ACIT Vs Sree Nagendra Constructions (ITAT Hyderabad)
Ad Hoc Profit Estimation Does Not Establish Concealment: ITAT Upholds Deletion of Section 271(1)(c) Penalties
The Income Tax Appellate Tribunal, Hyderabad “B” Bench, in ACIT v. Sree Nagendra Constructions, ITA Nos. 2318 and 2319/Hyd/2026, upheld deletion of penalties imposed under Section 271(1)(c) of the Income-tax Act, 1961. The Tribunal found that increasing business income through an ad hoc profit estimate did not establish concealment or furnishing of inaccurate particulars on the facts before it.
The common order, pronounced on 23 October 2026, concerned Assessment Years 2015–16 and 2016–17. The Bench comprised Shri Sanjay Garg, Judicial Member, and Shri Madhusudan Sawdia, Accountant Member. Both Revenue appeals were dismissed, leaving the penalty relief granted by the CIT(A) intact.
Background of the Civil Contract Business
The assessee was engaged in execution of civil contract works.
For Assessment Year 2015–16, it encountered a problem while filing its income-tax return online. However, it furnished a computation of income showing net profit at 3%.
The case was selected for scrutiny under Section 143(3).
During assessment, the Assessing Officer estimated business profit at 8%, rather than accepting the 3% disclosed in the computation.
The assessee challenged that estimate before the first appellate authority. The CIT(A) reduced the estimated profit to 5% of turnover.
The present Tribunal proceedings concerned the penalties arising from the assessed income, rather than a fresh challenge to the profit estimate itself.
Penalty Initiated Following Estimated Addition
The Assessing Officer initiated proceedings under Section 271(1)(c) and imposed penalty for alleged furnishing of inaccurate particulars and concealment of income.
The dispute therefore required examination of whether the circumstances supporting a higher assessed profit also justified the separate penalty.
The assessee’s disclosed margin, the Assessing Officer’s estimate and the appellate modification were all relevant to that inquiry.
The officer had adopted an 8% profit rate, while the CIT(A) ultimately sustained 5%, against the assessee’s computation at 3%.
The penalty question arose from this difference in the determination of business profit.
Why the CIT(A) Deleted the Penalty
The CIT(A)-12, Hyderabad, deleted the penalty through the order challenged by the Revenue.
The appellate authority observed that the Assessing Officer had not specifically identified which particulars were inaccurate or explained how income had been concealed.
It also noted that income had been determined through an ad hoc estimate.
On those facts, the CIT(A) concluded that penalty under Section 271(1)(c) was not attracted.
The Revenue appealed against the deletion, contending that the circumstances went beyond a mere difference in estimation and justified treating the income as concealed.
Revenue Relied on Non-Filing and Explanation 1
Before the Tribunal, the Departmental Representative strongly argued that the assessee had concealed income.
The Revenue relied on Explanation 1 to Section 271(1)(c), submitting that the assessee had originally not filed its return and that income was discovered subsequently.
This argument sought to connect the return-filing failure with the penalty provisions.
The assessee’s representative supported the CIT(A)’s findings.
The Tribunal therefore examined the actual disclosure record, including whether the assessee had furnished a computation and paid tax, instead of treating the unsuccessful return upload as conclusive evidence of concealment.
Computation Uploaded and Taxes Paid
The Tribunal found that, although the assessee could not upload the return, its computation of income had been duly uploaded.
That fact was not disputed.
It also recorded that the assessee had paid taxes on the income computed using the 3% net profit rate.
These circumstances were central to rejecting the Revenue’s submission that the case involved concealed income discovered later.
The Bench treated the uploaded computation and corresponding tax payment as material evidence of disclosure. The return-upload difficulty therefore could not be considered in isolation from the information actually furnished.
Higher Estimate Did Not Prove Inaccurate Particulars
The Tribunal observed that the Assessing Officer had estimated profit at 8% on an ad hoc basis, which the CIT(A) reduced to 5%.
It found that the case did not establish either furnishing of inaccurate particulars or concealment of income.
Accordingly, it declined to interfere with the penalty deletion.
The reasoning did not erase the difference between disclosed and assessed profit. Instead, it addressed whether that difference, arising through estimation, established the conduct necessary to sustain the particular penalty.
On the record before it, the Tribunal concluded that it did not.
Same Finding Applied to the Second Year
The Tribunal found that the facts and issue for Assessment Year 2016–17 were identical.
It therefore applied its reasoning from Assessment Year 2015–16 to the second appeal and dismissed that Revenue challenge as well.
Before considering the merits, the Bench had also condoned a 22-day delay in both departmental appeals after hearing the Departmental Representative’s explanation, despite the absence of a separate condonation application.
Thus, the Revenue’s appeals failed on merits, rather than merely because they were filed late.
