Atul Jentilal Gumasna Vs ITO (ITAT Rajkot)
Penalty under section 271AAC(1) cannot be levied on an estimated addition where the quantum addition in respect of unexplained cash deposits has been restricted to an estimated profit element, as an ad hoc estimate does not establish conscious concealment or undisclosed income.
Summary: The assessee, Atul Jentilal Gumasna, filed an appeal against the order of the CIT(A), NFAC, Delhi confirming penalty of Rs. 67,825/- imposed under section 271AAC(1) of the Income Tax Act, 1961 for AY 2017-18. The appeal before the CIT(A) had been filed with a delay of 402 days. The assessee submitted that the delay occurred because of the mistake of the advocate and requested condonation. The Tribunal found mitigating circumstances in the affidavit and condoned the delay. On merits, the penalty arose from an assessment completed under section 147, pursuant to a section 148A(b) notice, an order under section 148A(d) and notice under section 148. The Assessing Officer had treated Rs. 8,78,000/- out of cash deposits as unexplained money under section 69A and initiated penalty proceedings under section 271AAC(1). The assessee contended before the Tribunal that the addition in the quantum proceedings had ultimately been restricted to 10% of the disputed cash deposit on an estimated basis and that there was no conscious concealment. The Revenue argued that penalty could be imposed even on an estimated addition. The Tribunal noted that, in the assessee’s own quantum appeal in ITA No. 488/Rjt/2025, it had directed taxation of only Rs. 87,800/-, being 10% of Rs. 8,78,000/-, considering the documentary evidence furnished and the trading business carried on by the assessee. The Tribunal held that since the quantum addition was made on an estimated and ad hoc basis, there was no conscious concealment warranting penalty. The Tribunal relied upon CIT v. Norton Electronics Systems (P) Ltd. [2014] 41 taxmann.com 280 (Allahabad High Court), where penalty was held unsustainable in circumstances involving additions made on an estimate basis. Accordingly, the Tribunal deleted the penalty of Rs. 67,825/- and allowed the appeal.
Facts. The assessee filed his return for AY 2017-18 declaring income of Rs. 2,94,130. During FY 2016-17, cash deposits of Rs. 22,02,642 were found in two bank accounts maintained with Co-operative Bank of Rajkot Ltd., Gondal. Since the deposits were not commensurate with the returned income, reassessment proceedings were initiated. The Assessing Officer ultimately treated cash deposits of Rs. 8,78,000 as unexplained money under section 69A and initiated penalty proceedings under section 271AAC(1). Penalty of Rs. 67,825 was imposed.
AO / CIT(A) Finding. The Assessing Officer treated Rs. 8,78,000 as unexplained money under section 69A on the ground that the assessee had failed to satisfactorily establish the source of the cash deposits. Considering the addition as undisclosed income, penalty under section 271AAC(1) amounting to Rs. 67,825 was levied. The CIT(A) confirmed the penalty.
ITAT Finding. In the assessee’s own quantum appeal in ITA No. 488/Rjt/2025 dated 27.01.2026, the Tribunal had held that the entire cash deposit of Rs. 8,78,000 could not be treated as unexplained. Considering the documentary evidence furnished by the assessee and the fact that the assessee was carrying on trading business in edible oil through M/s Prabhat Industries, the Tribunal held that only the profit element embedded in the cash deposits should be brought to tax. Accordingly, the addition was restricted to 10% of Rs. 8,78,000, i.e. Rs. 87,800.
In the penalty appeal, the Tribunal held that since the quantum addition itself was made on an estimated and ad hoc basis, there was no established conscious concealment on the part of the assessee. An estimated addition merely represents an approximation of taxable income and cannot automatically be treated as undisclosed income for the purpose of penalty. Therefore, penalty under section 271AAC(1) could not be sustained merely because an estimated addition had been made.
Cases Relied Upon. The Tribunal relied upon CIT v. Norton Electronics System Pvt. Ltd., 2014 (2) TMI 606 – Allahabad High Court, wherein penalty was held to be unsustainable where additions were made on an estimate basis. The Tribunal also relied upon its own quantum order in Atul Jentilal Gumasna v. ITO, ITA No. 488/Rjt/2025 dated 27.01.2026.
Outcome. The ITAT deleted the penalty of Rs. 67,825 imposed under section 271AAC(1) and allowed the appeal of the assessee.
