SHREE MUKUND ASSOCIATES,NAVI MUMBAI vs. COMMISSIONER OF INCOME-TAX (APPEALS), NAVI MUMBAI

The assessee has raised various grounds challenging the levy of penalty of Rs.3,45,212/- u/s 270A of the Act.

Briefly stated, the assessment in the present case was completed u/s 143(3) r.w.s. 263 of the Act wherein the Assessing Officer made an addition of Rs.5,58,598/- being notional annual letting value of unsold flats held as stock-in-trade by invoking section 23(5) of the Act. Consequent to such addition, the Assessing Officer initiated penalty proceedings u/s 270A and

Before us, the Ld. Authorised Representative submitted that the addition itself represents a notional annual letting value determined by the Assessing Officer on estimate basis. It was submitted that all material facts relating to the project, occupancy certificate, stock-in-trade and closing stock were duly disclosed by the assessee. The addition arose merely because the Assessing Officer adopted a particular view regarding taxability of deemed rent u/s 23(5) of the Act. It was contended that there was neither concealment of any fact nor furnishing of inaccurate particulars and therefore the case does not fall within any of the situations specified in section 270A(9) relating to misreporting of income. It was further submitted that a mere addition made on account of a legal interpretation or estimation of notional income cannot automatically result in levy of penalty u/s 270A.

Per contra, the Ld. Departmental Representative relied upon the orders of the lower authorities and submitted that the assessee failed to offer notional rent for taxation despite the provisions of section 23(5) being applicable and therefore the penalty has been rightly levied.

We have heard the rival submissions and perused the material available on record. The sole basis for levy of penalty is the addition of Rs.5,58,598/- being annual letting value determined by the Assessing Officer in respect of unsold flats held as stock-in-trade. The assessment order itself shows that the addition was worked out by estimating notional rental income from the closing stock of flats. The addition is not based on discovery of any undisclosed asset, undisclosed receipt, false entry, bogus expenditure or suppression of any material fact. On the contrary, the existence of the flats, their valuation and 2

Section 270A draws a distinction between under-reporting of income and misreporting of income. The Assessing Officer has levied penalty by invoking section 270A(9) and treated the case as one of misreporting. However, on a perusal of the assessment order as well as the penalty order, we find no material brought on record to establish that the assessee had misrepresented or suppressed any fact. None of the six circumstances specified in section 270A(9), namely misrepresentation or suppression of facts, failure to record investments, claim of expenditure unsupported by evidence, recording of false entry, failure to record receipts in books of account or failure to report international transactions, are attracted to the facts of the present case.

The addition sustained in assessment is founded upon computation of a notional annual letting value under section 23(5) of the Act. Such addition is essentially a matter of estimation and legal interpretation regarding taxability of deemed income. Merely because the Assessing Officer has taken a view that notional rental income was chargeable to tax, it cannot lead to the automatic conclusion that the assessee had under-reported income in consequence of misreporting thereof. Penalty provisions, being penal in nature, require clear satisfaction of the statutory conditions. In the present case, we find complete absence of any material demonstrating deliberate misreporting by the assessee.

In our considered view, the facts of the case at best give rise to a difference regarding the taxability and quantification of notional annual letting value of unsold stock-in-trade. Such a dispute cannot be equated with misreporting of income contemplated under section 270A(9) of the Act. Since the very foundation for invoking the provisions relating to misreporting is absent, the penalty levied u/s 270A cannot be sustained. 3

We, therefore, set aside the order of the Ld. CIT(A) and direct the Assessing Officer to delete the penalty of Rs.3,45,212/- levied u/s 270A of the Act.

In the result, the appeal of the assessee is allowed.