NARAYANAN SUNDARAMAHALINGAM RAJKUMAR,CHENNAI vs. THE ASSISTANT COMMISSIONER OF INCOME TAX, CHENNAI

PER S.R. RAGHUNATHA, A.M : This appeal by the assessee is arising out of the order of the Commissioner of Income Tax (Appeals)-20, Chennai [hereinafter “CIT(A)] in DIN & Order No.ITBA/APL/S/250/2023-24/1059981903(1), dated 22.01.2024. The assessment was framed by the Assessing Officer for the Assessment Year 2018-19 u/s.153C of the Income Tax Act, 1961 (hereinafter the ‘Act’), vide order dated 21.09.2021. :- 2 -:

“The Assessee accepted the disallowance of 30% on indexed cost of development expenses and honestly paid the tax demanded Rs. 5,63,474/- as accepted during the Assessment proceedings. The Assessee had no deliberate intention of misreporting of income, so as to invoke the provisions of Section 270A of the Income Tax Act, 1961. Hence, the act of Assessing Officer imposing penalty is not justified. Further to above, the Assessee preferred appeal to the CIT appeals for justice. On the other hand, the appeal was dismissed citing that the claim of expenditure is not substantiated by any evidence quite contrary to the concept of disallowance of 30% of expenditure by the Assessing Officer which is not justified.”

engaged in the business of construction of housing plots. The assessee has sold his land at Madambakkam Village to M/s. Prathishri

Properties, one of the group concerns of Asvini Fisheries Pvt. Ltd.

during the previous year 2014-15. In connection with search in the case of Asvini fisheries Pvt. Ltd. Group of cases the residential and business premises of the assessee also was searched u/s. 132 of the Act on 27.11.2019. Subsequent to the search, assessment

proceedings u/s. 153C were initiated and notice u/s. 153C of the Act

was issued for the A.Y 2016-17 on 17.02.2021. Assessment u/s.

143(3) r.w.s 153C of the Act was completed on 21.09.2021 by disallowing 30% of indexed cost of development expenses i.e.,

Rs.16,63,384/- with reference to LTCG offered by the assessee as :- 3 -: failed to furnish certain evidences in support of the expenditure

claimed. Penalty proceedings u/s.270A was initiated for under reporting of income in consequence of misreporting of income and notice u/s.270A of the Act was issued on 21.09.2021. Penalty show

cause notice dated 02.02.2022 was issued to the assessee in response to the penalty notice the assessee submitted reply on 09.02.2022 after considering its reply order u/s. 270A was passed

levying penalty of Rs. 7,88,122/- at 200% of the amount of tax payable

on under reported of income of Rs. 16,63,384/-. Aggrieved with the penalty order dated 16.02.2022 the assessee filed appeal before Ld.

CIT(A), Chennai-20. After going through the reply filed and also case

laws relied by the assessee, the Ld. CIT(A) confirmed the order of the A.O of levying penalty at 200% i.e., 7,88,112/- u/s. 270A of the Act,

of few vouchers which the assessee was misplaced and could not furnish at the time of assessment proceedings and therefore, penalty

us/. 270A of the Act cannot be levied. He also further stated that mere :- 4 -: variation of and making addition to the returned income based on disallowance of expenditure on estimated basis does not tantamount

to underreporting. Hence, no default has been committed to trigger

the levy of penalty under the said section. Further, he stated that there

has been no concealment of income and have not furnished any inaccurate particulars since the disallowance is based on the estimations made by the A.O.

authorities.

available on record and gone through the orders of the authorities

below. It is noted that in the quantum assessment, the A.O estimated

the disallowance (indexed cost of development expenses) for non

production of few vouchers. Therefore, the AO has initiated penalty

proceedings u/s. 270A of the Act for underreported income. Pursuant

to that the A.O issued show cause notice u/s. 274 r.w.s 278 of the Act

calling explanation from the assessee as to why penalty need not be levied for underreporting of income. The assessee has submitted all the details before the AO and also explained the reason for not furnishing few vouchers since it was misplaced and could not be :- 5 -: furnished at the time of assessment proceedings and was willing to produce the same. However the AO went ahead and levied penalty of Rs. 7,88,112/- u/s. 270A of the Act. Thus, it is noted that the A.O on estimated basis, disallowed an amount of Rs. 16,63,384/- and levied penalty u/s. 270A of the Act to the tune of Rs. 7,88,112/-. This impugned action of A.O levying penalty cannot be countenanced. We taking note of the explanation of the assessee (supra), is satisfied that the explanation given by the assessee during penalty proceedings is bonafide and find that the assessee has disclosed all the material facts to substantiate the explanation offered and therefore, as per sub clause (a) of sub section (6) of section 270A of the Act, we are of the view that this is not a fit case for levy of penalty for underreporting of income and moreover the disallowance of 30% of the expenditure in the quantum order was purely on estimation. Therefore, the penalty made by the A.O and confirmed by the Ld. CIT(A) is directed to be deleted.

आदेश क" "ितिलिप अ"ेिषत/Copy to: 1. अपीलाथ"/Appellant