No Penalty when Income of Assessee is determined on an Estimate Basis: ITAT [Read Order]

no penalty

Rajkot Income Tax Appellate Tribunal (ITAT) declared that penalty under Section 271(1)(c) of the Income Tax Act 1961 cannot be levied when the assessment made only on the basis of estimated profit.

In the present case, assessee is an individual engaged in manufacturing and trading of mechanical iron scale. During the assessment year he filed his return of income and declared a total income of Rs. 1,47,690.

During the course of assessment proceedings, the Assessing Officer (AO) noticed that a large sum of money deposited in the savings bank account of the assessee which was not included in the returns that he filed for the assessment year. Accordingly he made an addition of the said amount and also initiated penalty proceedings under section 271(1)(c) of the Income Tax Act 1961.

Assessee contended that the aforementioned deposit in the bank account did not belong to the assessee, but belonged to the HUF, and since HUF did not have assessable income and not required to maintain books of accounts that’s why he didn’t reflected the said amount in his return of income.

Tribunal bench consists of Judicial Member Rajpal Yadav and Accountant Member N.K.Billaiya observed that the assessee gave explanation regarding the unrevealed deposit in his returns but he doesn’t have any proof documents but it would not lead to lead to the conclusion that the assessee has concealed the particulars of income or furnished inaccurate particulars of such income.

The division bench further observed that, while conducting a detailed examination it has found that the AO made the assessment only on the estimated profit of the assessee and not on the real profit, hence provisions of section 271(1)(c) are not attracted  in the present case even if the assessee is not able to substantiate the explanation therefor penalty cannot be levied on the said amount. While deleting the penalty the bench also grants relief to the assessee.

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