CAPACITE INFRAPROJECTS LIMITED ,MUMBAI vs. ACIT/DCIT CENTRAL CIRCLE 1(2), MUMBAI, MUMBAI

PER RAJ KUMAR CHAUHAN (J.M.): These appeals has been filed by the appellant/assessee against both order dated 15.10.2024 of Learned Commissioner of ITA No. 6315 & 6309/Mum/2024 CapaciteInfraprojects Limited; A.Y. 2017-18 & 2018-19 Income Tax, Central Circle 1(2), Mumbai[hereinafter referred to as the “CIT (A)”],passed under section 250 of the Income Tax Act, 1961 [hereinafter referred to as “the Act”] for the A.Y. 2017-18 and 2018-19 respectively. 2. By this common order we propose to dispose off ITA No. 6315/Mum/2024 and ITA No. 6309/Mum/2024 as parties are same and facts and issues involved are also identical. ITA No. 6315/Mum/2024 is taken as lead case. The appeal is directed against the order dated 15.10.2024 passed by the Commissioner of income tax Appeal, i.e. CIT(A), 47, Mumbai, wherein the penalty order u/s 270A of the Act dated 20.02.2024 was confirmed. The facts in brief as culled out from the orders of the authorities below are that,the appellant i.e. M/s Capacit E Infraproject Pvt. Ltd. is a domestic company engaged in the business of civil contracting mainly residential and commercial building, multi-layer car parking, and institutional building having income from house property, business, capital gain and other sources. For the year under consideration, the return of income was filed on 31.10.2017 declaring its total income at Rs. 58,15,55,970/- and deemed total of income of Rs. 105,62,70,517/- u/s 115JB of the Act. A search and seizure action u/s 132 of the Act was conducted by DDIT (investigation unit 1 (Mumbai) in the case of capacity e group, its associated concerns, directors and related persons on 28.08.2019. The appellate was also covered in searchaction u/s 132 of the act.

ITA No. 6315 & 6309/Mum/2024
CapaciteInfraprojects Limited;
A.Y. 2017-18 & 2018-19
Consequent to the notice u/s 153A of the Act, the appellate company filed its return of income on 07.12.2020 declaring its total income at Rs. 64,74,89,950/- under normal provision of the Act and deemed total income of Rs. 105,62,70,517/- u/s 115JB of the Act. The assessment order u/s 153A was passed on 27.07.2021
determining total income of appellant at Rs. 86,94,28,130/-,after making various addition/disallowances. The penalty proceeding were also initiated. The assessment order u/s 153A was challenged by the appellant in appeal and the addition on account of deemed rent u/s 23(1) r.w.s 23(4) of the Act was partly allowed and the appeal regarding the addition related to disallowance of employee contribution towards PF and ESIC u/s 36(1)(VA) r.w.s. 2(24)(X) was dismissed. Vide order dated 20.02.2024 penalty order u/s 270A was passed and levied on penalty of 3,08,73,106/- for under reporting of income in consequence to misreporting of income.Aggrieved by the penalty levied, the appellant has filed the appeal before the Ld. CIT(A) which was dismissed vide impugned order challenged in the present appeal.
Thus,the assessee/appellant is in appeal before us and has raised following grounds.
“Ground of Appeal No.1: Levy of penalty on deemed rental income" is bad in law a. The Learned Assessing Officer has erred in levying penalty on addition on account of deemed rent u/s 23(1) r.w.s 23(4) and the Ld. CIT(A) has erred in confirming such levy of penalty.
b. The appellant contends that the addition on account of deemed rent is purely on the basis of estimates and the accounts of the assessee are correct and complete as this fact has not been ITA No. 6315 & 6309/Mum/2024
CapaciteInfraprojects Limited;
A.Y. 2017-18 & 2018-19
disputed by the Ld. Assessing officer in his order. Therefore, addition on the basis of estimate does not mean there is any under reporting of income by the appellant and is not liable to any penalty u/s. 270A.
c. Addition on estimates cannot be categorized as misreporting of income as the appellant has disclosed all facts and there is no misrepresentation or suppression of facts by the appellant.
Therefore, addition on account of deemed rent is not misreporting of income as contemplated in sub section 9 of section 270A.
Therefore no penalty can be levied d. The appellant contends that the levy of penalty on addition on account of deemed rent u/s 23(1) r.w.s 23(4) is in contravention to the principles of natural justice and needs to be deleted.
Ground of Appeal No.2: Levy of penalty on Disallowance of Employees contribution towards PF and ESIC is bad in law a. The Learned Assessing Officer has erred in levying penalty on addition on account of disallowance of employees contribution towards PF and ESIC u/s 36(1)(va) r.w.s. 2(24)(x) and the Ld.
CIT(A) has erred in confirming such levy of penalty.

