ITAT Mumbai Deletes Penalty on Estimated Addition in Bogus Purchase Case

The “C” Bench of the Income Tax Appellate Tribunal, Mumbai, has allowed the appeal filed by P Cube Construction Private Limited and deleted the penalty of ₹9.73 lakh levied under Section 271(1)(c) of the Income-tax Act for Assessment Year 2011–12.

Penalty Based on Estimated Profit Not Sustainable

The penalty arose from an addition originally made on account of alleged bogus purchases amounting to ₹83.98 lakh. In quantum proceedings, the CIT(A) had restricted the addition to 12.5 percent, i.e., ₹10.49 lakh, representing the estimated profit element, which was subsequently upheld by the Tribunal. Relying on this sustained addition, the Assessing Officer imposed penalty at 300 percent of the tax sought to be evaded.

Consistent Judicial View Followed by Tribunal

The Tribunal held that penalty under Section 271(1)(c) cannot be levied where the addition is made purely on an estimated basis, without any concrete evidence of concealment or furnishing of inaccurate particulars of income. Placing reliance on the Supreme Court decision in Reliance Petroproducts Pvt. Ltd. and a series of coordinate bench rulings, the Bench reiterated that estimation of profit does not automatically imply concealment. Since the assessee had disclosed all primary facts and the addition was only an estimate, the penalty was held to be unsustainable. Accordingly, the penalty was deleted and the assessee’s appeal was allowed.