Alwyn Sebastian Fernades Vs ITO (ITAT Mumbai)
Summary: The ITAT Mumbai deleted the penalty originally levied at Rs. 3,07,239 under section 270A for A.Y. 2020-21 in the case of Alwyn Sebastian Fernades. The non-resident assessee had returned income of Rs. 3,90,020 and claimed a Long Term Capital Loss of Rs. 72,35,253 on sale of immovable property. The Assessing Officer restricted the loss to Rs. 41,63,044 and added Rs. 120 towards interest on income-tax refund, assessing total income at Rs. 3,90,140. The appeal concerned penalty; the quantum assessment had not been challenged.
The principal difference arose from indexation. The assessee indexed the entire acquisition cost from F.Y. 2008-09, while the Assessing Officer indexed instalments from their respective payment years, determining indexed cost at Rs. 2,68,63,044. The assessee explained that Cent Bank Home Finance had paid the developer directly and complete records of the old transaction were unavailable when the return was filed. Transfer expenses of Rs. 7,48,300, comprising brokerage of Rs. 4,29,000 and society transfer charges of Rs. 3,19,300, and other charges of Rs. 95,000 were also disallowed for inadequate supporting documents.
After the draft assessment order dated 27 September 2022, the assessee furnished further evidence on 28 October 2022, including the brokerage bill and receipt and a society ledger recording development charges of Rs. 6,41,100, of which his stated share was Rs. 3,19,300. The Assessing Officer declined to consider these documents because the period for filing DRP objections had expired. The assessee attributed the delay to living in the United States and difficulty obtaining records more than ten years old. In penalty proceedings, the CIT(A) accepted the brokerage evidence and directed its exclusion from the penalty computation, but sustained penalty in principle on the remaining items.
The Tribunal clarified that the penalty actually imposed was 50% under section 270A(7) for under-reporting, rather than 200% for misreporting under sections 270A(8) and 270A(9). Under section 270A(6)(a), a bona fide explanation supported by disclosure of material facts excludes the relevant amount from under-reported income. A reduction in returned loss therefore does not automatically justify penalty; the explanation and surrounding circumstances require independent examination.
On indexation, the Tribunal referred to Nitin Parkash v. DCIT, Smt. Lata G. Rohra v. Dy. CIT and Charanbir Singh Jolly v. 8th ITO. These authorities supported the legal plausibility of indexing the entire acquisition cost from the year in which rights in the property were acquired despite later instalment payments. The Tribunal acknowledged that the precise facts might differ, but held that the assessee’s approach could not, for penalty purposes, be treated as fabricated or untenable. The sale, consideration, acquisition cost and loss had been disclosed, with no finding of concealed transactions or fabricated cost.
The Tribunal also distinguished delayed substantiation from a false expense claim. The CIT(A) had accepted the brokerage payment, the society charges appeared in bank records and were supported by subsequently furnished material, and the other charges were explained by reference to the purchase agreement despite missing old receipts. Relying also on Satyam Print House, the Tribunal held that accepting a quantum addition or declining further litigation does not independently establish under-reporting. It treated the Rs. 120 refund-interest omission as inadvertent on these facts, applied section 270A(6)(a), directed deletion of the penalty in its entirety and allowed the appeal.
Cases Discussed
- Satyam Print House v. Addl./Jt./Dy./Asst. CIT/ITO, NFAC — ITA No. 2898/Mum/2023, order dated 8 March 2024 (ITAT Mumbai). Cited on the exclusion of amounts supported by a bona fide explanation and disclosure of material facts.
- Nitin Parkash v. DCIT — ITA Nos. 817/Mum/2015 & 1540/Mum/2018, order dated 22 August 2022 (ITAT Mumbai). Relied upon to establish the legal plausibility of indexation from the year of allotment despite subsequent instalments.
- Smt. Lata G. Rohra v. Dy. CIT — [2008] 21 SOT 541 (ITAT Mumbai). Discussed regarding acquisition of rights in a flat and indexation of the entire purchase consideration.