b. The appellant contends that the disallowance u/s 36(1)(va) r.w.s. 2(24)(x) is purely a legal and debatable issue as it a based on the question in law and not under reporting or misreporting of income. Thus, the same qualifies for non-levy of any penalty based on various judicial precedents.

c. The appellant contends that they had claimed the deduction of Employees contribution towards PF and ESIC on the basis of reliance on judicial pronouncement of various courts in this regards. The Ld. Assessing Officer had disallowed the claim on the basis of an administrative circular for filing of appeals by the departmental officers. The said circular is not applicable in the instant case and therefore the said disallowance is itself bad in law. Therefore no penalty can be levied in the instant case.

d. The appellant contends that the levy of penalty on disallowance u/s 36(1)(va) r.w.s. 2(24)(x) is in contravention to the principles of natural justice and needs to be deleted.
Ground of Appeal No. 3:

The Appellant craves leave to add, alter, rescind or amend any of the above grounds of appeal.”

ITA No. 6315 & 6309/Mum/2024
CapaciteInfraprojects Limited;
A.Y. 2017-18 & 2018-19
3. On summarizing the ground raised in the appeal and taking into consideration the fact delineated above, thefollowing points of determination arises before us on the basis of two grounds of appeal taken by the appellant/assessee as under:
I.
whether addition on account of deemed rent u/s. 23(1) r.w.s. 23(4) of the Act shall automatically tantamount to underreporting of the income due to misreporting of the income by the assessee with a consequence of imposing the penalty of 200% u/s 270A of the Act?
II.
Whether addition on account of disallowance of employee contribution towards PF/ESIC u/s 36(1)(VA) r.w.s. 2(24)(x) of the Act before pronouncement of the checkmate
Judgment by the Hon’ble Apex Court shall amount to misreporting of the income by the assessee/appellant with a consequence of imposing of 200% penalty u/s 270A of the Act?
4. We have heard Ld.AR on behalf of the assessee and Ld.DR on behalf of the revenue.With respect to the addition made on account of deemed rent, it is argued that since the said addition is on estimation basis, hence penalty u/s 270A of the Act is not warranted. Regarding the penalty on account of Employee contribution towards PF/ESIC due to following the Hon’ble Apex
Court case of Checkmate Service Private Limited V/S CIT [2022]
143 taxmann.com 178 (SC)dated 12.10.2022. It is argued that ITA No. 6315 & 6309/Mum/2024
CapaciteInfraprojects Limited;
A.Y. 2017-18 & 2018-19
penalty is not justified because the appeal pertain to the assessment year 2017-18 and 2018-19 and at that time the Juri ictional High Court judgment in CIT v/s Ghatge Patil
Transport Limited 2015(53) taxmann.com 141 as permitted the condonation of delay in depositing the employee contribution towards PF/ESIC even after the due datementioned in the statue, therefore it cannot be said to bea case of underreporting of income on account of misreporting of income and penalty u/s 270A is not warranted at all and imposing of 200% penalty has resulted into miscarriage of justice. It is therefore argued that the penalty imposed on account of alleged misreporting of deemed rental income and alleged disallowance of employee contribution towards
PF/ESIC needs to be deleted and appeal of the assessee be allowed.
1. The Ld.DR on the other hand has relied upon the judgment of the Ld. CIT(A) and the Ld.AO and argued that the penalty has been rightly imposed u/s 270A(1), 270A(8) r.w.s 270A(9) of the Act.
2. We have considered the rival contentions and examined the record and accordingly proceed to decide points enumerated by us in the preceding paras as under:
“whether addition on account of deemed rent u/s. 23(1) r.w.s. 23(4) of the Act shall automatically tantamount to underreporting of the income due to misreporting of ITA No. 6315 & 6309/Mum/2024
CapaciteInfraprojects Limited;
A.Y. 2017-18 & 2018-19
the income by the assessee with a consequence of imposing the penalty of 200% u/s 270A of the Act?”