Ratio. Where the quantum addition for unexplained cash deposits is restricted to an estimated profit element, penalty under section 271AAC(1) cannot be imposed merely on the basis of such estimated addition, particularly in the absence of conscious concealment or established undisclosed income.
FULL TEXT OF THE ORDER OF ITAT RAJKOT
The present appeal has been filed by the assessee, against the order passed by the Learned Commissioner of Income Tax (Appeal), National Faceless Appeal, Centre (NFAC), Delhi [hereinafter referred to as “CIT(A)”] dated 18.02.2026 arising in the matter of penalty order passed u/s. 271AAC (1) of the Income Tax Act, 1961 dated 20.02.2024, relevant to the Assessment Year 2017-18.
2. When the matter was called for hearing, the learned Counsel for the assessee at the outset submitted that appeal has been filed by the assessee belatedly by 402 days before ld.CIT(A) and ld.CIT(A) did not condone the delay, despite the fact that assessee had explained the reasons for delay. Therefore, the assessee has moved a petition for condonation of delay, requesting the Bench to condone the delay, in filing appeal before ld.CIT(A). The learned Counsel therefore, adverted my attention to the affidavit filed in this regard citing reasons for condonation of delay and urged for a benign view and sought condonation of delay of 402 days. Learned Counsel for the assessee submitted that because of the mistake of the advocate of the assessee, the delay of 402 days has resulted for which the assessee should not be penalized. However, learned DR for the revenue, opposed the prayer of the assessee, for condonation of delay and stated that appeal may be dismissed on account of the delay. A perusal of the affidavit gives me an impression of existence of mitigating circumstances to enable me to exercise my discretion in favour of the assessee. Accordingly, the delay is condoned in filing the appeal before ld.CIT(A).
3. The solitary grievance of the assessee in this appeal is that the ld.CIT(A) as well as assessing officer, erred in imposing penalty u/s 271AAC(1) of the Act, at Rs.67,825/-.
4. Brief facts qua the issue are that in this case, the assessee has filed return of his income for the assessment year 2017-18 on 29/08/2017, declaring total income of Rs. 2,94,130. As per information, during the previous year, relevant to assessment year 2017-18, the assessee has made cash deposit in both bank accounts No. 8110100000246 and 8120100000182 held with the Co-operative Bank of Rajkot Limited, Gondal to the tune of Rs. 22,02,642/-(Rs.7,75,000 Rs.14,27,642/-) during financial year 2016-17. However, ongoing through the particulars of return of income filed by the assessee for the relevant year, it is seen that the said deposits do not commensurate with the return profile of the assessee. Accordingly, show-cause notice u/s. 148A(b) was issued to assessee on 26.05.2022. Consequently, the order u/s. 148A(d) of the Act was passed on 30.07.2022 and notice u/s. 148 of the Act was issued to the assessee on 30.07.2022. Based on the above facts, the case of Shri. Atul Jentilal Gumasna, for the Assessment Year 2017-18, was reopened u/s. 147 of the I. T. Act, 1961. During the course of assessment proceedings, various notices were issued for seeking information/clarifications from the assessee. The assessment was completed u/s 147 of the Income Tax Act and order was passed on 08.05.2023 by adding back the unexplained cash deposit of Rs. 8,78,000/- which was treated as unexplained money under Sec. 69A of I.T. Act, 1961. As the concealment of income was determined during the assessment, penalty proceedings u/s 271AAC(1) were initiated on 08.05.2023 for concealment of the particulars of income as per the provisions of the Income Tax Act. As the concealment of income was determined during the assessment, penalty proceedings u/s 271AAC(1) were initiated on 08.05.2023 for concealment of the particulars of income as per the provisions of the Act. Later on, the Assessing Officer (hereinafter referred to as AO) levied penalty u/s 271AAC(1) of Rs. 67,825/- vide order dated 20.02.2024.
5. Aggrieved by the order of the assessing officer, the assessee carried the matter in appeal before the Ld.CIT(A), who has confirmed the action of the assessing officer, therefore, the assessee is in further appeal before this Tribunal.
