2023 (2) TMI 421 - AT - Income Tax

Tribunal rules penalty invalid under Income-tax Act for inaccurate estimations.

The Tribunal ruled in favor of the assessee, holding that the penalty imposed under section 270A of the Income-tax Act, 1961, based on the addition made ... Penalty u/s 270A - addition u/s 43CA on the strength of report of the DVO - assessee had sold certain land on various dates at a price less than the stamp value - AO proposed to make addition on the basis of stamp value - assessee made a request for making a reference to the DVO - HELD THAT:- We have gone through the report of the DVO as apparent 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. Section 270A of the Act provides for imposition of penalty for under-reporting and misreporting of income.It is ostensible from the language of sub-section (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. Appeal of assessee allowed. Issues:Imposition of penalty under section 270A of the Income-tax Act, 1961 based on addition made under section 43CA - Whether penalty justified on the basis of DVO's estimate - Applicability of sub-section (6) of section 270A in the case.Analysis:1. Imposition of Penalty under section 270A:The appeal was against the imposition of a penalty amounting to Rs.6,99,669 by the Assessing Officer (AO) under section 270A of the Income-tax Act, 1961. The penalty was confirmed by the National Faceless Appeal Centre (NFAC), Delhi. The assessee, engaged in the business of Solar power generation, had filed a return declaring total income at Nil. The assessment was completed under section 143(3) of the Act, making an addition under section 43CA. The AO proposed an addition based on stamp value, which was later rectified to Rs.7,05,000 after the receipt of the report from the DVO. The AO imposed the penalty based on this addition, which was affirmed by the ld. CIT(A) leading to the appeal before the Tribunal.2. Basis of Penalty Imposition - DVO's Estimate:The key issue was the basis for the imposition of the penalty under section 270A, which was the addition made under section 43CA relying on the DVO's estimate. The DVO's report was considered an estimate since it involved evaluating certain properties at different rates and averaging them to determine the property's value. However, the difference between the value declared by the assessee and the value determined by the DVO was minimal. The Tribunal noted that section 270A(6) of the Act excludes under-reported income determined on the basis of an estimate if the accounts are correct and complete to the satisfaction of the Assessing Officer. As the addition was solely based on the DVO's estimation, the Tribunal held that it cannot be a valid ground for imposing the penalty under section 270A.3. Legal Interpretation of Section 270A - Estimation as Basis for Penalty:Section 270A of the Income-tax Act provides for the imposition of penalties for under-reporting and misreporting of income. Sub-section (6) of section 270A specifically excludes under-reported income determined on the basis of an estimate if the accounts are accurate and complete. The Tribunal emphasized that an addition made solely on estimation cannot form the basis for under-reported income for the purpose of imposing a penalty under section 270A. Therefore, as the penalty was solely based on the DVO's estimate, the Tribunal ordered to delete the penalty, allowing the appeal in favor of the assessee.In conclusion, the Tribunal ruled in favor of the assessee, holding that the penalty imposed under section 270A of the Income-tax Act, 1961, based on the addition made under section 43CA relying on the DVO's estimate, was not justified. The Tribunal interpreted the provisions of section 270A(6) to exclude penalties based on estimations if the accounts are accurate and complete, thereby ordering the deletion of the penalty amount.