The Ahmedabad Bench of the Income Tax Appellate Tribunal (ITAT) has delivered a significant ruling clarifying that penalty under Section 270A of the Income-tax Act, 1961 cannot be levied on additions made solely under Section 56(2)(x), where the difference arises only due to stamp duty valuation and the assessee has disclosed all material facts.
This judgment is particularly relevant for taxpayers and advisors dealing with deemed income additions under property transactions and provides clarity on how penalty law interacts with valuation-based adjustments.
Background of the Case
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The assessee purchased property at a price lower than the stamp duty valuation.
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The Assessing Officer (AO) invoked Section 56(2)(x) and treated the difference as income from other sources.
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The AO further levied penalty under Section 270A for alleged under-reporting.
Key Tribunal Findings
1. Additions under Section 56(2)(x) are Not Absolute
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Such additions arise from a deeming fiction and can be challenged under Section 50C(2) through a DVO reference.
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If the DVO’s valuation falls within the 20% tolerance, no addition survives.
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Therefore, these additions are estimation-driven, not evidence of concealment.
2. Full Disclosure Negates Penalty
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The assessee disclosed the actual purchase price, stamp duty valuation, and gave explanations.
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Since there was no suppression of facts, penalty was not justified.
3. Section 270A(6) Exceptions Apply
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Section 270A(6)(b): Excludes income additions based on estimates when accounts are correct.
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Section 270A(6)(d): Excludes transfer pricing adjustments, reinforcing that estimation-based additions are not “under-reporting.”
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By analogy, DVO-based adjustments under Section 56(2)(x) fall within this exception.
4. Judicial Precedent
The ITAT relied on Alrameez Construction (P.) Ltd. v. CIT/NFAC, where penalty was similarly quashed on Section 56(2)(x) additions.
Analytical Perspective
| Issue | Tribunal’s View | Practical Implication |
|---|---|---|
| Section 56(2)(x) addition | Deeming fiction; subject to valuation variation | Not absolute; cannot imply concealment |
| Disclosure of facts | Assessee gave full details and explanations | No concealment → No penalty |
| Section 270A scope | Additions from estimates excluded under 270A(6) | Penalty not leviable |
| Analogy to TP adjustments | TP adjustments excluded under 270A(6)(d) | Same rationale applies to DVO-based additions |
Law Interpretation
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Section 56(2)(x): Deems differences in property value as taxable income.
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Section 270A: Penalty for under-reporting/misreporting of income.
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Section 270A(6)(b) & (d): Provide carve-outs for estimation-driven additions, protecting taxpayers where no concealment exists.
Thus, penalty provisions cannot be mechanically invoked when additions are purely based on statutory formulae or valuation yardsticks.
Conclusion
The Ahmedabad ITAT has clarified that Section 270A penalty is not sustainable where additions arise solely under Section 56(2)(x) and all facts are disclosed.
This ruling is a valuable precedent for taxpayers facing penalties on deemed or estimated additions, ensuring that fair disclosure shields against penal consequences.
