2023 (10) TMI 553 - AT - Income Tax

Penalty u/s 271(1) - Addition was made towards difference between circle rate and the amount disclosed in sale deed - valuation of the capital asset, the issue was referred to DVO who reduced the valuation adopted by the AO - HELD THAT - As valuation made by DVO is an estimate which can be the basis for making addition to the income of the assessee for the purpose of assessment but the same alone cannot be the basis to construe concealment for the purpose of imposing penalty u/s 271(1)(c) - See JMD Advisors Pvt.Ltd. 2008 (2) TMI 450 - ITAT DELHI and Prakash Industries Ltd. 2016 (3) TMI 1060 - ITAT DELHI Also see case of CIT vs Lahsa Construction Pvt.Ltd . 2013 (9) TMI 969 - DELHI HIGH COURT as held that addition cannot be justified solely relying upon the valuation report . Decided in favour of assessee.

Summary

Issues involved:
The appeal challenges the penalty imposed under section 271(1)(c) of the Income Tax Act, 1961, for the assessment year 2016-17.

Grounds of appeal:
1. The appellant contests the order passed by the CIT(A) on legal and factual grounds.
2. The CIT(A) erred in confirming the penalty order without considering the show cause reply and the assessee's bona fide disclosure.
3. The CIT(A) incorrectly held that the assessee did not seek protection under Section 50C(2) during assessment proceedings.
4. The CIT(A) did not give due importance to relevant case laws cited by the assessee.
5. The CIT(A) concluded that the quantum addition was equivalent to furnishing inaccurate particulars of income by the assessee.
6. The appellant reserves the right to modify the grounds of appeal.

Summary of Judgment:

The assessee filed a return of income for the assessment year 2016-17, which was subjected to scrutiny assessment resulting in an addition of INR 42,71,500. The AO also initiated penalty proceedings under section 271(1)(c). The CIT(A) restricted the addition to INR 5,70,404 based on the DVO's report, but the AO imposed a penalty of INR 1,41,890. The CIT(A) upheld the penalty, leading the assessee to appeal to the Tribunal.

During the appeal, the assessee argued that the penalty was unjustified as it was based on estimation. The Tribunal noted that the addition was made based on the variance between circle rate and sale consideration, and the DVO's valuation differed from the AO's assessment. The Tribunal referenced relevant case laws to support the contention that a mere estimation by the DVO cannot be the sole basis for imposing a penalty under section 271(1)(c).

Citing the decision in CIT vs Lahsa Construction Pvt. Ltd., the Tribunal directed the AO to delete the penalty, as the imposition was not sustainable based solely on the valuation report. The Tribunal allowed the grounds raised by the assessee, ultimately ruling in favor of the appellant.

The Tribunal's order, delivered on 10th October 2023, allowed the appeal of the assessee, overturning the penalty imposed under section 271(1)(c) for the assessment year 2016-17.