This article mentions five important tribunal rulings. In Jitendra Vanigota v. ITO it was held that the variation of 3.25% in property valuation was within the allowable variation permissible of 10% and therefore no addition would be called for under Section 56(2)(x). It was observed in Ganesh Steel & Alloys Ltd. v. DCIT that the reassessment proceeding under Section 69C would not prevail as no additional claims could be allowed without valid reasons for reopening the case. Tractors & Farm Equipment Ltd. v. ACIT a penalty under Section 271(1)(c) for erroneous R&D deductions was deleted since the claim made was in good faith preceding regulatory approval. Pooja Dipen Joshi v. ITO the tribunal held that Section 50C applies only to sellers and not to the buyers accordingly quashing the addition under Section 69C on the basis of the Jantri value. Finally, in Narayanan Sundaramahalingam Rajkumar v. ACIT the levy of penalty under Section 270A on account of failure to disclose full income was deleted holding that since the disallowance could have been only estimation and the explanation given was reasonable.
This case deals with an addition made under Section 56(2)(x) of the Income Tax Act 1961 based on minor difference between disclosed value of a property and its valuation by District Valuation Officer (DVO). It raises a question of whether this difference had fallen within the permissible tolerance limit for such additions.
1. Jitendra Vanigota v. ITO (2024 Tax Pub(DT) 3994 Mum-Trib)
Facts of the Case:
Jitendra Vanigota purchased a flat in the year 2013 and claimed its purchase price of Rs.1,83,2,0000 in Income tax return. After getting valuation report of DVO the Assessing Officer put value of the flat at Rs.1,89,15,000. Assessing Officer u/s. 56(2)(x) of the I.T Act 1961 added value of the Rs. 5,95,000 being distinction between two values to the assessee’s income for the assessment year 2020/21.
Submission by the Assessee:
The Assessee argued that difference between the DVO’s valuation and the transaction value was a mere 3.25% of the transaction value which falls well within the 10% tolerance limit provided under Section 50C and Section 56(2)(x) of the Income Tax Act which would protect him from any addition.
Analysis by the Income Tax Officer :
According to the ITO the difference between the value of the transaction and the valuation done by DVO called for an addition under Section 56(2)(x). Since the assessee had disclosed a purchase price below the valuation the AO considered an addition of ₹5,95,000 to be necessary.
Observations by the CIT :
The assessee filed appeal before CIT with delay of 30 days pointing the delay to being out of town. The CIT refused to overlook the delay considering the reason insufficient and dismissed the appeal on these grounds.
Tribunal’s Decision:
The ITAT reversed the order of the AO. It held that since the variance between the disclosed value and the DVO valuation was only 3.25% it falls within the tolerable limit of 10% permitted by Sections 50C and 56(2)(x) of the Act. The addition therefore stood unsustainable. The ITAT allowed the appeal of the assessee and deleted the addition. Although it did not approve of the delay the Tribunal solved the issue on its merit by opining that the appellate system should not be stopped when clear case exists.
Key Points Take Away:
- Tolerance Limit: : A difference of up to 10% between transaction value and stamp duty value is allowable u/s. 56(2)(x) without attracting tax additions.
- Delay in filing appeals: The tribunal is even give powered to decide the case on merit despite the fact that there would be a delay in filing the appeal if so required by it in order to do justice.
Reassessment proceedings are generally initiated on the basis of alleged bogus purchase from shell firms & what forms subject matter of the case is u/s. 147 of IT Act 1961. Main issue is whether the AO. can correctly make additions u/s. 69C in the absence of proof of reasons recorded for reopening case.
2. Ganesh Steel & Alloys Ltd. v. DCIT (2024 Tax Pub(DT) 3088 Kol-Trib)
Facts of the Case:
Ganesh Steel and Alloys Ltd. case was reopened u/s. 147 of the I.T Act on the basis that the company had made bogus purchases amounting to Rs. 38,75,000 from M/s Chakradhari Industries. AO ultimately made an addition of Rs. 47,03,192 u/s. 69C of the Act claiming bogus expenditures. The assessee appealed challenging that the AO had made no addition based on the grounds for reopening the assessment.
