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ITAT deletes penalty on Undisclosed Income u/s 271AAA
April, 15th 2021

The Income Tax Appellate Tribunal (ITAT), Delhi Bench deleted the penalty on Undisclosed Income under section 271AAA of the Income Tax Act.

The search and seizure action and surveys were carried out at various business premises of M/s Action Construction Equipment Ltd., Group of Companies, Faridabad. A search operation under section 132 of the Act was also carried out at the residential and business premises of the assessee and in other associated cases.


The return of income was filed declaring income at Nil and had also shown a current year loss of Rs.1,42,45,889 to be carried forward. Although the due date for filing of return was September 30, 2010, the return was filed on October 12, 2010. The assessment was completed at an income of Rs.11,52,314 on account of estimation of gross profit rate due to difference in stock as per the books of accounts and the stock as per the physical inventory taken. Subsequently, a penalty of Rs.1,15,230 was imposed under section 271AAA of the Act being 10% of the alleged undisclosed income.

The assessee’s appeal against the imposition of this penalty was dismissed by the Ld. CIT(A) and now the assessee has approached this Tribunal challenging the confirmation of the penalty.

The coram headed by Vice President, G.S. Pannu observed that the assessee had a reasonable explanation for the discrepancy found in stock and due credence should have been given to this explanation. Therefore, it cannot be said that the assessee had no explanation to offer regarding the difference in stock. Further, the amount on which the penalty has been imposed is only an ad-hoc addition based on the average gross profit rate and does not relate directly to any undisclosed income unearthed during the course of the search.

The ITAT held that the imposition of penalty under section 271AAA is not sustainable, set aside the order of the CIT(A), and deleted the impugned penalty.

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