HARESH DAMJI SHAH,DADAR T. T. vs. ITO, WARD 20(1)(1), MUMBAI

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ITA 1934/MUM/2026Status: DisposedITAT Mumbai19 May 2026AY 2018-198 pages

In favour of the assessee: the assessee's appeal was allowed. From the AI summary of this appeal.

AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that since the quantum additions, which formed the basis for the penalty, were deleted by the ITAT, the penalty levied under Section 270A has no foundation and must be deleted. The existence of assessed income is a prerequisite for levying such a penalty.

What were the facts?

The assessee's appeal concerns a penalty levied under Section 270A for the assessment year 2018-19. The penalty was based on quantum additions made by the Assessing Officer. The assessee argues that the penalty is unsustainable because the ITAT had previously deleted the quantum additions.

What were the issues?

Whether a penalty under Section 270A can be sustained when the underlying additions giving rise to the penalty have been deleted by a higher appellate authority. The issue also touches upon the necessity of assessed income for penalty levy.

Which sections of the Income-tax Act were involved?

Section 270A,Section 250

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, “E” BENCH, MUMBAI

Before: SHRI VIKRAM SINGH YADAVSHRI SANDEEP SINGH KARHAIL

For Appellant: Shri Pradip Kapasi
For Respondent: Shri Hemanshu Joshi, Sr.DR

IN THE INCOME TAX APPELLATE TRIBUNAL “E” BENCH, MUMBAI BEFORE SHRI VIKRAM SINGH YADAV, ACCOUNTANT MEMBER SHRI SANDEEP SINGH KARHAIL, JUDICIAL MEMBER

ITA No. 1934/Mum./2026 (Assessment Year : 2018-19) Haresh Damji Shah 90/4, Mahalaxmi Building No.1, Hindu Colony, Road No.3, Dadar T. T., ……………. Appellant Mumbai - 400014 PAN : AACPS1856Q v/s

Income Tax Officer, Ward-20(1)(1) Piramal Chambers, Lalbaug, ……………. Respondent Mumbai - 400012 Assessee by : Shri Pradip Kapasi Revenue by : Shri Hemanshu Joshi, Sr.DR

Date of Hearing – 11/05/2026 Date of Order – 19/05/2026

O R D E R PER SANDEEP SINGH KARHAIL, J.M. The assessee has filed the present appeal against the impugned order dated 27/01/2026, passed under section 250 of the Income Tax Act, 1961 (“the Act”) by the learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi, [“learned CIT(A)”], which in turn arose from the penalty order passed under section 270A of the Act, for the assessment year 2018-19.

2.

In this appeal, the assessee has raised the following grounds: - “GROUND NO. 1: Order bad-in-law; Quantum additions deleted by ITAT

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1.

The Id. CIT(A) erred in law and on facts in confirming the penalty of Rs. 1,26,80,260 levied u/s 270A by the ld. AO for alleged misreporting of income despite the fact that the Hon'ble ITAT, Mumbai Bench, vide its order dated 13.10.2025 for A.Y. 2018-19, has deleted the quantum additions on which the impugned penalty was levied. 2. The Id. CIT(A) failed to appreciate that once the additions giving rise to the alleged misreporting were deleted, the very foundation and substratum of the penalty ceased to exist. 3. The ld. CIT(A) erred in not appreciating that existence of assessed income is a sine qua non for levy of penalty u/s 270A and, in the absence of any legally assessable income, there remains neither under-reported income nor misreported income within the meaning of the Act. 4. The ld. CIT(A) further erred in sustaining the penalty without appreciating the settled legal position that where the foundation assessment does not survive, the superstructure of penalty automatically falls. 5. The Id. CIT(A) thus erred in confirming a penalty which is unsustainable in law and liable to be deleted. GROUND NO. 2: Issue involved was debatable and legal in nature 1. The ld. CIT(A) erred in law and on facts in sustaining the penalty despite the fact that the issue involved was a debatable legal issue relating to taxability of redevelopment transactions and tenancy rights and there was no under reporting u/s 270A(2) leave alone misreporting u/s 270A(9)2. 2. The Id. CIT(A) failed to appreciate that the issue was subject matter of detailed litigation and divergent judicial views. 3. The ld. CIT(A) erred in law in confirming penalty on an issue involving interpretation of law, on which penalty is not leviable. GROUND NO. 3: Violation of principles of natural justice- Ex-parte 1. The Id. CIT(A) erred in law and on facts in confirming the penalty without appreciating that the penalty proceedings were vitiated due to violation of principles of natural justice. 2. The Id. CIT(A) failed to consider that notices were issued at an address which was under redevelopment and the appellant was deprived of an effective opportunity of being heard. 3. The Id. CIT(A) erred in ignoring the fact that the appellant is a senior citizen and the penalty was finalized ex-parte without proper service and reasonable opportunity. GROUND NO. 4: Entire penalty wrongly levied in hands of one co-owner 1. The Id. CIT(A) erred in law and on facts in confirming the levy of penalty u/s 270A on the entire alleged income in the hands of the appellant alone

