ITAT Rules No Penalty for Underreporting Under Sec. 56(2)(x)

Case Details: Narayanbhai Shivabhai Patel v. Income-tax Officer - [2025] 178 taxmann.com 576 (Ahmedabad - Trib.) 

Judiciary and Counsel Details

• Sanjay Garg, Judicial Member
•  Narendra Prasad Sinha, Accountant Member
• Biren Shah, AR for the Appellant
• Ms Urvashi Mandhan, Sr DR for the Respondent

Facts of the Case

Assessee, an individual, filed his return of income for the relevant assessment year. During the assessment proceedings, the Assessing Officer (AO) noticed that the assessee had purchased two properties at a consideration lower than the value as per the stamp authority.

AO invoked the provisions of section 56(2)(x) and treated the difference between the stamp duty value and the purchase price as income of the assessee. AO also initiated penalty proceedings and levied a penalty under section 270A for under-reporting the income during the year.

On appeal, the CIT(A) upheld the order of the AO. Aggrieved by the order, the assessee filed the instant appeal before the Tribunal.

Tribunal Held

The Tribunal held that the assessee had disclosed all material facts and provided an explanation for the discrepancy between the purchase price of the property and its stamp duty value. However, the AO held that the assessee’s explanation was not bona fide, as no supporting evidence for it was brought on record. It is pertinent to note that the addition made under section 56(2)(x) is not an absolute addition, as the assessee has an option to dispute the stamp value of the property on the grounds mentioned in section 50C, and the matter is then referred to the Valuation Officer.

Further, if the value determined by the Valuation Officer is within 20% of the purchase consideration, no addition is required to be made under section 56(2)(x). Therefore, no penalty under section 270A can be automatically levied for all the additions made under section 56(2)(x). It is also relevant to consider that the value determined by the DVO is also an estimate, based on the sale consideration of other properties in the same vicinity or on the basis of other yardsticks as prescribed.

Therefore, any addition made under section 56(2)(x) on the basis of the difference in the stamp duty value and the purchase price or between the value determined by the DVO and the purchase consideration cannot be considered as underreporting of income by the assessee to invoke the provisions of section 270A. Following the same rationale, the amount of under-reported income, as determined based on the DVO’s report, also cannot qualify for the imposition of a penalty under Section 270A.

List of Cases Referred to

• Alrameez Construction (P.) Ltd. v. CIT/NFAC, Delhi [2023] 152 taxmann.com 382/202 ITD 379 (Mumbai – Trib.) (para 7).