Submission by the Assessee:
The assessee claimed that no false transaction has taken place and amount had been fully accounted. The assessee argued that since no addition was made on issue recorded in the reasons for reopening assessment AO could not make other additions u/s. 69C.
Analysis by the Income Tax Officer :
The AO held that the purchases made by m/s. Chakradhari Industries had been bogus and made an addition under Section 69C for unexplained expenditure. However the AO did not at all display a justification for having reopened the case in the first instance.
Observations by the CIT:
The CIT upheld the AO’s decision supporting the view that the reassessment was legal and that the addition u/s. 69C was justified based on the alleged bogus transactions
Tribunal’s Decision:
The Tribunal ruled in favor of the assessee by the order that the AO had done nothing or brought nothing within the reasons recorded for reopening the case. Consequent thereto the AO was not justified in making other additions under Section 69C. Reassessment proceedings were ordered to be quashed for being invalid.
Key Points Take Away:
Reassessment Grounds: : If no addition is made based on the reason for reopening the assessment AO cannot make any other additions.
Section 69C: Additions u/s. 69C must be verified with clear evidence of unexplained expenditure.
3. Tractors & Farm Equipment Ltd. v. ACIT (2024 Tax Pub(DT) 2344 Chen-Trib)
This case related to the levied of penalty u/s. 271(1)(c) of Income Tax Act 1961 on account of filling inaccurate particulars of income. The penalty was imposed subsequent to the entire deductions which were made u/s. 35(2AB) of the Act pertaining to research and development expenses were entirely disallowed. The core issue revolved around whether the assessee had provided inaccurate particulars through claims of deduction prior to availing the approval from the Department of Scientific and Industrial Research
Facts Of the Case :
The Assessee Tractors & Farm Equipment Ltd. Produced automobiles and auto parts. Assessee has filed income tax return for A.Y 2016-17 & claimed deduction u/s 35(2AB) for capital expenditure along with revenue expenditure on Research & Development. The claimed deduction amount were Rs. 1,07,98,057 on capital expenditure and RS. 22,10,000 on revenue expenditure. These deductions were based on R&D expenses but exceeded amount certified later by DSIR in Form 3CL. The DSIR subsequently approved a lower amount for both capital and revenue expenditures leading to disallowance by Assessing Officer .
Submission by the Assessee:
The assessee submitted that it had claimed deduction under guidelines provided by DSIR and at filling of the return it had not received approval from DSIR. Further the assessee submitted that the excess claim was made in good faith and based on its understanding of eligibility of weighted deduction under Section 35(2AB). The certificate from DSIR was presented after income tax return is filed and assessee could not know this limitation being imposed by DSIR at t time of filing of return of income. The dependence of assessee on judgment of the SC in CIT v. Reliance Petro Products Pvt. Ltd. to claim that merely because inaccurate claim has been made is not adequate to arrive at conclusion that the particulars of income furnished are incorrect.
Analysis by the Income tax Officer :
The AO held the excess deductions not allowable by pointing out that the assessee had furnished incorrect particulars of income by claiming amounts above what were certified by DSIR. Ao levied penalty u/s. 271 (1)(C) on ground that there was no scope for holding multiple views on the claim of deduction and that the assessee should have only claimed the amount certified by DSIR.
Observations by the CIT:
The CIT confirmed the AO’s decision to impose the penalty by holding the fact of the assessee having inflated its claim for deduction u/s. 35(2AB). ). The CIT reasoned that had the assessee’s case not been selected for scrutiny the inflated deductions would have gone unseen. Thus, on this ground also, penalty for furnishing inaccurate particulars of income is justified.
