The Chennai Bench of Income Tax Appellate Tribunal ( ITAT) deleted the penalty imposed under section 271(1)(c) of Income Tax Act,1961, for the Assessment Year 2008-09, holding that the penalty could not be sustained where the addition was based on estimates and there was no evidence of concealment.

Gunjan Agarwal,appellant-assessee, challenged the order passed by Commissioner of Income Tax (Appeals)[CIT(A)] for the Assessment Year 2008-2009 dated 21-11-2024. The issues raised by the assessee focused on several key points. First, the CIT(A), passed the appellate order without giving the appellant a proper chance to be heard. Because of this, the assessee argued that the order should be quashed and the penalty under section 271(1)(c) should be deleted.

Second, the penalty of Rs. 1,53,834 was confirmed based on additions that were only estimates and guesses. The assessee claimed there was no concealment of income or inaccurate information, so the penalty was wrong and should be removed.

Third, the penalty was imposed on the full addition of Rs. 5,12,779, but the ITAT later upheld only Rs. 36,730 of that amount. Therefore, the assessee argued that the penalty should be adjusted accordingly.

The assessee counsel drew attention to the Surat Bench tribunal’s order dated 05/05/2019 in ITA No.1451/Ahd/2015, where most of the additions were deleted, leaving only Rs. 36,730 confirmed out of the total Rs. 5,12,779 added by the lower authorities. This confirmed amount was based on an estimate using the Gross Profit rate applied to the shortfall in goods or cloth sent for job-work compared to what was received from job-workers.

Read More: No Penalty can be Imposed u/s 271(1)(c) When Income Addition is based on Estimation: ITAT

Although the tribunal upheld this addition on an estimated basis, it was held that such an addition did not justify imposing a penalty under section 271(1)(c) of the Act since there was no evidence of income concealment or inaccurate particulars being furnished.

The two member bench comprising Sanjay Garg (Judicial Member) and Bijayananda Pruseth ( Accountant Member)found the penalty order unsustainable and therefore set it aside and deleted the penalty. Therefore,the appeal filed by the assessee was allowed.

The ITAT referred to a prior Surat Bench order which upheld only a small portion of the addition and ruled that such estimated additions did not justify penalty.

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