ITAT Mumbai Deletes Penalty Under Section 271(1)(c) on Estimated Bogus Purchase Addition
Court / Authority
Income Tax Tribunal
Update / Judgement Date
25 Aug 2026
Source
WCP News Bulletin
Author
Manas Yadav — WCP Legal Desk
Reading Time
2 min read
View Count
1
Key Facts and Tribunal Findings
The Income Tax Appellate Tribunal (ITAT), Mumbai Bench, allowed the appeal of Pravin Vasant Mehta for Assessment Year 2009–10 and deleted penalty of ₹3.49 lakh imposed under Section 271(1)(c) of the Income Tax Act.
The penalty proceedings arose from quantum additions relating to alleged bogus purchases amounting to ₹11.29 lakh. In the original assessment under Sections 143(3) read with 147, the Assessing Officer treated the entire purchases as non-genuine. However, in earlier quantum proceedings, the Tribunal had restricted the disallowance to 12.5% of such purchases, sustaining an addition of ₹1.41 lakh based on estimation of profit element.
Despite this, penalty was initially levied on the full purchase amount and later restricted by the CIT(A) to the extent of the sustained addition.
The Tribunal noted that the assessee had furnished complete purchase details, including bills and ledger accounts, and payments were made through banking channels. The purchases were duly recorded in the books and were not found to be entirely fictitious. The addition was sustained only on an estimated basis to account for possible inflation or suppression of profit.
The Tribunal held that where income is determined on estimation, particularly by applying a gross profit rate, it does not automatically establish concealment or furnishing of inaccurate particulars. In the absence of any conclusive evidence demonstrating falsity of the assessee’s claim, the essential conditions for invoking penalty under Section 271(1)(c) were not satisfied.
Accordingly, the Tribunal held that penalty could not be sustained on estimated additions and directed deletion of the entire penalty.
Full Judgement / Attachment
Full Judgement
Frequently asked questions about Income Tax Tribunal
- What is the Income Tax Appellate Tribunal (ITAT)?
- The ITAT, set up in 1941, is the second appellate authority in direct tax matters and the final fact-finding body. It hears appeals against orders of the Commissioner (Appeals) and certain other authorities, through benches across India.
- What is the time limit to file an appeal before the ITAT?
- An appeal must be filed within two months from the end of the month in which the order is communicated. This rule has applied since 1 October 2024 and continues under the Income-tax Act, 2025. The Tribunal can condone delay for sufficient cause.
- Can the ITAT stay a tax demand?
- Yes. The Tribunal can stay recovery of a disputed demand while an appeal is pending, usually on deposit of a part of the demand or furnishing security. Stays are granted for a limited period, and the appeal is expected to be decided within it.
- Where does an appeal go after the ITAT?
- An appeal against an ITAT order lies to the High Court, but only on a substantial question of law. A further appeal lies to the Supreme Court.
- How can White Collar Professional help with a ITAT matter?
- Post your requirement on White Collar Professional to receive proposals from verified Chartered Accountants and tax Advocates, compare them, and pay securely through the platform. This page also tracks the latest ITAT ITAT orders as they are reported.