Tribunal’s Decision
ITAT ruled in favor of the assessee. The Tribunal held that at the time of filing the return of income itself it was stipulated that DSIR approval was not available and this claim was brought into view by the assessee in good faith based upon the best information existing at the material time. The Tribunal relied on the decision of the Madras High Court in CIT v. Balaji Distilleries Ltd. for pronouncing that mere absence of due care would not make the assessee guilty of furnishing inaccurate particulars or attempting to conceal income. It also relied on the Supreme Court decisions in the following cases: CIT v. Reliance Petro Products Pvt. Ltd. and Price Waterhouse Coopers Pvt. Ltd. v. CIT It is said that even if there was an erroneous claim, it does not necessarily imply giving wrong particulars of income. It was held that as the return is filed prior to the receipt of the DSIR certificate, penalty could not be imposed on account of such disallowance. So, penalty under Section 271(1)(c) was deleted.
Key Points Take Away:
- Inaccurate particulars of Income: A claim genuinely made with such information available to him at the time of making a return, cannot be construed as inaccurate incomes if subsequently claimed for later to be disallowed on grounds of regulatory approval received only after submitting the return.
- Penalty under Section 271(1)(c): The Tribunal reiterated that a penalty for furnishing incorrect particulars cannot be levied without direct proof of intentional concealment or misreporting.
- Dependence on Judicial Precedents: The Tribunal reliance upon earlier supreme court and high court judgments to rule that mere wrong claims do not amount to furnishing of wrong particulars especially when the claim was based on bona fide understanding.
4. Pooja Dipen Joshi v. ITO (2024 Tax Pub(DT) 2574 Ahd-Trib)
This is a case of addition made under Section 69C of Income Tax Act 1961 pertaining to the difference between Jantri value and actual purchase value of a property. The basic problem in the case, however, is that the AO has justified the addition based on the Jantri value even though pertinent facts of the case were overlooked in reopening the case.
Facts of the Case:
Assessee has filed return of income A Y 2012-13 with income of Rs. 8,41,950/- . After conducting more investigations AO received information from Directorate of I & CI Ahmedabad that the assessee purchased property jointly with eight other persons. Transfer documents evidenced the value of the property to be Rs. 1,35,00,000. However, the Jantri value was also Rs. 4,03,07,857. The case was reopened u/s.147 of the Income Tax Act and as a result amount of Rs. 44,78,650 was added u/s. 69C on account of treating Jantri value as Total value of consideration in view of it to be an unexplained investment.
Submission by the Assessee:
The assessee said that she had never been received any show cause notice for treating investment as unexplained u/s. 69C of Income Tax Act while another point urged was regarding the share of the purchase cost already shown by the assessee in her I.T return. The assessee further added that Section 50C applies only to sellers and not to buyers and therefore said provision could not been invoked in her case. She also challenge the applicable of Section 56(2)(vii)(b) of Act since the said provision was not attracted for assessment year 2012-13 insofar as the same had come into force only from 01-04-2014.
Analysis by the Income Tax Officer :
The Sub Registrar’s information clarified the AO that the sale consideration was much below the Jantri value. Sections 50C & 56(2)(vii)(b) were relied upon by the AO in treating the difference as unexplained investment and adding the amount of ₹44,78,650 to the assessee’s income under Section 69C of the Act.
Observations by the CIT :
CIT has upheld t addition made u/s. 50C read with Section 56(2)(vii)(b) of Income Tax Act. According to the CIT this was truly treated as an unexplained investment because Jantri value was unlike from the actual purchasing value.
Tribunal’s Decision:
It held that the assessee was entitled to succeed because the addition under Section 69C working on the Jantri value was not justified. The Tribunal found that Section 50C is applicable only to sellers and not to buyers. Being a capital gains section it would arise only in the hands of the seller and as such cannot be applied. It was further held by the ITAT that Section 56(2)(vii)(b) would apply only where the property had been received either without consideration or for a consideration grossly inadequate. The said section would not be attracted in the facts of this case since the property was acquired with complete consideration. Tribunal also the said provision would come into operation only from assessment year 2014-15 and thus could not be applied strictly to the assessment year 2012-13.
Addition under Section 69C can be made on actual investment in the property only and not on Jantri value as case was reopened on the basis of difference between Jantri value and actual purchase value no further addition was possible. In respect of the above case Tribunal concluded that no show cause notice had been issued to assessee about the treatment of the investment as unexplained under Section 69C. The addition was therefore quashed and the appeal allowed in favor of the assessee.
