ITAT Mumbai Deletes All Penalties u/s 271(1)(c), 270A and 271AAB After Finding No Incriminating Material in Search
ITAT Mumbai, in a recent case, sustained all penalties imposed under Sections 271(1)(c), 270A, and 271AAB for all the relevant years and ruled in favour of the company, ruling that all the additions made by the tax department were not based on any incriminating material found during the search.
The appeal had been filed by Trig Detectives Pvt Ltd in the ITAT Mumbai, challenging an order passed by the CIT(A)-47, Mumbai, under section 250 of the Income-tax Act, 1961. The case is related to the assessment years 2014-15 to 2020-21.
Earlier, the tax department [DCIT, Central Circle-1(2), Mumbai] had imposed penalties under section 271(1)(c) and section 270A of the Income Tax Act on February 10, 2023, and a penalty under section 271AAB of the Act was imposed on February 27, 2023. Several appeals had been filed by the company, as they all were based on a similar issue; hence, the tribunal decided them all simultaneously.
The company filed its initial return under 139(1) of the Act. Later, the return was selected for scrutiny. As a result, the tax department issued a notice under section 153A and concluded the assessment under section 153A, making some additions and disallowances to the income of the company and declaring the total income of the company at Rs. 2,57,98,917. The company accepted all the additions made by the tax department; however, the department later imposed penalties amounting to Rs. 8,370,459 on the company.
The aggrieved company approached the ITAT Mumbai, challenging the order of CIT(A), which only deleted the penalty of Rs. 228,178 imposed under section 40(a)(ia) and sustained all other penalties. The tribunal admitted that all the additions made by the tax department for all the relevant assessment years were not based on any incriminating material found during the search.
Penalties under Section 271(1) are imposed only when undisclosed assets or income are found during a search, which was not the case here. Therefore, the penalty is invalid. On the penalty imposed under Section 270A, the tribunal said that the additions were only estimated disallowances of expenses like salary and wages. Estimated additions do not qualify as ‘under-reported income’ under the law. The assessee had already made some voluntary disallowances in the returns filed. Hence, concluded that the said penalty cannot be imposed.
For the penalty imposed under Section 271AAB, the tribunal said that the penalty was based only on expense disallowances due to lack of vouchers. No false or undisclosed income was found during the search. Hence, the penalty under the said section was not valid.
In conclusion, the tribunal deleted all the penalties imposed under Sections 271(1)(c), 270A, and 271AAB for all the relevant years and allowed all the appeals of the assessee.
Citation: Trig Detectives Pvt Ltd Vs DCIT (ITAT Mumbai); I.T.A No.1900/Mum/2025; 02/12/2025; 2014-15 to 2020-21