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ignoring the fact that the alleged income pertaining to transfer of the tenancy rights under the redevelopment agreement were jointly held by the appellant and his wife in equal share. 2. The Id. CIT(A) failed to appreciate that income from jointly held rights can be assessed only in proportion to the respective ownership share and cannot be taxed wholly in the hands of one co-owner. 3. Without prejudice, even if any penalty is leviable, the same could not exceed the appellant's proportionate share in the alleged income.”

3.

The solitary grievance of the assessee is against the penalty levied under section 270A of the Act.

4.

During the hearing, the learned Authorised Representative (“learned AR”), at the outset, submitted that the assessee’s appeal in quantum proceedings was allowed by the Tribunal and the additions resulting in the impugned penalty were deleted. Accordingly, the learned AR submitted that the penalty levied under section 270A of the Act has no basis to be sustained.

5.

On the other hand, the learned Departmental Representative (“learned DR”) vehemently relied upon the orders passed by the lower authorities.

6.

We have considered the submissions of both sides and perused the material available on record. The brief facts of the case are that the assessee is an individual and, for the year under consideration, filed his return of income on 18.09.2018, declaring a total income of Rs. 1,68,420/-. The return filed by the assessee was selected for compulsory scrutiny on the basis of information received from the Sub-Registrar, Mumbai, that the assessee purchased an immovable property for a consideration substantially less than the value adopted by the Stamp Duty Authority. Accordingly, statutory notices under section 143(2) and section 142(1) were issued and served on the assessee.

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During the assessment proceedings, it was noticed from the details filed by the assessee that M/s. Sugee Four Developers LLP, Mumbai (“Developer”) entered into an agreement that the assessee, being a tenant along with other tenants and the landlord of the property, namely Mahalaxmi Building No. 1, Dadar (East), Mumbai, agreed to develop the said property. The assessee was in the possession/occupation of Room No. 4, admeasuring a total area of 803.52 sq. ft. carpet area, for which he was paying a monthly rent of Rs. 77.49 to the landlord of Mahalaxmi Building. The assessee, along with existing tenants, gave irrevocable consent for the redevelopment of the property, subject to the condition that the assessee and other tenants shall be provided with permanent alternate accommodation in the building proposed to be constructed on the existing property. By virtue of the above redevelopment agreement, the developer agreed to provide Flat No. 401, admeasuring 1119.67 sq. ft. on the 4th floor of the new building to be constructed at the site of the existing building, which had a market value of Rs. 1,10,01,000/-. Vide aforesaid agreement, it was also agreed that the stamp duty and registration charges for the agreement shall be paid by the Developer. Accordingly, under the redevelopment agreement, the assessee handed over the existing premises to the Developer on or before 31.10.2017, and the Developer completed the permanent alternate accommodation within 36 months from the date of handing over the existing premises. As the assessee acquired permanent alternate accommodation (flat) without consideration through agreement for redevelopment of the existing property, the Assessing Officer (“AO”) issued a show cause notice as to why the aggregate amount of Rs. 1,82,96,708/- in respect of benefits acquired by the assessee without

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consideration be not added to its total income under section 56(2)(x) of the Act. In the absence of any response from the assessee, the AO made an addition of Rs. 1,82,96,708/- under section 56(2)(x) of the Act to the total income of the assessee.