5. The issue of deemed rent u/s 23(1) r.w.s. 23(4) of the Act is dealt by the assessing officer in the penalty order u/s 270A of the Act dated 20.02.2024 in paragraph 3.2 to 5 observing that deemed rent u/s 23(1) r.w.s. 23(4) of the Act and its net annual value was determined at Rs. 14,92,750/- and was taxed under the head
“income from house property” u/s. 23(1) r.w.s. 23(4) of the Act as deemed rent. Penalty proceeding u/s 270A of the for under reporting of income for consequence of misreporting of income was initiated separately. It was further held that the assessee has merely submitted that he has filed appeal in this case before Ld.
CIT(A) but the order of the Ld. CIT(A) has been pronounced in the case in which addition has been confirmed on account of deemed rent u/s 23(1) r.w.s. 23(4) of the Act. The Ld.AO was of the opinion that for the above reason the submission of the assessee is not acceptable and he was satisfied that it was a fit case for levyof penalty u/s 270A of the Act for under reporting of income consequence to misreporting of income. LD. AR argued on behalf of the appellant with respect to penalty on deemed rental income, that the levy of penalty on account of deemed rent is purely on the basis of estimates and the accounts of the assessee are complete and this fact cannot be disputed by the ld. assessing officer and therefore the addition on the basis of estimate does not make any ITA No. 6315 & 6309/Mum/2024
CapaciteInfraprojects Limited;
A.Y. 2017-18 & 2018-19
underreporting of the income by the assessee. Hence penalty u/s 270A cannot be imposed. The reliance was placed on the judgment of Jai Balaji Business corporation Pvt. Ltd. Vs. ACIT, Pune (2023),
147 taxmann.com 333 (Pune Tribunal).
6. It was further submitted before the Ld. CIT(A) that the addition on account of deemed rental income cannot be categorized as misreporting of income because the assessee has disclosed all facts and there is no misrepresentation or suppression of facts by the assessee and therefore the addition on account of deemed rent is not due to misreporting of income as contemplated in sub-section 9
of section 270A of the Act and therefore penalty would not be levied.
Reliance was placed on Delhi Tribunal Judgment in the case of Prem
Brother
Infrastructure
LLP
V/s
NFAC
(2022)
142
taxmann.com 38 (Delhi) and also on Pr. CIT 2 V/s Gruh
Infrastructure Limited (2018) 100 taxmann.com 104 (SC).
7. The submission of the assessee/appellate with regard to penalty imposed due to underreporting consequence of misreporting of deemed rent of income is dealt by Ld. CIT(A) in the impugned order in paragraph No. 6.1 to 6.1.5 extracted below as under:
“6.1 Decision on Ground No. 1: This ground is related to the issue of levying penalty on addition of deemed rent u/s. 23(1) r.w.s.
23(4) of the Act.

 Out of 11 flats, only 3 flats have been let out on rent &
that too for a short period.

 The rental value of flats is different ranging from 15,000 to 35,000/-.

Further, during the appellate proceedings, the appellant submitted as under:

"The issue of levy of penalty on account of deemed rent is purely on the basis of estimates and the accounts of the assessee are correct and complete as this fact has not been disputed by the Ld.
Assessing officer in his order. Therefore, addition on the basis of estimate does not mean there is any under reporting of income by the assessee and is not liable to any penalty u/s. 270A"

ITA No. 6315 & 6309/Mum/2024
CapaciteInfraprojects Limited;
A.Y. 2017-18 & 2018-19
Appellant is a company which is into infrastructure &
Construction related activity. As per the I.T. Act, provisions relating to Annual Value of property are very clear and there is no question of ambiguity or confusion. Only issue which can be debated is the methodology to be adopted either by appellant itself or the AO or Ld. CIT(A) for calculation of the annual value of property. Since the appellant has not reported the same on its own, the same has correctly been done by Ld. CIT(A). But there is no ambiguity about the provision as per which annual value has to be calculated in case of vacant premises which has been reasonably calculated by the Ld. CIT(A).

