Samir N. Shah Vs ITO (ITAT Mumbai)
Only Estimate, No Evidence: ITAT Strikes Down 271(1)(c)- When income is enhanced only by applying an estimated profit rate ,without concrete evidence of concealment, 271(1)(c) penalty is not leviable
This appeal concerned the validity of penalty u/s 271(1)(c) when the underlying addition was made purely on estimated profit on alleged bogus purchases.
Assessee, an individual, filed his return declaring income of ₹23.39 lakh. Based on information from the Investigation Wing that he was a beneficiary of accommodation entries from the Bhanwarlal Jain group, AO treated certain purchases as bogus. However, instead of disallowing the entire purchases, AO applied a gross profit rate of 8% & made an estimated addition of ₹8.96 lakh. There was no direct evidence of cash transactions, no incriminating documents, & no quantitative discrepancy in stock.
In the quantum appeal, CIT(A) accepted that AO’s approach was excessive & directed that Assessee’s own declared profit margin be reduced from the 8% applied by AO. This clearly showed that the addition itself was only an estimation exercise, not based on actual concealment or incriminating material. Despite this, AO proceeded to levy penalty u/s 271(1)(c) for concealment/inaccurate particulars. CIT(A) upheld the penalty without appreciating that the addition was not based on any concrete proof, but merely on estimation.
