RAJAGOPAL RAVIKUMAR,VELLORE vs. ITO, WARD-1, VELLORE

The appellant has raised ground No.6 of appeal as under: For that the National Faceless Appeal Center failed to appreciate that as per the Order of the Hon’ble Income Tax Appealed Tribunal Chennai Bench B dated 31.12.2024, the matter has been remitted back to the Assessing Officer for denovo Assessment. As such since the quantum itself has been set aside, penalty emanating from such assessment must be consequently set aside.

We have carefully considered the submissions advanced by the parties and perused the material available on record. During the course of hearing, when the Bench enquired regarding the status of the effect of the Tribunal’s earlier order, the learned Authorised Representative for the assessee fairly submitted that, pursuant to the order of the Tribunal, the Assessing Officer had passed an Order Giving Effect dated 03.07.2025 under section 147 read with section 254 and section 144B of the Income-tax Act, 1961. It was submitted that no variation whatsoever had been made against the assessee and, consequently, the demand stood determined at Nil. A copy of the aforesaid Order Giving Effect along with the consequential demand notice reflecting Nil demand was placed on record for our consideration. 4. The aforesaid factual position has not been controverted, disputed or otherwise rebutted by the learned Departmental Representative. Thus, the fact remains that, pursuant to the Tribunal’s order, the Assessing Officer has recomputed the liability of the assessee and the resultant demand is Nil. In the absence of any surviving addition or tax adjustment forming the basis of the impugned penalty, the very substratum on which the penalty proceedings were founded no longer survives.

Having considered the rival submissions, examined the material placed before us and taken note of the Order Giving Effect dated 03.07.2025 passed by the Assessing Officer under section 147 read with section 254 and section 144B, along with the consequential demand notice, we are of the considered view that the impugned penalty cannot legally be sustained. The penalty proceedings are consequential in nature and derive their foundation from the underlying assessment/addition. Once the foundational addition itself ceases to exist pursuant to the appellate order and the consequential Order Giving Effect results in Nil demand, there remains no legal basis for sustaining the penalty. 6. It is a settled proposition of law that a penalty proceeding cannot ordinarily survive independently when the very assessment or addition giving rise to such penalty has been set aside or otherwise rendered non-existent. The Hon’ble Supreme Court in the case of K.C. Builders v. ACIT [265 ITR 562 (SC)] has held, inter alia, that where the basis of the assessment is ultimately annulled, the corresponding penalty cannot survive. The rationale underlying the said principle is that the penalty is intrinsically connected with the tax adjustment or default alleged in the assessment and cannot be sustained in the absence of such foundational finding. 7. The principle embodied in the maxim sublato fundamento cadit opus—meaning that when the foundation is removed, the superstructure must necessarily fall—squarely applies to the facts of the present case. In the instant matter, pursuant to the Tribunal’s order, the Assessing Officer has passed the Order Giving Effect dated 03.07.2025 without making any adverse variation, resulting