RAVI VIJAYALAKSHMI,ATHIPATTU vs. ITO, NCW-6(1), CHENNAI

The brief facts of the case emanating from the records are that the assessee had filed the Return of Income (ROI) for AY 2016-17 admitting a total income of Rs.8,55,550/-. The assessee had acquired a immovable property on 11.03.2016 together with her spouse Shri G.Ravi paying a consideration of Rs.2 crores. The deemed value of consideration as per the Stamp Valuation Authority that corresponded to the assessee’s share was Rs. 3,82,80,000/- and the differential value of Rs.2,82,80,000/- was added to the total income and brought to tax as ‘Income from Other Sources’ u/s.56(2)(vii)(b) of the Act by passing an order u/s.143(3) r.w.s 263 of the Act dated 29.03.2022, by arriving at a total income of Rs.3,73,05,150/-.

Aggrieved by the levy of penalty, the assessee had preferred an appeal and Form No.35 was submitted on 29.11.2022 after a delay of 34 days. It was appraised that the Audit Assistant of the Chartered Accountant had misplaced the impugned order without filing an appeal within the limitation period. On receipt of attachment notice in the month of November 2022, this omission came to the notice and immediately the appeal was filed. The assessee pleaded that belated filing of appeal in such circumstances deserved condonation and sought admission of the appeal for adjudication on the merits of the case.

The ld.CIT(A) did not condone the delay as according to the appellate authority, the assessee had not made a sufficient cause for delay. Though the issue that required adjudication is whether an addition made under the deeming concept u/s.56(2)(vii)(b) of the Act would warrant levy of penalty or otherwise, the ld.CIT(A) brushed aside the grounds of appeal on its merits and dismissed the appeal as ‘non-maintainable’.

The learned Authorized Representative of the assessee (ld.AR) submitted that the ld.CIT(A) has totally ignored the assessee's contentions and without deciding anything on record has dismissed the appeal only on the ground of delay in filing the appeal before him by 34 days. The ld.AR submitted that the penalty u/s.271(1)(c) of the Act levied on the additions made based on the deemed income and hence the same is not maintainable and prayed for deleting the same.

We have heard the rival submissions and carefully perused the entire material available on record, including the assessment order, the penalty order, the impugned order of the ld. CIT(A), the affidavit filed in support of condonation of delay, and the judicial precedents relied upon. The issues arising for our consideration are: (i) whether the ld. CIT(A) was justified in dismissing the appeal as non-maintainable on account of delay of 34 days; and (ii) whether, on merits, the penalty levied under section 271(1)(c) of the Act, is sustainable where the addition is made solely by invoking the deeming provisions of section 56(2)(vii)(b) of the Act.

Insofar as the delay before the ld. CIT(A) is concerned, the explanation offered by the assessee is that the impugned penalty order was inadvertently misplaced by the Audit Assistant of the Chartered Accountant and that the omission came to light only upon receipt of the attachment notice, whereupon the appeal was immediately filed. The delay is only 34 days. The Revenue has not brought on record any material to demonstrate that the delay was deliberate or actuated by mala fide intent. The explanation furnished appears to be bona fide and plausible.

It is a settled principle that procedural provisions relating to limitations are intended to advance the cause of justice and not to defeat it. When substantial justice and technical considerations are in conflict, the former must prevail. In the present case, the ld. CIT(A) has adopted a hyper-technical approach in dismissing the appeal without examining the merits. In our considered view, the delay deserved to be condoned and the appeal ought to have been adjudicated on merits. The Hon’ble Supreme Court has consistently held that when substantial justice and technical considerations are pitted against each other, the cause of substantial justice deserves to be preferred. A liberal approach in :-5-: ITA. No:2887/Chny/2025 condoning delay is warranted so that matters are decided on merits rather than on technicalities.

The core issue involved in the present appeal is whether penalty u/s.271(1)(c) of the Act can be sustained when the addition is made purely on account of a deeming fiction u/s.56(2)(vii)(b) of the Act, based on stamp duty valuation. On the substantive issue, it is undisputed that the assessee disclosed the actual purchase consideration of the immovable property in the return of income and the transaction was duly recorded in a registered sale deed. The addition was made solely by substituting the stamp duty value in place of the actual consideration u/s.56(2)(vii)(b) of the Act under a statutory deeming provision. There is no finding that the assessee suppressed the transaction or furnished incorrect particulars of income.

The addition in question arises purely on account of a statutory deeming fiction. The value adopted by the Stamp Valuation Authority for stamp duty purposes does not automatically establish that the actual consideration declared by the assessee is false. The deeming provision operates for computation purposes and cannot, by itself, constitute evidence of concealment or furnishing of inaccurate particulars. There is no allegation that the assessee concealed the transaction or suppressed material facts. The addition was made on account of difference between actual consideration and stamp duty value, which is a value determined by the Registration Department for stamp duty purposes and not necessarily reflective of actual fair market value.

In this context, we find support from the decision of the Coordinate Bench of this Tribunal in the case of Asstt. Commissioner of Income-tax vs. Mrs. N. Meenakshi, wherein it was held that where the Assessing Officer adopts the guideline value obtained from the Sub-Registrar as the fair market value, it cannot be said that the assessee is guilty of furnishing inaccurate particulars of income or concealment so as to attract penalty under section 271(1)(c) of the :-6-: ITA. No:2887/Chny/2025 Act. The Tribunal observed that the guideline value is not conclusive proof of actual market value and that an addition made on such basis does not automatically justify imposition of penalty.

The ratio of the above decision squarely applies to the facts of the present case. An addition made on the basis of a statutory deeming fiction, without any independent finding of concealment or furnishing of inaccurate particulars, does not automatically warrant imposition of penalty.

It is trite law that penalty proceedings are distinct and separate from assessment proceedings. The confirmation of addition in assessment does not ipso facto warrant imposition of penalty. The burden is on the Revenue to establish that the assessee has either concealed the particulars of income or furnished inaccurate particulars thereof. In the present case, no such independent material has been brought on record.

Therefore, in the absence of any cogent evidence demonstrating deliberate concealment or furnishing of inaccurate particulars, the essential ingredients for invoking section 271(1)(c) are not satisfied. Hence, we are of the considered view that the levy of penalty cannot be sustained merely because an addition has been made by applying a deeming provision. Therefore, in the absence of any material to demonstrate deliberate concealment or furnishing of inaccurate particulars, the levy of penalty u/s.271(1)(c) of the Act is unsustainable.

In view of the foregoing discussion the ld. CIT(A) erred in dismissing the appeal as non-maintainable without adjudicating the issue on merits. On merits, the penalty levied u/s.271(1)(c) of the Act on addition made solely u/s.56(2)(vii)(b) of the Act based on stamp duty valuation is not sustainable. Accordingly, we set aside the order of the ld.CIT(A) and direct the Assessing

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