Thakorbhai & Company Vs ITO (ITAT Surat)
Income Tax Appellate Tribunal (ITAT) Surat has ruled in favor of the assessee, Thakorbhai & Company, in a case concerning the imposition of a penalty under Section 271(1)(c) of the Income Tax Act for Assessment Year 2009-10. The dispute arose after the Assessing Officer (AO) made an addition of ₹38.51 lakh by disallowing 50% of purchases amounting to ₹77.03 lakh, treating them as bogus. Subsequently, the AO levied a penalty of ₹2,11,310 under Section 271(1)(c) for alleged concealment of income. The assessee contested this penalty, arguing that it was based on estimated additions and hence, not legally tenable.
On appeal, the Commissioner of Income Tax (Appeals) [CIT(A)] revised the disallowance, restricting it to 5% of the gross turnover of ₹1.36 crore, acknowledging that the original addition lacked concrete evidence and was excessive. The assessee then challenged the penalty before the ITAT, asserting that as per judicial precedents, penalties cannot be levied when income is assessed on an estimated basis. In support, the assessee cited several rulings from the Gujarat High Court, including CIT vs Subhash Trading (1996), Navjivan Oil Mills vs CIT (2002), and ITO vs Bombaywala Readymade Stores (2015), all of which held that estimated additions do not warrant penalty under Section 271(1)(c).
