No Penalty u/s 270A on the basis of difference in FMV determined by the DVO

No Penalty can be imposed u/s 270A by AO on the basis of difference in fair market value determined by the DVO on estimation basis with the sale deed price.

In a recent judgment, ITAT Chennai has deleted Penalty under section 270A imposed by AO on the basis of difference in fair market value determined by the DVO on estimation basis with the sale deed price

ABCAUS Case Law Citation:
4492 (2025) (04) abcaus.in ITAT

In the instant case, the assessee(s) had challenged the order passed by the CIT(A) in confirming the penalty imposed under section 270A of the Income Tax Act, 1961 (the Act).

The assessees were brothers and partners in a company. A search under section 132 of the Act was conducted in the case of the company. Consequent to search, notice u/s.153C r.w.s 153A was issued to the assessees.

The assessment was completed under section 153C r.w.s. 153A r.w.s 143(3). A common addition was made under section 56(2)(vii)(b)(ii) of the Act. for all assessees for the relevant Assessment Year .

All the five assessees during the previous year relevant to concerned assessment year, had jointly purchased a property vide sale deed. The total consideration disclosed in sale deed was much less than the guideline value of the property.

During the course of assessment proceedings, the AO proposed to treat the guideline value as sale consideration. The difference of sale price mentioned in sale deed and guideline value was sought to be added as per deeming provision u/s. 56(2)(vii)(b) of the Act. 

The assessee objected to the proposal of the AO and requested that matter may be referred to valuation cell of the department. The AO added the difference of the price mentioned in the sale deed and the value determined by DVO under section 56(2)(vii)(b) of the Act in the hands of of the assessees.

At the time of completion of assessment, AO initiated penalty proceedings u/s.270A of the Act for under-reporting of income. Subsequently, AO levied penalty under section 270A of the Act in respect of each of the five assessees.

The CIT(A) held that said unaccounted income generated has been invested in purchase of properties below guideline value. The CIT(A) concluded that there was no bonafide explanation provided regarding purchase of property below the guideline value.

Before the Tribunal the assessee submitted that issue in question is squarely covered in favour of the assessee. It was submitted that no penalty u/s 270A of the Act, can be imposed when addition is on account of estimation of fair market value by the valuation officer. In this context, the assessee relied on several judicial pronouncements.

The Tribunal observed that the addition was made invoking deeming provision as per section 56(2)(vii)(b) of the Act. The only basis of addition was estimate made by the DVO. There was nothing on record to suggest that assessee had paid more than the price mentioned in the sale deed.

The Tribunal further observed that when deeming provisions are applied for addition of income, neither concealment of income or under reporting of income can be established against assessee without other material facts on record. The AO had failed to appreciate   section 270A(6)(a) of the Income Tax Act, which prescribes “under reporting” of income shall not include the amount of “under reported income” determined on the basis of estimation. 

The Tribunal also observed that on identical facts, the Mumbai Bench of the Tribunal had deleted penalty imposed under section 270A of the Act.

The Tribunal concluded that AO for imposing penalty u/s.270A of the Act had taken into account difference in fair market value determined by the DVO on estimation basis with that of the sale deed price and added the same under the deeming provision without specifically pointing out that assessee had received amounts over and above the price mentioned in sale deed.

Accordingly, the Tribunal deleted the penalty imposed under section 270A of the Act, and allowed the appeal filed by the assessees.  

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