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Facts
The assessee failed to file an ITR, leading the AO to reopen the assessment and make an ex-parte addition due to non-compliance, subsequently levying penalties under Section 271(1)(b) and Section 271(1)(c). The CIT(A) set aside the quantum reassessment order for fresh adjudication, but erroneously dismissed the penalty appeals for statistical purposes.
Held
The Tribunal deleted the penalty under Section 271(1)(b) as the underlying assessment proceedings were set aside. The penalty under Section 271(1)(c) was set aside to the AO for fresh consideration after the completion of the reassessment, as its basis (quantum addition) was removed.
Key Issues
Whether penalties under Section 271(1)(b) and Section 271(1)(c) can be sustained when the underlying quantum assessment order has been set aside for fresh adjudication, and the correct legal disposition of such penalty appeals.
Sections Cited
Section 271(1)(b), Section 271(1)(c), Section 147, Section 144, Section 251(1)(a)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, MUMBAI BENCH “D” MUMBAI
Before: SHRI SAKTIJIT DEY & SHRI OM PRAKASH KANT
ORDER PER OM PRAKASH KANT, AM
These two appeals by the assessee are directed against two separate orders, both dated 30.05.2025 passed by the Ld. Commissioner of Income-tax (Appeals) – National Faceless Appeal Centre, Delhi [in short ‘the Ld. CIT(A)’] for assessment year 2016- 17, in relation to penalty levied u/s 271(1)(b) and section 271(1)(c) of the Income-tax Act, 1961 (in short ‘the Act’) respectively. As both the appeals being connected with the single assessee, same were & 4102/MUM/2025 & 4102/MUM/2025 heard together and disposed of heard together and disposed off by way of this consolidated order by way of this consolidated order for the sake of convenience. for the sake of convenience.
Briefly stated, the facts of the case are that t Briefly stated, the facts of the case are that the assessee did he assessee did not file his regular return of income for the year under not file his regular return of income for the year under not file his regular return of income for the year under consideration. The Assessing Officer (hereinafter “AO”) received consideration. The Assessing Officer (hereinafter “AO”) received consideration. The Assessing Officer (hereinafter “AO”) received information through the Income information through the Income-tax portal that the assessee had tax portal that the assessee had received salary of Rs.50,32,283/ received salary of Rs.50,32,283/- and had incurred exp and had incurred expenditure towards credit card bills amounting to Rs.5,64,812/-. Since no towards credit card bills amounting to Rs.5,64,812/ towards credit card bills amounting to Rs.5,64,812/ return of income had been filed, the AO recorded reasons to believe return of income had been filed, the AO recorded reasons to believe return of income had been filed, the AO recorded reasons to believe that income chargeable to tax had escaped assessment and that income chargeable to tax had escaped assessment and that income chargeable to tax had escaped assessment and accordingly reopened the assessment by issuance of notice under accordingly reopened the assessment by issuance of notice u accordingly reopened the assessment by issuance of notice u Section 148 of the Act. Section 148 of the Act.
2.1 Despite service of various Despite service of various statutory notices issued under notices issued under Section 142(1) of the Act, there was no compliance from the Section 142(1) of the Act, there was no compliance from the Section 142(1) of the Act, there was no compliance from the assessee. The ld AO thereafter issued a final show cause notice AO thereafter issued a final show cause notice AO thereafter issued a final show cause notice under Section 144 dated 19.03.2022, whic under Section 144 dated 19.03.2022, which also remained non h also remained non- complied. Consequently, the complied. Consequently, the ld AO completed the reassessment ex AO completed the reassessment ex parte under Section 147 read with Section 144 of the Act and made parte under Section 147 read with Section 144 of the Act and made parte under Section 147 read with Section 144 of the Act and made an addition of Rs.55,97,095/ ition of Rs.55,97,095/- and initiated penalty proceedings initiated penalty proceedings under Section 271(1)(c) of the Act for con under Section 271(1)(c) of the Act for concealment of income. cealment of income. The ld AO also initiated penalty u/s 271(1)b) of the Act for non penalty u/s 271(1)b) of the Act for non penalty u/s 271(1)b) of the Act for non-compliance of the notices issued issued u/s 142(1) of the Act dated 17.08.2021, u/s 142(1) of the Act dated 17.08.2021, 23.12.2021, 04.02.2022 and 15.02.2022. .02.2022 and 15.02.2022.
