No Section 271(1)(c) Penalty on Estimated Bogus Purchases Additions: Bombay HC

PCIT Vs Colo Colour Pvt. Ltd (Bombay High Court)

Bombay High Court dismissed the Revenue’s appeal against the Tribunal’s order deleting penalty levied u/s 271(1)(c) for AY 2011–12.

The assessee, engaged in the photo studio & photographic material trade, had faced reassessment under Section 147/143(3), where additions were made on account of alleged bogus purchases & commission expenditure based on Sales Tax Department information. The Assessing Officer, while noting that purchases could not be fully doubted, estimated profit element at 12.5% & further added 1% towards commission, thereby enhancing the income. On this basis, a penalty of ₹2,75,000 was levied for concealment & furnishing of inaccurate particulars.

The CIT(A) deleted the penalty, holding that the additions were purely on estimation without positive evidence of concealment. The Tribunal upheld this view, relying on precedents such as CIT v. Aero Traders Pvt. Ltd. (Delhi HC), Vijay Proteins Ltd. (Gujarat HC), & Krishi Tyre Retreading (Rajasthan HC), which consistently held that penalty cannot be imposed where additions are based only on estimates.

The Division Bench agreed with this reasoning. It emphasized that penalty u/s 271(1)(c) is penal in nature & requires clear evidence of concealment or furnishing inaccurate particulars, which was absent here. The Court stressed that penalty proceedings cannot be sustained when assessment additions are made merely on estimated profit margins without concrete proof of bogus purchases.