Key Points Take away:
- Section 50C Applicability: Section 50C can only be applied to sellers while calculating capital gains but cannot be raised for buyers.
- Section 56(2)(vii)(b) Application: It is only applicable to those cases where property is acquired without or for a consideration which is inadequate. This particular property had been purchased full consideration therefore it is not applicable for this case. This sub-section provision came into effect from 1-4-2014 and was thus not applicable for the assessment year of 2012-13.
- Additions u/s 69C: The basis of such additions u/s 69C can be made only on actual investment into the property and not on the Jantri value. Also reopening assessment based on one issue does not permit additional unrelated additions.
- Show Cause Notice Requirement: The AO must issue show cause notice before making additions u/s. 69C which was not done in this case making the addition untenable.
5. Narayanan Sundaramahalingam Rajkumar v. ACIT (2024 Tax Pub(DT) 4748 Chen-Trib)
The case is of penalty under Section 270A of the Income Tax Act1961 for underreporting of income due to indexed development expenditure having been disallowed by the assessees. The point of deciding this appeal would be whether, in the case when the AO had estimated the same penalty for underreporting of income can be levied.
Facts of the Case:
Narayanan Sundaramahalingam Rajkumar is individual engaged in the business of developing the plots of housing. In F.Y year 2014-15 the assessee sold his land in Madambakkam Village to M/s. Prathishri Properties. His residential and business premises were also searched along with the Asvini Fisheries Pvt. Ltd. Group pursuant to a search under Section 132 of the Income Tax Act. This led to the initiation of proceedings u/s 153C and the AO disallowed 30% of the indexed cost of development expenses amounting to Rs.16,63,384 due to failure supporting vouchers were not provided. Underreporting income was the reason for which penalty proceedings under section 270A were initiated and the penalty of Rs. 7,88,122 was imposed at 200% of the tax payable on the underreported income.
Submissions by the Assessee:
It was accepted by the assessee that 30% was disallowed on the indexed cost of development expenses and tax to the extent demanded was paid. However urged that disallowance was based on the non-availability of some vouchers and there was no deliberate intent to suppress income. Assessee has submitted that disallowance was on estimation basis & therefore it does not attract any kind of penalty u/s. 270A. However, it was also submitted that no concealment of income or furnishing of inaccurate particulars are in existence.
Analysis by the Income Tax Officer:
For failing to report the income on account of the development expense disallowed the AO initiated penalty proceedings under Section 270A. The AO held that it was on account of failure to produce the vouchers for the development expense that the expenses were disallowed and thus amounted to income underreported. A penalty of Rs 7,88,122 being 200% of the tax payable on the income underreported was Imposed.
Observations by the CIT:
CIT upheld order of AO in which penalty was levied since Assessee has failed to adequately prove expenditure claimed with required evidence. The CIT felt that disallowance is validly made the penalty and therefore confirmed the penalty for underreporting income.
Tribunal’s Decision:
Tribunal ruled in favor the assessee and observed that disallowance of 30% of the development expenses was base on the AO’s estimation because some few vouchers are not available. The Tribunal found that the explanation given by the assessee was bonafide and accepted the fact that the missing vouchers had been misplaced and cannot be furnished during the assessment proceedings. The Tribunal further observed that the disallowance was on an estimated basis and that such estimation does not automatically produce an inference of under reporting of income. Referring to Section 270A(6)(a) which states that where the explanation offered by the assessee is found bonafide and supported by all material facts, there cannot be any levy of the penalty. The Tribunal accordingly held this to be not a fit case for the levy of a penalty under the head of under reporting of income. So the penalty was struck out.
Key Points Take Away:
- Section 270A penalty:
When the disallowance is on estimated expenses and the assessee satisfactorily explains the discrepancy no penalty under Section 270A can be levied for underreporting of income.
Estimation of Income:
Under allowances arising out of estimation may not be said to justify imposition of penalty for under or misreporting of income, particularly when the explanation given is reasonable.
Bonafide Explanation:
If an assessee presents bonafide and reasonable explanation of disallowance of expenses provided that all the material facts are disclosed penalty under Section 270A ought not to be imposed.
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