MANOJ LACCHMANDAS JAGWANI,ULHASNAGAR vs. ACIT, CIRCLE 2, KALYAN

The present appeal preferred by the Assessee is directed against the Order, dated 30/05/2025, passed by the National Faceless Appeal Centre (NFAC), Delhi [hereinafter referred to as the ‘CIT(A)’] whereby Learned CIT(A) had dismissed the appeal against the Penalty Order, dated 30/03/2022, passed under Section 270A of the Income Tax Act, 1961 [hereinafter referred to as ‘the Act’], for the Assessment Year 2017-2018. 2. The Assessee has raised following grounds of appeal:

The relevant facts in brief are that the Assessee is an individual engaged in the business as builder and developer. For the Assessment Year 2017-2018 Assessee filed return of income on 21/10/2017 declaring total loss of INR.13,40,962/-. The case of the Assessee was selected for scrutiny. During the course of assessment proceedings, the Assessing Officer noted that the Assessee had sold some shops [i.e, Shop No.2, 3, 4, 5 and 6 at Shehansha Parusha] for aggregate consideration of INR.1,24,90,000/- whereas the stamp duty value was INR.4,94,89,550/-. Since the Assessee made a request for making reference to District Valuation Officer (DVO) belatedly, the Assessing Officer proceeded to make addition of INR.3,69,99,550/- [INR.4,94,89,550/- Less INR.1,24,90,000/-] under Section 43CA of the Act and also made reference to DVO. The DVO arrived at a valuation of INR.1,54,77,410/-. Therefore, the Assessing Officer passed Rectification Order under Section 154 of the Act restricting the addition to INR.29,83,926/- [INR.1,54,77,410/- Less INR.1,24,90,000/-].

Assessing Officer also noted that the Assessee had purchased 3 properties [stated to be part of dangerous buildings under distress sale] for a aggregate consideration of INR.17,00,000/-. Since the there was a difference of INR.47,34,553/- between the aforesaid aggregate consideration and the aggregate stamp duty valuation of the aforesaid 3 properties, the Assessing Officer invoked provisions of Section 56(2)(vii)(b) of the Act and made addition of INR.47,34,553/- in the hands of the Assessee and made a reference to DVO. On getting the valuation report from DVO, the Assessing Officer passed Rectification Order, restricting the additions to INR.4,19,000/-.

Thereafter, the Assessing Officer passed Penalty Order, dated 31/03/2022, levying penalty of INR.5,21,735/- (being 50% of tax payable on under-reported income of INR.33,76,926/-) under Section 270A of the Act. The appeal preferred by the Assessee challenging the levy of the aforesaid penalty was dismissed by the Learned CIT(A) vide Order, dated 30/05/2025, impugned by way of present appeal on the grounds reproduced in paragraph 2 above.

We have heard both the sides, given thoughtful consideration to the rival submissions and have perused the material on record.

It is admitted position that the only basis for making of addition under Section 43CA and 56(2)(vii)(b) of the Act is the report of the DVO. The value determined by the DVO is an estimate, in as much as it is based upon the value/rates of similarly situated properties or on the basis of other yardsticks as prescribed.

Section 270A of the Act provides for imposition of penalty for under- reporting and misreporting of income. Sub-section (2) enlists certain circumstances of under-reporting of income. Sub-section (3) deals with the determination of under-reported income, which, in our context, is by reducing the income returned by the assessee from the amount of income finally assessed. Sub-section (6) is relevant for our purpose which states that under-reported income for the purpose of this section shall not include certain items. Clause (b) of sub-section (6) refers to: "the amount of under-reported income determined on the basis of an estimate, if the accounts are correct and complete to the satisfaction of the Assessing Officer ….". It is ostensible from the language of sub- section (6) that an addition made on the basis of estimation cannot provide foundation for under-reported income for the purpose of imposition of penalty u/s 270A of the Act. [Jaibalaji Business Corporation (P.) Ltd. vs. Assistant Commissioner of Income-tax, Pune [2023] 147 taxmann.com 333 (Pune - Trib.)/[2023] 200 ITD 58 (Pune - Trib.)[10-02- 2023]

Further, the provision of Section 270A(6)(d) of the Act stipulates that the amount of under-reported income on the basis of addition made in conformity with Arm's Length Price determined by the TPO, does not qualify for imposition of penalty under Section 270A of the Act. Following the same rationale, the amount of under-reported income determined on the basis of the report of the DVO also cannot qualify for imposition of penalty under Section 270A of the Act. [Narayanbhai Shivabhai Patel vs. Income-tax Officer [2025] 178 taxmann.com 576 (Ahmedabad - Trib.)[18-09-2025]

In view of the above, we hold that in the facts and circumstances of the present case we hold that penalty of INR.5,21,735/- levied under Section 270A of the Act for under-reporting of income cannot be sustained.

We note that the Learned CIT(A) had recorded that the precondition for applicability of Section 270A(6) of the Act was not satisfied since books of accounts maintained by the Assessee were not correct and complete to the satisfaction of the Assessing Officer. On perusal of record, we find that the aforesaid finding returned by the Learned CIT(A) has no factual or legal basis. The Assessee has recorded the actual consideration in the books of accounts and there are no allegations to the effect that the accounts maintained by the Assessee were not correct/complete. Neither in the Assessment Order nor in the Penalty Order has the Assessing Officer recorded that the accounts maintained by the Assessee were not correct/complete. The additions have been made by invoking the deeming provisions contained in Section 43CA and Section 56(2)(vii)(b) of the Act. On receipt of the valuation report from DVO the additions made using stamp duty value in the Assessment Order were substantially reduced by way of Rectification Order. The Assessee had clearly set out his case in the statement of facts and grounds of appeals filed before the Learned CIT(A) which the Learned CIT(A) failed to appreciate and address while dismissing the appeal.

In view of the above, we set aside the impugned Order, dated 30/05/2025, passed by the learned CIT(A) and delete the penalty of INR.5,21,735/- levied under Section 270A of the Act. Thus, Ground No. 1 raised by the Assessee is allowed and all the other grounds raised by the Assessee are dismissed as having been rendered academic in nature.

In result, in terms of paragraph 12 above, the present appeal preferred by the Assessee is allowed.

"धान आयकर आयु" / Pr.CIT 4. िवभागीय "ितिनिध ,आयकर अपीलीय अिधकरण ,मुंबई / DR, ITAT,

Mumbai गाड" फाईल / Guard file. 6. आदेशानुसार/ BY ORDER, स"ािपत "ित //// उप/सहायक पंजीकार /(Dy./Asstt.