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Facts
The assessee filed a NIL return for AY 2011-12 and was selected for scrutiny, leading to an ex parte assessment under Section 144. The CIT(A) deleted additions, but the ITAT set aside this order and restored it to the AO for fresh adjudication. Subsequently, the AO made additions under Section 68 for unsecured loans and sundry creditors, and for unexplained investment in shares, and also levied penalty under Section 271(1)(c).
Held
The Tribunal noted that the quantum appeal had been remanded back to the CIT(A) for fresh adjudication. Therefore, the sustenance of the penalty by the CIT(A) could not stand. Consequently, the order affirming the penalty was set aside, and the matter was remanded to the CIT(A) to be decided afresh after the disposal of the quantum appeal.
Key Issues
Whether penalty proceedings under Section 271(1)(c) can be sustained when the quantum appeal is remanded for fresh adjudication. Whether the penalty order is invalid if passed without adjudicating on the merits of the case.
Sections Cited
271(1)(c), 144, 68, 143(3)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, MUMBAI BENCH “E” MUMBAI
Before: SHRI OM PRAKASH KANT & SHRI ANIKESH BANERJEE
This appeal by the assessee is directed against order dated 12.02.2025 passed by the Ld. Commissioner of Income-tax (Appeals) – National Faceless Appeal Centre, Delhi [in short ‘the Ld. CIT(A)’] for assessment year 2011-12, raising following grounds:
Tin Time Consultanc Private Limted 2 (Successor of Avdharna Trading Pvt. Ltd.) ITA No. 2493/MUM/2025
“Being aggrieved by the order under Section 271(1)(c) of the Income- tax Act, 1961, passed by the Learned Additional Commissioner of Income Tax, NFAC and upheld by the Learned Commissioner of Income Tax (Appeals), NFAC, Delhi, this appeal petition is being submitted on the following grounds , which it is prayed may be considered independently without prejudice to one another.
1. On the facts and circumstances of the case as well as in Law the Learned Commissioner of Income Tax (Appeals), NFAC, has erred in confirming the order of the Learned Additional Commissioner of Income Tax and has upheld the order passed u/s 271(1)(c) of the Act.
2. On the facts and circumstances of the case as well as in Law the Learned Commissioner of Income Tax (Appeals), NFAC, has erred in dismissing the appeal and confirming the penalty of Rs. 1,78,90,426/- imposed under section 271(1)(c) of the Act without adjudicating on the merits of the case.
3. On the facts and circumstances of the case as well as in Law the Learned Commissioner of Income Tax (Appeals), NFAC, has erred in in law in disposing of the penalty appeal merely on the basis that "the addition made by the AO has been confirmed by the CIT(A)" in quantum proceedings, without appreciating that penalty proceedings are independent and require separate adjudication.
4. On the facts and circumstances of the case as well as in Law the Learned Commissioner of Income Tax (Appeals), NFAC, has erred in considering that the ITAT in its order dated 18.04.2019 had earlier set aside the first assessment order with directions to conduct de- novo assessment in accordance with principles of natural justice.
5. On the facts and circumstances of the case and in law, the Appellant submits that since the quantum appeal has been remanded back to the Learned Commissioner of Income Tax (Appeals) for fresh adjudication by the Hon'ble ITAT, Mumbai, in its order dated 06.12.2023, the penalty proceedings under section 271(1)(c) of the Income-tax Act, 1961 should also be kept in abeyance till the final disposal of the quantum appeal.
Under the circumstances the Appellant has been denied a reasonable opportunity to present its case.
The order under appeal is not only bad in law and invalid, but also against the principles of natural law of equity and justice.
The appellant craves leave to add, to amend, alter/delete and/or modify the above grounds of appeal on or before the final hearing.”
2. Briefly stated, the facts of the case are that the assessee filed its return of income for the assessment year under consideration on Tin Time Consultanc Private Limted 3 (Successor of Avdharna Trading Pvt. Ltd.) 27.09.2012, declaring a total income of Rs. Nil. The return so filed was subsequently selected for scrutiny assessment, which culminated in an ex parte assessment under Section 144 of the Income-tax Act, 1961 ( in short the Act), dated 19.03.2014. Aggrieved by the said assessment, the assessee preferred an appeal before the ld.CIT(A), who, vide order dated 24.02.2017, deleted the additions made by the Assessing Officer. However, on further appeal by the Revenue, the Income Tax Appellate Tribunal (in short the Tribunal), Mumbai, vide order dated -------------- in set aside the order of the CIT(A) and restored the matter to the file of the Assessing Officer for fresh adjudication.
