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Judgment
PER NAVEEN CHANDRA [ACCOUNTANT MEMBER]:
The above captioned two appeals are preferred by the assessee against the order dated 16.10.2025, passed by Learned Commissioner of Income Tax (Appeals)-29, New Delhi [hereinafter referred to as ‘ld. CIT(A)], under section 250 of the Income Tax Act, 1961 [hereinafter referred to as, ‘Act’] arising out of the penalty order dated 29.03.2024, passed by the ACIT, Central Circle-25, New Delhi (hereinafter referred to as the ‘AO’) under section 271(1)(c) of the Act for the Assessment Year 2015-16 and assessment order dated 30.03.2022, passed by NCAC Centre, Delhi under section 147 r.w.s. 144B of the Income Tax Act, 1961 for the Assessment Year 2016-17.
Since the above captioned appeals were heard together and the facts in issues and grounds (except amounts) are identical, both the appeals are being disposed of by this common order for the sake of convenience and brevity.
First we take up ITA No.8423/Del/2025 for A.Y. 2015-16 as a lead case:
The assessee has raised following grounds of appeal:
1.“That the CIT (Appeals) erred on facts and in law in not holding that the impugned order dated 29.03.2024 levying penalty of Rs.15,69,006/- under section 271(1)(c) of the Income-tax Act, 1961 (‘the Act’), is without jurisdiction, bad in law and voidab-initio.
1.1.That the CIT (Appeals) erred on facts and in law in not appreciating that satisfaction for initiating penalty was not discernable from the assessment order, which is sine qua non for assumption of jurisdiction to impose penalty.
1.2.That the Ld. CIT (Appeals) did not consider that the additions made u/s 143(3) were reduced substantially by the CIT (A), though increased by ITAT, and only an ad-hoc addition was made to the returned income, which does not lead to any concealment or furnishing of inaccurate particulars of income.
1.3.That Ld. CIT (Appeals) erred while not considering that there is ambiguity in framing a charge against the assessee for imposing the penalty. There is ambiguity in the assessment order, penalty notices and penalty order and the Ld. AO was not clear whether the penalty is imposable for Concealment of particulars of income or for Furnishing inaccurate particulars of Income.
1.4.That Ld. CIT (Appeals) erred while not considering that the penalty was charged for Concealing the particulars of income, whereas the penalty was initiated for Furnishing inaccurate particulars of Income and concealment of income.
1.5.That Ld. CIT (Appeals) erred while not considering that the charge against the assessee for Concealing the particulars of Income is not correct, as for the additions made, penalty u/s 271(1)(c), if imposable, can only be for Furnishing of Inaccurate particulars of Income.
1.6.That Ld. CIT (Appeals) erred while not considering that the additions were made on a highly debatable issue against which a number of Courts have given different decisions.”
Brief facts of the case are that the assessee is a company had filed its return of income on 28.03.2017 at a total income of Rs.7,34,88,960/- which was assessed u/s 143(3) of the Act on 28.12.2017 at the returned income. The case of the assessee was picked up for reassessment u/s 147 of the Act. While assessing the case u/s 147 of the Act, the Ld. AO made an addition of Rs.3,86,87,155/- on the ground that the party from whom the purchases were made, did not exist. AO had conducted detailed inquiries into the purchases claimed to have been made from certain parties, and such claims could not withstand scrutiny, as the parties were found to be non-existent. The AO, after due opportunity provided to the assessee to explain and substantiate the transactions, recorded clear satisfaction regarding deliberate concealment and furnishing of inaccurate particulars in the return of income. Thus, the AO initiated and levied penalty on account of both concealment and inaccuracy. Aggrieved, assessee was in appeal before the learned CIT(A). The learned CIT(A) dismissed the appeal of the assessee by observing that “the penalty order has a sound factual and legal basis, as the appellant has failed to credibly contest the findings of the AO or point out any procedural lapses in the penalty proceedings affecting their substance. The decisions cited by the appellant on the reduction and subsequent enhancement of the additions deal with quantum but do not dilute the core finding of bogus purchases being routed for tax evasion. The incompleteness of submissions and inability to rebut the case materially point to a lack of bona fide on part of the appellant. Accordingly, the findings of the AO are not only upheld but are further strengthened by the appellant's persistent failure to provide evidence, the deliberate evasion established by the AO, and the absence of any mitigating circumstances or satisfactory explanation from the appellant's side. The appeal is thus dismissed and the penalty stands confirmed.”
Aggrieved by the order of AO, assessee is in appeal before us.
At the outset, it was informed by the assessee that in the quantum proceedings, the learned CIT(A) had reduced the addition to 4%.
We have heard the rival submissions and perused the material available on record. The fact of the case was that the Assessing Officer made an addition of entire bogus purchase of Rs. 3,86,87,155/-. In appeal, the CIT(A) decided to tax the gross profit @ 4.81% embedded in the bogus purchase. The ITAT, on appeal, enhanced the addition on account of profit embedded in the bogus purchase, at 12.50% of bogus purchase.
We find that the penalty has been levied on addition made purely on estimate basis by assuming gross profit earned on bogus purchase. In such facts and circumstances, and following the Hon'ble Rajasthan High Court in the case of CIT vs. Krishi Tyre Retreading and Rubber Industries and Hon'ble Punjab & Haryana High Court in the case of CIT vs. Sangrur Vanaspati Mills Ltd. which held that, where addition is made purely on estimate basis, no penalty under Section 271(l)(c) of the Act is leviable, we hold that penalty levied under Section 271(l)(c) of the Act on estimated additions is unsustainable in the eyes of law. We accordingly, direct the deletion of such penalty. The Assessing Officer is directed to delete the penalty. The grounds of appeal filed by the assessee is allowed.
ITA No.8424/Del/2025 :
The facts in the instant case are identical to the facts of the case decided above. The decision therefore in ITA No.8423/Del/2025 will apply mutatis mutandis to the facts of the instant case.
In the result, both the appeals of the assessee ITA Nos.8423 & 8424/Del/2025 are allowed.