2026 (3) TMI 1565 - AT - Income Tax

Penalty on estimated bogus purchase additions deleted where books, bills and cheque payments supported the transactions.

Penalty for concealment was held unsustainable where the addition arose only from estimation of the profit element in alleged bogus purchases. The ... Penalty u/s 271(1)(c) - quantum addition made on account of alleged bogus purchases - HELD THAT: - The Tribunal found that the purchases were recorded in the books, supported by bills and ledger accounts, and payments had been made through banking channels. The quantum addition was not sustained in full; it was restricted by estimating the profit element embedded in the purchases at 12.5%. On that basis, the Tribunal held that the addition rested on estimation and not on any definite finding of concealment of income or furnishing of inaccurate particulars. Since the assessee's explanation supported by documents was not found to be false and the sustained addition merely accounted for possible inflation of purchase price or suppression of profit, the statutory conditions for penalty were not satisfied. [Paras 3, 4, 5, 6] Final Conclusion: The Tribunal allowed the assessee's appeal and deleted the penalty. It held that an addition sustained only on estimated profit from recorded purchases could not, by itself, justify penalty for concealment or furnishing inaccurate particulars. Issues: Whether penalty under section 271(1)(c) of the Income-tax Act, 1961 was leviable where the addition arose from estimation of the profit element embedded in alleged bogus purchases.Analysis: The purchases were recorded in the books, supported by bills, ledger accounts and cheque payments, and were not found to be fictitious per se. In quantum proceedings, the disallowance was not sustained in full but was restricted on estimation by applying a gross profit rate, reflecting a pragmatic approach to suspected accommodation entries. Where the addition rests on estimation and not on a concrete finding of concealment or furnishing of inaccurate particulars, the element of penalty cannot be mechanically inferred. The explanation offered by the assessee was not found to be false, and the sustaining of addition only represented an approximation of possible inflation of purchase price or suppression of profit.Conclusion: Penalty under section 271(1)(c) was unsustainable and was deleted.