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 purchases were reflected in the books, supported by bills, ledger entries and cheque payments, and were not shown to be fictitious per se. As the quantum addition was restricted by applying a gross profit rate on a pragmatic estimate of possible inflation of purchase price or suppression of profit, there was no concrete finding of concealment or furnishing of inaccurate particulars. The assessee's explanation was not found false, so penalty under section 271(1)(c) was deleted.

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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.

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