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Income Tax Appellate Tribunal, DELHI BENCH ‘A’: NEW DELHI
(Assessment Year: 2017-18) Tarun Jain, vs. ITO, Ward 2 (4), House No.641, Sector 7B, Faridabad. Faridabad – 121 006 (Haryana). (PAN : AGEPJ5824D) (APPELLANT) (RESPONDENT) ASSESSEE BY : Shri Neeraj Goyal, CA REVENUE BY : Shri Ajay Kumar Arora, Sr. DR Date of Hearing : 11.11.2025 Date of Order : 11.11.2025 O R D E R
PER S. RIFAUR RAHMAN, ACCOUNTANT MEMBER :
The assessee has filed appeal against the order of the Learned Commissioner of Income Tax (Appeals)/National Faceless Appeal Centre (NFAC), Delhi [“Ld. CIT(A)”, for short] dated 28.02.2025 for the Assessment Year 2017-18.
At the time of hearing, ld. AR of the assessee submitted that the assessee has filed the appeal with a delay of 62 days from the date of appellate order. He submitted that on January 7, 2025, a robbery took place at the assessee’s shop for which an FIR was registered in Sector 8, Faridabad, a copy of the same is placed on record, and this unfortunate incident caused significant distress and disruption in the personal and professional life of the assessee. He submitted that the delay in filing the appeal was due to genuine and unavoidable circumstances beyond the assessee’s control and there was no deliberate negligence or mala fide intent on his part. Accordingly, he prayed that the delay may be condoned and hear the appeal on facts. On the other hand, ld. DR of the Revenue did not object in condoning the 3. delay. We have heard both the counsels on the issue of condonation of delay. In 4. our considered opinion, there was a reasonable cause for the delay in filing the appeal. Therefore, we condone the delay in filing the appeal before the Tribunal. Brief facts of the case are, assessment in this case was completed under 5. section 143(3) of the Income-tax Act, 1961 (for short ‘the Act’) on 25.12.2019 at an income of Rs.10,12,670/- against the returned income and income processed u/s 143(1)(a) of the Act. The Assessing Officer framed the assessment order dated 25.12.2019 and raised a demand of Rs.1,27,305/- by making an addition of Rs.3,56,749/- on account of change in Gross Profit percentage to 17% from 13.95% on the sale of Rs.1,16,80,786/- and disallowing the interest on advances, made an addition of Rs.96,000/- on Rs.16 lakhs for 6 months @ 12%.
Further, penalty proceedings u/s 270A of the Act for under-reporting of income as a consequence of misreporting was initiated on the above additions. Notice u/s 274 read with Section 270A dated 25.12.2019 was issued to the assessee but assessee did not responded to the same. Thereafter, various notices were also issued, to which no compliance was made. Subsequently, as per Faceless Penalty Scheme, 2021, another show cause notice u/s 274 r.w.s. 270A of the Act dated 10.05.2021 was issued to the assessee directed him to explain why penalty u/s 270A of the Act should not imposed, fixed for compliance on 17.05.2021 but still no response has been filed 7. During penalty proceedings, Assessing Officer observed that against the two additions made in the assessment order, assessee has also not brought any fact/evidence to corroborate with documentary evidences that the disallowances/additions should not be made in his income and has not explained why penalty should not be levied. 8. Assessing Officer held that the assessee has under-reported his income leading to misreporting of income and is liable for penalty within the meaning of section 270A (1) r.w.s. 270A(9) of the Act. Accordingly, he held that on the total under-reported income on Rs.4,52,749/-, the tax sought to be evaded works out to Rs.94,572/- and levied a penalty of Rs.1,89,144/- (i.e. 200% of Rs.94,572/-).
Aggrieved with the above order, assessee preferred an appeal before the ld. CIT(A) and filed grounds of appeal
and detailed submissions. However, ld. CIT (A) dismissed the appeal by not condoning the delay in filing the appeal.
10. Aggrieved with the above order, assessee is in appeal before us raising following grounds of appeal :-
1. That having regard to the fact and circumstances of the case, Ld. Assessing Officer has erred in law and on facts in levying the penalty of Rs.1,89,144/- u/s 270A of the Income Tax Act, 1961.
2. That having regard to the facts and circumstances of the case, the act of ld. Assessing Officer in imposing the penalty u/s 270A of the Act is without following principles of natural justice.
3. That having regard to the fact and circumstances of the case and in law, Ld. AO has failed to appreciate the facts placed on record, before or at the time assessment proceedings, as the assessee did not hide any facts in his return of income and neither under reported his income nor mis-reported of income.
4. That having regard to the facts and circumstances of the case and in law, the entire penalty order is bad in law as ld. AO has erred in law and on facts too in imposing the penalty u/s 270A of the Act based on the notices issued u/s 274 read with section 270A on dated 25.12.2019.”
11. At the time of hearing, ld. AR of the assessee submitted that the penalty u/s 270A of the Act was imposed on the basis of two additions made by the Assessing Officer in the assessment proceedings. With regard to addition of Rs.3,56,749/-, he submitted that the Assessing Officer has estimated the gross profit percentage from 13.95% to 17% and did not reject the books of accounts and merely made the addition on account of his own estimates. He further submitted that the Assessing Officer did not disclose the fact that turnover of the assessee rose to 317.36% (i.e. Rs.1,16,80,786/- for AY 2017-18 and Rs.36,80,572/- for AY 2016-17) and submitted that the income was estimated and no penalty can be imposed. With regard to other addition of Rs.96,000/-, he submitted that Assessing Officer did not consider the interest free fund available in the business like capital employed by the assessee and interest free funds from relatives/family. The Assessing Officer proceeded to apply notional interest to disallow the interest expenses. He further submitted that the assessee never hide any facts nor mis-reported and more so, Assessing Officer did not reject the books of account, thus assessee’s case falls in the ambit of section 270A(6) and no penalty should be levied. Accordingly, he submitted that the additions were made only on estimated basis and no penalty can be imposed on the basis of the additions which were made on estimate only.
On the other hand, ld. DR of the Revenue relied on the findings of the lower authorities.
Considered the rival submissions and material placed on record. We observed that the assessee has declared its financial results and the Assessing Officer increased the income from 13.95% of GP to 17%. The increase in GP without any supporting evidences, it is clear that the Assessing Officer has estimated the income and also applied the notional interest overlooking the fact that the assessee has substantial interest free funds in the business. Since there was no compliance from the assessee, he proceeded to impose the penalty. The various Courts have held that no penalty can be imposed on the income which is estimated. In this case, the Assessing Officer has estimated the income by not accepting the declared results and also applied notional interest without considering the interest free funds in the business. Hence, we are inclined to delete the penalty imposed by the Assessing Officer.
In the result, the appeal filed by the assessee is allowed. Order pronounced in the open court on this 11th day of November, 2025 after the conclusion of the hearing.