Khodiyar Impex Vs ITO (ITAT Mumbai)
Estimation-Based Bogus Purchase Addition Cannot Attract Penalty under Secti0n 271(1)(c) -ITAT Mumbai
Assessee, engaged in diamond trading, was subjected to reassessment u/s 144 r.w.s. 147 on 30.03.2015. AO treated purchases from alleged hawala dealers (Jewel Diam & Daksh Diamonds) as non-genuine & added entire ₹1.86 crore as bogus purchases.
On appeal, CIT(A) restricted disallowance to 3% of disputed purchases (₹5,59,500) instead of 100%. Meanwhile, AO had levied penalty of ₹63.39 lakh u/s 271(1)(c), being 100% of tax on full addition. CIT(A) reduced penalty in line with sustained addition of 3%.
Before Tribunal, Assessee argued that penalty cannot be levied on estimated or adhoc additions, citing
Mukesh Shaligram Sharda v. ITO (ITA No.1907 & 1908/Mum/2021), Orient Fabritech Pvt. Ltd. v. ITO (ITA No.1425/Mum/2021) & Dombivli Paper Mfg. Co. Pvt. Ltd. v. ACIT (ITA No.2734/Mum/2023)
Tribunal observed that once the disallowance was restricted to estimation at 3%, no concealment or furnishing of inaccurate particulars could be attributed. It reiterated the settled principle that penalty u/s 271(1)(c) is not leviable when income is determined on estimated basis. Accordingly, penalty sustained by CIT(A) was also deleted.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
1. This appeal by assessee is directed against the order of ld. CIT(A)/NFAC, Delhi dated 05.02.2025 for A.Y. 2007-08. The assessee has raised following grounds of appeal:
“1. In the facts and circumstances of the case and in law, the learned CIT(A) erred in holding that penalty @ 100% of tax sought to be evaded u/s 271(1)(c) was justified qua the GP addition of Rs. 559,500/- sustained by the learned CIT(A) in quantum appeal.
2. The learned CIT(A) erred in not appreciating that in quantum appeal there was a huge reduction in addition made from Rs. 1,80,90,500/- to Rs. 559,500/- and that no penalty was justified on small addition made on estimated basis.”
2. Rival submissions of both the parties have been heard and record perused. The ld. AR of the assessee submits that assessment was completed under section 144 r.w.s. 147 on 30.03.2015. The assessing officer while passing the assessment order made addition on account of disallowances of non-genuine purchases / bogus purchases by taking view that assessee is beneficiary of purchases shown from hawala operators. The assessing officer made addition of Rs. 1.86 crores, being 100% of purchases shown from Jewel Diam and Daksh Diamonds. However, on appeal before ld. CIT(A), such disallowances were restricted to 3.00% of the disputed purchases/ alleged bogus purchase. In the meantime, the assessing officer levied penalty under section 271(1)(c) at 100% of tax sought to be evaded. The assessing officer levied on the penalty of Rs. 63,39,135/- vide order dated 28.09.2015. On further appeal before ld. CIT(A) against the penalty order, the ld. CIT(A) restricted the penalty to the extent of addition/disallowances sustained by ld. CIT(A) in quantum assessment. The ld. AR of the assessee submits that it is settled position in the law that no penalty under section 271(1)(c) is leviable on the addition/disallowances made or sustained on estimation basis. To support his submission, the ld. AR relied upon the decision the following decision:
> Mukesh Shaligram Sharda vs ITO (ITA No. 1907 & 1908/Mum/2021)
> Orient Fabritech Pvt. Ltd. vs ITO (ITA No. 1425/Mum/2021)
> Dombivali Paper Mfg. Co. Pvt. Ltd. vs ACIT (ITA No. 2734/Mum/2023)
3. On the other hand, learned Commissioner of Income Tax – Departmental Representative (ld. CIT-DR) for the revenue supported the order of lower authorities.
