In case of estimation of income, penalty under Section 270A cannot be imposed

In case of estimation of income, penalty under Section 270A of the Income Tax Act cannot be imposed – ITAT

In a recent judgment, ITAT Ranchi has held that in case of estimation of income, penalty under Section 270A of the Income Tax Act cannot be imposed

ABCAUS Case Law Citation:
5038 (2026) (02) abcaus.in ITAT

In the instant case, the assessee had challenged the order passed by the CIT(A) in confirming the penalty imposed by the Assessing Officer (AO) invoking section 270A of the Income Tax Act, 1961 (the Act).

The assessee was a private limited unlisted company, engaged in the real estate business. A Survey under section 133A of the Act was conducted in the case of assessee at its business premises.

During the course of survey, several incriminating documents were impounded and inventorised from the said premises. However, during the course of survey, no books of account were found to be maintained by the assessee company. Accordingly, the Assessing Officer estimated the income @ 10% of the gross receipt.

Penalty proceedings under Section 270A of the Act as separately initiated for under reporting of income shown in the return. Even though the appeal against the quantum addition was still pending before the CIT(A), the Assessing Officer imposed penalty under Section 270A of the Act. The CIT(A) vide the impugned order, confirmed the penalty imposed under Section 270A of the Act on the ground that the assessee despite having admitted the findings of the survey, did not file its return of income as admitted during the course of survey.

The Tribunal noted that the Assessing Officer had imposed penalty under Section 270A of the Act on the ground that during the course of survey, statement of the Managing Director of the company was recorded and in the statement she admitted that no books of account was maintained and voluntarily admitted the net profit of 10% on the gross receipt. Accordingly, the Assessing Officer, imposed a penalty @ 50% of the tax sought to be evaded under Section 270A(2)(a) of the Act. The CIT(A) confirmed the penalty imposed by the Assessing Officer on the ground that intention of the assessee clearly established as the assessee had admitted at the time of survey of the undisclosed profit but did not file its return of income and did not pay any tax on that.

The Tribunal observed that the assessee had mainly raised the ground that it was a case of the estimation of income and nothing specific had been brought on record by the Assessing Officer that the assessee had under reported the income. Therefore, no penalty can be imposed where income was estimated.

The Tribunal observed that Pune ITAT has held that it has been held in various decisions that penalty under section 271(1)(c) is not leviable when the profit is estimated. The same corollary is also applicable to the provisions of section 270A.

The Tribunal further observed that ITAT Pune in another case held that it is ostensible from the language of sub-section (6) of Section 270A that an addition made on the basis of estimation cannot provide foundation for under-reported income for the purpose of imposition of penalty u/s 270A of the Act.

Similarly, the Delhi Bench of the Tribunal held that the penalty was legally unsustainable because the underlying income addition was based on an estimation and not on concrete evidence of concealment or misreporting.

In view of the judicial precedents, the Tribunal held that in the case of estimation of income, penalty under Section 270A cannot be imposed and accordingly, the penalty imposed by the Assessing Officer and confirmed by the CIT(A) was deleted and the appeal of the assessee was allowed.

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