ITAT Deletes Penalty Under Section 271(1)(c) on Estimated Income:

The assessee is Mr. Abdul Rahim and was engaged in the business of trading in Basmati rice through his proprietorship concern, M/s. Excellent Food Products, and also owned M/s. A.R. Rahaman Biryani restaurant. A search and seizure operation was conducted at the assessee’s residence, along with a survey at his business premises, on 24 August 2015 as part of the search proceedings concerning the SS Hyderabad Biryani Private Limited group. Subsequently, notice under Section 153A of the Income Tax Act was issued, and the assessee filed his return declaring total income of Rs. 4,51,958.

During the assessment proceedings, the AO made an addition of Rs. 56,07,751 under Section 69C of the Act. The assessee challenged the addition before the CIT(A), but the appeal was dismissed.

Thereafter, the assessee approached the ITAT Chennai in ITA Nos. 1062 to 1067/Chny/2024. By order dated 27 September 2024, the Tribunal deleted the addition made under Section 69C and directed the AO to compute income by applying an estimated profit rate of 5% to the relevant figures.

Following this order, the AO imposed penalties under Section 271(1)(c) of the Act through an order dated 16 March 2025. The assessee challenged the penalties before the CIT(A), which dismissed the appeals. 

The Tribunal examined the assessment orders, the orders passed by the CIT(A), and the submissions made by both parties. It noted that the original addition under Section 69C had already been deleted in the quantum proceedings and that the income was directed to be computed by applying a profit rate of 5% on an estimated basis. The Tribunal observed that the penalties had subsequently been imposed on the basis of the estimated income. It held that the legal position concerning the levy of penalty on estimated additions was settled in favour of the assessee.

The Tribunal found that Revenue failed to bring any new facts on record or distinguish the decisions relied upon by the assessee. Accordingly, the Tribunal held that the penalty imposed on the estimated income could not be sustained and allowed the assessee’s grounds of appeal. The Tribunal allowed all four appeals filed by Mr. Abdul Rahim for Assessment Years 2010-11, 2012-13, 2014-15 and 2015-16. It directed the deletion of the penalties challenged in these appeals, including those relating to estimated income and, for the relevant assessment years, income from house property.