S ASHOK,TIRUNELVEL vs. DCIT, CENTRAL CIRCLE-1(3), CHENNAI

The property in question was bought for 31,80,000, with a market rate of 1,500 per sq.ft. The DVO, however, used a rate of 3,537 per sq.ft. This valuation ignored important factors like the property's location in a less developed residential area, which should not be compared to commercial areas. Thus, the penalty based on this wrong valuation is not justified.

In June 2017, the Tamil Nadu government revised the property's guideline value to 3,000 per sq.ft., supporting the assessee's claim that the 2016 market value was lower. The AO ignored this fact, making the penalty baseless.

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 clear 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. The learned AO failed to understand the fact that the only basis of the addition is the estimate made by the DVO hence penalty levied u/s 270A of the Act is not in accordance with law. This fall in line with the decision of Honourable ITAT A Bench Pune in dated 10-02-2023 in the case of Jaibalaji Business Corporation Ltd Vs ACIT, Pune where the addition was made u/s 56 in consequence of addition u/s 43CA held that penalty u/s 270A cannot be levied for the addition made under deeming provisions of the Act.

The ITAT Delhi in the case ITO vs. Ajay Sharma (ITAT Delhi, 2017) canceled the penalty under Section 271(1)(c) for an addition made under Section 50C. The tribunal held that the valuation by the Stamp Valuation Authority does not conclusively prove that the actual sale consideration was higher than reported. Since there was no evidence of the assessee receiving more than what was declared in the sale deed, the penalty for concealment was found unjustified.

Recent developments Moreover the addition u/s 153C read with section 56 (2) (b) was rendered unlawful by the Honourable ITAT Chennai for AY 2014- 15 and 2016-17 pertaining to Appellants dealing elaborately vide the order dtd 27th September 2024. More over the Appeal against the Assessment is Pending before High Court Chennai for the relevant AY 2017-18. Further no penalty proceedings were initiated for AY 2014-15 and 2016-17 for 56(2) (b) additions 9. Although not directly related to Section 50C, this case is often cited in penalty matters. The Supreme Court ruled in the case CIT vs. Reliance Petroproducts Pvt. Ltd. (Supreme Court, 2010) that simply making an incorrect claim does not amount to concealment of income. This precedent is important in cases where additions are made due to deeming provisions like Section 50C/56, as it protects taxpayers from penalties if they have not intentionally misreported/underreported income. 10. The AO has no evidence to prove that the declared sale consideration is incorrect. No incriminating material has been unearthed in the case of Assessee. The Pothys Partnership firm and the Pothys Private Ltd had settled all the issues with Settlement commission. Hence, the penalty is unlawful that too based on deeming provisions. Therefore, it is requested that the penalty under Section 270A be deleted and render justice”

The learned AR submitted that issue in question is squarely covered in favour of the assessee. It was submitted that no penalty u/s.270A of the Act, can be imposed when addition is on account of estimation of fair market value by the valuation officer. In this context, the learned AR relied on the following judicial pronouncements:- to 3173/CHNY/2024 i) Hon’be High Court of Calcutta judgement in the case of CIT Vs Madan Teatres Ltd. (260 CTR 75) dated 15.05.2013. ii) ITAT., Mumbai decision in the case of M/s.Alrameez Construction P.Ltd.in ITA No.482/Mum/2023 vide order dated 12.06.2023. iii) ITAT., Delhi decision in the case of Shri Aswani Jaipaty Vs. DCIT in ITA No.276/Del/2018 vide order dated 11.07.2018. iv) ITAT., Mumbai decision in the case of Satyam Print House Vs.ACIT in ITA No.2898/Mum/2023 (order dated 08.03.2024).

We have heard the rival submissions and perused material on record. On a query from the Bench, the learned AR submitted as against the quantum assessment, appeal is pending adjudication before the Hon’ble High Court. In the instance case, the addition is made invoking deeming provision as per section 56(2)(vii)(b) of the Act. The only basis of addition is estimate made by the DVO. There is nothing on record to suggest that assessee had paid more than the price mentioned in the sale deed. When deeming provisions are applied for addition of income, neither concealment of income or under reporting of income can be established against assessee without other material facts on record. The AO has failed to 3173/CHNY/2024 to appreciate section 270A(6)(a) of the Income Tax Act, which prescribes “under reporting” of income shall not include the amount of “under reported income” determined on the basis of estimation. On identical facts, the Mumbai Bench of the Tribunal in the case of Satyam Print House Vs. ACIT in ITA No.2898/Mum/2023 (order dated 08.03.2024) had deleted penalty imposed u/s.270A of the Act. The relevant finding of the Tribunal in the case of Satyam Print House Vs. ACIT reads as follows:- “It is pertinent to note that even the Valuation Officer had determined the fair market value of the immovable property at INR 2,45,00,000/- which was lower than the stamp duty valuation of INR 3,23,55,630/-. The Assessing Officer had determined the amount of under-reported income on the basis of estimate made by the Valuation Officer in respect of the fair market value of the immovable property after comparing the same with the sale consideration of INR 2,10,00,000/-. We note that as per Section 270A(6)(c) of the Act under-reported income does not include the amount of under-reported income determined on the basis of an estimation, where an assessee has estimated a lower amount of addition on the same issue provided all facts material to addition have been disclosed by the Assessee. In the present case the Assessee is on a better footing. While the addition has been made on account of estimation of fair market value by the Valuation Officer, the income has been computed by the Assessee on the basis of sale consideration determined by the Assessee by negotiation/agreement with a third party and not by way of estimation. Thus, our conclusion in paragraph 12 above that additional income of INR 35,00,000/- was to be excluded from the ambit of under-reported income also draw support from the provisions contained in Section 270A(6)(c) of the Act.” ITA Nos.3169 to 3173/CHNY/2024

Similar view has been held in the aforementioned judicial pronouncements cited supra (para 7).