2026 (1) TMI 912 - AT - Income Tax

Penalty under section 271(1)(c) challenged where additions are estimate; penalty disallowed and appeal allowed by assessee

Where income additions are made on an estimated or percentage basis without concrete evidence of concealment, imposition of penalty under section ... Levying penalty u/s. 271(1)(c) - addition made of 5% of total purchase value as an accommodation entry - Invoking section 271(1)(c) for a positive act of concealment or furnishing of inaccurate particulars remains unfulfilled. HELD THAT:- Disallowance sustained was not based on any finding of actual concealment or furnishing of inaccurate particulars, but only on an estimation of profit. The legal position laid down in Hari Gopal [2002 (8) TMI 65 - PUNJAB AND HARYANA HIGH COURT] and Sangrur Vanaspati Mills Ltd [2008 (2) TMI 285 - PUNJAB AND HARYANA HIGH COURT] including Marksans Pharma [2018 (6) TMI 1797 - ITAT MUMBAI], M/s Boparai (P) Ltd.[2018 (6) TMI 1797 - ITAT MUMBAI], Remi Electrotechnik Ltd. [2021 (6) TMI 886 - ITAT MUMBAI] and Anita L. Ghadge [2021 (6) TMI 886 - ITAT MUMBAI] is that where income is assessed or additions are made on an estimate or ad-hoc basis without concrete evidence of concealment, penalty u/s 271(1)(c) is not leviable. The consistent judicial view is that an estimated or percentage based disallowance does not automatically mean that the assessee has either concealed income or furnished inaccurate particulars, and such circumstances do not justify the imposition of penalty. Applying these principles to the facts of the present case, the restricted disallowance made by the ITAT represents only an estimated profit element and not a definitive finding of concealment. Therefore, the essential condition for invoking section 271(1)(c) namely, a positive act of concealment or furnishing of inaccurate particulars remains unfulfilled. Appeal filed by the assessee is allowed. Issues: Whether penalty under Section 271(1)(c) of the Income-tax Act, 1961 can be sustained where the quantum disallowance was restricted by the Tribunal to a percentage (5%) of alleged bogus purchases on an estimated / ad-hoc basis.Analysis: The disallowance in the quantum proceedings was confined to a 5% ad-hoc estimation of alleged bogus purchases representing the embedded profit element, arrived at by reference to industry profit rates and judicial precedents. Coordinate authorities hold that additions made on an estimate or ad-hoc basis, without concrete evidence of a positive act of concealment or furnishing of inaccurate particulars, do not attract penalty under Section 271(1)(c). The restricted percentage disallowance reflected an estimate of profit and not a definitive finding that the assessee concealed particulars or furnished inaccurate particulars of income. The essential requirement for invoking Section 271(1)(c) a positive act of concealment or inaccurate particulars proven by the Revenue was not satisfied on the material before the authorities.Conclusion: Penalty under Section 271(1)(c) is not leviable in respect of the ad-hoc 5% disallowance of alleged bogus purchases; the penalty is to be deleted and the appeal allowed in favour of the assessee.Ratio Decidendi: Where additions are made on an estimated or ad-hoc basis without concrete evidence of concealment or inaccurate particulars, penalty under Section 271(1)(c) of the Income-tax Act, 1961 cannot be sustained; an estimation of embedded profit does not, by itself, establish the requisite positive act of concealment.