Final Decision
Both Revenue appeals were dismissed, and the CIT(A)’s deletion of the Section 271(1)(c) penalties was upheld.
The ruling rests on the uploaded computation, payment of tax and ad hoc nature of the profit estimation. It does not grant immunity from penalty for every estimated addition; it confirms that the necessary concealment or inaccuracy must be established on the particular record.
Cases Discussed
The Tribunal did not expressly cite any judicial precedent in its substantive order. The following are related published decisions on penalty arising from estimated additions; they are not cases cited by the Bench.
- Vishnu Tambi Vs DCIT (ITAT Jaipur) — 2020 taxguru.in 2490. The Tribunal held that increasing assessed income through an estimate does not automatically justify an inference of concealment.
- Laxman Trimbak Gule Vs ITO (ITAT Pune) — 2021 taxguru.in 742. The Tribunal considered the requirement for a definite finding of concealment or inaccurate particulars before imposing penalty on an estimated addition.
- Goldstar Finvest Pvt. Ltd. Vs CIT (ITAT Mumbai) — 2023 taxguru.in 2848. Penalty was held unsustainable where the addition was estimated and concealment or furnishing of inaccurate particulars was not established.
- Jatin Enterprises Vs ACIT (ITAT Mumbai) — Published on 30.03.2024. Concerns penalty under Section 271(1)(c) arising from estimated additions and defective penalty notice.
- Etesh P Jain Vs ITO (ITAT Mumbai) — Published on 04.12.2025. Addresses the sustainability of concealment penalty where the underlying addition was restricted through
FULL TEXT OF THE ORDER OF ITAT HYDERABAD
The captioned appeals have been preferred by the Revenue against the separate orders of the Learned Commissioner of Income Tax (Appeals)-12, Hyderabad (hereinafter referred to as “Ld. CIT(A)”), dated 15/04/2026 and for the Assessment Year (AY) 2015-16 and 2016-17, respectively.
2. Both the appeals are time barred by limitation period of 22 days. However, no application for condonation of delay has been filed. However, after hearing the submissions of the Learned Departmental Representative (Ld. DR) relating to delay, the short delay of 22 days in filing both the appeals is hereby condoned. We proceed to adjudicate appeals on merits. Firstly, we shall take up the assessee’s appeal for the AY 2015-16.
ITA No.2318/Hyd/2026 (AY: 2015-16)
3. The brief facts of the case are that the assessee is in the business of execution of civil contract works. There was a problem in filing the online return of income. However, the assessee filed the computation of income in which the assessee had shown the net profits @ 3%. The case of the assessee was selected for scrutiny assessment u/s 143(3) of the Act. During the assessment proceedings, the Assessing Officer (hereinafter referred to as “ the AO”) estimated the profits of the assessee @ 8%.
4. In appeal, the Ld. CIT(A) restricted the profits to 5% of the turnover. In the meantime, the AO initiated penalty proceedings under section 271(1)(c) of the Act, and levied the impugned penalty on account of furnishing of inaccurate particulars of income and concealment of income.
5. The Ld. CIT(A), however, deleted the impugned penalty observing that the AO had not specifically pointed out as to what particulars of income were inaccurate and how the income was concealed. He observed that the income of the assessee was estimated on adhoc basis and in such cases the penalty under section 271(1)(c) of the Act was not attracted.
6. Before us, the Ld. DR has vehemently argued that the assessee has concealed its income. He has further submitted that the case of the assessee is covered under Explanation-1 to section 271(1)(c) of the Act as the assessee had originally not filed the return of income, but later on the income of the assessee was discovered.
7. The Ld. AR, on the other hand, has relied upon the findings of the Ld. CIT(A).
8. We have considered the rival submissions and gone through the record. We are not in agreement with the submissions of the Ld. DR. It is apparently not a case of furnishing of inaccurate particulars of income or concealment of income. Though, the assessee could not upload the return of income, but the computation of income was duly uploaded, which is not disputed. The assessee had also duly paid taxes on 3% of net profits. Though the AO estimated the net profit @ 8% on ad-hoc basis, which had been reduced to 5% by the Ld. CIT(A), but, it is not a case of furnishing of inaccurate particulars of income or concealment of income. Therefore, we do not find any infirmity in the order of the Ld. CIT(A) and the same is upheld.
9. In the result, the appeal of the Revenue is dismissed.
ITA No.2319/Hyd/2026 (AY: 2016-17)
10. Since the facts and the issue involved are identical, hence, our finding given above, while adjudicating the appeal of the Revenue in ITA No.2318/Hyd/2026 for the AY 2015-16, will apply mutatis mutandis to this appeal also.
11. In the result, appeal filed by the Revenue is dismissed.
12. In the result, both the appeals filed by the Revenue are hereby dismissed.
Order pronounced in the open court on 23rd October, 2026.
