NARAYANBHAI SHIVABHAI PATEL,MEHSANA vs. THE ITO, WARD-1, MEHSANA

1. In law and in facts and circumstances of the case of the appellant, the penalty order u/s.270A of the Act dated 20.03.2023 is void and bad in law and hence deserves to be cancelled.

2. In law and in the facts and circumstances of the case of the appellant, the Ld. CIT(A) has grossly erred in confirming penalty of Rs.4,75,800/- (Assessment Year: 2020-21) Narayanbhai Shivabhai Patel vs. ITO Page 3 of 7 u/s.270A of the I.T. Act 1961 levied by Ld. AO as no penalty can be levied on the basis of deeming provision of Section 56(2)(x) of the Act.

3. In law and in the facts and circumstances of the case of the appellant, the Ld. CIT(A) has grossly erred in confirming penalty of Rs 4,75,800/- u/s.270A of the 1.T. Act 1961 levied by Ld. AO as appellant case falls under Section 270A(6)(a) of the Act, i.e., exception to underreported income.

4. In the law and circumstances of the case of the appellant, the Ld. CIT(A) has grossly erred in confirming penalty of Rs 4,75,800/- uls.270A of the 1.T. Act 1961 levied by Ld. AO as appellant case falls under Section 270A(6)(b) of the Act, i.e, exception to underreported income.

5. Shri Biren Shah, Ld. AR of the assessee, submitted that the sole basis of levy of penalty under Section 270A of the Act was the deeming provision under Section 56(2)(x) of the Act, which cannot be considered as any under-statement of income by the assessee. In this regard, he has relied upon various decisions as quoted in the paper-book filed by the assessee. The Ld. AR further submitted that the assessee’s case was covered under the exception as provided under Section 270A(6) of the Act, as the assessee had explained that the properties were acquired at less than stamp value rate for the reason that they did not bear clear title to fetch the market value as decided by the State Government. He submitted that considering the bona-fide explanation of the assessee and that all the material facts were duly disclosed in the return of income, the imposition of penalty under Section 270A of the Act was not proper.

6. Per contra, Ms. Urvashi Mandhan, Ld. Sr. DR submitted that the assessee did not bring any evidence on record to establish the defect in the title of the lands and, therefore, it was not covered in the exceptions provided u/s 270A(6) of the Act. Further that the assessee did not contest (Assessment Year: 2020-21) Narayanbhai Shivabhai Patel vs. ITO Page 4 of 7 the valuation of the stamp duty adopted by the authorities. Therefore, the provisions of Section 56(2)(x) of the Act was squarely applicable and the addition of Rs.30,50,000/- as made by the Assessing Officer was also not contested by the assessee. Considering these facts, the Assessing Officer had rightly imposed the penalty under section 270A of the Act for under- reporting of the income. The Ld. Sr. DR strongly supported the orders of the lower authorities.

7. We have carefully considered the rival submissions. It is found that the addition in this case was made under the deeming provisions of Section 56(2)(x) of the Act. The contention of the assessee is that no penalty under Section 270A of the Act can be imposed for such deeming addition. It is found that the case laws relied upon by the assessee were in the context of penalty levied under Section 271(1)(c) of the Act which are not found relevant to decide the issue before us. Only the decision of Co-ordinate Bench of Bombay Tribunal in the case of Alrameez Construction Pvt. Ltd. vs. CIT/NFAC, 152 taxmann.com 382 (Mumbai- Trib.) is found to be in the context of penalty under Section 270A of the Act for under-reporting the income. In that case also, the addition was made under Section 56(2)(x) of the Act, which was held as not falling in the category of underreporting or misreporting of income.

7.1 The assessee has also contended that his case is covered under the exception under Section 270A(6) of the Act. The said section is reproduced for the sake of easy understanding. Penalty for under-reporting and misreporting of income. 270A. (6) The under-reported income, for the purposes of this section, shall not include the following, namely: —

(a) the amount of income in respect of which the assessee offers an explanation and the Assessing Officer or 95[the Joint Commissioner (Appeals) or] the Commissioner (Appeals) or the Commissioner or the Principal Commissioner, as the case may be, is satisfied that the explanation is bona fide and the assessee has disclosed all the material facts to substantiate the explanation offered; (b) 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 or 95[the Joint Commissioner (Appeals) or] the Commissioner (Appeals) or the Commissioner or the Principal Commissioner, as the case may be, but the method employed is such that the income cannot properly be deduced therefrom; (c) the amount of under-reported income determined on the basis of an estimate, if the assessee has, on his own, estimated a lower amount of addition or disallowance on the same issue, has included such amount in the computation of his income and has disclosed all the facts material to the addition or disallowance; (d) the amount of under-reported income represented by any addition made in conformity with the arm's length price determined by the Transfer Pricing Officer, where the assessee had maintained information and documents as prescribed under section 92D, declared the international transaction under Chapter X, and, disclosed all the material facts relating to the transaction; and (e) the amount of undisclosed income referred to in section 271AAB.

7.2 It is found that the assessee had disclosed all the material facts and explanation as to why the purchase price of the property was less than the stamp duty value was also given by the assessee. However, the Assessing Officer had held that the explanation of the assessee was not bona-fide as no supporting evidence for the explanation was brought on record. The addition made under Section 56(2)(x) of the Act is not absolute addition, as the assessee has an option to dispute the stamp value of the property on the grounds mentioned in Section 50C of the Act and, thereafter, the Assessing Officer is required to refer the matter to the Valuation Officer. Further, if the value as determined by the Valuation Officer is within 20% of the purchase consideration, then no addition is required to be made under Section 56(2)(x) of the Act. Therefore, no penalty u/s 270A can be automatically levied for all the additions made u/s 56(2)(x) of the Act. It is also relevant to consider that the value determined by the DVO is also an estimate, based on the sale consideration of other (Assessment Year: 2020-21) Narayanbhai Shivabhai Patel vs. ITO Page 6 of 7 properties in the same vicinity or on the basis of other yardsticks as prescribed. Therefore, any addition made under Section 56(2)(x) of the Act on the basis of difference in the stamp duty value and the purchase price or between the value determined by the DVO and the purchase consideration, cannot be considered as underreporting of income by the assessee so as to invoke the provisions of Section 270A of the Act. 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. Merely because the assessee didn’t opt to refer the matter to the Valuation Officer, it doesn’t make a case fit for imposition of penalty u/s 270A of the Act.

Order pronounced in the open Court on this 18th September, 2025.