6. I have heard both the parties and carefully gone through the submission put forth on behalf of the assessee along with the documents furnished and the case laws relied upon, and perused the fact of the case including the findings of the ld CIT(A) and other materials brought on record. At the outset, the Ld. Counsel for the assessee submitted that addition was made by the assessing officer in the hands of the assessee @10%, on estimated basis, therefore, the penalty should not be levied on estimated addition, as there is no any conscious concealment made by the assessee, therefore, penalty should be deleted. On the other hand, the Ld. DR for the revenue submitted that even on estimated addition, the penalty should be imposed on the assessee.
7. I have considered submissions of both the parties.I note that the Tribunal in the assessee’s own case in quantum appeal, in ITA No. 488/Rjt/2025, vide order dated 27.01.2026 has made estimated addition @10% in the hands of the assessee. Since, the ITAT has made the estimated addition in the hands of the assessee in quantum appeal, therefore, penalty should be not be levied. The estimated addition in the quantum proceedings, in ITA No. 488/Rjt/2025 in assessee’s case is reproduced below:
“8. I have heard both the parties and carefully gone through the submission put forth on behalf of the assessee along with the documents furnished and the case laws relied upon, and perused the fact of the case including the findings of the ld CIT(A) and other materials brought on record. I note that the assessing officer had accepted, partly the documents and evidences, and therefore did not make entire addition in the hands of the assessee, however, for Rs. 8,78,000/-, the assessee, had failed to prove the source, therefore, assessing officer made the addition and on appeal, by the assessee, learned CIT(A) confirmed the addition made by the assessing officer. I note that order passed by ld. CIT(A) is a technical / summary dismissal, and not a reasoned appellate order on merits. Under section 250(6) of the Income-tax Act, 1961, the CIT(A) is mandatorily required to dispose of the appeal on merits, and pass a speaking order stating points for determination, decision thereon, and reasons. I also note that assessee has submitted the entire documents and evidences before the assessing officer, and now the assessee does not have any further documents and evidences to be submitted before the assessing officer. Therefore, considering the smallness of the amount and taking into account the fact that assessee does not have any additional evidence to be submitted before the lower authorities. Therefore, in appropriate cases depending on facts and record availability, the Tribunal may decide the issue itself on merits. I note that as per assessing officer, the assessee has failed to prove the source of the amount of cash deposit in the bank account to the tune of Rs. 8,78,000/-, although the assessee has filed the documentary evidences, before the assessing officer to prove the source of the cash deposit.I note that the complete disallowance of Rs. 8,78,000/-, cannot be made in the hands of the assessee, as the assessee has filed some documentary evidences before the assessing officer which is mentioned in the assessment order. Besides, only the profit element embedded in the cash deposit in the bank account of Rs. 8,78,000/-, should be made in the hands of the assessee. I note that during the financial year, the assessee carried out the trading business of edible oil, as a proprietor concern, named M/s Prabhat Industries and copy of balance sheet and audit report were submitted by the assessee before the assessing officer. The assessee received income from the above trading business, which are the sources of cash deposit in the bank account, as stated by the assessee. Considering these facts, I am of the view that it is fair and reasonable to disallow 10% of Rs.8,78,000/-, which comes to Rs.87,800/-, which will take care of inconsistencies in the documents and evidences filed by the assessee before the assessing officer. Therefore, I direct the assessing officer to tax the amount of Rs.87,800/-, in the hands of the assessee, by following the normal rate of income tax. It is also made clear that instant adjudication shall not be treated as a precedent in any preceding or succeeding assessment year.”
8. Since, the estimated addition on adhoc basis was made in the quantum proceedings, and there is no conscious concealment on the part of the assessee, hence penalty should not be imposed. Thus, there is no any element of undisclosed income as such, as the addition was made on estimate basis and it is well settled principle that no penalty can be levied on the addition made on account mere estimates. In this connection reliance is placed on the decision of Hon’ble High Court of Allahabad has in the case of CIT vs. Norton Electronics Sytem Pvt. Ltd [2014] 41 taxmann.com 280 (Allahabad) held that:
“Assessee engaged in electronic business filed loss return. Assessment was completed by making various additions on estimate basis. Said additions were deleted partly by Commissioner (Appeals) and further by Tribunal. High Court had upheld said deletion. Penalty was not sustainable”.
9. Considering these facts and circumstances, narrated above, I delete the penalty of Rs.67,825/-, and allow the appeal of the assessee.
10. In the result, the appeal of the assessee is allowed.
Order was pronounced in the open Court on 08/09/2026.
