Case Law Details
Nikhil Kumar Bansal Vs ITO (ITAT Agra)
Summary: The ITAT Agra deleted a penalty of ₹1,10,240 levied under Section 270A(9) for alleged misreporting of income, holding that penalty cannot be sustained where the underlying addition is based purely on estimation. The assessee, engaged in trading of mustard cake, mustard oil, and related commodities, had faced an addition in assessment proceedings after the Assessing Officer treated certain purchases as non-genuine and estimated the profit element embedded therein at 12.5% of the disputed purchases. The assessee accepted the addition to avoid prolonged litigation. Subsequently, the Assessing Officer levied penalty for misreporting of income, which was upheld by the CIT(A). The Tribunal observed that the quantum addition itself was based on an estimated profit rate and not on any conclusive finding of concealed or misreported income. It emphasized that both judicial principles and the statutory scheme under Section 270A recognize that estimated income should not ordinarily attract penalty. Accordingly, the penalty was held unsustainable and deleted.
Core Issue: Whether penalty under section 270A(9) for misreporting of income can be levied when the underlying quantum addition itself is based on estimation of profit element on alleged non-genuine purchases and not on any conclusive finding of concealment or misreporting.
Facts: The assessee was engaged in the business of trading in mustard cake, mustard oil and allied commodities, a business characterized by high-volume and low-margin transactions. During the assessment proceedings, the Assessing Officer questioned purchases made from M/s Shyam Radhe Trading Company and treated the purchases as non-genuine. However, instead of disallowing the entire purchases, the AO estimated the profit element embedded in such purchases and made an addition by applying a profit rate of 12.5% on the disputed purchases.
The assessee explained that purchases in this line of business were generally routed through brokers and that the transactions were part of regular business operations. Nevertheless, to avoid prolonged litigation, the assessee accepted the estimated addition and did not prefer any further appeal against the quantum assessment order.
Subsequently, the AO initiated penalty proceedings under section 270A alleging that the estimated addition represented under-reporting of income in consequence of misreporting of income. A penalty of ₹1,10,240 was levied under section 270A(9). The CIT(A), NFAC, upheld the penalty order, against which the assessee preferred an appeal before the Tribunal.
AO’s Findings: The AO held that the purchases from M/s Shyam Radhe Trading Company were not genuine and that the addition of 12.5% represented income that had been under-reported by the assessee. According to the AO, the case fell within the ambit of misreporting of income under section 270A(9). Accordingly, penalty of ₹1,10,240 was imposed on the amount added in the assessment.
CIT(A)’s Findings: The CIT(A) confirmed the penalty by agreeing with the AO that the addition made in the assessment represented under-reported income attributable to misreporting and therefore attracted penalty under section 270A(9).
ITAT Findings: The Tribunal deleted the penalty in its entirety. It noted that the addition made in the quantum assessment was not based on any concrete finding of undisclosed income but was purely an estimated addition, arrived at by applying a profit rate of 12.5% on the disputed purchases.
The Tribunal emphasized the settled legal principle that penalty cannot be levied on additions made purely on estimate basis. Where income is determined through estimation, there is always an element of approximation and subjective judgment, making it inappropriate to attribute deliberate concealment or misreporting to the assessee.
The Tribunal further observed that even the statutory framework under section 270A recognizes this principle. The provisions relating to under-reported income specifically contemplate immunity from penalty in cases involving estimated additions. This demonstrates the legislative intent that estimated income should not ordinarily attract penal consequences.
According to the Tribunal, merely because the AO had invoked the provisions relating to misreporting of income instead of under-reporting could not alter the fundamental nature of the addition. The addition continued to remain an estimated addition and therefore could not form the basis for levy of penalty.
Since the entire foundation of the penalty rested upon an estimated profit addition, the Tribunal held that the penalty under section 270A(9) was unsustainable and liable to be deleted.
Relevant Para: Para 4.
Held: Where the quantum addition is made merely by estimating the profit element embedded in alleged non-genuine purchases, such addition remains an estimated addition. Penalty under section 270A(9) for misreporting of income cannot be sustained on an estimated addition. Accordingly, the penalty of ₹1,10,240 was deleted and the assessee’s appeal was allowed.
FULL TEXT OF THE ORDER OF ITAT AGRA
1. The appeal in ITA No. 148/AGR/2026 for AY 2020-21, arises out of the order of the National Faceless Appeal Centre (NFAC), Delhi [hereinafter referred to as ‘ld. CIT(A)’, in short] dated 22.01.2026 against the order of assessment passed u/s 270A of the Income-tax Act, 1961 (hereinafter referred to as ‘the Act’) dated 11.09.2025 by the Assessing Officer, Assessment Unit, Income Tax Department (hereinafter referred to as ‘ld. AO’).
2. The only issue to be decided in this appeal is as to whether the ld CIT(A) was justified in confirming the penalty levied u/s 270A(9) of the Act in the facts and circumstances of the instant case.
3. I have heard the rival submissions and perused the material available on record. The quantum assessment was completed after making an addition on account of ingenuine purchases by estimating the profit element @12.5 percent thereon. The assessee is engaged in trading of mustard cake, mustard oil and related commodities. The assessee submitted that the business carried on by him is high volume, law margin, where goods are generally purchased true brokers and sold to various parties. The addition made in the quantum assessment @ 12.5% of purchases made from M/s. Shyam Radhe Trading Company, was accepted by the assessee by not preferring further appeal in order to avoid protracted litigation. The ld AO initiated penalty proceedings and proceeded to levy penalty u/s 270A(9) of the Act alleging that the estimated addition made on account of profit element of purchases constitute under reporting of income in consequence of mis-reporting of income and levied penalty of Rs. 1,10,240/-thereon. This action of ld AO was upheld by the ld CIT(A).
4. It is pertinent to note that the addition made in the quantum assessment @ 12.5% of purchases itself was on estimated basis. The law is very clear that no penalty could be levied on an estimated addition. In fact, in the case of under reporting of income, the provision of Section 270A(vi) of the Act provide for granting immunity from levy of penalty on an estimated addition. This goes to prove that even the statue recognizes the fact that penalty shall not be leviable on an estimated income. Even though the penalty in the instant case has been levied for miss reporting of income. The principle that the penalty shall not be leviable on an estimated income still survives. Considering the same, I have no hesitation to delete the penalty levied u/s 270A(9) of the act in the sum of Rs. 1,10,240/- in the facts and circumstances of the instant case. Accordingly, grounds raised by the assessee are allowed.
In the result, the appeal of the assessee is allowed. Order pronounced in the open court on 02/06/2026.
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