Tomar & Brothers Vs ITO (ITAT Agra)
Penalty u/s 271(1)(c) Not Sustainable on Estimated Disallowances, 40(a)(ia) and 41(1) Additions – ITAT Agra Deletes Entire Penalty
The Agra Bench of the ITAT allowed the assessee’s appeal and deleted the entire penalty levied under section 271(1)(c) for AY 2014-15. The penalty related to three additions: (i) ad-hoc disallowance of expenditure based on estimation, (ii) disallowance under section 40(a)(ia), and (iii) addition of sundry creditors/debtors treated under section 41(1). The Tribunal held that no penalty can be levied where income or expenditure is determined on an estimated basis. Relying on its earlier decision, it further held that penalty is not attracted for disallowance under section 40(a)(ia). As regards the addition relating to sundry creditors/debtors, since the information was already on record and the addition was inferable as under section 41(1), there was neither concealment of income nor furnishing of inaccurate particulars. Consequently, the entire penalty was deleted and the assessee’s appeal was allowed
FULL TEXT OF THE ORDER OF ITAT AGRA
The assessee has filed this appeal against the order of the learned Commissioner of Income-tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi dated 22.07.2025 for the Assessment Year 2014-15.
2. At the time of hearing, learned AR of the assessee submitted that in the quantum appeal, preferred by the assessee before ITAT, it had reduced the estimation of expenditure disallowed by the Assessing Officer @ 5%. Following the same, learned CIT(A) in appeal preferred by the assessee against the penalty order u/s. 271(1)(c) of the Income-tax Act, 1961 (“the Act” for short), deleted the penalty levied by the Assessing Officer on the basis of estimation and rest of the penalty levied by the Assessing Officer was remitted back to the Assessing Officer to modify the penalty levied. In this regard, he submitted that the Assessing Officer has made three disallowances – (A) adhoc disallowance of expenditure, which learned CIT(A) has deleted the addition, having been made on the basis of estimation. (B) Disallowance u/s. 40(a)(ia) of the Act. In this regard, he submitted that there are several decisions of coordinate benches, wherein it has been held that no penalty can be levied towards disallowance of expenses u/s. 40(a)(ia) of the Act. (C) Addition of Rs.10,54,363/- of sundry creditors/debtors. In this regard, he submitted that the addition was made u/s. 41(1) and not u/s. 68 of the Act to invoke the provisions of section 271(1)(c) of the Act to impose penalty.
