M/S BARONS INN vs. INCOME TAX OFFICER WARD 7(2)(1)

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WP/19748/2026HC KarnatakaKAHC01043045202601 July 2026Author: B M SHYAM PRASAD5 pages
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What did the High Court hold?

The High Court quashed the penalty order and the consequential demand notice. The Court held that while penalty proceedings need not necessarily be completed when an appeal is pending, in the specific circumstances of this case, the penalty order should not prevail. The Court interfered with the penalty order, observing that the Revenue's rights to initiate penalty proceedings are preserved, subject to the outcome of the restored appeal before the Commissioner of Income Tax (Appeals). The Court allowed the petition with this observation, indicating that the penalty proceedings could be recommenced based on the decision of the restored appeal.

What were the facts?

The petitioner, M/s Barons Inn, a partnership firm, has filed a writ petition challenging a penalty order dated March 27, 2026, passed by the Assessment Unit under Section 270A of the Income Tax Act, 1961, and a consequential demand notice dated March 27, 2026, under Section 156 of the Act. The petitioner's assessment order for Assessment Year 2020-21 was initially challenged before the Commissioner of Income Tax (Appeals), whose order was further appealed to the Income Tax Appellate Tribunal. The Tribunal, on February 26, 2026, restored the appeal to the Commissioner of Income Tax (Appeals) for reconsideration on merits, which also impacts allegations of misreporting. The impugned penalty order was passed during this interregnum.

What were the issues?

1. Whether the penalty proceedings under Section 270A of the Income Tax Act, 1961, can be sustained when the underlying assessment appeal is pending before the Commissioner of Income Tax (Appeals) for reconsideration on merits, impacting allegations of misreporting. Assessee's Contention: The petitioner argues that the penalty order was passed prematurely in the interregnum while the appeal concerning the assessment order, which forms the basis for the penalty, was restored to the Commissioner of Income Tax (Appeals) for fresh consideration. The petitioner emphasizes that the outcome of the restored appeal would impact the penalty proceedings. Revenue's Contention: The revenue, through its counsel, pointed out that the petitioner had not responded to the show cause notice dated March 20, 2026, which furnished details of the pending proceedings. However, the court's order suggests that the revenue's right to initiate penalty proceedings was subject to the outcome of the restored appeal.

Which sections of the Income-tax Act were involved?

Section 270A,Section 156

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 1ST DAY OF JULY, 2026 BEFORE THE HON'BLE MR. JUSTICE B M SHYAM PRASAD WRIT PETITION NO. 19748 OF 2026 (T-IT) BETWEEN:

M/S BARONS INN A PARTNERSHIP FIRM, HAVING ITS OFFICE AT NO.233, 40TH CROSS, 9TH MAIN ROAD, 5TH BLOCK, JAYANAGAR, BENGALURU-560041. REP. BY ITS PARTNER NASIMA FAROOK SUNDKA NASIMA Y SIWANI …PETITIONER (BY SRI.K. SHREEHARI., ADVOCATE) AND:

1.

INCOME TAX OFFICER WARD 7(2)(1) BMTC BUILDING, 6TH BLOCK, 80 FEET ROAD, NEAR NATIONAL GAMES VILLAGE, KORAMANGALA, BENGALURU-560095.

2.

THE ASSESSMENT UNIT A UNIT CREATED UNDER

Digitally signed by VANAMALA N Location: HIGH COURT OF KARNATAKA

SECTION 144B OF THE INCOME TAX ACT, 1961, ROOM NO.401, 2ND FLOOR, E RAMP, JAWAHARLAL NEHRU STADIUM, DELHI-110003 REP BY PR. CHIEF COMMISSIONER OF INCOME TAX (NEAC).

3.

COMMISSIONER OF INCOME TAX (APPEALS) NATIONAL FACELESS APPEAL CENTRE (NEAC) DELHI ROOM NO. 401, 2ND FLOOR, E-RAMP, JAWAHARLAL NEHRU STADIUM, DELHI-110003.

4.

THE PRINCIPAL COMMISSIONER OF INCOME TAX BENGALURU BENGALURU - 560 001. …RESPONDENTS (BY SRI.E.I. SANMATHI., ADVOCATE A/W SRI. NIRMAL MATHEW., ADVOCATE)

THIS WP IS FILED UNDER ARTICLES 226 AND 227 OF THE CONSTITUTION OF INDIA PRAYING TO A. QUASHING THE PENALTY ORDER DATED 27.03.2026 PASSED BY RESPONDENT NO. 2 UNDER SECTION 270A OF THE INCOME TAX ACT, 1961 BEARING DIN NO. ITBA/PNL/F/270A/2025-26/1088019678(1),PRODUCED AS ANNEXURE-J1; B. QUASHING THE CONSEQUENTIAL DEMAND NOTICE DATED 27.03.2026 ISSUED BY RESPONDENT NO. 2 UNDER SECTION 156 OF THE INCOME TAX ACT, 1961 BEARING DIN NO. ITBA/PNL/S/156/2025-26/1088015280(1), PRODUCED AS ANNEXURE-J2.

THIS PETITION, COMING ON FOR PRELIMINARY HEARING, THIS DAY, ORDER WAS MADE THEREIN AS UNDER:

CORAM: HON'BLE MR. JUSTICE B M SHYAM PRASAD

ORAL ORDER

The petitioner's grievance is with the second respondent’s Penalty Order dated 27.03.2026 [Annexure-J1] under Section 270A of the Income Tax Act, 1961 [for short, ‘the Act’] and the consequential Demand Notice also dated 27.03.2026 [Annexure-J2] under Section 156 of the Act. The petitioner's grievance with the impugned Penalty Order and the Demand Notice are examined in the light of the circumstances as canvassed by Sri Sreehari Kutsa, the learned counsel for the petitioner.

2.

Sri E I Sanmathi, a learned standing counsel for the respondents who is called upon to accept notice for the respondents. Sri Sreehari Kutsa emphasizes the following.

[a] The Assessment Order dated 17.03.2025 [relevant to the Assessment Year 2020-21] is called in question by the petitioner with the Commissioner for Income Tax [Appeals] and this appeal is decided on 10.09.2025. The petitioner has carried the Order dated 10.09.2025 in further appeal to the Income Tax Appellate Tribunal, ‘A’ Bench, Bangalore [for short, ‘the Tribunal’]. [b] The Tribunal has heard the petitioner's appeal on 26.02.2026 and has pronounced its order restoring the appeal with the Commissioner of Income Tax [Appeals] for reconsideration on merits which also impacts the allegation of mis-reporting. It is in the interregnum, on 27.03.2026, the impugned Penalty Order is passed.

3.

It is trite that the penalty proceedings need not be completed when the appeal is pending

especially when there are penal proceedings, and this Court, in the circumstances of the case, is of the view that this must prevail notwithstanding the fact that Sri E I Sanmathi pointing out that the petitioner has not responded to the Show Cause Notice dated 20.03.2026 [Annexure-H] furnishing the details of the pending proceedings.

4.

This Court therefore interferes but with the observation that the Revenue's rights to start the penalty proceedings subject to the outcome in the pending restored appeal without prejudice to the Revenue's rights to commence the penalty proceedings subject to the restored appeal proceedings with the Commissioner of Income Tax [Appeals]. The petition is allowed accordingly.

Sd/- (B M SHYAM PRASAD) JUDGE

AN/-

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