Section 270A(8) states that:

"Notwithstanding anything contained in sub-section (6) or sub- section (7), where under-reported income is in consequence of any misreporting thereof by any person, the penalty referred to in sub- section (1) shall be equal to two hundred per cent of the amount of tax payable on under-reported income."

While section 270A(9) states that:

"The cases of misreporting of income referred to in sub-section (8) shall be the following, namely: (a) misrepresentation or suppression of facts; (b) failure to record investments in the books of account; (c) claim of expenditure not substantiated by any evidence; (d) recording of any false entry in the books of account,
(e) failure to record any receipt in books of account having a bearing on total income; and (1) failure to report any international transaction or any transaction deemed to be an international transaction or any specified domestic transaction, to which the provisions of Chapter X apply."

ITA No. 6315 & 6309/Mum/2024
CapaciteInfraprojects Limited;
A.Y. 2017-18 & 2018-19
From the facts of the case, it can clearly be derived that the case of the appellant falls u/s. 270A(1) r.w. 270A(9)(a). The appellant is not an individual but a well-established construction company and even though the assessee was well aware of the law as on date it has misrepresented and suppressed correct facts.

ITA No. 6315 & 6309/Mum/2024
CapaciteInfraprojects Limited;
A.Y. 2017-18 & 2018-19
23. (1) For the purposes of section 22, the annual value of any property shall be deemed to be-
(c) where the property or any part of the property is let and was vacant during the whole or any part of the previous year and owing to such vacancy the actual rent received or receivable by the owner in respect thereof is less than the sum referred to in clause (a), the amount so received or receivable:
Now reading the words "property or any party of the property is let and was vacant during the whole or any part of the Previous year" the assessee has interpreted that in cases where assessee was unable to let out the property for the whole of the year then the rent received or receivable by the assessee will be deemed as the annual value. Further where the flats have been let out for part of the year as well the rent received or receivable by the assessee will be deemed as the annual value as the assessee is eligible for Vacancy period allowance. As a result, the assessee contends that the rent actually received by the assessee shall be the annual value for the Flats and hence no deemed rental can be added to the income of the assessee.”
9. Since the assessee has disclosed all the facts with regards to the deemed rental of income before the assessing officer, the provision of u/s 270A(6)(b and c) of the Act are also attracted and the case of the assessee doesnot fall in the category of underreporting of income consequent upon misreporting of income.
The reliance can also be placed in that regard on the case of Hon’ble
High Court of Delhi in Prem Brother Infrastructure LLP (Supra) wherein the Hon’ble High Court was pleasedto hold in paragraph
No. 7 that where the assessee has furnished all the details of the transactions, the underreporting of income allegedlydone by the assessee does not amount to misreporting of income. Thereforein the case of the assessee, the imposing of penalty u/s 270A of the ITA No. 6315 & 6309/Mum/2024
CapaciteInfraprojects Limited;
A.Y. 2017-18 & 2018-19
Act is not warranted. For the above reasons the Point No. I enumerated by us is decided in negative and in favour of assessee.
Point No. II
II. Whether addition on account of disallowance of employee contribution towards PF/ESIC u/s 36(1)(VA) r.w.s. 2(24)(x) of the Act before pronouncement of the Checkmate Service P Ltd. Judgment by the Hon’ble
Apex Court shall amount to misreporting of the income by the assessee/appellant with a consequence of imposing of 200% penalty u/s 270A of the Act?
10. On perusal of the penalty order dated 20.02.2024 u/s. 270A it is noticed that ld. assessing officer while imposing the penalty has given no reason except observing that“Assessee has merely submitted that he has filed the appeal in this case before the Ld. CIT(A).Order of the Ld.
CIT(A) has been pronounced in this case in which the addition has been confirmed on the ground of u/s 36 (1) (va)r.w.s 2(24)(X) of the Act and on deemed rent u/s 23(1) r.w.s 23(4) of the Act. Thereforethe submission of the assessee is not acceptable.”Thepenalty was imposed in paragraph No. 6 and 7 of the penalty orderas under:
“6. In view of the facts and circumstances of the case, I am satisfied that this is a fit case for levy of penalty u/s. 270A of the Income Tax
Act, 1961, for under-reporting of income consequence to mis- reporting.
6.1. The amount of penalty u/s 270A of the Act on the income of Rs.
4,46,04,003/- sought to be evaded by the assessee as determined herein under:

