Bhupesh Sevantilal Shah Vs ITO (ITAT Mumbai)
No Penalty on Estimated Additions – ITAT Mumbai Rules in Bogus Purchase Case- Estimated Profit Element Cannot Lead to Penalty – Revenue’s Case Fails- No Cogent Evidence, Only Estimates – Tribunal Protects Assessee from Penalty
Assessee had filed return declaring income of Rs. 75.04 lakh which was assessed at Rs. 81.62 lakh after making addition of Rs. 5.29 lakh, being 12.5% of purchases treated as bogus from Shree Ram Steel. In appeal, CIT(A) reduced the disallowance to 7.5%, thereby sustaining addition of Rs. 3.17 lakh. AO thereafter levied penalty of Rs. 98,200 u/s 271(1)(c) for furnishing inaccurate particulars.
CIT(A) deleted the penalty by relying on coordinate bench decisions in V.K. Ispat & Alloys v. ITO & Fancy Diamonds India Pvt. Ltd., holding that when income is determined on estimated basis, penalty u/s 271(1)(c) is not leviable.
On Revenue’s appeal, Tribunal observed that neither AO nor CIT(A) had brought any cogent evidence to justify estimation of 12.5% or 7.5%. Additions were purely on estimate without comparable cases or concrete material. Tribunal held that when addition is made only on estimated profit element, it does not amount to concealment of income or furnishing of inaccurate particulars. Accordingly, CIT(A)’s order deleting penalty was affirmed & Revenue’s appeal was dismissed.
This ruling reiterates that penalty u/s 271(1)(c) cannot be sustained where additions are based on estimation of profit element in alleged bogus purchases without supporting evidence.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
This appeal by the revenue is preferred against the order dated 29/05/2025 by NFAC, Delhi [hereinafter the ‘ld. CIT(A)’] pertaining to AY 2010-11.
2. The sum and substance of the grievance of the revenue is that the ld. CIT(A) erred in deleting the penalty levied by the AO u/s 271(1)(c) of the Act on the confirmed quantum addition to the extent of 7.5% of bogus purchases.
3. The roots for the levy of penalty lie in the assessment order framed u/s 143(3) r.w.s. 147 of the Act by which the returned income of the assessee at Rs. 75,04,580/- was assessed at Rs. 81,62,012/- after making addition on account of bogus purchases of Rs. 5,29,672/-.
4. Briefly stated the facts of the case are that during the course of scrutiny assessment proceedings, the AO noticed that the assessee has shown purchases of Rs. 42,37,376/- from Shree Ram Steel. The assessee was asked to substantiate the genuineness of the purchases as the information received in respect of such purchases was that the assessee is a beneficiary of accommodation entry. The assessee was asked to furnish the seller along with his books of accounts for verification. Since the assessee failed to produce the seller Shree Ram Steel and also failed to produce the books of accounts of Shree Ram Steel, the AO added the entire purchases as bogus and added 12.5% i.e., Rs. 5,29,672/- as income of the assessee.
4.1. The assessee carried the matter before the ld. CIT(A) and the ld. CIT(A) reduced the addition by 5% thereby sustaining 7.5% of the alleged bogus purchases. The AO levied penalty on such confirmed alleged bogus purchases amounting to Rs. 98,200/- which was deleted by the ld. CIT(A) who, relying upon the decision of the Co-ordinate Bench in the case of M/s. V. K. Ispat & Alloys Vs. ITO [ITA No. 2326 & 2326 /Mum/2022) and ACIT vs. M/s.Fancy Diamonds India Pvt. Ltd. ITA No.5384/Mum/2019, held that in case where an addition is based on estimate basis, penalty u/s 271(1)(c) of the Act cannot be levied.
5. Before us, the ld. D/R vehemently argued that 7.5% has been confirmed on account of the alleged purchases, therefore, there is concrete evidence to show that the assessee has filed inaccurate particulars and, therefore, levy of penalty is justified.
The ld. Counsel relied upon the decision of the ld. CIT(A).
6. We have carefully perused the orders of the authorities below. It is true that purchases of Rs. 42,47,376/- from Shree Ram Steel have been treated as bogus. But nowhere the AO has given any reasoning for estimating the profit at 12.5%, no comparable cases have been brought on record which could justify the alleged profit rate of 12.5%. By reducing the said percentage by 5% even the ld. CIT(A) has not given any reasoning for depicting 7.5% as the profit rate. It appears that both the AO and the ld. CIT(A) as estimated the profit rate for making the impugned additions. In our considered opinion, when the authorities below are estimating the profit without bringing any cogent material evidence on record, penalty u/s 271(1)(c) of the Act cannot be levied for filing inaccurate particulars of income. The ld. CIT(A) has rightly deleted the penalty which calls for no interference.
7. In the result, appeal of the revenue is dismissed.
Order pronounced in the Court on 18th September, 2025 at Mumbai.