- Charanbir Singh Jolly v. 8th ITO — [2006] 5 SOT 89 (ITAT Mumbai). Identified as the precedent followed in Smt. Lata G. Rohra on indexation.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
This appeal is filed by the Assessee against the order of Ld. Commissioner of Income Tax Appeals 56 Mumbai vide DIN: ITBA/APL/S/250/2025-26/1087063414(1) dated 09-Mar-2026 for the Assessment Year 2020-21. The Assessee has raised the following grounds of appeal:
1) Ground1 On facts and circumstances of the case and in law, the learned Commissioner Appeals was wrong in sustaining the penalty levied us 270A of Rs 307239 as the penalty proceedings were initiated by the learned Assessing Officer without framing the specific charge of default i.e. whether of under reporting OR misreporting of income by the Appellant. The penalty proceedings initiated on such vague terms are not sustainable in law and therefore, deserve to be quashed in appeal
2) Ground2 On facts and circumstances of the case and in law, the learned Commissioner Appeals erred in confirming the penalty us 270A of Rs 307239 when the merits of the Appellant s case did not warrant such penalty. The penalty so levied deserves to be deleted in appeal
2. The brief facts of the case are that the assessee, Shri Alwyn Sebastian Fernandes, is an individual and a non-resident. The assessee filed his return of income for A.Y. 2020-21 on 09.07.2020 declaring total income of Rs. 3,90,020/-. During the year under consideration, the assessee sold an immovable property and claimed Long Term Capital Loss of Rs. 72,35,253/-. The case was selected for scrutiny primarily on account of the refund claimed by the assessee. The assessee furnished various details during the assessment proceedings.
3. During the assessment proceedings, the Assessing Officer examined the cost of acquisition and the expenses claimed by the assessee in connection with sale property. The Assessing Officer observed from the agreement that the assessee had initially paid only part of the consideration and had paid the balance consideration in instalments in different financial years. The Assessing Officer, therefore, did not accept the assessee’s computation in which the assessee had considered the entire cost of acquisition for indexation from F.Y. 2008-09. On the basis of the payment schedule furnished by the assessee, the Assessing Officer computed the indexed cost with reference to the financial year in which each payment had been made and computed the total indexed cost of acquisition at Rs. 2,68,63,044/-.
4. The Assessing Officer further noticed that the assessee had claimed expenses of Rs. 7,48,300/- in connection with transfer of the property and other charges of Rs. 95,000/-. In support of the transfer expenses, the assessee furnished bank statements showing payment of Rs. 4,29,000/- to Shri Ranoo Sheth towards brokerage and Rs. 3,19,300/- to Shri Ashish Madhukar towards the assessee’s share of society transfer charges. The Assessing Officer, however, observed that the assessee had not furnished the invoices, confirmations and other supporting documents during the assessment proceedings and, therefore, disallowed the expenses claimed by the assessee. The Assessing Officer consequently restricted the Long Term Capital Loss from Rs. 72,35,253/- to Rs. 41,63,044/-. The Assessing Officer also added an amount of Rs. 120/-towards interest received on income-tax refund which the assessee had not offered in the return of income.
5. It is also relevant to note that after the Assessing Officer passed the draft assessment order under section 144C(1) on 27-09-2022, the assessee furnished further documents on 28.10.2022. The assessee furnished the bill and receipt relating to brokerage of Rs. 4,29,000/- and also furnished a ledger account obtained from the society confirming development charges of Rs. 6,41,100/-, out of which the assessee’s share was Rs. 3,19,300/-. The assessee submitted that he was residing in the United States of America and had faced practical difficulty in obtaining old documents relating to a property purchased more than ten years earlier. The Assessing Officer, however, did not consider these documents since the assessee had furnished them after expiry of the period available for filing objections against the draft assessment order before the DRP.
6. The Assessing Officer thereafter passed the final assessment order under section 143(3) read with section 144C of the Act on 17.11.2022, computing the total income at Rs. 3,90,140/-, as against returned income of Rs. 3,90,020/-, and restricting the Long Term Capital Loss to Rs. 41,63,044/-.
