2026 (3) TMI 1668 - AT - Income Tax

Penalty under section 271(1)(c) fails where the notice is vague and the addition rests only on estimate.

Penalty under section 271(1)(c) is unsustainable where the notice under section 274 does not specify whether the charge is concealment of income or ... Penalty u/s 271(1)(c) - Estimation of income on bogus purchases - non mentioning the charge under which the said notice was issued as whether it was towards 'Concealment of income' or 'furnishing of inaccurate particulars' - non striking off the irrelevant matter in notice HELD THAT: - The case of the assessee is squarely covered by the decision of Mohd. Farhan A. Shaikh [2021 (3) TMI 608 - BOMBAY HIGH COURT (LB)] wherein as held that the defect in notice by not striking off the irrelevant matter would vitiate the penalty proceedings. Estimation of income - As evident from the record that the AO made the addition on account of bogus purchases on an estimated basis of 12.5%, which was affirmed by the learned CIT(A) in quantum appellate proceedings. Therefore, the entire addition for the year under consideration has been made solely on the basis of estimates. We find that in CIT v/s Krishi Tyre Retreading and Rubber Industries [2014 (2) TMI 21 - RAJASTHAN HIGH COURT] held that where an addition is made purely on an estimate basis, no penalty under section 271(1)(c) of the Act is leviable. Similar view has been expressed in CIT v/s Sangrur Vanaspati Mills Ltd.[2008 (2) TMI 285 - PUNJAB AND HARYANA HIGH COURT] wherein held that when the addition has been made on the basis of estimate and not on any concrete evidence of concealment, penalty under section 271(1)(c) of the Act is not leviable. Therefore, it is evident that the issue of the justification for imposing a penalty when the addition is based on an estimate is no longer res integra Final Conclusion: The Tribunal held that the penalty under section 271(1)(c) was unsustainable both because the notice failed to specify the precise charge and because the underlying addition had been made purely on estimate. The penalty order was therefore quashed and the assessee's appeal was allowed. Issues: (i) Whether a penalty under section 271(1)(c) could be sustained when the notice under section 274 did not specify the exact charge. (ii) Whether penalty under section 271(1)(c) could be imposed where the addition was made purely on estimate.Issue (i): Whether a penalty under section 271(1)(c) could be sustained when the notice under section 274 did not specify the exact charge.Analysis: The notice did not strike off the inapplicable charge and therefore failed to clearly indicate whether the proceedings were for concealment of particulars of income or for furnishing inaccurate particulars of income. Such non-specification of the exact limb of penalty vitiates the penalty proceedings.Conclusion: The penalty could not be sustained on the basis of the defective notice and is against the Revenue.Issue (ii): Whether penalty under section 271(1)(c) could be imposed where the addition was made purely on estimate.Analysis: The addition was made by estimating the profit element on alleged bogus purchases, and the entire addition rested on estimation rather than on concrete evidence of concealment. Penalty under section 271(1)(c) is not leviable where the addition is purely estimated and no specific concealment is established.Conclusion: The penalty was not leviable on the estimated addition and is against the Revenue.Final Conclusion: The penalty order under section 271(1)(c) was unsustainable on both grounds, and the assessee succeeded in the appeal.Ratio Decidendi: A penalty under section 271(1)(c) cannot survive where the notice under section 274 does not specify the precise charge and where the underlying addition is made merely on estimation without concrete proof of concealment.