7.

In the meanwhile, penalty proceedings under section 270A of the Act were initiated and vide order dated 03.12.2021 passed under section 270A of the Act, the penalty of Rs.1,26,80,260/- was levied under section 270A(9) of the Act for misreporting of income. Vide impugned order, the learned CIT(A), after taking into consideration the fact that the quantum appeal was dismissed by the First Appellate Authority, dismissed the appeal filed by the assessee against the penalty levied under section 270A of the Act. Being aggrieved, the assessee is in appeal before us.

8.

From the perusal of the order passed in quantum appeal in assessee’s own case in Haresh Damji Shah vs. ITO, in ITA No.4445/Mum/2025, for the assessment year, 2018-19, the Coordinate Bench of the Tribunal vide order dated 13.10.2025, deleted all the additions made by the AO, by observing as follows: - “5. We have heard the submission of both the parties and have gone through the orders of lower authorities carefully. The Learned Authorized Representative (Ld. AR) of the assessee submits that the assessee and his wife were joint tenant in the property known as Mahalaxmi Building, Hindu Colony, Dadar (E), Mumbai. The landlord granted development right to redevelop the property wherein the assessee was tenant. The assessee, his wife, landlord and builder entered into an agreement. In lieu of surrender of tenancy right, the assessee was allotted alternate accommodation being flat No. 401, in the building constructed thereon. Copy of agreement of permanent alternate accommodation is filed on record at page No. 46 to 80 of paper book. The assessee in addition to allotment of alternative flat also given relocation charges. The detail of such relocation charges is given on page No. 84-87 of paper book. The stamp duty value of car parking and stamp duty registration for development agreement was paid by developer. The assessee and his wife

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were regularly making payment of rent in alternative transit accommodation and details of the rent receipt are given on page No. 38-41 of paper book. The tenancy right is 'capital assets' which are held as a long term capital assets and there was no cost of acquisition and entire amount received were invested in a permanent alternate accommodation which can be considered as investment for exemption under section 54F. There is no application of section 56(2)(x). The assessing officer disregarded and added Rs. 1.82 crore to the income of the assessee. Though, the tenancy right and the newly alternate accommodation are in joint name, still the assessing officer without appreciation made addition at the hand of assessee. Hardship compensation is also a capital receipt. The lower authorities disregard and ignore the details furnished during the assessment as well as in first appeal. The Ld.AR of the assessee while summing up the submission would submit that the assessee did not owned any residential premises on the date of transfer of tenancy right, tenancy right being a capital assets and case of assessee is also covered under section 54F and qualified for exemption. No reason is given by assessing officer for denying exemption. To support his various submissions, the Ld. AR of the assessee relied upon the following decisions;  Vasant Nagorao Barabde Vs DCIT 2015) 174 taxmann.com 101 (Mum.),  Jatinder Kumar Madan Vs ITO (2019) 21 taxmann.com 316(Mum),  ACIT Vs Dr. Jayesh K. Shah, 175 ITD 751 (Mum.),  Meher F. Surti, ITA No. 1186/Mum/2013 and  ITO Vs Abbas Ali Shiraz, (2006) 5 ITD 422(Bang.). 6. So far as addition on account of car parking of Rs. 7,31,501/- representing the stamp duty value of car parking is concerned, it was agreed for allotment as per clause 10 of agreement. No such payment was received by the assessee. The possession of said car parking has not been received in the relevant financial year and he received only on 30.09.2021. The said car parking is an open space and no right of ownership or tenancy is created in favour of the assessee. The assessee has no transferable right. More over car parking was allotted along with residential premises. The assessee has not paid any additional amount; it was given along with the flat. To support his submission the Ld.AR relied upon the decision of Mumbai tribunal in case of Dr. Jayesh K. Shah, ITA No. 6743/Mum/2017, 175 ITD 751 (Mum.). On other receipt which include hardship compensation, brokerage charges, shifting charges, transit rent and stamp duty, Ld. AR of the assessee submits that all charges were paid by builder with no such amount was received during the year under consideration. The stamp duty was paid by developer; transit rent was paid on three years and was paid to the landlord. The lower authority failed to appreciate the fact that assessee is owner of half of the share and taking the entire value of alternative assets is absolutely unjustified. The Id AR of the assessee prayed for deleting all the additions. 7. On the other hand, Learned Senior Department Representative (Ld. Sr. DR) for the revenue supported the order of CIT(A). The Ld. Sr. DR for revenue submits that matter may be restore back to the file of assessing officer to verifying the facts, if the assessee is owner of 50% of share in newly constructed alternative accommodation/ flat received by assessee in lieu of surrender of tenancy right. All remaining receipt and addition thereof may be reconsidered by assessing officer.

