Income Tax Penalty cannot be levied on Addition based on Estimation: “Unsustainable”, says ITAT [Read Order]

The Assessing Officer ( AO ) had estimated the assessee - Ram Lakhan’s income for A.Y. 2017-18 by assuming he was operating 13 tempos, instead of 10 tempos actually owned by him, and made an addition of ₹1,17,000 on this basis.

After the assessment, penalty proceedings were initiated under Section 270A, and the AO levied a penalty of ₹15,601, which was further confirmed by the Commissioner of Income Tax (Appeals). Aggrieved by the order, the assessee made an appeal to the Tribunal.

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The assessee argued that the addition was purely on estimation and that settled law holds that the penalty cannot be sustained on additions made on guesswork or estimates. He relied on judicial precedents as well as an earlier order of the Coordinate Bench in his own case dated 15.01.2025, where penalty imposed on similar estimation-based additions had been struck down.

The bench of Khettra Mohan Roy and Madhumita Roy observed that the penalty order was entirely based on an estimated addition. Since estimation, by its nature, lacks concrete evidence of concealment or misreporting, penalty provisions cannot be invoked.

The tribunal noted that this principle had already been upheld in the assessee’s own earlier case, and thus found the penalty order unsustainable in law. Consequently, the ITAT quashed the penalty of ₹15,601.

The appellate tribunal allowed the appeal, ruling penalty under Section 270A cannot be levied where income additions are made solely on estimation without substantive evidence of concealment or misreporting.

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