2023 (6) TMI 513 - AT - Income Tax

Penalty u/s. 270A - GP estimation - underreporting of income - AO had estimated Gross Profit at 10% for Liquor Business and 20% on account of Sale of food - HELD THAT - There is no denial that the additions have been made on estimated basis. AO had not bothered to verify the Stock Register maintained by the assessee for his Liquor Business which is mandatory as per the Excise Act and the Excise Inspectors visits the shop to verify the stock. Thus, the AO without bothering to verify the stock register estimated the GP. In these facts and circumstances we are of the opinion that AO has failed to establish underreporting. We find that in CIT vs. Aero Traders Pvt. Ltd 2010 (1) TMI 32 - DELHI HIGH COURT has held that no penalty u/s.271(1)(c) of the Act can be imposed when income is determined on estimate basis. We are of the opinion that AO has failed to establish underreporting. Section 270A of the Act provides for imposition of penalty for underreporting and misreporting of income. Sub-section (2) enlists certain circumstances of under-reporting of income. Sub-section (3) deals with the determination of under-reported income, which, in our context, is by reducing the income returned by the assessee from the amount of income finally assessed. In the case under consideration, the addition is based on GP estimation. Hence, we hold that the penalty levied u/s.270A is not maintainable - Decided in favour of assessee.

Summary

Issues:
The judgment involves the confirmation of penalty under section 270A of the Income Tax Act, 1961 by the National Faceless Appeals Centre, Delhi without considering the legal status of the penalty order.

Summary:

Issue 1 - Confirmation of Penalty under Section 270A:
The appeal was filed against the penalty order dated 11.10.2021 under section 270A of the Income Tax Act, 1961 for the A.Y.2017-18. The Assessee contended that the penalty levied by the AO was not legally sustainable, and requested for its deletion. The only issue for consideration was the Penalty u/s.270A of the Act.

Findings and Analysis:
The AO had levied the penalty under section 270A of the Act, based on estimated Gross Profit for the liquor business and sale of food. The Ld.CIT(A) found that the AO had not verified the stock register maintained by the assessee for the liquor business, which is mandatory under the Excise Act. The ITAT Pune bench held that when additions are made on an estimated basis, penalty under section 270A cannot be imposed. The judgment cited various precedents where penalties were deleted due to assessments being made on an estimate basis without conclusive evidence of concealment of income.

Conclusion:
The ITAT Pune directed the AO to delete the penalty levied under section 270A of the Act, as it was based on estimation and not on concrete evidence of underreporting. The appeal of the assessee was allowed, and the order was pronounced in the open Court on 29th March, 2023.