YASHODHARA HEIGHTS,KALABURAGI vs. INCOME TAX OFFICER WARD 1 & TPS, KALABURAGI

The brief facts of the case are that the AO based on the information available in the ITBA system, had initiated proceedings u/s. 148 of the Act since the assessee had purchased an immovable property for a sale consideration of Rs. 1,10,00,000/-. Thereafter, notices u/s. 142(1) and 143(2) were issued for which the assessee had not filed any details. Thereafter a show cause notice was issued and at that time, the assessee submitted that all the partners have brought capital and purchased the said plot. The assessee had not furnished any details about the said facts. Therefore the AO had confirmed the assessment and treated the purchase of the immovable property as unexplained investment u/s. 69 of the Act. Subsequently, the AO had proposed to impose penalty u/s. 271AAC of the Act in respect of the addition made u/s. 69 of the Act. Finally, the AO had confirmed the penalty at 10% of the tax payable.

The assessee had filed two appeals before the Ld.CIT(A), one against the quantum order and the another against the penalty order. The Ld.CIT(A) had dismissed the quantum appeal by not condoning the delay in filing the appeal. As against the said order, the assessee filed an appeal before this Tribunal and the Tribunal had considered the reasons for the delay before the Ld.CIT(A) and condoned the said delay and remitted the issue to the file of the Ld.CIT(A) for deciding the issue afresh on merits. Insofar as the penalty appeal, the Ld.CIT(A) had confirmed the penalty.

As against the said order confirming the penalty, the present appeal has been filed by the assessee before this Tribunal.

At the time of hearing, the Ld.AR submitted that the Ld.CIT(A) had not considered the fact that the quantum appeal was pending for adjudication and therefore, the penalty order is not sustainable. The Ld.AR further submitted that the penalty is depending on the result in the quantum appeal since the penalty order does not stand independently. The Ld.AR further submitted that when the quantum appeal has been restored to the file of the Ld.CIT(A), necessarily the consequential penalty order has to be either set aside or remitted to the file of the Ld.CIT(A). The Ld.AR also furnished a synopsis and also the quantum appeal order of this Tribunal in ITA No. 1158/Bang/2025 dated 28/08/2025.

The Ld.DR submitted that when the quantum addition was not deleted, the penalty u/s. 271AAC of the Act levied by the AO is in order.

We have heard the arguments of both sides and perused the materials available on record.

Admittedly, the penalty has been levied on the addition made in the quantum order which is now pending for adjudication before the Ld.CIT(A). In such circumstances, the penalty proceedings has to be decided based on the appeal to be decided by the Ld.CIT(A). The penalty order cannot stand independently and therefore the same depends upon the outcome of the quantum appeal. Already the quantum appeal has been restored to the file of the Ld.CIT(A) by this Tribunal for fresh adjudication and therefore the addition made u/s. 69 does not attain finality. We, therefore, of the view that the penalty proceedings are also to be decided based on the result made in the quantum appeal. In such circumstances, we are inclined to set aside the penalty order of the Ld.CIT(A) and remit the same to the file of the Ld.CIT(A) for deciding the penalty appeal also along with the quantum appeal to be decided.

In the result, the appeal filed by the assessee is allowed for statistical purposes. Order pronounced in the open court on 11th August, 2026.