R D Construction Vs ITO (ITAT Raipur)
Penalty on Estimated Labour Disallowance Deleted — Absence of Clear Satisfaction under s.270A Vitiates Levy
Raipur ITAT examined the levy of penalty u/s 270A.
The assessment was originally completed u/s 143(3) wherein the AO doubted the labour payment register, pointing out absence of names, site details & proper vouchers though thumb impressions & payment receipts existed. AO disallowed the entire labour expenses of Rs.25,58,400/- on an estimated basis & initiated penalty u/s 270A(1) r.w.s 270A(9)(c).
On quantum appeal, CIT(A)/NFAC restricted the disallowance to 20% purely on ad-hoc basis. However, the AO, while levying penalty, mechanically applied 200% penalty for “misreporting” without recording satisfaction as to what constituted under-reporting or mis-reporting, & without specifying under which clause of s.270A the penalty was finally being imposed, despite initiation being under 270A(1) r.w.s 270A(9)(c).
Tribunal noticed multiple defects: absence of AO’s satisfaction, inconsistency in penalty order, non-application of mind by both AO & CIT(A)/NFAC, confusion even regarding the percentage of disallowance (CIT(A) referring incorrectly to 25% instead of 20%), & the fact that the entire addition was purely estimated. ITAT held that as per s.270A(6)(c), income determined on estimate basis cannot constitute under-reported income. Further, no finding existed to classify the case as misreporting under s.270A(9). Since the penalty order was passed mechanically, without reasoning or satisfaction, & the quantum addition itself was ad-hoc, ITAT held the penalty as arbitrary, perverse & void ab initio, directing deletion of the entire penalty. Hence, the appeal of the Assessee was allowed.
