ITAT Pune Deletes Section 270A Penalty on Estimated Section 43CA Addition

Jaibalaji Business Corporation Private Limited Vs ACIT (ITAT Pune)

The ITAT Pune allowed the assessee’s appeal against the order of the National Faceless Appeal Centre (NFAC) dated 15.10.2022, which had confirmed a penalty of Rs. 6,99,669 under Section 270A of the Income-tax Act for AY 2017-18. The assessee, engaged in the business of solar power generation, had filed a return declaring Nil income. During assessment under Section 143(3), the Assessing Officer made an addition of Rs. 2,80,07,310 under Section 43CA on the basis that certain land had been sold below the stamp value. At the assessee’s request, the matter was referred to the Departmental Valuation Officer (DVO). After receipt of the DVO’s report, the Assessing Officer passed a rectification order under Section 154, reducing the addition to Rs. 7,05,000 by adopting the DVO’s valuation of Rs. 78,88,800 as against the declared value of Rs. 71,83,800. Penalty under Section 270A was thereafter imposed and upheld by the CIT(A).

The Tribunal observed that the sole basis for the penalty was the addition made under Section 43CA on the strength of the DVO’s report. It noted that the DVO had determined the property’s value by considering comparable nearby properties at different rates and averaging those rates, making the valuation an estimate. The Tribunal also observed that the difference between the value declared by the assessee and the DVO’s valuation was minimal.

Referring to Section 270A(6)(b), the Tribunal noted that under-reported income does not include an amount determined on the basis of an estimate where the accounts are correct and complete to the satisfaction of the Assessing Officer. Since the addition rested entirely on the DVO’s estimated valuation, the Tribunal held that it could not form the basis for levy of penalty under Section 270A. The penalty of Rs. 6,99,669 was accordingly deleted, and the assessee’s appeal was allowed.

Five Alternative SEO Titles

• Deleted Section 270A Penalty Based on DVO’s Estimated Valuation Under Section 43CA: ITAT Pune
• Cancelled Section 270A Penalty on Estimated Section 43CA Addition: ITAT Pune
• Removed
• Deleted Under-Reporting Penalty on DVO Valuation-Based Addition Under Section 43CA: ITAT Pune
• Set Aside Section 270A Penalty Following Estimated DVO Valuation of Property: ITAT Pune

FULL TEXT OF THE ORDER OF ITAT PUNE

This appeal by the assessee is directed against the order dated 15.10.2022 passed by the National Faceless Appeal Centre (NFAC), Delhi confirming the imposition of penalty amounting to Rs.6,99,669 imposed by the Assessing Officer (AO) u/s 270A of the Income-tax Act, 1961 (hereinafter also called ‘the Act’) in relation to assessment year 2017-18.

2. Briefly stated, the facts of the case are that the assessee is engaged in the business of Solar power generation. Return was filed declaring total income at Nil. Assessment was completed u/s 143(3) of the Act at total income of Rs.2,80,07,310 making an addition of equal amount u/s 43CA. The assessee had sold certain land on various dates at a price less than the stamp value. The AO proposed to make addition on the basis of stamp value. The assessee made a request for making a reference to the DVO. The AO completed the assessment by taking note of stamp value in certain other cases subject to rectification on the receipt of report of the DVO. Thereafter, the report was received, pursuant to which the rectification order was passed u/s 154 of the Act reducing the addition to Rs.7,05,000. The addition was computed by taking note of the value declared by the assessee at Rs.71,83,800 and the value determined by the DVO at Rs.78,88,800. On this basis, the AO rectified the original assessment and also imposed penalty u/s 270A of the Act at Rs.6,99,669. The ld. CIT(A) affirmed the penalty. Aggrieved thereby, the assessee has come up in appeal before the Tribunal.

3. Having heard both the sides and gone through the relevant material on record, it is seen that the only basis for imposition of penalty u/s 270A is the making of addition u/s 43CA on the strength of report of the DVO. The AO originally took certain comparable circumstances and computed the amount of addition at Rs.2.80 crores, which got reduced on the receipt of report of the DVO to Rs.7,05,000. We have gone through the report of the DVO, a copy of which has been placed on record. It is apparent from such report that the value determined by the DVO is again an estimate, inasmuch as he considered certain other properties at different rates and then averaged such rates to find out the value which the property ought to have realized on the transfer. It is vivid that the difference between the value declared by the assessee and the value determined by the DVO is minimal and further the value of the DVO is on the basis of value of certain other nearby properties.

4. Section 270A of the Act provides for imposition of penalty for under-reporting and misreporting of income. Sub-section (2) enlists certain circumstances of under-reporting of income. Sub­section (3) deals with the determination of under-reported income, which, in our context, is by reducing the income returned by the assessee from the amount of income finally assessed. Sub-section (6) is relevant for our purpose which states that under-reported income for the purpose of this section shall not include certain items. 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 ostensible from the language of sub­section (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. As the only basis of the addition is the estimate made by the DVO, we hold that the penalty cannot be sustained. We, therefore, order to delete the same.

5. In the result, the appeal is allowed.

Order pronounced in the Open Court on 10^th February, 2023.