The Hyderabad Bench of the Income Tax Appellate Tribunal (ITAT) recently deleted the penalty under Section 271 A for estimation-based addition with a lack of reference to the Assessee’s books.
The assessee Mohammed Rahimuddin declared the commission he received at Rs. 1500/- per truck and thereby worked out the same at Rs. 1.26 lakhs; whereas on local enquiries, the Assessing Officer estimated the same at Rs. 10,000/- per truck and determined such commission at Rs. 8.4 lakhs, and made an addition of Rs. 7.14 lakhs.
Counsel for the assessee submitted that it was only the difference of opinion that led to the addition and to purchase peace, the assessee accepted the quantum addition. According to him, there was no yardstick with any certainty involved in the addition and, therefore, he submitted that mere differences of opinion will not lead to a levy of penalty.
Counsel for the revenue argued that the addition was the result of the local enquiries made by the Assessing Officer and since there was an increase in the determination of the income therefore, the penalty was automatic.
The Single Bench consisting of a Judicial Member K Narasimha Chari observed that clause (b) of sub-Section (6) of Section 270A of the Income Tax Act refers to the amount of under-reported income determined on the basis of an estimate of the accounts is correct and complete to the satisfaction of the Assessing Officer.
The Bench further added that the addition made in this case, without reference to the books of the assessee, but on the basis of estimation, therefore, cannot provide the foundation for under-reported income for the purpose of levy of penalty under Section 270A of the Income Tax Act. It was squarely similar to the case, Jaibalaji Business Corporation (P.) Ltd. vs. ACIT [2023].
As a result, the appeal of the assessee was allowed.
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