TaxTMI 
TaxTMI 
2026 (2) TMI 924
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....spute, the assessee had filed his returns of income in regular course u/s. 139 of the Act. The returns so filed by the assessee were initially processed u/s. 143(1) of the Act. 3. Subsequently, based on report of the Investigation Wing, which in turn received information from the Sales Tax Department, that certain entities have indulged in providing accommodation entries through bogus purchase bills without supplying any goods physically and as per the information, the assessee being one of the beneficiaries, the Assessing Officer (A.O. for short) reopened the assessment u/s. 147 of the Act for all these years. In course of assessment proceedings, when the A.O. brought up the issue of alleged bogus purchase, the assessee vehemently contested such allegation and submitted that he has not indulged in any bogus purchases. The A.O., however, was not convinced. Relying upon the allegations of the Sales Tax Department, which formed the basis of the Investigation Wing report, the A.O. ultimately concluded that the assessee is a beneficiary of accommodation entries through bogus purchase bills availed through certain entities. However, since the assessee had recovered the purchases in i....
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....termination of suppressed profit element is purely on estimate basis, as the A.O. has not elaborated how the quantum of 25% or 12.5% was arrived at. Whereas, while deciding assessee's appeals, ld. First appellate authority has reduced the percentage of profit to 6.5% in A.Y. 2009-10 and to 6% in A.Ys. 2011-12 and 2010-11. Such huge difference between the quantum of profit element determined by the A.O. and ld. First appellate authority clearly demonstrates that such determination of profit rate is based on guess work and estimation and nothing else. Therefore, the issue which arises for consideration is, when the additions made on account of alleged bogus purchases are purely on the basis of estimation, whether the assessee can be accused of furnishing inaccurate particulars of income to be visited with penalty u/s. 271(1)(c) of the Act. In this context, we may refer to the decision of the Hon'ble Jurisdictional High Court in case of Pr. CIT vs. Colo Colour Pvt. Ltd. (in ITA No. 48 of 2022 vide order dated 16.09.2025), wherein while dealing with identical nature of dispute, the Hon'ble Jurisdictional High Court has held as under: Analysis 14. On the afores....
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....ome and/or had deliberately furnished inaccurate particulars of income to gain an undue advantage of not offering the real income to tax. A clear subjective satisfaction of these essentials is a sine qua non for the Assessing Officer to levy a penalty. Penalty proceedings are penal in nature, as the intention of such provisions is to create an effective deterrent, which will restrain the assessee from adopting any practices detrimental to the fair and realistic assessment as the law would mandate. 17. In the facts of the present case, in our opinion, the approach of the assessee was certainly, not of the nature which can be recognized to involve any concealment of particulars of income and/or furnishing inaccurate particulars of income. The reason being that the penalty could not have been levied when an ad-hoc estimation of the assessee's income was made by the Assessing Officer who restricted the profit element in the purchases at 12.5%. This encompasses that the Assessing Officer accepted the sales made by the assessee and which were subject matter of the invoices / bills which were produced by the assessee. Thus, this is not the case where the Assessing Officer out....
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....ceived by the Assessing Officer or his investigation with the Sales Tax Department, when admittedly such material was not furnished to the assessee, there being nothing on record to indicate that the assessee had accepted such material or the investigation as undertaken by the Assessing Officer to accept the purchases to be bogus. Hence, there was no independent application of mind by the Assessing Officer when he appears to have relied on the information of the Sales Tax Department. In this view of the matter, when the Assessing Officer proceeded to estimate the income from the bogus purchases at 12.5%, we do not find that this could be conceived to be a case of concealment of income or a case of inadequate particulars of income being furnished by the assessee. In such context, we may refer to the decision of the Division Bench of this Court in Pr. Commissioner of Income Tax-1 Vs. SVD Resins & Plastics Pvt. Ltd. to which one of us (G. S. Kulkarni, J.) was a member, wherein the Court held that the information derived by the Assessing Officer from the Sales Tax Department without the same being furnished to the Assessee and not proved, was not a sound approach. The following observa....
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....pinion, a full addition could be made only on the basis of proper proof of bogus purchases being available as the law would recognise before the Assessing Officer, of a nature which would unequivocally indicate that the transactions were wholly bogus. In the absence of such proof, by no stretch of imagination, a conclusion could be arrived, that the entire expenditure claimed by the petitioner qua such transactions need to be added, to be taxed in the hands of the assessee. 13. In a situation as this, the A.O. would be required to carefully consider all such materials to come to a conclusion that the transactions are found to be bogus. Such investigation or enquiry by the Assessing Officer also cannot be an enquiry which would be contrary to the assessments already undertaken by the Sales Tax Authorities on the same transactions. This would create an anomalous situation on the sale purchase transactions. Hence, in our opinion, wherever relevant any conclusion in regard to the transactions being bogus, needs to be arrived only after the A.O. consults the Sales Tax Department and a thorough enquiry in regard to such specific transactions being bogus, is also the conclusion o....
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....ing and Rubber Industries held that penalty could not have been imposed under Section 271(1)(c) of the Act, when the addition was sustained purely on estimate basis or when the addition was made which was on a pure guess work, hence, no penalty under Section 271 (1)(c) of the Act could be said to be leviable on such guess work or estimation. The Court accordingly answered the question in favour of the assessee, rejecting levy of penalty under Section 271 (1)(c). ITXA48-22.DOC 21. The aforesaid discussion would make us conclude, that the Assessing Officer could not have come to a conclusion of the present case attracting proceedings for levy of penalty, when the Assessing Officer had already taken a position on materials which were available before him in the course of assessment proceedings, in computing the amount of tax payable by the assessee, by making appropriate additions on the basis of estimates derived in passing of the assessment order. In other words, for the purpose of assessment proceedings, the relevant materials were accepted, to be not amounting to concealment of particulars of income or furnishing of inaccurate particulars of income. In such circu....