Additions u/s 40A(2)(b) and Penalty u/s 271(1)(c) on ground of inaccurate particular of income

[Kishor Deshpande]

The addition u/s. 40A(2)(b) was made by disallowing 10% of labour charges to relatives on estimated basis. The AO did not have any finding regarding reasonbility of the expenditure covered u/s. 40A(2)(b). In addition on lumpsum basis were made. In addtion to this penalty u/s. 271(1)(c) has been imposed giving reason that inaccurate particular of income provided. So. let me know is there any decision against the penalty imposed?

[RAJESH DHANDA]

the addition made and penalty imposed u/s 271(1)(c) both are unconstitutional wrong in eyes of law . file an appeal against this order and it will be quashed in the first hearing

[Surender Gupta]

It is question of fact. Why did the assessee accepted the dis allowance made by the AO, whether he has challenged the findings of the AO regarding excessive payment to relative u/s 40A(2). Apparently, I agree with the views of Mr. Rajesh Dhanda that penalty would be waived by the courts. In one case it was held that in order to attract clause (c) of section 271(1) of the Act, it is necessary that there must be concealment by the assessee of the particulars of his income or furnishing of inaccurate particulars of such income - the estimate would not ipso facto lead to penalty - https://www.taxtmi.com/caselaws?id=30742

AI Summary

Penalty for inaccurate particulars requires concealment; estimates alone do not automatically attract penalty in tax assessments. Addition resulted from a ten percent estimated disallowance of labour charges to relatives made without findings on reasonableness; the assessee's factual acceptance and the lump-sum nature of the addition are disputed. A penalty for furnishing inaccurate particulars was imposed, but such a penalty requires proof of concealment or inaccurate particulars, and an estimate-based disallowance alone does not automatically attract the penalty.