Penalty under section 270A of Income Tax Act _whether  misreporting  for estimate disallowances

ITAT VISAKHAPATNAM_RAMAKRISHNA AGENCIES, VISAKHAPATNAM VERSUS INCOME TAX OFFICER, WARD-1 (1) , VISAKHAPATNAM
- I.T.A. Nos. 30 And 31/Viz/2023

Dated.- September 13, 2023

Facts _the assessee-
firm filed its return of income for the AY 2017-18 on 30/10/2017 declaring a total income of Rs. 9,70,540/-. The case was selected for complete scrutiny under CASS for the reason that ‘large turnover shown in ITR but Audit Report (Form 3CD) was not filed’. The Ld. Assessing Officer passed an order U/s. 143(3) of the Act on 11/12/2019 by making an addition of Rs. 4,13,353/-. The Ld. AO while framing the assessment, based on the verification of information available on record, information filed by the assessee-firm and on reconciliation of the sales and purchases reported in the books of account of the assessee-firm with the monthly returns of VAT filed by the assessee-firm and found that the assessee-firm reported excess purchases of Rs. 2,81,128/- and short reported sales of Rs. 28,247/- in the books of account for the FY 2016-17 relevant to the AY 2-017-18. The Ld.AO therefore treated Rs. 3,09,600/- [Rs. 2,81,128 + Rs. 28,472/-] as business income of the assessee firm and initiated penalty proceedings U/s. 270A of the Act. Further, the Ld. AO also observed that the assessee has claimed expenses aggregating to Rs. 5,18,767/- which were not duly supported by proper vouchers which are self made vouchers and considered it as defective thereby disallowing 20% of the said expenses amounting to Rs. 1,03,753/- while framing the assessment proceedings. The Ld. AO therefore considered the above income of Rs. 4,13,353/- as underreported as per the provisions of section 270A(10) of the Act and levied a penalty of Rs. 200% on the tax amounting to Rs. 2,55,452/-. Aggrieved by the order of the Ld. AO levying the penalty, the assessee filed an appeal before the Ld. CIT(A)-NFAC. On appeal, the Ld. CIT(A)-NFAC considering the submissions of the assessee, confirmed the order of the Ld.AO and dismissed the appeal of the assesee


Held that _
We find that the assessee has produced copies of bills for purchases and the sales returns before the Ld. AO which cannot be considered as underreported arising out of the misrepresentation or suppression of facts - we find it deem to be fit to restrict the penalty to 50% of the amount of tax payable on the above underreported income and thereby direct the Ld. AO accordingly.

Disallowance of expenditure arising out of estimation, we are of the considered view that once the disallowance is made on estimation basis, no penalty can be levied. Disallowance of expenditure cannot be said to be considered as underreporting of the income. In the instant case, even though the Ld. AO has discussed about the self-made vouchers but has not quantified the same thereby resorting to estimation of 20% of disallowance of expenditure claimed by the assessee. Therefore, the penalty levied by the Ld. AO and confirmed by the Ld. CIT(A)-NFAC on this issue is unsustainable -


 Decided in favour of assessee.