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

Dispute over Section 40A(2)(b) additions and Section 271(1)(c) penalties for labor charges paid to relatives. The discussion involves a query about additions under Section 40A(2)(b) and penalties under Section 271(1)(c) of the Income Tax Act, related to disallowance of labor charges paid to relatives. The Assessing Officer imposed a penalty for providing inaccurate income particulars without establishing the reasonableness of the expenditure. A respondent argues that both the addition and penalty are legally incorrect and suggests filing an appeal to have them quashed. Another respondent concurs, noting that penalties require proof of income concealment or inaccurate particulars, which was not demonstrated in this case.