Estimated additions under section 270A cannot support penalty where income is determined on a profit-rate basis.

Penalty under section 270A(9) was held unsustainable where the quantum addition was made on an estimated basis by applying a profit percentage to alleged ingenuine purchases. The estimated character of the addition was treated as decisive, because the statutory scheme under section 270A recognises immunity where income is determined by estimation. On that footing, the characterisation of the case as misreporting did not justify penalty, and the levy was deleted.

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Issues: Whether penalty under section 270A(9) of the Income-tax Act, 1961 was sustainable where the addition in quantum proceedings was made on an estimated basis by applying a profit percentage on alleged ingenuine purchases.

Analysis: The addition in the quantum assessment was itself made on estimate. Penalty cannot be sustained on an estimated addition, and the statutory scheme under section 270A recognises immunity in cases of estimated additions. The estimated nature of the addition, therefore, negatives the levy of penalty notwithstanding the characterization of the default as misreporting.

Conclusion: The penalty under section 270A(9) was not leviable and was deleted.

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