& 4102/MUM/2025 & 4102/MUM/2025 2.2 Subsequently, vide separate orders, the AO levied penalty of Subsequently, vide separate orders, the AO levied penalty of Subsequently, vide separate orders, the AO levied penalty of Rs.40,000/- under under Section Section 271(1)(b) 271(1)(b) dated dated 16.09.2022(i.e., Rs.10,000/- for each of the four defaults) and penalty of for each of the four defaults) and penalty of for each of the four defaults) and penalty of Rs.17,30,000/- under Section 271(1)(c) dated 27.09.2022. under Section 271(1)(c) dated 27.09.2022. under Section 271(1)(c) dated 27.09.2022.
2.3 The assessee pre The assessee preferred an appeal against the quantum ferred an appeal against the quantum reassessment order dated dated 26.03.2022 before the ld First Appellate ld First Appellate Authority. The ld First Appellate Authority, upon considering the First Appellate Authority, upon considering the First Appellate Authority, upon considering the submissions and noting that fresh evidences had been filed at the submissions and noting that fresh evidences had been filed at the submissions and noting that fresh evidences had been filed at the appellate stage which were not before the AO, exercised powers appellate stage which were not before the AO, exercised powers appellate stage which were not before the AO, exercised powers under the proviso to Section 251(1)(a) of the Act and, vide order under the proviso to Section 251(1)(a) of the Act and, vide order under the proviso to Section 251(1)(a) of the Act and, vide order dated 8/11/2024, set aside the reassessment order passed under , set aside the reassessment order passed under , set aside the reassessment order passed under Section 147 read with Section 144 of the Act, restoring the matter Section 147 read with Section 144 of the Act, restoring the matter Section 147 read with Section 144 of the Act, restoring the matter back to the AO for fresh adjudication in accordance with law and in back to the AO for fresh adjudication in accordance with law and in back to the AO for fresh adjudication in accordance with law and in conformity with the principles of natural justice. conformity with the principles of natural justice.The relevant finding The relevant finding of the concerned Ld. Ld. First Appellate Authority is reproduced as is reproduced as under:
“4.0. Decision: The grounds of appeal, assessment order, “4.0. Decision: The grounds of appeal, assessment order, “4.0. Decision: The grounds of appeal, assessment order, submissions of the appellant and the relevant judicial submissions of the appellant and the relevant judicial submissions of the appellant and the relevant judicial pronouncements have been carefully considered and pronouncements have been carefully considered and pronouncements have been carefully considered and accordingly the grounds accordingly the grounds of appeal filed by the appellant of appeal filed by the appellant is adjudicated as under. is adjudicated as under. 4.1. During the course of appellate proceedings, the 4.1. During the course of appellate proceedings, the 4.1. During the course of appellate proceedings, the appellant submitted fresh details which were not appellant submitted fresh details which were not appellant submitted fresh details which were not available before the Assessing officer during the courseof available before the Assessing officer during the courseof available before the Assessing officer during the courseof assessment assessment proceedings. proceedings. Therefore, Therefore, t the he above above submissions/detailssubmitted by the appellant need to submissions/detailssubmitted by the appellant need to submissions/detailssubmitted by the appellant need to be examined to verify the genuineness of his claim. be examined to verify the genuineness of his claim. be examined to verify the genuineness of his claim.