7. The Assessing Officer thereafter initiated penalty proceedings under section 270A of the Act. During the penalty proceedings, the assessee explained that the reduction of Long Term Capital Loss was primarily on account of the method adopted for computing indexation and non-acceptance of certain expenses claimed in connection with transfer of the property. The assessee submitted that while filing the return he had considered the entire cost of acquisition from F.Y. 2008-09 since a substantial part of the purchase consideration had been financed by Cent Bank Home Finance and the lender had directly made payments to the developer. The assessee submitted that the yearwise details of payments made to the developer were not available with him at the time of filing the return and, therefore, he computed the indexation on the basis of the information then available under a bona fide belief that the claim was correct. The assessee also submitted that the payments towards brokerage and society transfer charges had actually been made through banking channels and the disallowance was because the supporting documents could not be furnished within time.
8. The Assessing Officer did not accept the explanation. The Assessing Officer observed that the assessee had neither filed objections before the DRP against the draft assessment order nor preferred an appeal against the final assessment order and had, therefore, accepted the restriction of the Long Term Capital Loss. The Assessing Officer held that the assessee had under-reported income to the extent of Rs. 30,72,209/- on account of excess Long Term Capital Loss claimed and to the extent of Rs. 120/- on account of interest on income-tax refund. The Assessing Officer accordingly levied penalty under section 270A at 50% of the tax payable on the under-reported income and computed the penalty at Rs. 3,07,239/-.
9. Aggrieved, the assessee preferred an appeal before the learned CIT(A). The assessee reiterated that the difference in the Long Term Capital Loss was from a bona fide computation of indexation and from disallowance of genuine transfer expenses. The assessee submitted that the brokerage of Rs. 4,29,000/- and society transfer charges of Rs. 3,19,300/- had been paid through banking channels. The assessee further submitted that he was residing outside India and had faced difficulty in collecting old records relating to the purchase and subsequent sale of the property.
10. The learned CIT(A) examined the documents relating to brokerage and found that the assessee had furnished invoice and receipt issued by Shri Ranoo Sheth as well as the relevant bank statement. The learned CIT(A) noticed that the bank statement contained an entry of Rs. 4,29,000/- dated 14.10.2019 in favour of Shri Ranoo R. Sheth and accordingly held that the assessee had been able to substantiate the brokerage payment. The learned CIT(A), therefore, accepted the assessee’s contention to this extent and directed the Assessing Officer to exclude the amount of Rs. 4,29,000/- while re-computing the penalty.
11. As regards the society transfer charges of approximately Rs. 3.19 lakh, the learned CIT(A) also noticed that the payment appeared in the assessee’s bank statement. However, the learned CIT(A) did not accept the claim on the ground that, apart from the banking entry, the assessee did not furnish supporting evidence. As regards the indexation claim, the learned CIT(A) did not accept the assessee’s plea of bona fide belief and held that considering the entire cost from F.Y. 2008-09 had resulted in an inflated Long Term Capital Loss. The learned CIT(A), therefore, upheld the levy of penalty under section 270A in principle, but directed the Assessing Officer to re-compute the penalty after giving relief in respect of brokerage of Rs. 4,29,000/-.
12. The assessee is in appeal before us against the order passed by the learned CIT(A) partly sustaining the penalty under section 270A of the Act. We have heard the rival submissions and perused the material available on record.
13. We find that the penalty has arisen from three components, being the difference in indexation of the cost of acquisition, disallowance of the expenses claimed in connection with transfer of the property and the small amount of Rs.120/- towards interest on income-tax refund.
14. At the outset, we find that the Assessing Officer has levied penalty at the rate of 50% of the tax payable on the under-reported income under section 270A(7). Therefore, the penalty finally levied by the Assessing Officer is for under-reporting of income and not for misreporting attracting penalty at the rate of 200% under sections 270A(8) and 270A(9) of the Act.
15. Section 270A(6)(a) of the Act provides that under-reported income shall not include an amount in respect of which the assessee offers an explanation and the concerned income-tax authority is satisfied that such explanation is bona fide and that the assessee has disclosed all material facts to substantiate the explanation. Thus, even where the assessment results in a reduction of the loss claimed by the assessee, the mere difference between the returned loss and assessed loss does not by itself conclude the question of penalty. The explanation furnished by the assessee and the surrounding facts have to be independently examined.
