Estimated income additions cannot automatically trigger misreporting penalty where the statutory exclusion for estimate-based income applies.

Penalty under section 270A for misreporting of income was considered unsustainable where the addition was based on an estimated commission rate of 5% applied to loan transactions, rather than on direct evidence of actual receipt. Income determined on estimate fell within the statutory exclusion from "under-reported income" in the relevant circumstances, and the Revenue did not establish which limb of section 270A(9) was said to apply. The assessee's disclosure in the return filed after notice under section 148, stated to be made to buy peace, was not treated as an admission of misreporting. Deletion of the penalty was therefore justified.

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Issues: Whether penalty under section 270A for misreporting of income was leviable where the addition represented estimated commission income at 5% of the transaction value and the assessee's case was claimed to fall within the exclusion for income determined on estimate.

Analysis: The addition forming the basis of penalty was not supported by direct evidence of actual commission receipt and was quantified by applying a flat estimated rate to the impugned loan transactions. The income was therefore determined on an estimated basis. The statutory scheme under section 270A(6) excludes income determined on estimate from the expression "under-reported income" in the specified situations. The Revenue also failed to identify and establish the particular limb of section 270A(9) alleged to have been attracted. The assessee's disclosure in the return filed in response to notice under section 148 was made after the estimate had already been made and was stated to be to buy peace, which did not amount to an admission of misreporting.

Conclusion: Penalty under section 270A for misreporting was not sustainable, and deletion of the penalty was justified.

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