Dilip N. Thakkar HUF Vs ITO (ITAT Mumbai)
Summary: The Income Tax Appellate Tribunal, Mumbai Bench “D”, in Dilip N. Thakkar HUF Vs ITO, allowed the assessee’s appeal for Assessment Year 2009-10 and directed deletion of a penalty of ₹2,26,119 imposed under Section 271(1)(c) of the Income Tax Act, 1961. The dispute arose from additions originally made by the Assessing Officer on account of alleged bogus purchases and petty cash expenses. The Tribunal held that an addition ultimately sustained purely on an estimation basis, without independent material establishing concealment of income or furnishing of inaccurate particulars, could not justify the penalty.
The Assessing Officer had passed an assessment order dated 22.03.2015 making additions of ₹32,79,247 for alleged bogus purchases and ₹76,490 towards an ad hoc disallowance of expenses. In the quantum appeal, the Commissioner of Income Tax (Appeals), by order dated 16.11.2017, restricted the bogus purchase addition to 12.5%, amounting to ₹10,48,442, while sustaining the petty cash expense disallowance. On further appeal, the ITAT, by order dated 22.04.2019 in ITA No. 7441/Mum/2017, reduced the bogus purchase addition to 3%, retaining the ad hoc disallowance of petty cash expenses.
Meanwhile, the Assessing Officer had imposed a penalty of ₹2,26,119 on 27.03.2019, calculated at 100% of the tax sought to be evaded on the addition of ₹10,48,442. The Commissioner (Appeals) confirmed the penalty by order dated 11.05.2026. Before the Tribunal, the essential question was whether a penalty for concealment or inaccurate particulars could survive when the underlying bogus purchase addition had ultimately been restricted to an estimated percentage.
The Tribunal relied on the Supreme Court’s decision in CIT v. Reliance Petroproducts Pvt. Ltd., (2010) 322 ITR 158 (SC), holding that mere disallowance of a claim does not automatically attract penalty unless the statutory requirements are satisfied. It also followed the jurisdictional Bombay High Court’s decision in Pr. CIT-6 v. Colo Colour Pvt. Ltd., [2025] 178 taxmann.com 458 (Bom.), and Pr. CIT-17 v. Anil Bajaria, ITA No. 128 of 2024, decided on 12.11.2025. These decisions supported the proposition that an estimated addition arising from alleged bogus purchases, without evidence of concealment or inaccurate particulars, was insufficient to sustain penalty.
Observing that the bogus purchase addition had ultimately been restricted to 3% purely by estimation and that no independent material establishing concealment or inaccurate particulars had been brought to its notice, the Tribunal held the penalty unsustainable. It set aside the appellate order dated 11.05.2026, directed the Assessing Officer to delete the entire penalty of ₹2,26,119 and allowed the assessee’s appeal. The ruling reinforces the distinction between sustaining a quantum addition on an estimated basis and establishing the separate statutory ingredients necessary for imposing a concealment penalty.
List of Cases Discussed / Relied Upon
1. Pr. CIT-17 v. Anil Bajaria, ITA No. 128 of 2024, decided on 12.11.2025 (Bombay High Court): The jurisdictional High Court upheld deletion of penalty arising from an estimated addition relating to alleged bogus purchases. The ITAT followed this decision in holding that estimation alone, without evidence of concealment or inaccurate particulars, did not justify penalty under Section 271(1)(c).
2. Pr. CIT-6 v. Colo Colour Pvt. Ltd., [2025] 178 taxmann.com 458 (Bom.), ITA No. 48 of 2022, decided on 16.09.2025 (Bombay High Court): The Court held that penalty under Section 271(1)(c) could not be sustained merely on estimated additions concerning alleged bogus purchases in the absence of material establishing concealment of income or furnishing of inaccurate particulars.
3. CIT v. Reliance Petroproducts Pvt. Ltd., (2010) 322 ITR 158 (SC): The Supreme Court held that mere disallowance of a claim does not, by itself, attract penalty under Section 271(1)(c) unless the statutory requirements relating to concealment of income or furnishing inaccurate particulars are established.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
This appeal has been preferred by the ASSESSEE against the order dated 11.05.2026, impugned herein, passed by the Ld. Commissioner of Income Tax (Appeals) (in short, “Ld. Commissioner”) u/s 250 of the Income Tax Act, 1961 (in short, “the Act”), for A.Y. 2009-10.
2. In the instant case, the Assessing Officer, vide assessment order dated 22.03.2015, made additions of Rs.32,79,247/- and Rs.76,490/- on account of alleged bogus purchases and disallowance of expenses being 15% of the expenses, respectively.
3. The then Ld. CIT(A), vide quantum appellate order dated 16.11.2017, restricted the addition on account of alleged bogus purchases to 12.5%, amounting to Rs.10,48,442/-, while sustaining the ad hoc disallowance of petty cash expenses made by the Assessing Officer.
4. On further appeal, the Tribunal, vide order dated 22.04.2019 in ITA No.7441/Mum/2017, further restricted the addition on account of alleged bogus purchases to 3%, while sustaining the ad hoc disallowance of petty cash expenses.
5. Meanwhile, the Assessing Officer, vide penalty order dated 27.03.2019, levied penalty of Rs.2,26,119/- u/s 271(1)(c) of the Act, being 100% of the tax sought to be evaded on the addition of Rs.10,48,442/-, which was subsequently affirmed by the Ld. Commissioner vide impugned order dated 11.05.2026.
6. Thus, the Assessee being aggrieved, is in appeal before us.
7. Having heard the parties and perused the material available on record, we observe that the addition on account of alleged bogus purchases was ultimately restricted by the Tribunal to 3% purely on an estimation basis. The Hon’ble Supreme Court in CIT v. Reliance Petroproducts Pvt. Ltd., (2010) 322 ITR 158 (SC), has held that mere disallowance of a claim does not, by itself, attract penalty u/s 271(1)(c), unless the statutory ingredients of concealment of income or furnishing of inaccurate particulars are satisfied. Further, the Hon’ble jurisdictional Bombay High Court in Pr. CIT-6 v. Colo Colour Pvt. Ltd., [2025] 178 taxmann.com 458 (Bom.), ITA No.48 of 2022, decided on 16.09.2025, has held that penalty u/s 271(1)(c) cannot be sustained merely on estimated additions relating to alleged bogus purchases in the absence of material establishing concealment of income or furnishing of inaccurate particulars thereof. The aforesaid judgment has subsequently been followed by the Hon’ble jurisdictional High Court in Pr. CIT-17 v. Anil Bajaria, ITA No.128 of 2024, decided on 12.11.2025, wherein deletion of penalty arising from an estimated addition on account of alleged bogus purchases, was upheld.
8. In the instant case, admittedly, the addition on account of alleged bogus purchases has ultimately been sustained at 3% purely on an estimation basis, without any independent material brought to our notice establishing concealment of income or furnishing of inaccurate particulars thereof. Therefore, considering the peculiar facts and circumstances of the case and respectfully following the aforesaid judgments of the Hon’ble Supreme Court and the Hon’ble jurisdictional High Court, particularly Colo Colour Pvt. Ltd. and Anil Bajaria (supra), we hold that the penalty levied u/s 271(1)(c) is unsustainable. Consequently, we set aside the impugned order and direct the Assessing Officer to delete the penalty of Rs.2,26,119/-.
9. In the result, the appeal filed by the Assessee stands allowed.
Order pronounced in the open court on 12.10.2026.