& 4102/MUM/2025 & 4102/MUM/2025
4.2. The present appeal challenges an assessment order 4.2. The present appeal challenges an assessment order 4.2. The present appeal challenges an assessment order passed by the AO under Section 144 of the Income passed by the AO under Section 144 of the Income passed by the AO under Section 144 of the Income-Tax Act.As per the amended provisions Act.As per the amended provisions of Section 251 of the of Section 251 of the Income-Tax Act, it is stipulated that in cases where Tax Act, it is stipulated that in cases where Tax Act, it is stipulated that in cases where appeal is against an order of assessment under Section appeal is against an order of assessment under Section appeal is against an order of assessment under Section 144, the Commissioner (Appeals) is vested with the 144, the Commissioner (Appeals) is vested with the 144, the Commissioner (Appeals) is vested with the authority to set aside such assessment and refer the authority to set aside such assessment and refer the authority to set aside such assessment and refer the matter back to the As matter back to the Assessing Officer for making a fresh sessing Officer for making a fresh assessment. assessment. 4.3. Accordingly, in the interest of upholding the 4.3. Accordingly, in the interest of upholding the 4.3. Accordingly, in the interest of upholding the principles of natural justice, and exercising the powers principles of natural justice, and exercising the powers principles of natural justice, and exercising the powers conferred conferred conferred upon upon upon the the the Commissioner Commissioner Commissioner of of of Income- Income Income Tax(Appeals) underproviso to section 251 (1)(a) of the Act Tax(Appeals) underproviso to section 251 (1)(a) of the Act Tax(Appeals) underproviso to section 251 (1)(a) of the Act, I hereby set aside the impugned assessment order I hereby set aside the impugned assessment order I hereby set aside the impugned assessment order passed u/s 147 r.w.s 144 of the Act to the file of the AO passed u/s 147 r.w.s 144 of the Act to the file of the AO passed u/s 147 r.w.s 144 of the Act to the file of the AO for fresh assessment after examining the said details for fresh assessment after examining the said details for fresh assessment after examining the said details submitted by the appellant. submitted by the appellant. 4.4. The AO is directed to decide the matter as per the 4.4. The AO is directed to decide the matter as per the 4.4. The AO is directed to decide the matter as per the provisions of Income s of Income-Tax Act after giving due opportunity Tax Act after giving due opportunity of being heard to the appellant in accordance with the of being heard to the appellant in accordance with the of being heard to the appellant in accordance with the principles of natural justice. The assessment is therefore principles of natural justice. The assessment is therefore principles of natural justice. The assessment is therefore set aside to the file of AO to make assessment afresh set aside to the file of AO to make assessment afresh set aside to the file of AO to make assessment afresh inaccordance inaccordance with law.” 2.4 The assessee also preferred appeals before the ld CIT(A) e also preferred appeals before the ld CIT(A) e also preferred appeals before the ld CIT(A) challenging the levy of penalties under Sections 271(1)(b) and challenging the levy of penalties under Sections 271(1)(b) and challenging the levy of penalties under Sections 271(1)(b) and 271(1)(c) of the Act. The ld CIT(A), taking note of the fact that the 271(1)(c) of the Act. The ld CIT(A), taking note of the fact that the 271(1)(c) of the Act. The ld CIT(A), taking note of the fact that the quantum re-assessment order itself stood set aside, held that the assessment order itself stood set aside, held that the assessment order itself stood set aside, held that the notices issued under Section 250 in penalty appeals had become ued under Section 250 in penalty appeals had become ued under Section 250 in penalty appeals had become infructuous. However, in the concluding part of his order, the ld infructuous. However, in the concluding part of his order, the infructuous. However, in the concluding part of his order, the CIT(A) erroneously observed that the appeals stood “dismissed for CIT(A) erroneously observed that the appeals stood “dismissed for CIT(A) erroneously observed that the appeals stood “dismissed for statistical purposes. statistical purposes. The relevant finding of the Ld. CIT(A) is The relevant finding of the Ld. CIT(A) is identical in both the l in both the impugned orders and therefore, for brevity and therefore, for brevity, the & 4102/MUM/2025 & 4102/MUM/2025 order of the Ld. CIT(A) in order of the Ld. CIT(A) in relation to penalty u/s 271(1)(b relation to penalty u/s 271(1)(b) of the Act is reproduced as under: is reproduced as under:
2.1. Vide order dated 08/11/2024 the original assessment “2.1. Vide order dated 08/11/2024 the original assessment “2.1. Vide order dated 08/11/2024 the original assessment order u/s 147 r.w.s 144 has been set order u/s 147 r.w.s 144 has been set aside to the file of aside to the file of AO. Hence the notice u/s 250 is infrutuous and become no AO. Hence the notice u/s 250 is infrutuous and become no AO. Hence the notice u/s 250 is infrutuous and become no longer longer longer valid. valid. valid. Hence, Hence, Hence, the the the appeal appeal appeal is is is dismissed dismissed dismissed for for for statistical purpose.
