DCIT 19.1 MUMBAI, LALBAG MUMBAI V. AMBIKA DIAMONDS, BKC MUMBAI

ITA 5873/MUM/2025

AI Insights

The case involves the revenue's appeal against the CIT(A)'s decision to delete a penalty imposed on Ambika Diamonds, a partnership firm, for the Assessment Year 2012-13. The penalty was originally levied by the Assessing Officer (AO) following the reopening of the assessment, which was based on the allegation of bogus purchases made by the assessee. The AO had made an addition to the income by estimating a gross profit on these alleged bogus purchases. The CIT(A) reduced the gross profit rate applied by the AO and subsequently deleted the penalty, citing that penalties cannot be imposed on estimated additions. The revenue challenged this decision, but the Tribunal upheld the CIT(A)'s decision, referencing a similar case (Elcon Pipe & Fittings Pvt. Ltd.) where it was held that no penalty is applicable on estimated additions.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 792586 (ITAT-MUMBAI)
• Duration Of Justice: 2 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-12-2025
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2012-2013
• Appeal Filed On: 24-09-2025
• Other Referred Cases: Elcon Pipe & Fittings Pvt. Ltd. vs. ITO (ITA No. 496/Mum/2018)
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SURENDRA MOHAN
• Keywords: Bogus purchase; Accommodation entries; Bogus
• Section: 147; 148; 144; 143(3); 271(1)(c)

