Shyam Construction Company Vs ITO (ITAT Jaipur)
Section 270A(6) Shield Unavailable Where Books Are Defective:- Estimated Disallowance Still ‘Under-Reporting’:
Books Not Complete, Estimation Won’t Save Penalty: ITAT Confirms 270A Levy
The Jaipur Bench (SMC) of the ITAT, vide common order dated 31.12.2025, in Shri Shyam Construction Company v. ITO, Ward-1(1), Jaipur (ITA Nos. 909 & 910/JPR/2025; AYs 2017-18 & 2018-19), dismissed both appeals of the assessee and upheld levy of penalty u/s 270A for under-reporting of income.
The assessee, a civil contractor engaged in construction contracts and supply of building material, was subjected to additions on two counts:
(i) lump-sum disallowance of ₹5 lakh due to unverifiable expenses after the AO noted absence of stock registers, site-wise WIP details, quantitative records and properly supported vouchers, and
(ii) disallowance of ₹38,226 u/s 40(a)(ia) being 30% of interest paid without deduction of TDS. Penalty u/s 270A was levied at 50% of tax on the under-reported income, amounting to ₹1,70,537, and was confirmed by the CIT(A)/NFAC.
Before the Tribunal, the assessee did not dispute the quantum additions but contended that since the disallowance was made on an estimated basis, penalty could not be levied in view of Section 270A(6)(b). The ITAT rejected this plea. It held that exclusion under Section 270A(6)(b) is available only where accounts are correct and complete, but income cannot be properly deduced due to the method of accounting. In the present case, the AO had categorically recorded that the books were not correct and complete, citing serious defects in maintenance of records (pages 2–3 of the order).
The Tribunal further noted that the assessee fairly admitted applicability of Section 270A(2)(a), as the assessed income exceeded the income processed u/s 143(1)(a). Since the case squarely fell within “under-reporting of income” and did not qualify for statutory exclusion, penalty was held to be valid. No arguments were advanced against penalty relating to disallowance u/s 40(a)(ia).
Accordingly, the ITAT confirmed the penalty u/s 270A for both assessment years and dismissed the assessee’s appeals in full.
FULL TEXT OF THE ORDER OF ITAT JAIPUR
Both the present appeals have been filed by the assessee for different assessment years and are against the order passed by the National Faceless Appeal Centre (NFAC), under Section 250 of the Income Tax Act, 1961, (hereinafter referred to as “Act”), confirming the levy of penalty u/s. 270A of the Act.