ITA No. 6315 & 6309/Mum/2024
CapaciteInfraprojects Limited;
A.Y. 2017-18 & 2018-19
Income sought to be evaded by the assessee
Rs. 4,46,04,003/-
Tax on the income sought to be evaded
(Incl. Surcharge & E.C.)
Rs. 1,54,36,553/-
Penalty @ 5
Rs. 77,18,276/-
Penalty @ 20
Rs. 3,08,73,106/-

Further, during the appellate proceedings, the appellant submitted as under:

"It is settled issue that where the disallowance or addition is a legal and debatable issue no penalty is leviable. Disallowance u/s 36(1) (va) r.w.s. 2(24)(x) is purely a debatable issue and the same qualifies for non-levy of any penalty”

The judgement of Hon'ble Apex Court in the case of Checkmate
Services (P.) Ltd. vs CIT [2022] dated 12.10.2022, squarely covers the issue raised by the appellant vide this ground and it is well established that the issue related to disallowance u/s 36(1)(va) r.w.s. 2(24)(x) is not a debatable issue and subsequently confirms the failure on the part of the appellant, which is not an individual but a well-established construction company not following the provisions applicable to it. Therefore, since the provisions were very clear and explicit as per the Act and the same have now been fortified by the judgement of Hon'ble Supreme Court, I am of the opinion that the appellant has deliberately underreported its income and misrepresented and suppressed correct facts. Accordingly, I hold that the AO has appropriately levied penalty u/s. 270A and therefore, the action of AO is upheld. Hence, the ground of appeal no.
2 is dismissed.”

ITA No. 6315 & 6309/Mum/2024
CapaciteInfraprojects Limited;
A.Y. 2017-18 & 2018-19
12. It thus evident from the above extract that the Ld. CIT(A) has dismissed the appeal observing that “the appellant is not an individual but a well-established construction company not following the provision applicable to it.”The Ld. CIT(A) further observed that since the provision very clear and explicit as per the act and the same has now been fortified by the Judgment of Hon’ble
Supreme Court in Checkmate Services Private Limited case, therefore the appellant had deliberately underreported its income consequent to misreporting of income and as thus misrepresented and suppressed the facts. The said reasons does not appeal to us because the penalty order pertains to the assessment year 2017-18
whereas the Hon’ble Apex Court Judgment in the case of Checkmate Service Private Limited V/S CIT (Supra)is dated
12.10.2022. It was argued before us by the Ld.AR on behalf of the assessee/appellant that the Hon’ble Juri iction High Court at the time of relevant year of assessment has permitted the condonation of delay for late deposit of employee contribution of PF/ESIC after specified due date under the relevant Act but paid before due date of filing return of income for the relevant assessment year. The Ld.AR has referred the case of Juri ictional High Court in CITv/s
Commissioner Of Income Tax [2022] 144 taxmann.com 65

ITA No. 6315 & 6309/Mum/2024
CapaciteInfraprojects Limited;
A.Y. 2017-18 & 2018-19
(Mumbai Tribunal) wherein it was held that the contribution to PF/ESIC and the welfare fund paid after the specified due dates under the relevant act, nevertheless paid before the due date of filing return of income is allowable. The assessing officer was directed to allow the deduction as claimed. The Ld.DR on the other hand submitted that the Hon’ble Kerala High Court, Hon’ble
Gujarat High Court and Hon’ble Madras High Court had taken a contrary view to the view taken by the Hon’ble Bombay High Court.
13. We have considered the rival submission made on behalf of the parties.It is evident from the impugned order that Ld. CIT(A) has justified the imposing of the penalty by the Ld.AO on the grounds that the law on the issue has been finally settled by the Hon’ble
Apex Court in the case of Checkmate Service Pvt. Ltd (supra) and because of that reason the delayed payment of employees contribution towards PF/ESICfrom the date mentioned in the statue, would amount to have been deposited inviolation of provision of sec. 36A(va) of the Act as well as ofthe order of the Hon’ble Apex Court and for that reason the imposing of the penalty for underreporting of the income consequent to the misreporting of the income was justified.
14. We should not be oblivious of the fact that the present appealspertains to the A.Y. 2017-18 and 2018-19 and at that time judgment of the Hon’ble Apex Court which was delivered on 12.10.2022 was not pronounced. It is to be noticed that at that time