We have heard the rival contentions and perused the We have heard the rival contentions and perused the We have heard the rival contentions and perused the relevant material on record. As far as penalty u/s 271(1)(b) of the Act is 271(1)(b) of the Act is concerned, in the present case, the alleged non n the present case, the alleged non-compliances are compliances are inextricably linked to an assessment inextricably linked to an assessment proceeding that now stands that now stands set aside in-toto by the by the ld First Appellate Authority ld First Appellate Authority for violation of natural justice and for consideration of fresh material. Once the natural justice and for consideration of fresh material. Once the natural justice and for consideration of fresh material. Once the very proceedings in which the defaults are alleged have been very proceedings in which the defaults are alleged have been very proceedings in which the defaults are alleged have been setaside and remitted for a fresh start, sustaining a penalty for and remitted for a fresh start, sustaining a penalty for and remitted for a fresh start, sustaining a penalty for earlier non-compliance would be incongruent w compliance would be incongruent with the remand’s ith the remand’s objective—namely, to wipe the slate clean and ensure a fair, namely, to wipe the slate clean and ensure a fair, namely, to wipe the slate clean and ensure a fair, participative reassessment. In such a situation, participative reassessment. In such a situation, the Hon’ble Courts the Hon’ble Courts have consistently held that the superstructure of penalty cannot have consistently held that the superstructure of penalty cannot have consistently held that the superstructure of penalty cannot stand when its substratum has been removed. stand when its substratum has been removed.
3.1 We also note that the We also note that the ld CIT(A) himself recognised the CIT(A) himself recognised the infructuousness of the infructuousness of the notices issued for penalty appeals penalty appeals consequent upon the setting aside of the consequent upon the setting aside of the re-assessment, but erred assessment, but erred in the last line by “dismissing for statistical purposes,” which is in the last line by “dismissing for statistical purposes,” which is in the last line by “dismissing for statistical purposes,” which is internally inconsistent with his own reasoning. ally inconsistent with his own reasoning. ally inconsistent with his own reasoning. Therefore, the & 4102/MUM/2025 & 4102/MUM/2025 correct disposition, in law and on logic, is to delete the penalty correct disposition, in law and on logic, is to delete the correct disposition, in law and on logic, is to delete the levied under section 271(1)(b) ection 271(1)(b) of the Act, while reserving liberty to while reserving liberty to the AO to take recourse to law if fresh, non the AO to take recourse to law if fresh, non-compliance occurs compliance occurs in the remanded proceedings. the remanded proceedings.
