ITAT Mumbai Upholds Deletion of Penalty on Estimated Bogus Purchase Addition

Penalty Under Section 271(1)(c) Not Sustainable Where Income Is Assessed on Estimation Basis

The Mumbai Bench of the Income Tax Appellate Tribunal has dismissed the Revenue’s appeal challenging deletion of penalty imposed under Section 271(1)(c) of the Income Tax Act in a case involving alleged bogus purchases for Assessment Year 2009–10. The Assessing Officer had reopened the assessment based on information from the Sales Tax Department alleging accommodation entries. An addition of ₹98,103 was made under Section 69 by estimating 20% of purchases as non-genuine. This was subsequently reduced to 15% by the Tribunal in quantum proceedings. Despite the estimation-based nature of the disallowance, the AO levied a penalty of ₹2.12 lakh for concealment of income, which was later deleted by the CIT(A).

Affirming the deletion, the Tribunal observed that the entire addition rested purely on estimation, without concrete evidence establishing concealment or furnishing of inaccurate particulars. Relying on consistent judicial precedent, the Bench reiterated that penalties cannot be sustained where income is determined on an ad hoc or estimated basis.

The Tribunal referred to High Court rulings holding that estimation of profit or disallowance percentage does not automatically imply deliberate concealment. Since the quantum itself was a matter of approximation and judicial discretion, the essential ingredients for invoking Section 271(1)(c) were absent.

Accordingly, the Revenue’s appeal was dismissed, reinforcing the principle that penalty provisions require clear evidence of wrongdoing and cannot be triggered merely because an estimated addition has been made during assessment proceedings.