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8.

We have considered the rival submission of both the parties and have gone through the orders of lower authorities carefully. We have also deliberated on various case of Ld.AR of the assessee. We find that there is no dispute on the facts that the assessee was tenant and in lieu of surrender of tenancy right the assessee and his wife were given flat on ownership basis. The ready reckoner value of such flat was of Rs. 1.10 Crore. On perusal of record and the order of lower authority, we find that the assessee is allotted alternative accommodation in a redevelop project being flat No. 401 in the property. From the contents of redevelopment agreement it is clearly discernable that assessee and his wife were tenant in the property and both were allotted alternative/ new flat under a redevelopment project in exchange/lieu of surrender of tenancy. We find that coordinate bench of Mumbai Tribunal in Vasant Nagorao Barabde (Supra) on similar facts and while considering similar ground of appeal held that where tenancy rights were surrender in favour of developer and against such surrender developer allotted new flat for nil consideration, as tenancy right was a capital assets which was liable to be tax under section 45 and there was an investment by way residential flat allotted to equivalent stamp duty value against surrender of tenancy, applicability of section 56 of ruled out. It was further held that the tenancy right was surrender in the favour of developer and then was investment by way permanent alternative accommodation of residential flat, equivalent to stamp duty value capital gain so computed would be eligible for deduction under section 54F. We find that facts of the case in hand are similar to that of Vasant Nagorao Barabde (Supra). Thus, we held that there is no applicability of section 56 in the present case. So far as addition of car parking of Rs. 7,31,501/- is considered, it was allotted along with alternative flat therefore such addition is also deleted. So far as hardship compensation of Rs. 15,87,555/- is concerned such receipt is a capital receipt as has been held in Sarfraz S. Furniturewalla, 467 ITR 230 (Bom). Further stamp duty and registration fee of Rs. 5,80,500/-was paid by builder as per term of agreement so such addition is also deleted. 9. So far as shifting charges is concerned same are admittedly revenue expenditure. Similarly transit rent for 33 months was not paid in the year under consideration and was paid for almost three years and cannot be added similarly brokerage of Rs. 1,16,978/- is also revenue expenditure. Resultantly all addition made by the assessing officer are deleted. In the result, the grounds of appeal raised by the assessee are allowed. 10. In the result, the appeal of the assessee is allowed.”

9.

Therefore, from the careful perusal of the decision of the Coordinate Bench of the Tribunal in quantum proceedings, it is evident that the additions which resulted in the impugned penalty under section 270A of the Act have been deleted by the Coordinate Bench of the Tribunal. Thus, as the very basis for levying the impugned penalty has been quashed, we do not find any merit

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in upholding the penalty levied under section 270A of the Act. It is a settled legal position that where the foundation addition does not survive, the superstructure of penalty automatically falls. Accordingly, the penalty order passed under section 270A of the Act is quashed. As a result, Ground No.1 raised in assessee’s appeal is allowed.

10.

In view of our aforesaid findings, the other grounds raised by the assessee are rendered academic and, therefore, are kept open.

11.

In the result, the appeal by the assessee is allowed. Order pronounced in the open Court on 19/05/2026

Sd/- Sd/- SANDEEP SINGH KARHAIL VIKRAM SINGH YADAV JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED: 19/05/2026 Prabhat Copy of the order forwarded to: (1) The Assessee; (2) The Revenue; (3) The PCIT / CIT (Judicial); (4) The DR, ITAT, Mumbai; and (5) Guard file. By Order

Assistant Registrar ITAT, Mumbai

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