3.2 As far as penalty under s As far as penalty under section 271(1)(c) of the Act is concerned, it is levied levied for concealment of income of income/furnishing of inaccurate particulars inaccurate particulars of income as a consequence consequence of the assessment findings. Where the assessment assessment findings. Where the assessment finding ding itself is set aside, the factual and legal edifice on which the penalty rests aside, the factual and legal edifice on which the penalty rests aside, the factual and legal edifice on which the penalty rests disappears. The Hon’ble Hon’ble Supreme Court in K.C. Builders v. ACIT K.C. Builders v. ACIT, 265 ITR 562 (SC), 265 ITR 562 (SC), held that when the additions/assessment that when the additions/assessment forming the basis of the penalty are obliterated, t forming the basis of the penalty are obliterated, the penalty cannot he penalty cannot survive.
3.3 Applying K.C. Builders K.C. Builders (supra), the present penalty under (supra), the present penalty under Section 271(1)(c) cannot be sustained at this stage. However, unlike Section 271(1)(c) cannot be sustained at this stage. However, unlike Section 271(1)(c) cannot be sustained at this stage. However, unlike Section 271(1)(b), which addressed a past procedural default now Section 271(1)(b), which addressed a past procedural default now Section 271(1)(b), which addressed a past procedural default now rendered otiose by the remand, Section 271(1)(c) concerns the rendered otiose by the remand, Section 271(1)(c) concerns the rendered otiose by the remand, Section 271(1)(c) concerns the substantive outcome substantive outcome of assessment, therefore, the proper course is he proper course is to set aside the penalty order to the file of the AO to be re-examined to set aside the penalty order to the file of the AO to be to set aside the penalty order to the file of the AO to be afresh, if warranted, upon completion of the reassessment pursuant , if warranted, upon completion of the reassessment pursuant , if warranted, upon completion of the reassessment pursuant to the ld CIT(A)’s remand and strictly in accordance with law as it CIT(A)’s remand and strictly in accordance with law as it CIT(A)’s remand and strictly in accordance with law as it then stands. We order accordingly. We order accordingly.
In view of the foregoing discussion, we conclude that iew of the foregoing discussion, we conclude that iew of the foregoing discussion, we conclude that & 4102/MUM/2025 & 4102/MUM/2025
(i) The appeal against penalty under The appeal against penalty under Section 271(1)(b) Section 271(1)(b) succeeds. The penalty of Rs. 40,000/ succeeds. The penalty of Rs. 40,000/- is deleted deleted. However, the AO shall be at liberty to initiate penalty afresh in the the AO shall be at liberty to initiate penalty afresh in the the AO shall be at liberty to initiate penalty afresh in the event of default in the remand proceedings. ault in the remand proceedings. Section 271(1)(c) is (ii) The appeal against penalty under The appeal against penalty under Section 271(1)(c) allowed for statistical purposes allowed for statistical purposes in the sense that the penalty in the sense that the penalty order dated 27.09.2022 is order dated 27.09.2022 is set aside and the matter is and the matter is restored to the AO to reconsider, if necessary, to the AO to reconsider, if necessary, de novo after to the AO to reconsider, if necessary, completion of the reassessment in pursuance of the completion of the reassessment in pursuance of the completion of the reassessment in pursuance of the ld CIT(A)’s order dated 08.11.2024, and after granting due CIT(A)’s order dated 08.11.2024, and after granting due CIT(A)’s order dated 08.11.2024, and after granting due opportunity to the assessee. opportunity to the assessee. (iii) The impugned orders of the The impugned orders of the ld CIT(A) recording that the CIT(A) recording that the notices for penalty appeals had become infructuous but penalty appeals had become infructuous but penalty appeals had become infructuous but nonetheless “dismissing” them, are modified in the above nonetheless “dismissing” them, are modified in the above nonetheless “dismissing” them, are modified in the above terms to reflect the correct legal consequence. terms to reflect the correct legal consequence. terms to reflect the correct legal consequence.
Accordingly, the grounds raised by the assessee in both the the grounds raised by the assessee in both the the grounds raised by the assessee in both the appeals are allowed. appeals are allowed.
In the result, both the appeals of the assessee are allowed. both the appeals of the assessee are allowed. both the appeals of the assessee are allowed.