2.1 Pursuant to the directions of the Tribunal, the Assessing Officer issued statutory notices to the assessee. However, there was no compliance on the part of the assessee to the said notices. Consequently, in the absence of any satisfactory explanation or supporting documentary evidence, the Assessing Officer proceeded to frame the assessment and made the following additions:
(i) Addition of Rs. 1,15,06,840/- on account of unsecured loans treated as unexplained cash credits under Section 68 of the Act; (ii) Addition of Rs. 1,55,27,426/- on account of sundry creditors also treated as unexplained cash credits under Section 68 of the Act; and Tin Time Consultanc Private Limted 4 (Successor of Avdharna Trading Pvt. Ltd.) (iii) Addition of Rs. 2,68,46,100/- on account of unexplained investment in shares.
2.2 The Assessing officer also initiated penalty proceedings u/s. 271(1)(C) of the Act vide the assessment order dated 27.09.2021 passed in term of sec. 144 of the Act. Consequently the Assessing Officer levied penalty u/s 271(1)(C) on 15.02.2022 amounting to Rs. 1,78,90,426/-. On further appeal, the Ld. CIT(A) upheld the penalty observing as under: “5.2 The appellant vide his appeal has assailed the AO for imposing penalty u/s 271(1)(c) of the Income Tax Act. 5.2.1 The CIT(A) in his order dated 18.05.2023, vide ITBA/NFAC/S/250/2023-24/1052952897(1), the quantum appeal has been decided in the favour of the Department. 5.2.2 In view of the fact that the addition made by the AO has been confirmed by the CIT (A), the penalty order u/s 271(1) (c) in consequence to the assessment order becomes in effective. Hence the penalty order passed by the AO is confirmed.”
We have heard the rival submissions of the parties and perused the material available on record. At the very outset, the learned counsel for the assessee brought to our attention that, in the second round of proceedings, the Income Tax Appellate Tribunal, while adjudicating the quantum appeal in has once again restored the matter to the file of the learned CIT(A) for adjudication afresh. The relevant findings of the Tribunal are reproduced hereinbelow for reference:
Tin Time Consultanc Private Limted 5 (Successor of Avdharna Trading Pvt. Ltd.) ITA No. 2493/MUM/2025
“5. We heard the rival submissions and perused the material on record. Prima-facie the CIT(A) has passed the order considering the fact that there is no appearance in spite of providing adequate opportunity of hearing and the notices were issued. Therefore, the CIT(A) was of the opinion that the assessee is not interested in prosecuting the appeal and dismissed the appeal ex-parte confirming the action of the assessing officer. The Ld. CIT(A) has issued the notices of hearing on11-04-2023,21.04.2023 and 04- 05-2023 referred at Para 4.3 of the order, but there was no response and thus the Ld.CIT(A) came to a conclusion that the assessee is not interested and decided the appeal based on the information available on record. Whereas the assessee has raised grounds of appeal challenging the additions of the A.O and there could be various reasons for non appearance which cannot be overruled. Therefore, considering the principles of natural justice shall provide with one more opportunity of hearing to the assessee to substantiate the case with evidences and information. Accordingly, set aside the order of the CIT(A) and remit the entire disputed issues to the file of the CIT(A) to adjudicate afresh on merits and the assessee should be provided adequate opportunity of hearing and shall cooperate in submitting the information for early disposal of appeal. And, we allow the grounds of appeal of the assessee for statistical purposes.”
4. In view of the fact that the appellate proceedings in respect of the quantum additions have themselves been restored to the file of the learned CIT(A) for fresh adjudication, the sustenance of the penalty by the CIT(A) cannot be allowed to stand. Consequently, the order passed by the learned CIT(A) affirming the levy of penalty is set aside. The matter is remanded to the file of the CIT(A) to be decided afresh upon disposal of the quantum appeal, in accordance with law. The grounds raised by the assessee in the present appeal are accordingly treated as allowed for statistical purposes.
Tin Time Consultanc Private Limted 6 (Successor of Avdharna Trading Pvt. Ltd.) ITA No. 2493/MUM/2025
In the result, the appeal of the assessee is allowed for statistical purposes.
Order pronounced in the open Court on 27/06/2025.