16. Coming first to the indexation of the cost of acquisition, we find that the assessee had considered the entire cost of the property from F.Y. 2008-09, whereas the Assessing Officer granted indexation with reference to the respective years in which the instalments were paid. The assessee submitted that he had obtained housing finance from Cent Bank Home Finance, that the lender had directly disbursed amounts to the developer and the complete payment schedule relating to this old transaction was not available with him when he filed the return. Upon obtaining the details during assessment proceedings, the assessee accepted the computation made by the Assessing Officer.
17. More importantly, we find that the view adopted by the assessee regarding indexation cannot be regarded as untenable or fabricated claim. The Mumbai Bench of the Tribunal in Nitin Parkash v. DCIT [ITA Nos. 817/Mum/2015 & 1540/Mum/2018, dated 22-08-2022], considered the question whether indexation should be granted with reference to the year of allotment or separately with reference to the years in which the subsequent instalments were paid. The Tribunal accepted the claim for indexation from the year in which the property was allotted notwithstanding the fact that the balance consideration was paid by instalments in later years.
18. In Smt. Lata G. Rohra v. Dy. CIT [2008] 21 SOT 541 (Mumbai), the Mumbai Bench of the Tribunal examined whether indexation under section 48 should be allowed with reference to the year in which the assessee acquired rights in the flat or with reference to the dates on which the purchase consideration was actually paid in instalments. The assessee had entered into an agreement for purchase of the flat in 1993, though the flat was constructed later and the consideration was paid over a period of time. The Tribunal held that the rights acquired under the purchase agreement constituted a capital asset within the meaning of section 2(14) and that Explanation (iii) to section 48 refers to the cost of acquisition of the asset and the period for which the asset was held, and not to the dates on which individual instalments of the purchase price were actually paid.
19. The Tribunal therefore rejected the Revenue’s contention that indexation should be granted separately from the respective dates of payment of instalments and held that the entire purchase consideration was entitled to indexation from the year in which the assessee first acquired rights in the property. In doing so, the Tribunal followed Charanbir Singh Jolly v. 8th ITO [2006] 5 SOT 89 (Mumbai) and held the issue in favour of the assessee.
20. We are conscious that the precise factual position regarding the manner in which rights in the property had arisen in the present case may not be identical to the facts in Nitin Parkash (supra). However, for the limited purpose of penalty, the decision demonstrates that the proposition adopted by the assessee, that the entire cost could be indexed with reference to the year in which rights in the property were acquired notwithstanding payment of instalments in later years, is a legally plausible view. Therefore, merely because the Assessing Officer adopted a different method while computing the indexed cost and the assessee did not challenge the same in quantum proceedings, the original claim cannot be characterised as lacking in bona fides.
21. We further find that the assessee had disclosed the property transaction, the sale consideration, the cost of acquisition and the Long Term Capital Loss in the return of income itself. The issue has arosen from the manner in which indexation was to be computed. There is no finding that the assessee concealed the sale of the property, suppressed the purchase consideration or fabricated the cost of acquisition. In these circumstances, we are of the considered view that the explanation of the assessee regarding indexation was bona fide and the claim was made on a legally arguable understanding of the provisions relating to indexed cost of acquisition.
22. Coming to the transfer expenses, the facts are still more in favour of the assessee. The learned CIT(A) himself examined the invoice, receipt and bank statement relating to brokerage and gave a categorical finding that the payment of Rs. 4,29,000/- to Shri Ranoo Sheth had been substantiated by the assessee. The learned CIT(A), therefore, granted relief from penalty in respect of this amount. This finding itself shows that the claim made by the assessee in the return was not false. The Assessing Officer had disallowed it in the quantum proceedings essentially because the complete documentary evidence was not available before him within the prescribed time. A genuine expenditure does not become a case of under-reporting merely because the assessee could substantiate it completely only at a subsequent stage.