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL “A” BENCH, MUMBAI BEFORE SHRI SAKTIJIT DEY, VP & MS PADMAVATHY S, AM I.T.A. No. 5873/Mum/2025 (Assessment Year: 2012-13) DCIT-19(1), 506, Piramal Chambers, Lalbaug, Parel, Mumbai-400012. Vs. Ambika Diamonds, JE-7070/7080, Bharat Diamond Bourse, Bandra Kurla Complex, Bandra (E), Mumbai-400051. PAN: AAAFA3923I Revenue) : Assessee) Revenue by : Shri Surendra Mohan, Sr. DR Assessee by : None Date of Hearing : 20.11.2025 Date of Pronouncement : 02.12.2025 O R D E R Per Padmavathy S, AM: This appeal by the by the revenue is against the order of the Commissioner of Income Tax (Appeals) / National Faceless Appeal Centre (NFAC), Delhi [In short 'CIT(A)'] passed under section 250 of the Income Tax Act, 1961 (the Act) dated 14.07.2025 for Assessment Years (AY) 2012-13. The grounds raised by the revenue pertain to the deletion of penalty levied u/s. 271(1)(c) of the Act by the CIT(A). Printed from counselvise.com 2 ITA No. 5873/Mum/2025 Ambika Diamonds 2. The assessee is a partnership firm and filed the return of income for AY 2012-13 on 26.09.2012 declaring total income of Rs. 3,43,77,736/-. The Assessing Officer (AO) reopened the assessment on the ground that the assessee has made bogus purchases. The AO concluded the assessment u/s. 147 r.w.s. 143(3) of the Act after making an addition of Rs. 11,38,234/- by estimating 8% Gross Profit (GP) on bogus purchases. The CIT(A) on further appeal gave partial relief to the assessee by reducing the GP rate to 4% of bogus purchases. The AO subsequently initiated penalty proceeding u/s. 271(1)(c) to levy a penalty of Rs. 35,899/-. Aggrieved assessee filed further appeal before the CIT(A). Before the CIT(A) the assessee contended that no penalty can be levied when the addition is made on estimated basis. The CIT(A) deleted the penalty by placing reliance on the decision of the Co-ordinate Bench in the case of Elcon Pipe & Fittings Pvt. Ltd. vs. ITO (ITA No. 496/Mum/2018 dated 11.02.2019). The relevant observations of the CIT(A) in this regard are extracted below: “4.2 The appellant has inter-alia contented that no penalty can be imposed on the estimated additions. The appellant has also challenged the penalty on technical grounds by asserting that the AO has not struck off the irrelevant portion in the penalty notice and the penalty notice has been issued for both i.e. furnishing inaccurate particulars of income and for concealment of income. The appellant has relied upon catena of judgements of Hon’ble higher courts as well as the binding judgements of Hon’ble Mumbai Bench of ITAT in support of his ground that no penalty u/s 271(1)(c) of the Act can be imposed on the estimated additions. In the relied upon judgement the Hon’ble Jurisdictional Bench of Income Tax Appellate Tribunal (ITAT), Mumbai, in the case of Elcon Pipe and Fittings Pvt. Ltd. vs. ITO (ITA No. 496/Mum/2018) for the Assessment Year 2009-10, vide its decision dated 11.02.2019, held as under:- “2. Brief facts of the case are that assessee is a private limited company, engaged in the business of trading of Pipe material. The assessment for the year under consideration was completed on 21.03.2014 under section 144r.w.s. 147 of the Act. The Assessing Officer made the re-opening of the assessment on the basis of information received from Sales Tax Department, Government of Printed from counselvise.com 3 ITA No. 5873/Mum/2025 Ambika Diamonds Maharashtra that the assessee is one of the beneficiaries who has taken accommodation entries from hawala dealers. The assessee made purchases of Rs. 71,58,777/- from parties namely Maruti Steel Traders of Rs. 37,70,068/-, Shiv Industries of Rs. 14,57,315/- and Anupam Metal of Rs. 19,31,394/-. The name of the said parties was included in the list of hawala dealers. On the basis of information received by Assessing Officer, the Assessing Officer issued notice under section 148 dated 19.03.2013. The notice was not served upon the assessee; thereafter notice under section 143(2) and 141(1) was issued on 26.12.2013. The said notice was also returned back to the Assessing Officer as recorded in para-3 of the assessment order. The Assessing Officer completed the assessment under section 144 r.w.s. 147 and disallowed the aggregate purchase of Rs. 71,58,777/-. On further appeal before the ld. CIT(A) the addition was sustained to the extent of Rs. 8,94,847/- ( @ 12.5%) and balance of Rs. 62,63,930/- was deleted vide order dated 30.06.2016. On further appeal before the Tribunal, the disallowance was confirmed @ 12.5% of the bogus purchases vide ITA No. 5355/M/2015 & 5689/M/3016 dated 18.08.2017. 3. The Assessing Officer levied the penalty under section 271(1)(c) of the Act. The assessing officer levied the penalty @ 100% of tax sought to be evaded. In appeal against the penalty levied under section 271(1)(c), the ld.CIT(A) directed the Assessing Officer to restrict the levy of penalty to the extent of addition confirmed in the appeal. Therefore, further aggrieved by the order of ld. CIT(A), the assessee has filed the present appeal before us. 4. We have heard the submission of ld. Authorised Representative (AR) of the assessee and ld. Departmental Representative (DR) for the revenue and perused the material available on record. The ld. AR of the assessee submits that the Assessing Officer passed the assessment order ex-parte and disallowed the entire purchases without giving any opportunity of hearing to the assessee. On appeal before the Tribunal the disallowance was restricted to 12.5% of the alleged bogus purchases. The ld. AR of the assessee submits that it is settled law that no penalty is leviable on adhoc disallowance. Therefore, the order of ld. CIT(A) in directing the Assessing Officer for restricting the penalty on the partial disallowance is also liable to be set-aside. 5. On the other hand, the ld. DR for the revenue supported the order of lower authorities below. 6. We have considered the rival submission of the parties and have gone through the orders of authorities below. We have also deliberated on the various case Printed from counselvise.com 4 ITA No. 5873/Mum/2025 Ambika Diamonds laws referred and relied by lower authorities. We have noted that in appeal in quantum assessment, the co-ordinate bench of this Tribunal in cross appeal for Assessment Year 2009-10 & 2011-12 of both the parties, restricted the disallowance of alleged bogus purchases @ 12.5% of the alleged bogus purchases. It is settled legal position that no penalty under section 271(1)(c) is leviable on adhoc disallowance. Considering the peculiar facts and circumstances of the case, we direct the Assessing Officer to delete the entire penalty levied under section 271(1)(c) of the Act. 7. In the result, appeal of the assessee is allowed.’’ 4.3. The facts of the case in hand are exactly same to the case of Elcon Pipes and Fitting Pvt. Ltd. (Supra). Therefore, respectfully following the binding decision of the Hon’ble jurisdictional ITAT in the case of Elcon Pipes and Fitting Pvt. Ltd. (Supra) and other judgements relied upon by the appellant, it is held that no penalty under Section 271(1)(c) of the Income Tax Act, 1961, is imposable in this case. Accordingly the penalty levied by the AO amounting to Rs. 35,899/- is cancelled. Ground no 2,3 and 4 of appeal are allowed. Since, the penalty has been cancelled, ground no. 1 becomes infructuous and hence the same is dismissed.” 3. None appeared on behalf of the assessee and we heard the ld. DR. The ld. DR submitted that the assessee has accepted the fact that the purchases are bogus and therefore there is concealment of income to the extent of profit element embedded therein. Accordingly the ld DR supported the order of the AO. We notice that the lower authorities have ultimately found that at the most there could be element of suppression of gross profit on the alleged bogus purchases and this fact is established from the addition made in assessee's case at 4% of alleged bogus purchases. It is a settled position that when the additions are made on estimated basis, then no penalty can be levied. Therefore in our view in assessee's case where the addition is made on estimated basis levy there cannot be any penalty levied u/s.271(1)(c). Accordingly we see no infirmity in the decision of the CIT(A) in deleting the penalty levied in assessee's case. Printed from counselvise.com 5 ITA No. 5873/Mum/2025 Ambika Diamonds 4. In result, appeal of the revenue is dismissed. Order pronounced in the open court on 02-12-2025. Sd/- Sd/- (SAKTIJIT DEY) (PADMAVATHY S) Vice-President Accountant Member *SK, Sr. PS Copy of the Order forwarded to : 1. The Appellant 2. The Respondent 3. DR, ITAT, Mumbai 4. 5. Guard File CIT BY ORDER, (Dy./Asstt. Registrar) ITAT, Mumbai Printed from counselvise.com "