A C414 WAS ALERTED BY ATC OF CONTINUOUS 100-300 FT ERROR IN THE XPONDER RPTING. CAUSED BY A XPONDER MALFUNCTION.

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I HAD JUST LEFT RUSSELL; KS; ARPT VFR AND GOT AN IFR CLRNC TO CLB AND MAINTAIN 5000 FT MSL FROM ZKC. I WAS IN CRUISE FLT FOR SEVERAL MINS; SHOWING LEVEL AT 5000 FT MSL; WHEN THE CTLR CAME ON THE RADIO AND IMMEDIATELY SAID SHE WAS SHOWING ME 300 FT OFF ALT. I THEN RESPONDED THAT I WAS SHOWING LEVEL AT 5000 FT. SHE THEN GAVE ME A FREQ CHANGE TO A NEW CTLR. WHEN I SWITCHED CTLRS; THE NEW CTLR GAVE ME WICHITA'S ALTIMETER SETTING OF 29.76. I PUT 29.76 IN THE ALTIMETER WHICH NOW SHOWED A SETTING OF 4920 FT. I THEN ASKED THAT CTLR TO VERIFY MY ALT AND EXPLAINED THE PREVIOUS CTLR SHOWED ME 300 FT HIGH. HE SAID HE SHOWED ME 100 FT HIGH (5100 FT) AND ASKED WHAT ALTIMETER I WAS USING. I RESPONDED WITH 28.96; AND HE SAID THAT MIGHT BE PART OF MY PROB AND SAID THE ALTIMETER WAS 29.84. I ALREADY KNEW THIS AND PUT 29.84 BACK IN THE BAROMETER SCALE; WHICH INDICATED 5000 FT AGAIN. ENRTE; I ASKED THE CTLR A FEW MORE TIMES TO VERIFY MY ALT AND IT CONTINUED TO INDICATE ERRONEOUSLY. WHEN I WAS GIVEN WICHITA APCH; I ASKED THE APCH CTLR A COUPLE OF TIMES TO VERIFY MY ALT; IN WHICH HE SHOWED MY ALT TO BE OFF BY 100-200 FT. UPON RETURN TO BASE; I NOTIFIED OUR MAINT CREW. IN TALKING WITH ONE MAINT CREW MEMBER; HE INFORMED ME THAT THAT WAS A NEW XPONDER AND OTHER WORK HAD JUST BEEN COMPLETED ON THE ALT ENCODING SYS IN THE AIRPLANE. WE CONCLUDED THERE MUST BE A MECHANICAL ERROR IN THE XPONDER AND/OR THE ENCODING SYS AND ARE RETURNING THE ACFT TO THE AVIONICS SHOP FOR REPAIR ON THE SYS.