Facts of the Case

The assessee had commenced a dairy business under the “Kamdhenu Yojna” of the Uttar Pradesh Government by obtaining a bank loan of ₹91,00,000. This was the first year of business. The assessee declared:

  • Dairy income of ₹31,177
  • Agricultural income of ₹15,70,200

The return of income was filed manually and not in accordance with Rule 12 of the Income Tax Rules, 1962. Consequently, it was treated as invalid.

During assessment proceedings, various notices were issued requiring explanation of sources of income and bank deposits. Due to lack of proof for agricultural income of ₹4,59,800, the Assessing Officer treated that amount as income from dairy business and added it to total income. Further additions were made for:

  • Interest credited in bank accounts of ₹42,770 not disclosed in return
  • Insurance claim receipt of ₹1,53,000 treated as income due to absence of evidence

Assessment was completed at total income of ₹6,55,570. Subsequently, penalty of ₹1,15,594 was imposed under Section 270A of the Income Tax Act.

 Issues Involved

  1. Whether penalty under Section 270A can be imposed on income assessed on estimation.
  2. Whether absence of documentary evidence for agricultural income amounts to misreporting or concealment.
  3. Whether the assessee had suppressed facts or furnished inaccurate particulars.
  4. Whether the NFAC was justified in upholding the penalty.

 Petitioner’s Arguments (Assessee)

The assessee contended that:

  • There was no concealment of income; all income and deposits were disclosed.
  • Bank deposits had been examined during assessment proceedings.
  • The penalty was imposed on estimated additions, which is not permissible.
  • Proof of agricultural income amounting to ₹11,10,200 had been furnished.
  • Agricultural produce is often sold in local markets without formal receipts.
  • The dairy business had commenced only in that year.
  • The assessed tax along with interest had already been paid under financial hardship.

 Respondent’s Arguments (Revenue)

The Revenue supported the orders of the lower authorities, maintaining that penalty was rightly imposed due to failure to substantiate the agricultural income claim and other additions.

 Court Order / Findings (ITAT Allahabad)

  • The additions were based on estimation due to absence of supporting evidence.
  • The assessee had disclosed the income; there was no suppression of facts.
  • Failure to substantiate agricultural income does not automatically imply misreporting.
  • For penalty under Section 270A, conditions relating to under-reporting or misreporting of income must be satisfied.

The Tribunal concluded that neither concealment nor misreporting as contemplated under Section 270A(9) was established.

The Tribunal relied on several judicial precedents, including:

  • Prem Brothers Infrastructure LLP v. NFAC
  • Pr. CIT v. Gruh Finance Ltd. (Supreme Court)
  • CIT v. Manjunatha Cotton & Ginning Factory
  • CIT v. Reliance Petroproducts (P) Ltd. (Supreme Court)
  • Other relevant decisions

Accordingly, the penalty was held to be unjustified.

 

Important Clarification

Penalty under Section 270A cannot be levied merely because additions are made on estimation.

Absence of evidence does not automatically establish concealment or misreporting.

Agricultural income transactions may lack formal documentation due to rural practices.

Penalty provisions must be strictly construed and applied only when statutory conditions are satisfied.

Disclosure of income in return negates allegations of suppression unless deliberate falsity is proven.

 

Link to download the order - https://www.mytaxexpert.co.in/uploads/1771228885_AJITTRIPATHIALLAHABADVS.NFACNEWDELHINEWDELHI.pdf

 

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