DCIT CIRCLE 42(1)(1), MUMBAI, KAUTILYA BHAVAN vs. MANSUKH ARJANBHAI SUREJA, BORIVALI(W), MUMBAI

The Revenue has raised the following grounds before the Tribunal: 1. “On the facts and circumstances of the case and in law, the Ld. CIT(A) is erred in deleting penalty of Rs. 3,67,05,972/- u/s 271(1)(c) of the Income Tax Act levied by the AO.” 2. “On the facts and circumstances of the case and in law, the Ld. CIT(A) is erred in deleting the penalty u/s 271(1)(c) of the Income Tax Act relying on the decision of the Hon‟ble ITAT „E‟ Bench on the quantum issue ignoring the fact that the quantum addition was made on the basis of search and post search investigation wherein it was established that the alleged transactions were nothing but accommodation entries and the said decision of Hon‟ble ITAT „E‟ Bench was further challenged by the Revenue in Hon‟ble High Court and is still pending.” 3. “The appellant craves leave to amend or alter or add a new ground which may be necessary.”

Brief relevant facts of the case are that, the Assessee is an individual, filed his return of income on 06-03-2012, declaring total income of Rs. 22,93,770/- and claiming exempted income under Section 10(38) of the Act of Rs.11,13,64,,854/-, Subsequently, the case was reopened under Section 147 of the Act on the basis of information received from the investigation wing that M/s Navya Infrastructure and Telecom Services Limited is a penny stock scrip

Before us, the learned authorized representative of the assessee submitted that the penalty under Section 271(1)(c) has been levied for the additions made under section 69C of the Act by rejection of claim of exemption under section 10(38) of the Act. Later on, the Learned Commissioner of Income Tax (Appeals), in the light of the above stated decision of the ITAT, deleted the penalty levied under Section 271(1)(c) of the Act of Rs.3,67,05,972/-.

The learned AR emphasized that very basis for levy of penalty qua addition u/s 69C made in assessment order has already been

Further stated that, the revenue is in appeal before the Hon'ble High Court against the order of the Tribunal for quashing an assessment order and presently, neither stay has been granted on the order nor reversed. Therefore, the penalty itself becomes unsustainable in law for that. In support of the contention, the assessee placed reliance on the judgments: (i) K.C. Builders v. ACIT 135 Taxman 461 (SC), (ii) RBJ InfraTech Private Limited v. ITO [ITA No. 9530/DEL/2019, ITAT Delhi]

Per contra, the learned DR appearing for the revenue asserts that the quantum additions forming the basis of the penalty, has been quashed by the Hon’ble ITAT vide order dated 23-08-2025 (supra), and that has been challenged before the Hon’ble High Court and matter is pending there.

We have considered the rival submission, perused the material available on record, and observed that additions under Section 69C of the Act made by rejection of claim of exemption u/s 10(38) of the Act, for penny stocks, in the assessment order under Section 147 of the Act. The ITAT, Mumbai Bench in case, ITA No. 4348 and 4347/MUM/2023, dated 23rd August 2024, relied upon judgment of Hon’ble Jurisdictional High Court, Mumbai, in case of South Yarra Holdings vs ITO, in W.P. No. 3998 of 2018, quashed the assessment order itself, so, presently, there is no such addition remain in existence. The Hon’ble Apex Court in the case of K. C. Builders v. ACIT 135 Taxman 61(SC) held at para 14 that: 1. Where the addition made in the assessment order, on the basis of which penalty for concealment was levied, is deleted; there remains no basis at all for levying the penalty for concealment. Therefore, in such a case, no such penalty can survive, and the same is liable to be canceled, as in the instant case.

In the result, appeal of the revenue is dismissed. Order pronounced in the open court on 28.09.2026.