Ace Steel Fab (P.) Ltd. Kashyap & Co. v. DCIT (2021) 87 ITR 52 (SN) (Delhi)(Trib.)

S. 271AAA : Penalty-Addition made on ad-hoc basis based on average gross profit rate, which does not relate directly to any undisclosed income unearthed during search-Penalty not sustainable. [S. 132, 133A]

Search & Seizure action u/s 132 and survey u/s 133A was conducted at business premises, residential premises and in other associated cases. It was found that there is a difference in stock when a physical inventory was taken as compared to the books of account of the Assessee. When the Assessee was asked to show cause as to why the addition should not be made, the Assessee submitted that the discrepancy was on account of technical problem in the new ERP software installed by the Assessee. The submission was not accepted by the AO who proceeded to make an addition by taking average gross profit rate at 3.68% for the last 3 years. Subsequently, penalty u/s 271AAA was levied, which was confirmed by the CIT(A). On appeal to the Tribunal, apart from the above facts, it was observed that the Assessee company had moved a petition before the Company Law Board to extend the date for adoption of audited accounts, which was accepted by the Company Law Board. Therefore sufficient explanation was provided by the Assessee. Also the amount of addition was not related to any undisclosed income unearthed during the course of search. Therefore the penalty is set aside.  (AY 2010-11)