Case Law Details
Mohammed Rahimuddin Vs ITO (ITAT Hyderabad)
This article examines the case of Mohammed Rahimuddin Vs Income Tax Officer (ITO) as ruled by the Income Tax Appellate Tribunal (ITAT) in Hyderabad. The case focuses on the validity of the penalty levied under section 271A of the Income Tax Act, 1961 due to an estimation-based addition of income.
The tribunal delved into the question of whether an estimation-based addition of income would warrant an automatic penalty under section 270A of the Act. In this case, there was a significant difference between the income declared by the assessee (Rahimuddin) and the income determined by the Assessing Officer based on local enquiries.
Rahimuddin’s counsel argued that the addition was merely a matter of differing opinions and thus, didn’t necessitate a penalty. On the other hand, the Departmental Representative claimed that the increased income determination warranted an automatic penalty.
The tribunal sided with the assessee, arguing that the estimation was without reference to the assessee’s books and could not, therefore, provide a solid foundation for under-reported income for the purpose of a penalty under section 270A.
The ITAT Hyderabad ruled in favor of Mohammed Rahimuddin, determining that an estimation-based addition of income does not automatically lead to a penalty. This decision underscores the importance of accounting accuracy and precision, as well as the need for a strong foundation for the levy of penalties in the context of income tax law. This landmark ruling has potential implications for similar cases in the future.
FULL TEXT OF THE ORDER OF ITAT HYDERABAD
Aggrieved by the order dated 17/02/2023 passed by the learned Commissioner of Income Tax (Appeals)-National Faceless Appeal Centre (NFAC), Delhi (“Ld. CIT(A)”), in the case of Mohammed Rahimuddin (“the assessee”) for the assessment year 2017-18, assessee preferred this appeal.
2. Only question involved in this matter is whether any addition made on estimation basis would automatically lead to leavy of penalty under section 270A of the Income Tax Act, 1961 (for short “the Act”)? It could be seen from the record that the assessee declared the commission he received at Rs. 1500/- per truck and thereby worked out the same at Rs. 1.26 lakhs; whereas on local enquiries, the learned Assessing Officer estimated the same at Rs. 10,000/- per truck and determined such commission at Rs. 8.4 lakhs, and made an addition of Rs. 7.14 lakhs.
3. Learned AR submitted that it is only the difference of opinion that led to the addition and to purchase peace, the assessee accepted the quantum addition. According to him, there is no yardstick with any certainty involved in the addition and, therefore, he submits that mere difference of opinion will not lead to levy of penalty.
4. Per contra, learned DR submits that the addition is the result of the local enquiries made by the learned Assessing Officer and since there is an increase in determination of the income and, therefore, penalty is automatic.
5. I have gone through the record in the light of the submissions made on either side. It goes without saying that the quantum addition is the result of estimation made by the learned Assessing Officer. Clause (b) of sub-section (6) of section 270A of the Act 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. The addition made in this case, without reference to the books of the assessee, but on the basis of estimation, therefore, cannot provide foundation for under-reported income for the purpose of levy of penalty under section 270A of the Act. I am fortified in this view by the decision of the Coordinate Bench of this Tribunal in the case of Jaibalaji Business Corporation (P.) Ltd. vs. ACIT [2023] 147 com 333 (Pune – Trib.) and also many cases decided by the Co-ordinate Benches.
6. I, therefore, am of the opinion that there is no strong foundation in this case for levy of penalty and the same cannot be sustained. Appeal is accordingly allowed.
7. In the result, appeal of assessee is allowed.
Order pronounced in the open court on this the 22nd day of May, 2023.
