Case Law (ITAT) -- No penalty for under-reported income u/s 270A is imposable on an addition made on the basis of estimation

"Section 270A of the Act provides for imposition of penalty for under-reporting and misreporting of income. Sub-section (2) enlists certain circumstances of under-reporting of income. Sub-section (3) deals with the determination of under-reported income, which, in our context, is by reducing the income returned by the assessee from the amount of income finally assessed. Sub-section (6) is relevant for our purpose which states that under-reported income for the purpose of this section shall not include certain items. Clause (b) of sub-section (6) refers to: “the amount of under-reported income determined on the basis of an estimate, if the accounts are correct and complete to the satisfaction of the Assessing Officer ….”. It is ostensible from the language of sub-section (6) 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. As the only basis of the addition is the estimate made by the DVO, we hold that the penalty cannot be sustained."

[JAIBALAJI BUSINESS CORPORATION PRIVATE LIMITED v. ACIT; ITA. No.840/PUN/2022 dated 10.02.2023]

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