in respect of which particulars have been concealed.
9. In the light of the same, I direct deletion of the penalty levied amounting to Rs.8,36,406/-.
10. In the result, the appeal filed by the assessee is allowed.
Order pronounced in the open court on 25.06.2026
Author Bio
