MLA Claimed Full Set-Off of Rs. 36.04 Lakh House Property Loss Under Newly Introduced Provision; ITAT Deletes Rs. 5.67 Lakh Penalty for Bona Fide Error

The Income Tax Appellate Tribunal (ITAT), Bengaluru Bench, has allowed the appeal filed by Mr. Uday Garudachar, a sitting MLA in a case relating to penalty under Section 270A of the Income Tax Act. The Tribunal has directed deletion of the penalty of Rs 5,67,149 imposed for alleged under-reporting of income for Assessment Year 2018-19.

The case arose from scrutiny proceedings in which the AO examined the assessee’s claim of income from house property. Mr. Garudachar had also declared a lower annual letting value for his Bengaluru property and claimed a large interest deduction on borrowed capital, resulting in a net loss under the head “Income from House Property”. The AO, however, recomputed the rental value on the basis of data available on the property websites and reduced the allowable loss resulting in higher assessed income.

The revised assessment was an addition to income. Penalty proceedings were initiated for under-reporting under Section 270A. The Assessing Officer levied a penalty of Rs 5,67,149 which was confirmed by the CIT(A) on the ground that assessee had under-reported income beyond the permissible exceptions.

Before the Tribunal, the assessee submitted that the mistake was not deliberate but due to misunderstanding of the newly introduced provision (Section 71(3A)) applicable w.e.f. Assessment Year 2018-19. It was argued that all material facts relating to the property and computation were fully disclosed and the claim was made on a bona fide interpretation of law.

This explanation was accepted by the Tribunal. It said that all the relevant details were provided by the assessee and the issue was mainly due to change in law and different interpretation of set off of losses from house property. The Tribunal also observed that the Assessing Officer had estimated the rental value by looking at the real estate aggregators, which indicates that the addition itself was based on approximation.

Accordingly, the ITAT quashed the orders of lower authorities and directed to delete the penalty. The appeal of the assessee was allowed.