ITA No. 6315 & 6309/Mum/2024
CapaciteInfraprojects Limited;
A.Y. 2017-18 & 2018-19
the judgment of the Juri ictional High Court in CIT v/s Ghatge
Patil
Transport
Limited
(Supra) was in favour of the assessee/appellant whereas other Hon’ble High Courts i.e.High
Court of Kerala, Gujrat and Madras had taken a contrary view. The ultimate conclusion is that at the relevant assessment years, permissibility of deposit of employee contribution towards PF/ESIC beyond the due date mentioned in the statues but before the due of filing of return was a debatable issue. The said debatable issue was finally settled by the Hon’ble Apex Court on 12.10.2022 when the Checkmate Service Pvt. Ltd (Supra) was pronounced. In these fact and circumstance, we are of the considered view that the imposing of the penalty on account of a debatable issue is neither justified nor warranted because the appellate as per the prevailing law of the Juri iction
High
Court, has deposited the employee contribution towards PF/ESIC beyond the due date as the same was permissible because of the judgment of the Hon’ble Juri iction
High Court. So, it cannot be stated to be a case of underreporting of the income consequent to the misreporting of the income by the assessee/appellant. Therefore we are not able to convince ourselves by the reasoning of the Ld. CIT(A) wherein he has observed that the appellant has deliberately underreported its income and misrepresented and suppressed the facts. For the above reasons we are of the considered view that imposing of the penalty u/s 270A(1) r.w.s 270A(9)(a) of the Act is neither warranted nor justified. The ITA No. 6315 & 6309/Mum/2024
CapaciteInfraprojects Limited;
A.Y. 2017-18 & 2018-19
point No. II is accordingly decided in negative and in favour of assessee.
15. Since both the pointsenumerated by us has been decided in favour of the assessee and because of the aforesaid reasons the imposing of the penalty u/s. 270A of the Act on account of alleged underreporting of income consequent upon misreporting of the income is neither justified nor warranted and need to be deleted.The impugned order is accordingly setaside. The grounds in the appeal of the assessee are allowed in above terms. The Ld.AO is directed to delete the penalty imposed u/s 270A of the Act. The appeal of the assessee is accordingly allowed in above terms.
16. Since the grounds raised in the A.Y. 2018-19 are the same and identical which were raised by the appellant in ITA No.
6315/MUM/2024 A.Y. 2017-18, therefore the finding recorded by us in ITA No. 6315/MUM/2024 for A.Y. 2017-18 shall mutandis mutatis applyto the grounds raised in the appeal for A.Y. 2018-19. This appeal is accordingly allowed and the impugned order confirming the penalty imposed by the assessing officer u/s 270A of the Act for this year is also setaside. The Ld.AO is directed to delete the penalty upon the assessee/appellant.This appeal ofthe assessee is allowed in above terms.

ITA No. 6315 & 6309/Mum/2024
CapaciteInfraprojects Limited;
A.Y. 2017-18 & 2018-19
17. The ground raised in both the appeals are allowed. Both the appeals of the assessee are accordingly decided in above terms in favour of the assessee.
Order pronounced on 10.09.2025 / (OM PRAKASH KANT)
(RAJ KUMAR CHAUHAN)
(ACCOUNTANT MEMBER)
(JUDICIAL MEMBER)

Mumbai / Dated 10.09.2025
Disha Raut, (Stenographer)

Copy of the Order forwarded to:

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BY ORDER

(Asstt.