23. Similarly, as regards the society transfer charges of Rs. 3,19,300/-, we find that even the learned CIT(A) has not disputed that the corresponding payment is reflected in the bank statement of the assessee. Further, in the the assessment order the Assessing Officer has noted that after the draft assessment order, the assessee furnished the ledger account obtained from the society confirming development charges of Rs. 6,41,100/-, of which the assessee’s share was Rs. 3,19,300/-. The Assessing Officer did not consider the documents at that stage because the assessee had furnished them after the statutory period for filing objections against the draft assessment order.
24. Thus, there is a clear distinction between failure to establish a claim within the prescribed time during quantum proceedings and making a false claim for the purpose of penalty. In the present case, the payment was made through banking channels and the assessee subsequently furnished supporting material. The learned CIT(A) may have considered such evidence to be insufficient for allowing the expense in the quantum computation, but that by itself does not show that the assessee’s original claim was not bona fide.
25. The same reasoning applies to the other charges of Rs. 95,000/-. The assessee had submitted that these amounts were towards charges payable to the developer and the assessee referred to the relevant clauses of the purchase agreement. The assessee could not furnish the old receipts. Therefore, the Assessing Officer was within his jurisdiction in declining the deduction in the quantum proceedings for want of complete supporting documents. However, penalty proceedings stand on a different footing. The material on record does not show that the assessee invented an expenditure which had never been incurred or furnished any false particulars in relation thereto.
26. The Mumbai Bench of the Tribunal in Satyam Print House v. Addl./Jt./Dy./Asst. CIT/ITO, NFAC [ITA No. 2898/Mum/2023, dated 8-3-2024], while examining penalty under section 270A, held that where the assessee had furnished a bona fide explanation and disclosed the material facts, the amount could not be brought within the ambit of under-reported income merely because an addition was ultimately made in the assessment. The Tribunal accordingly deleted the penalty imposed under section 270A.
27. In the present case also, we find that the assessee disclosed the sale transaction and the Long Term Capital Loss in the return of income. The difference had arisen on account of the method of indexation adopted by the assessee and the inability of the assessee to produce certain old documentary evidence within time. The subsequent material also shows that substantial parts of the expenses claimed by the assessee were towards actual payments made through banking channels. The learned CIT(A) himself accepted the genuineness of the brokerage payment of Rs. 4,29,000/-.
28. We are also unable to agree with the reasoning of the Assessing Officer that the assessee’s failure to file objections before the DRP or to challenge the quantum assessment establishes under-reporting for the purpose of section 270A of the Act. An assessee may, for several reasons, accept an addition or decide not to pursue litigation. Such acceptance may make the quantum assessment final, but it does not automatically establish that the claim originally made in the return was false or that the explanation offered in penalty proceedings was not bona fide. The levy of penalty has to satisfy the requirements of section 270A independently.
29. As regards the addition of Rs.120/- representing interest on income-tax refund, we find that the assessee accepted the amount when the Assessing Officer pointed it out during the assessment proceedings. Considering the insignificant amount involved and the manner in which the assessee immediately accepted the omission, we are of the considered view that the omission was inadvertent and cannot, in the facts of the present case, be treated as a circumstance warranting levy of penalty under section 270A of the Act.
30. Considering the overall facts and circumstances, we are of the considered view that the assessee has furnished a bona fide explanation for the difference between the Long Term Capital Loss claimed in the return and the loss finally accepted in the assessment. The assessee had disclosed the transaction and the claim had arosen partly from a legally plausible view regarding indexation and partly from expenses which the assessee had actually incurred but could not completely substantiate within the assessment proceedings. Therefore, in our view, the case of the assessee falls within the exception contemplated under section 270A(6)(a) of the Act.
31. Accordingly, we are unable to sustain the penalty merely on the ground that the Assessing Officer reduced the Long Term Capital Loss claimed by the assessee and the assessee did not challenge such reduction in the quantum proceedings. We, therefore, direct the Assessing Officer to delete the penalty levied under section 270A of the Act in its entirety.
32. In the result the appeal filed by the assessee is allowed.
Order pronounced in the open court on 11 Sep 2026.
