M/S SHREE GANESH JEWELLERS LIMITED,LUDHIANA vs. ACIT, CIRCLE V(1), LUDHIANA

During the course of hearing, the Ld. AR taken us through the findings of the AO in the quantum proceeding wherein in Para 2 of the order passed under section 143(3) dt. 29/12/2019, the AO has made the addition of Rs. 2,00,000/- out of out of various expenses on an adhoc and estimated basis and the relevant findings of the AO read as under:

1 Further our reference was drawn to the findings of the AO in the order passed under section 270A of the Act wherein the relevant findings are stated at para 4 to 6 of the order and the contents thereof read as under:

2 It was submitted by the ld AR that the findings of the AO that during the assessment proceedings, the assessee failed to furnish any documentary evidence i.e; vouchers etc, in order to substantiate its claim regarding expenses shown in the P&L Account is factually incorrect and our reference was drawn to the assessee’s paper book wherein at pages 22-589, the assessee has submitted the necessary documentary evidence in support of various expenses claimed in the P&L Account and it was submitted that the same were submitted before the AO as well. It was accordingly submitted that the addition has been made purely on an estimated basis and without any concrete evidence of under reporting of the income and in this regard, our reference was drawn to the provisions of Section 270A(6)and the same read as under:

3 Further reliance was placed on the Coordinate Bench decision in case of VDB Infra and Realty Private Limited Vs. ITO (in ITA No. 1017/Bang/2023 dt. 18/01/2024) and M/s Pallava Textiles Private Limited Vs. The ITO (in ITA No. 862/Chny/2022 dt. 10/03/2023).

Per contra, the Ld. DR has relied on the order of the lower authorities and our reference was drawn to the provisions of Section 270A(2) wherein it has been stated that a person shall be considered to have under reported his income if the income assessed is greater than the income determined in the return processed under section 143(1)(A) of the Act. It was accordingly submitted that as per the said provision, in the instant case, given the fact that the AO has assessed the income at a figure higher than the returned income by the figure of Rs. 2.00 Lacs, to that extent, it is clearly a case of under reporting of the income and which is liable for levy of penalty under section 270A of the Act.

1 It was further submitted that the decision relied on by the Ld. AR in case of VDB Infra and Realty Private Limited (supra) is in the context of miss-reporting of income and levy of penalty under section 270A(9) of the Act and therefore the same stands distinguishable and not applicable in the facts of the present case. It was accordingly

Heard the rival contentions and purused the material available on record. It is a settled legal proposition that the penalty provisions needs to be strictly construed and only where the conditions specified are fulfilled and the charge is crystallized, the penalty can be levied. In the instant case, the AO has invoked the provisions of Section 270A of the Act and has levied the charge of under-reporting of the income on the assessee. As per the provisions of Section 270A(2), it has been interalia provided that a person shall be considered to have under reported his income if the income assessed is greater than the income determined in the return processed under section 143(1)(a) of the Act. The said provisions have to be read along with the provisions of section 270A(6) which interalia in terms of 270A(6)(b), provides that the under-reported income shall not include the amount of under-reported income determined on the basis of an estimate, if the accounts are correct and complete to the satisfaction of the Assessing Officer but the method employed is such that the income cannot properly be deduced therefrom. In other words, where the accounts are correct and complete to the satisfaction of the Assessing officer and at the same time, certain addition has been made basis estimation for the reason that the method employed is such that income cannot properly be deduced therefrom, the same cannot be a basis for levying the charge of under-reporting of income. The emphasis is therefore clearly on the correct and complete accounts so furnished by the assessee and only in a situation where there is an adverse finding recorded by the AO regarding incorrect and incomplete accounts so furnished, the same can form the basis for levy of penalty for under- reporting of income. In the instant case, there is no adverse finding recording by the Assessing officer that the accounts so furnished and information so contained therein are incorrect and incomplete. The AO has merely referred to non-furnishing of supporting documentation in form of vouchers which also the ld AR has demonstrated that the same is not factually correct and all necessary documentation has been furnished during the course of assessment proceedings. Therefore, merely the fact that the addition has been made on an estimate basis and that too considering the various expenses heads and not specific to a particular expense head or pointing out any specific expenditure incurred during the year, the same cannot solely form the basis for levy of charge of under-reporting of income on the assessee.

In light of the aforesaid discussions and in the entirety of facts and circumstances of the case, the levy of penalty u/s 270A(2)(a) cannot be sustained and is hereby directed to be deleted.

In the result, the appeal of the assessee is allowed.

""यथ"/ The Respondent 3. आयकर आयु"/ CIT 4. िवभागीय "ितिनिध, आयकर अपीलीय आिधकरण, च"डीगढ़/ DR, ITAT, CHANDIGARH 5. गाड" फाईल/ Guard File