Balaji Chain Vs ITO (ITAT Mumbai)
Mumbai ITAT Deletes Section 270A Penalty on Estimated Income and Defective Show-Cause Notice
The Mumbai ITAT deleted a penalty of ₹32.89 lakh levied under Section 270A, holding that penalty cannot survive where the underlying addition is based merely on estimation of income. The Assessing Officer had alleged out-of-books transactions of ₹13.44 crore, rejected the books of account, and estimated profit at 3.5%, resulting in an addition of ₹47.06 lakh. The Tribunal observed that when income is ultimately determined on an estimated basis, it does not justify the levy of penalty for under-reporting or misreporting of income.
The Tribunal further held that the penalty proceedings were legally defective because the Assessing Officer failed to specify whether the penalty was for “under-reporting” or “misreporting” of income. Since these are distinct charges under Section 270A and the notice did not identify the specific limb or the applicable clause of Section 270A(9), the penalty proceedings were rendered invalid. Relying on the decisions of the Delhi High Court in Schneider Electric South East Asia (HQ) Pte. Ltd., the Rajasthan High Court in G.R. Infraprojects Ltd., and various Tribunal rulings, the ITAT held that absence of a specific charge vitiates the penalty proceedings. Accordingly, the penalty was deleted on both legal grounds and merits, and the assessee’s appeal was allowed.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
