The Income Tax Appellate Tribunal (ITAT), Pune Bench held that no penalty can be imposed based on estimated additions.
The assessee, Laxman Trimbak Gule is an individual who filed a return of income for the assessment year 2011-12 declaring a total income of Rs.6,72,940/- under the head long term capital gain. The notice was issued to the assessee which had responded that the return of income was already filed which may be considered as the return filed against the said notice.
During the assessment proceedings, the Assessing Officer verified the claim of commission of Rs.2,50,000/- and improvement expenditure of Rs.50,000/-. The Assessing Officer had asked the assessee to produce documentary evidence regarding the claim made by the assessee. The matter being old, the assessee could not produce the evidence and as such the Assessing Officer estimated the disallowance at 50% being Rs.9,90,685/- and added the same to the total income of the assessee and also initiated penalty proceedings under section 274 read with section 271(1)(c) of the Act for concealing the particulars of income or furnishing inaccurate particulars of income.
The assessee submitted that these were the disallowances made by the Assessing Officer on an estimation basis and it is the settled legal position that there cannot be any imposition of penalty under section 271(1)(c) of the Act in respect of disallowances made on such estimation basis.
The assessee submitted that it had made bonafide disclosures through all the necessary particulars in the return of income and computation statement. Mere disallowance of a claim made bona- fide would not amount to concealment of particulars of income or furnishing inaccurate particulars of such income to warrant the imposition of penalty under section 271(1)(c) of the Act.
The coram of Inturi Rama Rao and Parth Sarathi Chaudhary held that when the bedrock of instant penalty is on the estimated addition, the same cannot be sustained.
The tribunal while setting aside the order of the lower authorities held that the additions were made on the basis of estimation and the penalty cannot be levied on the basis of estimated additions and thus, it is not a fit case for levying penalty.