Income Tax Appellate Tribunal (ITAT), Hyderabad recently stated that it was already settled that penalty on an addition made on an estimated basis is not attracted. It comes up after a case where the ITAT directed the AO to remove the penalty.
It was an instant case in which the assessee is filling the ITR in which showing business income u/s 44AF on the basis of presumption and not maintaining the passbook of accounts. So if a person doesn’t maintain books of accounts there is no need for an audit. The AO found that the total gross receipts were not audited, and the same exceeds Rs. 40 lakhs.
Thus the assessee should have books of accounts audited by an accountant in the due date, The same needs to be in the prescribed form which will be then duly signed and verified by such account. But the assessee failed to get his account audited as per u/s 44AB of Act and got issued a notice of penalty under Section 271B of the Income Tax Act.
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Thus the ITAT Hydrabad comes up with the statement that the penalty was imposed was estimated after considering the net profit rate and as per law it is already settled that penalty on ad hoc disallowance or addition made on an estimate basis was not attracted. Especially in the case where the base of the instant penalty is the estimate of net profit, then it cannot be sustained. Hence, by allowing the appeal of the assessee, the ITAT set aside the order of the Ld. CIT (Appeals) and also directed the AO to remove the penalty.
