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Facts
Two assessees filed appeals against penalty orders under Section 271(1)(c) for A.Y. 2015-16, which were imposed after interest expense disallowances. The penalty appeals were dismissed by the NFAC/CIT(A). Crucially, the quantum additions, which formed the basis for these penalties, had previously been set aside by the Tribunal to the CIT(A) for fresh adjudication.
Held
The Tribunal noted that since the underlying quantum additions were already remanded for fresh adjudication, the penalties could not be sustained at this stage. Citing Section 275(1A), it set aside both penalty orders, remanding them to the Assessing Officer for re-adjudication based on the eventual findings of the CIT(A) in the quantum proceedings.
Key Issues
Whether penalties under Section 271(1)(c) can be upheld when the foundational quantum additions have been set aside for fresh adjudication, and the application of Section 275(1A) in such circumstances.
Sections Cited
271(1)(c), 250, 143(3), 275(1A)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, AHMEDABAD “C” BENCH, AHMEDABAD
Before: MS. SUCHITRA KAMBLE & SHRI NARENDRA PRASAD SINHA
O R D E R PER SHRI NARENDRA PRASAD SINHA, AM: These two appeals are filed by two different assessees against the orders of the National Faceless Appeal Centre (NFAC), Delhi (in short “the CIT(A)”) dated 20.03.2024 and 11.02.2025 respectively, both for the Assessment Year (A.Y.) 2015-16, in the proceeding under Section & 762/Ahd/2025 (Assessment Years: 2015-16 for both) Sachin Mahasukhlal Shah & Rupa Sachin Shah vs DCIT Page 2 of 5 271(1)(c) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’). As the facts involved in these two cases are identical, both the matters were heard together and are being disposed of vide this common order for the sake of convenience. We will first take the appeal no. 759/Ahd/2025 filed by Sh. Sachin Mahasukhlal Shah for consideration.
– Sachin Mahasukhlal Shah
There was a delay of 314 days in filing of this appeal. The assessee has filed an affidavit explaining the reasons for the delay. It is mentioned that the order of the Ld. CIT(A) was received during the Covid period. Further, the assessee was facing financial hardships as his business was declared as Non-Performing Asset (NPA). As a result, his focus was shifted towards dealing with banks, negotiating for settlement and preventing further financial damage. Due to these factors, there was a delay in filing the present appeal. Considering the explanation of the assessee, the delay in filing the present appeal is condoned.
The brief facts of the case are that the assessee had filed his return or income for the A.Y. 2015-16 on 27.10.2015 declaring total income of Rs.21,68,890/-. In the course of assessment, the claim for deduction of interest of Rs.38,15,160/- was disallowed as the nexus of incurring this expense against plot rent income of Rs.4,00,000/- disclosed by the assessee, was not established. The Assessing Officer had also initiated penalty proceeding under Section 271(1)(c) of the Act against this addition. Thereafter, a separate penalty order under Section 271(1)(c) of the Act dated 10.02.2022 was passed whereby penalty of Rs.32,02,179/- was imposed on the assessee.
& 762/Ahd/2025 (Assessment Years: 2015-16 for both) Sachin Mahasukhlal Shah & Rupa Sachin Shah vs DCIT Page 3 of 5
Aggrieved with the penalty order, the assessee had filed an appeal before the first appellate authority which was decided by the Ld. CIT(A) vide the impugned order and the appeal of the assessee was dismissed.
The assessee in now in second appeal before us. The following grounds have been taken in this appeal: -
“The learned CIT(A) passed an order u/s. 250 of Income Tax Act, 1961 determining penalty of Rs.32,02,179/- u/s.271(1)(c) of the Act even if the appellant has submitted that the appeal against the original order u/s. 143(3) of the Act is pending before Income Tax Appellate Tribunal. Hence your appellant request to keep the penalty proceedings in abeyance till the decision of Income Tax Appellate Tribunal. The appellant craves, leave, to add, to alter or modify any of the grounds on or before final date of hearing of appeal.”
Shri Ankit Tansania, Ld. AR of the assessee, submitted that the assessee had requested to keep the penalty proceeding in abeyance as the appeal against the quantum addition was pending before the Tribunal. He explained that the Ld. Tribunal vide order in and 2419/Ahd/2018, dated 19.08.2020, had restored the quantum addition to the file of the Ld. CIT(A) for fresh adjudication. He submitted that in view of this fact, the penalty matter may be set aside to the file of the Assessing Officer with a direction to decide the matter afresh on the basis of the finding of the Ld. CIT(A) in the set aside proceeding in respect of quantum addition.
Per contra, Smt. Mamta Singh, Ld. Sr. DR had no objection if the matter was set aside to the file of the Assessing Officer to decide the & 762/Ahd/2025 (Assessment Years: 2015-16 for both) Sachin Mahasukhlal Shah & Rupa Sachin Shah vs DCIT Page 4 of 5 penalty matter afresh on the basis of the finding of the Ld. CIT(A) in the set aside quantum proceeding.
We have considered the request of the assessee. As per the provisions of Section 275(1A) of the Act, if the relevant assessment order is subject matter of an appeal, then the order imposing or enhancing or reducing or cancelling or dropping the penalty may be passed on the basis of assessment as revised by giving effect to the order of the CIT(A) or the Appellate Tribunal or the High Court or the Supreme Court as the case may be. In the present case, the quantum addition was set aside by the Tribunal vide order dated 19.08.2020 to the file of the Ld. CIT(A) for fresh adjudication. In view of this fact, we deem it proper to set aside the penalty imposed under Section 271(1)(c) of the Act to the file of the Assessing Officer with a direction to re-adjudicate the issue of penalty on the basis of findings of the Ld. CIT(A) in the set aside quantum proceeding.
In the result appeal of the assessee is allowed for statistical purpose.
The facts involved in this appeal are identical to ITA No.759/Ahd/2025. In this case, addition of Rs.38,15,160/- in respect of interest expense was made, for which penalty of Rs.13,13,232/- was imposed under section 271(1)(c) of the Act. Since the quantum addition made by the Assessing Officer in this case, was also set aside to the file of the Ld. CIT(A), we deem it proper to restore the penalty matter to the file of the Assessing Officer with a direction to re-adjudicate the penalty & 762/Ahd/2025 (Assessment Years: 2015-16 for both) Sachin Mahasukhlal Shah & Rupa Sachin Shah vs DCIT Page 5 of 5 u/s 271(1)(c) of the Act on the basis of the findings of the Ld. CIT(A) in the set aside quantum proceeding.
In the result, the appeal of the assessee is allowed for statistical purpose.
In the final result, both the appeals are allowed for statistical purpose.
Order pronounced in the open Court on this 18th November, 2025.