Taxpayer Underreports Income by Claiming Inadmissible Expenses: ITAT Confirms Penalty [Read Order]

The Raipur Bench of the Income Tax Appellate Tribunal ( ITAT ) upheld the penalty imposed under Section 271(1)(c) of the Income Tax Act, 1961, against the assessee for underreported income by claiming inadmissible expenses. 

M/s. Rukmani Engineering Works (now known as Rukmani Infra Projects Pvt. Ltd.), (assessee) engaged in executing works contracts, filed its return of income for the Assessment Year 2008-09, declaring an income of Rs. 35,29,930.

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Upon scrutiny, the Assessing Officer (AO) determined the total income at Rs. 6,07,64,390, making disallowances under Section 40(a)(ia), estimating income at 8% of turnover, and adding unexplained credits. The AO imposed a penalty of Rs. 50,00,000 under Section 271(1)(c) of the Income Tax Act.

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Aggrieved by the order of the AO, the assessee filed an appeal before the Commissioner of Income Tax (appeals)[CIT(A)]. The CIT(A) observed that the assessee had understated net profit by Rs. 33,52,197 and had claimed inadmissible expenses totalling Rs. 4,14,975.

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The CIT(A) directed the AO to impose minimum penalty on the sustained additions, specifically for Understatement of business income: Rs. 33,52,197, Inadmissible expenses Rs. 4,14,975 and Unexplained capital credits: Rs. 9,00,000. The CIT(A) limited the penalty to the additions totalling Rs. 46,67,172.

Aggrieved by the order, the assessee filed an appeal before ITAT. The two-member Bench, comprising Ravish Sood (Judicial Member) and Arun Khodpia (Accountant Member), the Tribunal observed that the assessee failed to provide a reasonable explanation for the discrepancies.

The Tribunal observed that the net profit disclosed in the audited financials was Rs. 68,82,127, whereas the assessee had reported only Rs. 35,27,930 in the return. The tribunal pointed out that the explanation was not accepted due to no supporting evidence being furnished.

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The Tribunal upheld the penalty imposed by the CIT(A)  on the additions of Rs. 33,52,197, Rs. 4,14,975, and Rs. 9,00,000. The appeal filed by the assessee was dismissed for being devoid of merits.

To Read the full text of the Order CLICK HERE

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