ITAT Mumbai Deletes Penalty Under Section 271(1)(c) on Estimated Bogus Purchase Addition

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.